MARRONE BIO INNOVATIONS, INC. You should read the following discussion of our financial condition and results
of operations in connection with our consolidated financial statements and the
related notes included in Part II-Item 8- "Financial Statements and
Supplementary Data" in this Annual Report on Form 10-K. Additional information
regarding the Company is also available in our other reports filed with the
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.
Our portfolio of 18 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 or mixed with, conventional chemical products. We also target new markets for which there are no available conventional chemical products, 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.
44 2021 Highlights
The following are the more significant financial results for the fiscal year
ending
? Revenues grew to
million in 2020, as sales of our portfolio of products expanded with current
and new customers, across new crops and geographies. ? Gross margins expanded to 61.5% in 2021, compared with 59.6% in 2020,
reflecting a favorable mix effect from higher sales of the Regalia, UBP ST, and
Venerate product families. ? Full-year operating expenses were$42.7 million in 2021, compared to$40.1
million in operating expenses in 2020, which included a
as a result of a fully forgiven Payment Protection Program Loan.
? Net loss decreased by
share.
? Obtained
The following are the more significant business highlights for the fiscal year
ending
? We joined the United Nations Global Compact and Launched our Environmental,
Social, and Governance Initiative. ? Our Venerate XC Bioinsecticide achieved climate impact score of 8.6 out of 10
in an independent study conducted by
acidiscabies, allowing for the accelerated commercialization of a new,
second-generation bioherbicide, MBI-006. ? We executed distribution agreements with Corteva to distribute ourPro Farm foliar products. ? We entered into strategic alliances with Novozymes to bring next-generation
crop protection solutions to growers.
Business Strategy and Key Trends
Biologicals are delivering double-digit growth industrywide, as compared with low-single-digit growth for conventional crop protection products. We believe the market opportunity is significant, and wehave 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.
Our sales are increasing as a result as a result of our global expansion. In
part as a result of our 2019 acquisition of
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 believe recent acquisitions or partnerships by major agricultural enterprises of biologicals companies signal a trend toward further consolidation, underscoring the value of the sector in the broader agricultural industry landscape. Accordingly, 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
Bioceres Merger Agreement
On
The consummation of the Merger is subject to certain closing conditions,
including (i) the approval of the Company's stockholders, (ii) the expiration or
termination of all waiting periods under the Hart-Scott Rodino Antitrust
Improvements Act of 1976 and receipt of any other specified merger control
consents or clearances, (ii) the effectiveness of the registration statement to
be filed by
Financial Overview
Our total revenues were
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We currently rely, and expect to continue to rely, on a limited number of distributors for a significant portion of our revenues since we sell through highly concentrated, traditional distribution channels. Distributors to which 10% or more of our total revenues are attributable for any one of the periods presented consist of the following:
CUSTOMER
A B C
Twelve months ended December 31,
2021 20 % 14 % 14 %
2020 22 % 13 % 13 %
While we expect product sales to a limited number of distributors 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
Since 2011, we have also recognized revenues from our strategic collaboration
and distribution agreements, which amounted to
Our cost of product revenues was
Our research, development and patent expenses have historically comprised a
significant portion of our operating expenses, amounting to
Selling, general and administrative expenses incurred to establish and build our
market presence and business infrastructure have generally comprised the
remainder of our operating expenses, amounting to
Historically, we have funded our operations from the issuance of shares of common stock, preferred stock, warrants and convertible notes, the issuance of debt and entry into financing arrangements, product sales, payments under strategic collaboration and distribution agreements and government grants, but we have experienced significant losses as we invested heavily in our acquisition strategy and research and development. We expect to incur additional losses related to our investment in these endeavors including continued development, expansion and marketing of our product portfolio.
In
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Key Components of Our Results of Operations
Product Revenues
Product revenues consist of revenues generated primarily from sales to
distributors, net of rebates and cash discounts. Product revenues constituted
99%, of our total revenues for each of the years ended
We account for all revenues under Accounting Standards Codification (ASC) 606, Revenue from contracts with Customers ("ASC 606") in which revenue recognition criteria for distributor sales are satisfied at the time title and risk of loss passes to the distributor.
