MARRONE BIO INNOVATIONS, INC. You should read the following discussion of our financial condition and results
of operations in connection with our condensed consolidated financial statements
and the related notes included elsewhere in this Quarterly Report on Form 10-Q
and with our audited consolidated financial statements included in our Annual
Report on Form 10-K for the year ended
In addition to historical condensed consolidated financial information, this Quarterly Report on Form 10-Q contains forward-looking statements that reflect our plans, estimates and beliefs. Forward-looking statements are identified by words such as "would", "could", "will", "may", "expect", "believe", "should", "anticipate", "outlook", "if", "future", "intend", "plan", "estimate", "predict", "potential", "targets", "seek" or "continue" or and similar words and phrases, including negatives of these terms or similar words, phases, expressions, or other variations of these terms, that denote future events. You should read these statements carefully because they discuss future expectations, contain projections of future results of operations or financial condition, or state other "forward-looking" information. These statements relate to our future plans, objectives, expectations, intentions and financial performance and the assumptions that underlie these statements. For example, forward-looking statements include any statements regarding the strategies, prospects, plans, expectations or objectives of management for future operations, including our plans to expand our business through diversification of our portfolio and strategic acquisition or partnerships and to expand our manufacturing plant, the progress, scope or duration of the development of product candidates or programs, commercialization plans, timelines and potential results, the benefits that may be derived from product candidates or the commercial or market opportunity in any target indication, our anticipated operations, financial position, revenues, costs or expenses, statements regarding future economic conditions or performance, the impact of COVID-19 on our operations and revenues, the potential exercise of Company warrants, statements of belief and any statement of assumptions underlying any of the foregoing. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere, including Part II, Item 1A- "Risk Factors," in this Quarterly Report on Form 10-Q, and in Part I-Item 1A-"Risk Factors" of our Annual Report. Forward-looking statements are based on our management's beliefs and assumptions and on information currently available to our management. These statements, like all statements in this report, speak only as of their date, and we undertake no obligation to update or revise these statements in light of future developments. We caution investors that our business and financial performance are subject to substantial risks and uncertainties.
Overview
We are a growth-oriented agricultural company that supports environmentally sustainable farming practices through the discovery, development and sale of innovative biological products for crop protection, crop health and crop nutrition. Our products are sold through distributors and other commercial partners to growers around the world for use in integrated pest management systems that improve efficacy and increase yields while protecting the environment. Our products are often used in conjunction with or as an alternative to other agricultural solutions to control pests and enhance plant nutrition and health.
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Our portfolio of 15 products helps customers operate more sustainably while increasing their return on investment. Our products are used globally, and can be applied as foliar treatments or as seed-and-soil treatments, either on their own or in combination with other agricultural products. We target the major markets that use conventional chemical pesticides and fertilizers where our biological products are used as alternatives for, or mixed with, conventional chemical products. We also target new markets for which there are no available conventional chemical products or, the use of conventional chemical products may not be desirable (including for organically certified crops) or permissible either because of health and environmental concerns or because the development of pest resistance has reduced the efficacy of conventional chemical pesticides. We sell our products through distributors and other commercial partners to growers who use our bioprotection products to manage pests and plant diseases, our plant health products to reduce crop stress and both our plant health and bionutrition products to increase yields and quality.
Business Strategy
We have built a full-service biologicals organization with scope and capabilities across the spectrum of biological products in the market today. Our strategic objective is to capitalize on that position and emerge as the clear leader in the biologicals space with the financial and operational wherewithal to accelerate our path to profitability.
As we look forward, our goal is to leverage our base business, while accelerating our expansion plans and broadening our global reach. We are committed to launching the brand extensions and pipeline products that offer the greatest return on investment for our channel partners and grower customers. We anticipate that synergistic, value-creating acquisitions and partnerships will be part of our strategy. We believe we can continue to tuck in additional product lines as we build a larger commercial presence with a scalable platform.
