Marrone Bio Innovations, Inc.
Q2 2020 Earnings Call Transcript

Published: 11 Aug 2020

[Operator:]

Good day, ladies and gentlemen, and welcome to the Marrone Bio Innovations Second Quarter 2020 Earnings Conference Call. Today's conference is being recorded. And at this time, I'd like to turn the conference over to Linda Moore, General Counsel.

[Linda Moore:]

Good afternoon, everyone, and thank you for joining our call. Welcome to the 2020 second quarter earnings conference call for Marrone Bio Innovations. On the call today are CEO, Kevin Helash; CFO, Jim Boyd; and Chief Commercial Officer, Kevin Hammill. If you would please refer to Slide 2, 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 annual report on Form 10-K for the year ended 2019, and the quarterly report on Form 10-Q for the fiscal quarter ended June 30, 2020 and under the heading Marrone Bio Innovations forward-looking statements in our earnings release posted on the company’s website. 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 CEO, Kevin Helash. Kevin?

[Kevin Helash:]

Thank you, Linda. It's a pleasure to join this call as the company's new CEO. I'm excited about the opportunity and honor to be chosen to lead the organization to its next level of success. If you turn to Slide 3, my passion for the biologicals industry stems from a life's career in agriculture, and the recognition that macro factors affecting modern day agriculture supply and demand are changing the way, the industry brings food to our tables. Long before COVID-19 affected our individual lives, the world was focused on producing and delivering safe, affordable, high-quality food in an environmentally sustainable manner. A global pandemic has underscored this dynamic, and I'm very proud of our team for the role they have played to ensure our customers have access to the tools they need, during these challenging times. I'm equally grateful to our channel partners and our growers for their support and trust in us as a preferred supplier of biological solutions. Today's financial results point to the momentum that has been created and the opportunity to lift our growth trajectory. As you see on Slide 4, the company is entering a new phase as a commercial leader in biologicals. I think of our potential in terms of velocity, which by definition, is feed with direction. We can accelerate commercial velocity by expanding in three ways at the same time. One, maximize the value and growth of our base business. Two, expand into new markets, whether by crop, by geography or by type of product. And three, introduce new products with proven returns that add immediate value, whether we develop them in-house or we gain them through strategic acquisitions and partnerships. The path to profitability in my mind is clear, as illustrated on Slide 5. As I work with the team in the near future, our focus will be on how we continue to leverage the base business, while accelerating our expansion plans and broadening our global reach. I want to hone in on the brand extensions and pipeline products that offer the greatest return on investment in near-term. I anticipate that synergistic value-creating acquisitions and partnerships, similar to Pro Farm or Jet-Ag will present themselves. We will evaluate these only if they provide opportunities for near-term accretion, from proven performance, established channel access and robust intellectual property. Underscoring all of this has to be an unrelenting focus on driving operation and financial excellence, with a key eye on income and cash flow. If you would turn to Slide 6, we are clearly growing the topline, gross profit and gross margins, all important metrics for our success. However, we still have work to do to bring other metrics in line to turn profitable and generate positive cash flow. I have a strong bias that operating expenses have a clear and direct relationship to bottom line growth. And we must view every dollar we spend through that lens. As our company grows, I fully expect our operating expenses on an absolute basis to grow, however, spending has to grow at a significantly lower rate than revenue and gross profit. We've looked at some historical CAGRs on operating expenses, and we'll share those with you in a moment. The company has spent significant time and resources advancing its product line and building its infrastructure, plant capacity and global footprint. The time has come to leverage that scale and build a full service biologicals company, with the scope and capabilities across the highest growth segments in the industry. I want to underscore the importance of the opportunity to break out of a crowded and fragmented market, and emerge as a clear leader in the biological space. Breadth and depth matter in order to gain shelf space with distribution and share of wallet with the grower. Channel access is as important as technological prowess. And the good news is that we have both. It is my honor to have the opportunity to lead the company through this exciting phase and deliver a clear path to profitability. Now, I'd like to turn the call over to Jim Boyd and Kevin Hammill, who are going to provide more details on the commercial and financial success we saw in the second quarter and first-half. Jim?