License Revenues
License revenues generally consist of revenues recognized under our strategic
collaboration and distribution agreements for exclusive distribution rights,
either for Regalia, for other commercial products, or for our broader pipeline
of products, for certain geographic markets or for market segments that we are
not addressing 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, which we estimate to be between 5 and 17 years based on the terms of
the contract and the covered products and regions. For each of the years 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
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We have entered into in-license technology agreements with respect to the use
and commercialization of two of our commercially available product lines,
Grandevo and Haven and certain products under development. Under these licensing
arrangements, we typically make royalty payments based on net product revenues,
with royalty rates varying by product in the mid-single digit of net sales.
These royalty payments are included in cost of product revenues, but they have
historically not been significant. The exclusivity and royalty provisions of
these agreements are generally tied to the expiration of underlying patents. The
in-licensed
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 and as we gain efficiencies and increase product yields. While we expect margins to improve on a product-by-product basis, our overall gross margins may vary as we introduce new products, or as we experience changes in the sales mix of these products. In particular, we may experience downward pressure on overall gross margins as we rollout Haven, Stargus and expand sales of Grandevo. Gross margin has been and will continue to be affected by a variety of factors, including plant utilization, product manufacturing yields, changes in production processes, new product introductions, product sales mix and average selling prices.
We began full-scale manufacturing in our facility in 2014. We continue to utilize third-party manufacturers for Venerate, Majestene, Haven, Stargus, and for spray-dried powder formulations of Grandevo. We expect gross margins to improve as we move more production to our manufacturing facility and as sales volumes increase.
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 staff in support of product discovery and development 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.
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, acquisition costs, public company expenses and other selling costs incurred related to business development and to acquire or build 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.
In order to drive our strategy and revenue growth, we expect selling, general, and administrative expenses of sales and marketing to increase in the future as we increase our marketing communications campaigns and put more "boots on the ground", which should increase grower demand, or pull-through, and develop new customers, as well as expand business with existing customers.
Interest Expense
We recognize interest expense on notes payable and other debt obligations.
In
In addition to the
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As of
Income Tax Provision
Since our inception, we have been subject to income taxes principally in
Income taxes are computed using the asset and liability method, under which
deferred tax assets and liabilities are determined based on the difference
between the consolidated financial statement and tax bases of assets and
liabilities using enacted tax rates in effect during the year in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. As of
As of
Our ability to use our federal and state net operating loss carryforwards and federal and state tax credit carryforwards to reduce future taxable income and future taxes, respectively, may be subject to restrictions attributable to equity transactions that may have resulted in a change of ownership as defined by IRC Section 382. In the event we have had such a change in ownership, utilization of these carryforwards could be severely restricted and could result in significant amounts of these carryforwards expiring prior to benefitting us.
Results of Operations
The following table sets forth certain statements of operations data as a percentage of total revenues:
DECEMBER 31, DECEMBER 31,
2021 2020
Revenues:
Product 99 % 99 %
License 1 1
Total revenues 100 100
Cost of product revenues 39 40
Gross profit 61 60
Operating Expenses:
Research, development and patent 27 30
Selling, general and administrative 69 75
Total operating expenses 96 105
Loss from operations (35 ) (45 )
Other income (expense):
Interest expense (3 ) (4 )
Loss on modification of warrants - (0 )
Loss on issuance of new warrants - (4 )
Change in fair value of contingent consideration 1 (1 )
Other income (expense), net (0 ) 1
Total other expense, net (2 ) (8 )
Net loss before income taxes (37 ) (53 )
Income tax expense (0 ) (0 )
Net loss (37 )% (53 )%
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Comparison of the Years Ended
Product Revenues
DECEMBER 31, DECEMBER 31,
2021 2020
(Dollars in thousands)
Product revenues $ 43,812 $ 37,915
% of total revenues 99 % 99 %
Product revenues increased by
License Revenues
DECEMBER 31, DECEMBER 31,
2021 2020
(Dollars in thousands)
License revenues $ 498 $ 459
% of total revenues 1 % 1 %
License revenues related to certain strategic collaboration and distribution agreements remained relatively flat compared to 2020 as expected. License revenues do not comprise a significant portion of our total revenues.
