Good day, and welcome to the Marrone Bio Innovations Fourth Quarter and Fiscal Year 2018 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Linda Moore, General Counsel. Please go ahead, ma'am.

Good afternoon, everyone, and thank you for joining our call. Welcome to the 2018 fourth quarter and full-year earnings conference call for Marrone Bio Innovations. On the call today are Chief Executive Officer, Pam Marrone; President and Chief Financial Officer, Jim Boyd; and Kevin Hammill, Chief Commercial Officer. If you would please refer to slide two, I would like to remind you that this conference call may contain statements regarding management's expectations, hopes, beliefs, intentions or strategies regarding the future, as well as projections, forecasts or other characterizations of future events or circumstances. Such statements are based on management's current expectations and beliefs concerning future developments and their potential effects on the company. There can be no assurance that future developments affecting the company will be those that management has anticipated. Such statements involve a number of risks and uncertainties, some of which are beyond management's control, or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these statements. Important factors that could cause differences are contained in the reports filed by the company with the Securities and Exchange Commission, including under the heading Risk Factors, and elsewhere in the company's Quarterly Report on Form 10-Q for the third quarter of 2018, the company's annual report on Form 10-K for the year ended 2018 with it is filed, and in our earnings release posted on the company's Web site. Should one or more of these risks or uncertainties materialize or should any of management's assumptions prove incorrect, actual results may vary in material respects from those discussed today. Any guidance that management may offer in this conference call represents a point-in-time estimate. The company expressly disclaims any obligation to revise or update any guidance or other forward-looking statements to reflect events or circumstances that may arise after the date of this call. After our remarks, we will hold a question-and-answer session. I will now turn the call over to our President and CFO, Jim Boyd. Jim?

Thank you, Linda. And thank you everyone on the line for joining us today. Coming out of a difficult environment in 2017, 2018 was a year of stabilization, both commercially and financially. We did the heavy lifting to refinance the company and to rebuild our customer relations. We continue to invest in manufacturing improvements designed to enhance gross margins and strategic R&D projects that will drive future growth. 2018 set the stage for the growth we anticipate going forward, with accelerating revenues, strong margins, and adequate cash for our near-term needs. If you would turn to slide three, I will first discuss the full-year 2018 results. Revenues grew 17% to $21.2 million by leveraging our existing portfolio and selectively expanding into new crops and geographies. While this growth rate was lower than our 29%-plus gain in 2017, it was achieved while building a new sales team and strengthening relationships with key customers. However, please note that year-over-year revenues are not strictly an apples-to-apples comparison because of the adoption of ASC 606, the new revenue recognition standard. We expect to build on the investments we made in our commercial function in 2019. With five active ingredients in hand to address the $60 billion agrochemical market, our rejuvenated sales team has a core portfolio that can deliver significant revenue growth in 2019 and beyond. Gross margins expanded to 48.6% as we saw a very favorable mix on a higher percentage of sales of the Venerate product family, which includes seed treatments for row crops. This is particularly notable in the fourth quarter given the seasonality of our Venerate sales. One of the most significant levers we can pull to enhance gross margins is to continue to optimize our manufacturing operations through both process improvements and capacity utilization. We are in the design…

Thank you, Jim. We at Marrone Bio have leveraged our industry leading R&D pipeline to develop five families of proven products that have generated five years of revenue at a 19% compound annual growth rate, with current blended margins greater than 45%. Our bio based natural products are flexible across farming practices and add significant value to our growers. Our products are uniquely positioned to address unmet market needs, serve as an alternative to an existing technology or to be used in tandem with existing products to boost the effectiveness of the combined program. As Jim noted, we not only stabilized our commercial operations and financial footprint in 2018, we did so as we grew revenues and expanded gross margin. Now we are more than two months into 2019, a pivotal year for us, we have put a solid foundation in place, technically, commercially and financially to drive revenue growth this year and set the stage for growth in 2020 and beyond. We are focused on three key deliverables in 2019. One portfolio optimization, two market expansion and three accelerated innovation. If you would turn to slide five, let's look at an example of portfolio optimization. We are focused on optimizing our portfolio by addressing unmet market needs in an expanded set of crops and geographies, with programs that are flexible across farm size and practices. As you may know, the discovery of Majestene as a treatment for nematode came from our internal R&D program. Our team looked at the initial bacterial fermentation that led to Venerate and insecticide and found that it has properties that also make it an effective nematode treatment, this is a great example of how we maximize our R&D productivity and leverage invested capital through portfolio optimization. The Venerate family of products is now the…

[Operator Instructions] We will take our first question from Ben Klieve from National Securities Corporation. Please go ahead.