Our strategy for the current long-term period includes the diversification of
our portfolio which includes expanding our reach globally, moving away from
having sales concentrated in
First Quarter 2021 Highlights
During the first quarter of 2021, we, like all businesses domestically and globally, continued to be impacted by the COVID-19 pandemic but are optimistic at the collectively global efforts to reopen fully in 2021. We are pleased to have continued to service the agricultural industry during this unprecedented environment through our product portfolio offerings. At the same time, we are conserving cash through prudent expense control while serving customers and working to ensure the safety of our employees, customers and partners.
The following are the more significant financial results for the three months
ended
? Revenues increased approximately 14.4% year over year to$11.0 million , from$9.7 million for the same period in 2020; ? Gross profits increased approximately 25.1% year over year to$7.0 million , from$5.6 million for the same period in 2020, and gross margins increased to 63.1% from 57.7% for the same period in the prior year; ? Operating expenses were$10.0 million in the first quarter of 2021, compared with$11.2 million in the first quarter of 2020; and ? Net loss in the first quarter of 2021 was$3.3 million , compared with a net loss of$7.0 million in first quarter of 2020.
Other significant developments for our business during the three months ended
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Critical Accounting Policies and Estimates
Our condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q are prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, net revenue, costs and expenses, and any related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Changes in accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from the estimates made by our management. We evaluate our estimates and assumptions on an ongoing basis. To the extent that there are material differences between these estimates and our actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.
We believe that the assumptions and estimates associated with estimating revenue recognition, including assumptions and estimates used in determining the timing and amount of revenue to recognize, forecast estimated utilized in identifying impairment indicators of long-lived asset, intangibles and goodwill, contingent consideration liabilities and our going concern assessment, have the greatest potential impact on our condensed consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates.
Key Components of Our Results of Operations
Revenues
Our total revenues were
Product Revenues
Product revenues consist of revenues generated primarily from sales to
customers, net of rebates and cash discounts. Product revenues constituted 99%
of our total revenues for each of the three months ended
We currently rely, and expect to continue to rely, on a limited number of
customers for a significant portion of our revenues since we sell to highly
concentrated, traditional distributor-type customers. While we expect product
sales to a limited number of customers to continue to be our primary source of
revenues, as we continue to develop our pipeline and introduce new products to
the marketplace, we anticipate that our revenue stream will be diversified over
a broader product portfolio and customer base, including as a result of our
22 License Revenues
License revenues generally consist of revenues recognized under our strategic
collaboration and distribution agreements for exclusive distribution rights for
our commercial product offerings, or for our broader pipeline of products, for
certain geographic markets or for market segments that we do not address
directly through our internal sales force. Our strategic collaboration and
distribution agreements generally outline overall business plans and include
payments we receive at signing and for the achievement of certain testing
validation, regulatory progress and commercialization events. As these
activities and payments are associated with exclusive rights that we provide
over the term of the strategic collaboration and distribution agreements,
revenues related to the payments received are deferred and recognized as
revenues over the term of the exclusive period of the respective agreements. For
each of the three months ended
Cost of Product Revenues and Gross Profit
Cost of product revenues consists principally of the cost of raw materials,
including inventory costs and third-party services related to procuring,
processing, formulating, packaging and shipping our products. As we have used
our
We expect to see increases in gross profit over the life cycle of each of our
products as gross margins are expected to increase over time as production
processes improve, including plans to expand our manufacturing plant, and as we
gain efficiencies and increase product yields. While we expect margins to
improve on a product-by-product basis, and target annual gross margins in the
mid-50% range, our overall gross margins may vary as we introduce new products.
In particular, we may experience downward pressure on overall gross margins as
we continue to expand sales of our more recent commercially available products
including Haven, Stargus, our
Research, Development and Patent Expenses
Research, development and patent expenses include personnel costs, including
salaries, wages, benefits and share-based compensation, related to our research,
development and patent and regulatory staff in support of product discovery,
development, and support for manufacturing, quality, and regulatory activities.