Cost of Product Revenues
DECEMBER 31, DECEMBER 31,
2021 2020
(Dollars in thousands)
Cost of product revenues $ 17,064 $ 15,505
% of total revenues 39 % 40 %
Gross profit 27,246 22,869
61.5 % 59.6 %
Cost of product revenues increased by
Research, Development and Patent Expenses
DECEMBER 31 ,DECEMBER 31, 2021 2020 (Dollars in thousands)
Research, development and patent
27 % 30 %
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Research, development and patent expenses increased by
Selling, General and Administrative Expenses
DECEMBER 31 ,DECEMBER 31, 2021 2020 (Dollars in thousands)
Selling, general administrative expenses
69 % 75 %
Selling, general, and administrative expenses increased
Other Income (Expense), Net
DECEMBER 31, DECEMBER 31,
2021 2020
(Dollars in thousands)
Interest expense (1,570 ) (1,443 )
Loss on modification of warrants - (72 )
Loss on issuance of new warrants - (1,391 )
Change in fair value of contingent consideration 639 (445 )
Other income (expense) net (174 ) 407
$ (1,105 ) $ (2,944 ) Other income (expense) decreased
Seasonality
In recent years, we have increasingly had higher sales during the first half of the year than the second half. 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. It is possible that our business may become more seasonal, or experience seasonality in different periods, than anticipated, particularly if we expand into new geographical territories, add or change distributors or distributor programs or introduce new products with different applicable growing seasons. Notwithstanding any such seasonality, 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 and other factors affect planting and growing seasons and incidence of pests and plant disease, 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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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
On
As of
As of
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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. We believe that our existing cash and cash equivalents of
Additional information regarding risks related to our capital and liquidity is described in this Annual Report filed on Form 10-K in Part I- Item 1A- "Risk Factors", and further discussion of our going concern assessment can be found in Note 1 to the accompanying consolidated financial statements, both of which should be read in connection with this disclosure.
We had the following debt arrangements in place as of
PRINCIPAL
STATED ANNUAL BALANCE (INCLUDING
DESCRIPTION INTEREST RATE ACCRUED INTEREST) PAYMENT/MATURITY
Promissory Notes (1) 8.00 % $ 3,229 Due December 31, 2022
Promissory Note (2) 5.25 % 7,942 Monthly/June 2036
Promissory Notes (3) 8.00 % 6,900 Due December 31, 2022
Secured Borrowing (4) 12.78 % 14,881 Varies(5)/November 2021
Loan Facility Proportionately each
September 2022, 2023,
1.00 % 309 2024, 2025
Refer to Note 8 of our consolidated financial statements for each of the following debt arrangements:
(1) "-October 2012 andApril 2013 Secured Promissory Notes." (2) "-June 2014 Secured Promissory Note." (3) "-August 2015 Senior Secured Promissory Notes." (4) "-LSQ Financing." (5) Payable through the lender's direct collection of certain accounts receivable throughMarch 2022 .
Our debt arrangements contain certain representations and warranties by and
between us and each of the debtors, certain indemnification provisions in favor
of the lenders and customary restrictive covenants (including limitations on
other debt, liens, acquisitions, investments and dividends), and events of
default (including payment defaults, breaches of covenants, a material
impairment in the lender's security interest or in the collateral, and events
relating to bankruptcy or insolvency). Refer to Note 8 of our consolidated
financial statements. As of
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The following table sets forth a summary of our cash flows for the periods
indicated:
DECEMBER 31, DECEMBER 31,
2021 2020
Net cash used in operating activities $ (9,961 ) $ (15,959 )
Net cash used in investing activities (1,843 ) (1,797 )
Net cash provided in financing activities 15,586 27,345
Net increase in cash, cash equivalents, and
restricted cash 3,782 9,589
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 was
For the year ended
Cash Flows from Financing Activities
Net cash provided in financing activities of
Net cash provided in financing activities of
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Recently Issued Accounting Pronouncements
Refer to Note 2 of our consolidated financial statements.
Critical Accounting Policies and Estimates
Our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K are prepared in accordance with GAAP. The preparation of these 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. Refer to Note 2 of our consolidated financial statements for additional information regarding our significant accounting policies.