Hi, thank you. First of all, great way to end the year, congrats to you all on a really solid fourth quarter here. First question I have for you is with regards to that performance in Q4, especially in the top line. How solid was -- do you feel like you're still looking at a pretty, kind of, healthy sequential jump from Q4 into Q1 the next year, or does any revenue get pulled in from Q1 into Q4 that may mute that kind of traditional sequential jump at the start of the year?

Hi, Ben, it's Jim. First, I'd say there's no pull in. But I'd like to add that I think with regard to sort of our revenue outlook, I think that we laid a very solid foundation in 2017 and '18 for solid growth in 2019 and beyond. In 2018, we averaged 17% growth, but we did exit that fourth quarter with really solid advancement at 72%. And I think that it's a very positive reflection of the changes we've made here, and I think it establishes critical momentum that I'd expect to be carried over into 2019.

Okay, perfect. Thank you. And regarding a couple of the line items in OpEx, first of all, Pam, you noted the increased investment for getting 014 into market. Can you guys comment on the scale of that increased investment for next year, and is that going to be kind of a one-time investment or do you think that's going to be kind of spread throughout all four quarters.

It's going to be spread throughout the four quarters. I think the fourth quarter is kind of representative of our strategy going forward and the magnitude of our thoughts in that area.

Okay, perfect. And regarding that last comment on kind of the scale of that number in Q4, would you argue that the SG&A number that you guys posted in Q4 is a good baseline for us looking out into '19 as well?

Yes, I think the SG&A number, an increase largely reflects the investment we made in our commercial function, and adequately -- or reflects our go-forward view.

Okay, perfect, thank you. And I guess turning to some kind of big picture questions here. One question regarding the state of the market right now in California as it pertains to just the incredible amount of rain and snow you guys have gotten over the last couple of months.

Yes.

Have you guys -- have you seen delays in harvesting at all that may impact your business here in the near-term or any other -- how does this impact your customers here as they're making decisions in advance of spring planting, any kind of broad macro comments would be appreciated?

Yes, we're just finishing up on the seed treatment season and starting the fungicide application and tree [ph] nuts. With all the rain in California that you noted this year, growers have had to aero-apply the fungicides. And applications started actively in February, and continue here in March. Initial feedback indicates increased usage intentions of our Regalia fungicides in the tree nuts. The final seed treatment applications are being completed for spring planting. So overall, we had a good start to 2019 as we wrap up seed treatments and start applications in trees, fruits, nuts, vines, and vegetables.

You know, Ben, they said today we got the notice that California has declared the drought over for the first time in many years, so that's great for Ag.

Yes, that's -- I didn't hear that, very good. Well, congratulations. Perfect. I guess a couple of other quick questions. One, with Venerate's approval for cannabis use in California, I guess, last month now, can you just comment on the potential here for that product. Do you think that that has potential revenue opportunity in 2019, or do you think kind of the demo educational work that's going to need to be done to kind of make that first hit in the income statement in 2020 and beyond?

Yes, we see there's an opportunity this year in 2019 for revenue increase. And we have included this in our bigger cultivated garden portfolio or CG portfolio, that include greenhouse crops, ornamentals, and consumables such as herbs, vegetables, and most recently, hemp. And so interesting enough, pivoting to hemp, with the passing of the Farm Bill that legalizes the production of hemp, the hemp industry has an estimated worth of $20 billion in 2022, and approximately 80,000 acres of hemp was grown in 2018, and we see a key use for hemp going forward in the medicinal CBD use. We believe Marrone Bio products have a strong fit because the market is looking for low residue high-performing and low impact products such as we have in our portfolio.