[Jim Boyd:]

Thank you, Kevin. And I would add my thanks to our customers and our team for all that they have achieved in a difficult environment. On a high level, we recorded not only the eighth consecutive quarter of year-over-year revenue growth, but the highest revenue quarter in the company's history. Revenues of $21.8 million in the first-half, are roughly equal to the entire year of 2018.We had our seventh consecutive quarter of gross margins above 50%, and a record for any quarter at 60.6%. If you would turn to Slide 7, second quarter revenues rose 74% to $12.2 million from continued expansion of our base business, coupled with further penetration in the seed treatment market and our international expansion. Global sales in row crops were particularly strong, led by the addition of Pro Farm's family of seed treatments. Second quarter gross margins of 60.6% were the highest in the company's history and reflected a high value sales mix. These favorable dynamics also led to a 58% improvement in our net loss, which was $2.9 million as compared with $6.8 million in the second quarter of 2019. Adjusted EBITDA also improved 61% to a loss of $1.5 million. Similar dynamics drove the 39% increase in revenues for the first-half, with strong contribution across the whole portfolio, led by our expansion in the row crop and seed treatment markets. Gross profit in the first-half rose 47% to $13 million, with margins of 59.3%. The first-half also saw a decrease in our net loss, a 7% improvement to a net loss of $9.9 million, and in adjusted EBITDA, an 18% improvement to a loss of $5.2 million. To Kevin's earlier point, we want to keep a sharp focus on the ratio of operating expenses to revenues and gross profit. Our strategy is to identify opportunities to manage costs, while investing only where we can accelerate growth and profitability. Slide 8 illustrates this point by comparing the first-half of the last four years. From 2017 through 2020, first-half revenues have increased at a 27% CAGR, and gross profits at a 43% CAGR. Operating expenses have also increased, but at a significantly lower CAGR of 9%, including non-cash and non-recurring items. The relationship of operating expenses to revenues and gross profit is moving in the right direction, and taken together, they accelerate our convergence on EBITDA breakeven. Operating expenses in both the quarter and the year include the addition of Pro Farm, as well as a non-cash amortization charge from the acquisition. Expenses were reduced somewhat by a $1.4 million from the PPP loan, we secured to ensure our employees were continuing to serve our agricultural customers, at the start of the COVID-19 pandemic, which coincided with the U.S. spring growing season. Additional cost saving measures also were implemented and were mostly realized starting in the second quarter. The full proceeds of the PPP loan also are reflected in operating cash in the amount of $1.7 million. Cash used in operations improved by 52% in the second quarter at $1.5 million, and by 27% in the first-half at $7.7 million, also due to growth in revenue and improved gross profit. I also keep a close watch on cash on hand, which was $10.5 million at the end of the second quarter, and in line with our unrestricted cash and cash equivalents at the end of the first year. We completed our warrant restructuring transaction in the quarter with $2.5 million of those warrants exercised in May. This agreement provides an additional $20 million in proceeds, if the warrants are exercised and full over the next two years. Assuming the warrants are exercised, we believe this provides us with balance sheet and financing flexibility, as we move toward breakeven. The measures we have taken to drive growth, tighten spending and strengthen our balance sheet are reflected in our results so far this year. We remain optimistic about the remainder of the fiscal year, yet prepared for the potential ongoing effects that the pandemic may have on macro conditions in the agricultural sector. We expect to drive additional revenue growth and international expansion in the second-half of the year, with gross margins in line with our annual target in the mid-50% range. As we saw in 2019, and as is common in the U.S. ag industry, a slightly higher percentage of our 2020 revenues occurred in the first-half. That said, we are pulling multiple levers to accelerate revenue growth through year's end. Long-term, we are on track to deliver profitability and greater shareholder value. I'd like to turn the call over to Kevin Hammill now, for his insights on our commercial prospects.