Inventories
Inventories are stated at the lower of cost or market value (net realizable value or replacement cost) and include the cost of material and external and internal labor and manufacturing costs. Cost is determined on the first-in, first-out basis. We provide for inventory reserves when conditions indicate that the selling price may be less than cost due to physical deterioration, obsolescence, changes in price levels or other factors. Additionally, we provide reserves for excess and slow-moving inventory on hand that is not expected to be sold to reduce the carrying amount of excess and slow-moving inventory to its estimated net realizable value. The reserves are based upon estimates about future demand from our customers and distributors and market conditions. While we believe the assumptions used to estimate future sales are reasonable, there can be no assurance that the forecasted sales will be realized. As a result, additional reserves against inventories which would have been recognized in earlier periods may not be recognized until later periods if actual sales and net realizable values deviate unfavorably from forecasted sales estimates.
Goodwill
Under the income-based approach, we determine fair value using a discounted cash flow approach that requires significant judgment with respect to revenue and profitability growth rates, based upon annual budgets and longer-range strategic plans, and the selection of an appropriate discount rates. Under the market-based approach, we determine fair value by comparing reporting units to similar businesses or guideline companies whose securities are actively traded in public markets.
Fair value estimates employed in our annual impairment review of goodwill were determined using models involving several assumptions. Changes in assumptions could materially impact fair value estimates. Assumptions critical to our fair value estimates were: (i) discount rates; (ii) projected future revenues and profitability used in the reporting unit; and (iii) projected long-term growth rates used in the derivation of terminal year values. These and other assumptions are impacted by economic conditions and expectations of management and may change in the future based on period-specific facts and circumstances. While we believe the assumptions used to estimate future cash flows are reasonable, there can be no assurance that the expected future cash flows will be realized. As a result, impairment charges that possibly would have been recognized in earlier periods may not be recognized until later periods if actual results deviate unfavorably from earlier estimates. The use of different assumptions would increase or decrease discounted cash flows or earnings projections and, therefore, could change impairment determinations.
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Fair Value of Financial Instruments
Fair value is defined as an exit price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. A three-tier fair value hierarchy has been established, which prioritizes the inputs used in measuring fair value as follows: Level 1, observable inputs such as quoted prices in active markets; Level 2, inputs other than the quoted prices in active markets that are observable either directly or indirectly; and Level 3, unobservable inputs in which there is little or no market data, which requires that we develop our own assumptions. This hierarchy requires the use of observable data, when available, and minimizes the use of unobservable inputs when determining fair value.
Estimates employed in our valuation of contingent consideration involving several assumptions. Changes in assumptions could materially impact fair value estimates. Assumptions critical to our fair value estimates were: (i) discount rates; (ii) projected future revenues and profitability used in the reporting unit; and (iii) projected long-term growth rates used in the derivation of terminal year values. These and other assumptions are impacted by economic conditions and expectations of management and may change in the future based on period-specific facts and circumstances. While we believe the assumptions used to estimate future cash flows are reasonable, there can be no assurance that the expected future cash flows will be realized. As a result, changes in the contingent consideration liability that possibly would have been recognized in earlier periods may not be recognized until later periods if actual results deviate significantly from earlier estimates.
Revenue Recognition
Under ASC 606, we recognize revenue for product sales at a point in time following the transfer of control of such products to the customers, which typically occurs upon shipment or delivery depending on the terms of the underlying contracts. We may enter into contracts in which the standalone selling prices (SSP) is different from the amount we are entitled to bill the customer. Product revenues consist of revenues generated from sales of our products to distributors and direct customers, net of rebates and cash discounts.
Estimates employed in our revenue recognition include variable considerations were determined involving several assumptions. Assumptions critical to our variable consideration estimates includes projected future revenues volumes. These assumptions are impacted by economic conditions and expectations of management and may change in the future based on period-specific facts and circumstances. While we believe the assumptions used to estimate future revenue volumes, there can be no assurance that the expected future sales volume will be realized. As a result, revenue reductions which possibly would have been recognized in earlier periods may not be recognized until later periods if actual results deviate unfavorably from earlier estimates. The use of different assumptions would increase or decrease variable consideration amount and, therefore, could change the total amounts recognized in prior or future periods.
Income Taxes
We use the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to the differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. To the extent that deferred tax assets cannot be recognized under the preceding criteria, we establish valuation allowances, as necessary, to reduce deferred tax assets to the amounts expected to be realized.
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