Research, development and patent expenses also include costs incurred for
laboratory supplies, field trials and toxicology tests, quality control
assessment, consultants and facility and related overhead costs. Our research,
development and patent expenses have historically comprised a significant
portion of our operating expenses, amounting to
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of personnel costs, including salaries, wages, benefits and share-based compensation, related to our executive, sales, marketing, finance and human resources personnel, as well as professional fees, including legal and accounting fees, and other selling costs incurred related to business development and to building product and brand awareness. We create brand awareness through programs such as speaking at industry events, trade show displays and hosting local-level grower and distributor meetings. In addition, we dedicate significant resources to technical marketing literature, targeted advertising in print and online media, webinars and radio advertising. Costs related to these activities, including travel, are included in selling expenses.
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Outside of operating expenses resulting from our
Interest Expense
Interest expenses are primarily driven by outstanding debt financing arrangements however not all of our current debt instruments are currently generating interest expenses. See Note 6 and 9 to our condensed consolidated financial statements.
Income Tax Provision
As of the three months ended
Results of Operations
The following table sets forth certain statements of operations data as a percentage of total revenues:
THREE MONTHS ENDED
MARCH 31,
2021 2020
Revenues:
Product 99 % 99 %
License 1 1
Total revenues 100 100
Cost of product revenues 37 42
Gross profit 63 58
Operating Expenses:
Research, development and patent 23 34
Selling, general and administrative 68 83
Total operating expenses 91 116
Loss from operations (28 ) (59 )
Other income (expense):
Interest expense (4 ) (3 )
Loss on issuance of new warrants - (14 )
Change in fair value of contingent consideration 1 2
Other income (expense), net 1 2
Total other expense, net (2 ) (14 )
Loss before income taxes (30 ) (72 )
Income tax expense - -
Net loss (30 )% (73 )%
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Comparison of Three Months Ended
THREE MONTHS ENDED MARCH 31,
2021 2020
(Dollars in thousands)
Product revenues $ 10,904 $ 9,535
% of total revenues 99 % 99 %
Product revenues during the three months ended
License Revenues
THREE MONTHS ENDED MARCH 31,
2021 2020
(Dollars in thousands)
License revenues $ 134 $ 115
% of total revenues 1 % 1 %
License revenues remained consistent for each of the three months ended
Cost of Product Revenues and Gross Profit
THREE MONTHS ENDED MARCH 31,
2021 2020
(Dollars in thousands)
Cost of product revenues $ 4,069 $ 4,081
% of total revenues 37 % 42 %
Gross profit 6,969 5,569
63.1 % 57.7 %
For the three months ended
Research, Development and Patent Expenses
THREE MONTHS ENDED MARCH 31,
2021 2020
(Dollars in thousands)
Research, development and patent $ 2,512 $ 3,234
% of total revenues 23 % 34 %
Research, development and patent expenses for the three months ended
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Selling, General and Administrative Expenses
THREE MONTHS ENDED MARCH 31,
2021 2020
(Dollars in thousands)
Selling, general administrative expenses $ 7,483 $ 7,993
% of total revenues 68 % 83 %
Selling, general and administrative expenses for the three months ended
Other Expense, Net
THREE MONTHS ENDED MARCH 31,
2021 2020
(Dollars in thousands)
Interest expense (393 ) (337 )
Loss on issuance of new warrants - (1,391 )
Change in fair value of contingent consideration 134 237
Other income (expense) net 65 159
$ (194 ) $ (1,332 ) For the three months ended
Seasonality and Quarterly Results
The second half of the year is typically a transition period in the agricultural industry, with the harvest of crops completing in certain areas and planting beginning in others. Accordingly, we have increasingly had higher sales during the first half of the year than the second half, and believe this trend will continue. However, the level of seasonality in our business may change due to a number of factors, such as our expansion into new geographical territories, the introduction of new products, the timing of introductions of new products, and the impact of weather and climate change. Further, we expect substantial fluctuation in sales year over year and quarter over quarter as a result of the number of variables on which sales of our products are dependent. Weather conditions, new trade tariffs, natural disasters, outbreaks of infectious diseases (including the current COVID-19 pandemic) and other factors affect planting and growing seasons and incidence of pests and plant disease, and may, accordingly affect decisions by our distributors, direct customers and end users about the types and amounts of pest management and plant health products to purchase and the timing of use of such products. In addition, disruptions that cause delays by growers in harvesting or planting can result in the movement of orders to a future quarter, which would negatively affect the quarter and cause fluctuations in our operating results. Customers also may purchase large quantities of our products in a particular quarter to store and use over long periods of time or time their purchases to manage their inventories, which may cause significant fluctuations in our operating results for a particular quarter or year, and low commodity prices may discourage growers from purchasing our products in an effort to reduce their costs and increase their margins for a growing season.