Okay, perfect, thanks. And I guess one last one for me, the opportunity within almonds is really intriguing for a number of reasons. And I guess I'm curious kind of how that market is going unfold. And what kind of visibility the investor community is going to have regarding that opportunity translating into revenue. Are you expecting maybe some -- a relationship kind of like what you have with Albaugh and that there is a distribution agreement that could be place that would specifically target almonds that would give us visibility of that converting to revenue or do you think this is going to be once in your overall business -- you know overall?

This is going to be in our base specialty business that we describe as our trees fruits buying some vegetable market where we sell to a traditional distribution such as Nutrien, Helena [indiscernible], and what the thing is this is our revenue in almonds, Arcadians will be throughout the year, we're starting right now with our REGALIA business and also will be applying our first application of Haven of first of three applications and then throughout the Q2 and Q3, we will be applying our Venerate as part of growers insecticide programs increase navel orange worms control in that time period, so, Arcadians throughout the year and almonds as we go forward.

Okay, very good. Well, I think that does it for me, once again, nice way to end the year. Thanks for take my questions. I will back in queue.

Thank you, Ben.

Thanks, Ben.

Thank you. We will take our next question from Robert Smith from Center for Performance Investing. Please go ahead.

Hi good afternoon. Thank for taking my questions. So your reference 2018 as supposed to 2019 with 17% and 29%. Do you foresee moves toward 29% in 2019?

I say that we went out of that fourth quarter and ended the year with very solid grow. And we expect the foundation that we laid in 2017 to provide accelerated growth for '19 and beyond, and we think we've got a very solid operating plan for '19 that we're going to execute on.

So you are saying that you high-20s is a target?

I'm not going to name a number.

Okay. With respect to 014, I mean this seems to be a of course started hitting the big time. Could you give us sort of a time on how do you think this is going on develop as far as time frame?

We submitted in August of 2018, however, we do not try to predict the regulatory approval. We will update you when we have some additional information but as you indicated we believe that is a great opportunity Marrone Bio, but we are not going to predict the sales potential for MBI-014 because we believe it's a little bit too early right now, but the potential is in two markets. Organic markets there is a very limited herbicide options, in the conventional market MBI-014 controls key leads such as palmer amaranth. Today I was reading the article that the first confirmed case of resistance to the [indiscernible] in palmer amaranth, further magnifying the challenge and manage this weed in conservation tillage systems. As Pam mentioned in her note, the herbicide market especially in cotton and soybeans is, and cotton is 300 million acres; I'm sorry; soybeans is 300 million acres and cotton is 80 million acres for total fit in this $23 billion global herbicide market.

Could you give us an update on Zequanox and what you are hoping?

Sure. So we are treating a number of powered industrial plants this year and we're going in with a plan that we hope will drive revenue growth in the future. At the same time, government bodies like the U.S. Geological Survey and other bodies around the Great Lakes are still very keen on using the Zequanox to reduce the mussel populations that have harmed the shores of the Great Lakes, and so, we will be doing some treatments along the shoreline, I believe like Michigan one of lakes this year.

Okay. Pam, Arcadia just announced recently an effort to launch Cannabis venture, I was wondering if you had any working arrangements with Arcadia or might be developing one.

There are friends and neighbors right down the street from us and we cheer them for just like every little biotech and the few of us are Republic. We cheer them in any future success in that arena.

No, we don't have any…

We don't have a formal collaboration at this time.

Okay, thanks very much.

Thank you, Bob.

Thank you. I would like to turn the conference back to the management for additional remarks.

Thank you again for joining us for our year-end earnings call. I must give full credit to Marrone Bio Innovations team for pivoting from the challenges we faced in 2017, revitalizing our customer relationships, achieving 17% sales growth in 2018, further accelerating growth in the fourth quarter to 72%, while substantially improving margins, controlling costs, and focus cash management. The first quarter of 2019 is well under way, and we have a clear path forward to optimize our existing portfolio, expand our market reach, and accelerate the potential of our R&D pipeline. We'll do so with an eye toward using our resources judiciously and making strategic investments for growth, while conserving our cash. Again, our thanks, and we look forward to speaking with you further about the potential of Marrone Bio Innovations. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.