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Our expense levels are based in part on our expectations regarding future sales. As a result, any shortfall in sales relative to our expectations could cause significant fluctuations in our operating results from quarter to quarter, which could result in uncertainty surrounding our level of earnings and possibly a decrease in our stock price.
Liquidity and Capital Resources
Since our inception, our operations have been financed primarily by net proceeds
from public offerings of common stock and private placements of convertible
preferred stock, convertible notes and promissory notes, exercise of warrants,
and term loans, as well as proceeds from the sale of our products and payments
under strategic collaboration and distribution agreements and government grants.
As of
In
In
The
In
On
As of
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As of
Since our inception, we have incurred significant net losses, and we expect to
incur additional losses related to the continued development and expansion of
our business. However, we believe that our existing cash and cash equivalents of
We had the following debt arrangements in place as ofMarch 31, 2021 (dollars in thousands): BALANCE (INCLUDING STATED ANNUAL ACCRUED DESCRIPTION INTEREST RATE INTEREST) PAYMENT/MATURITY Due December 31, 2022 Promissory Notes (1) 8.00 % $ 3,081 (5) Promissory Note (2) 5.25 % 7,322 Monthly/June 2036 Promissory Notes (3) 8.00 % 6,599 Due December 31, 2022(5) Secured Borrowing (4) 12.78 % 576 Varies(6)/May 2021 Loan Facility 1.00 % 271 Proportionately each September 2022, 2023, 2024, 2025
See Notes 6 and 9 of the condensed consolidated financial statements for each of the following debt arrangements:
(1) "-
(2) "-
(3) "-
(4) "-LSQ Financing."
(5) In
(6) Payable through the lender's direct collection of certain accounts
receivable through
We may continue to require additional sources of cash for general corporate purposes, which may include operating expenses, working capital to improve and promote its commercially available products, advance product candidates, expand international presence and commercialization, general capital expenditures and satisfaction of debt obligations. We may seek additional capital through debt financings, collaborative or other funding arrangements with partners, or through other sources of financing. If we seek additional financing from outside sources, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital when required or on acceptable terms, we may be required to scale back or to discontinue the promotion of currently available products, scale back or discontinue the advancement of product candidates, reduce headcount, file for bankruptcy, reorganize, merge with another entity, or cease operations.
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The following table sets forth a summary of our cash flows for the periods
indicated (in thousands):
MARCH 31, MARCH 31,
2021 2020
Net cash used in operating activities $ (5,017 ) $ (6,292 )
Net cash used in investing activities (869 ) (673 )
Net cash provided in financing activities 8,968 10,833
Net increase in cash, cash equivalents, and
restricted cash 3,082 3,868
Cash Flows from Operating Activities
Net cash used in operating activities of
Net cash used in operating activities of
Cash Flows from Investing Activities
Net cash used in investing activities were
Other than as a result of purchases of property, plant and equipment to support
our operations, the company made the first of a number of contingent payments in
the amount of
Cash Flows from Financing Activities
Net cash provided in financing activities of
Net cash provided in financing activities of
Recently Issued Accounting Pronouncements
See Note 2 of the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q in Part I-Item 1- "Financial Information."
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