[Kevin Hammill:]

Thanks, Jim. As I think back in the first six months of this year, I can't help but reflect on the incredible work done by everyone in the agricultural industry. It's taken remarkable tenacity and creativity during this pandemic, and our customers are to be thanked for ensuring the safety of our food supply. It's been our privilege to support them. The results we achieved in the first-half of the year have their roots in a commercial strategy we put in place starting in 2018. If you would turn to Slide 9, our analysis showed that we could unlock material value by

[Kevin Helash:]

Thank you, Kevin. And kudos to you and everyone on the commercial team for the results you've delivered so far this year. I would add my thanks to our channel partners and to our ultimate customers to growers as well. Farming is hard work in the best of times. It has taken even greater perseverance and vision across the agriculture industry to bring food to our tables during a pandemic. I know I speak for the entire team when I say that we are here to support our customers and ensure we contribute to their continuing success. In closing, I'd ask you to turn the Slide 12. This chart is an annual snapshot of the revenue, gross profit and operating expenses, Jim showed earlier for the first-half. This chart confirmed for me what I believe instinctively that the company has entered new territory with its trajectory for growth, leadership and profitability. Unlike Jim and Kevin, I'm the newcomer on the team, and I have a steep learning curve ahead of me. That said, my years of experience in agriculture bias me toward analyzing and evaluating key metrics to find opportunities that will accelerate the velocity of a business. We've introduced one today with a focus on the operating expense ratio. I'll be working with the team on other metrics across the income and cash flow statements, as well as on the balance sheet that will provide clarity on where the opportunities lie to advance growth with the greatest return on investment. The opportunities in front of us are more exciting than the ones behind us. I believe a customer driven focus with superior products, coupled with operational and financial discipline will allow us to accelerate our velocity, and deliver exceptional value for our customers and shareholders. At this time, I'd like to turn the call over to the operator to begin our Q&A session. Operator?

[Operator:]

Thank you, sir. [Operator Instructions] And first we'll hear from Ben Klieve with National Security.

[Ben Klieve:]

All right. Thanks for taking my questions. First, congratulations on a really nice quarter here. I guess, we'll start with a couple of questions on the revenue side. Jim, you commented that row crop performance was particularly strong. I'm wondering if you can provide some context behind the drivers of this. And then also in the domestic row crop market, given that corn acreage didn't come in planted as expected in the U.S., was there any revenue that was left on the table maybe that you potentially could have delivered had corn acreage been up kind of where it was expected to be at the start of the year?

[Kevin Helash:]

Yes. Hi, Ben, it's Kevin Helash here. Great questions and I'm going to ask Kevin Hammill to provide more clarity for you on those.

[Kevin Hammill:]

Okay. Thanks, Ben. It's Kevin Hammill, here. A couple areas where in terms of second quarter revenue, set this up is that really the Pro Farm acquisition or BioUnite strategy where the base specialty business has helped us really a lot in the second quarter. And how I define the base specialty business is basically all the U.S. non-seed treatment users. And here in the market, we saw good growth across the U.S. including Pacific Northwest and the Southeast. And part of these growth drivers actually was the BioUnite strategy. And if you remember back to the earnings call, we mentioned that our base specialty business is actually doing well and delivered about 30% growth over the last year, first-half to first-half and full year to the full year. Looking at the seed treatment business and when you reference corn and soybean, actually, the balance of mix between soybeans and corn were favorable for us. And we actually had good applications on to that seed. Now what we'll do is, we'll be setting up now in the second-half for applications and seed that's being harvested now in the U.S. going to be planted next year. And overall in terms of second quarter, Pro Farm had a strong quarter in Europe as they prepare for application of the product portfolio and the seed that we will be planning in 2021. So in summary, good U.S. base specialty business. The soybean corn mix was good for us overall. And also as we go -- has a good European application season upcoming in Europe with Pro Farm.

[Ben Klieve:]

Got it. Thank you, Kevin.

[Kevin Helash:]

Yes. Ben, just to add to Kevin's comment, I'd reiterate that we're very happy to see that we had growth across all geographies and across all product lines, which is very encouraging for us as we move forward into the second-half of the year and into the upcoming year.

[Ben Klieve:]

Got it. Very good. I guess moving down to the -- a couple of questions on OpEx. And Kevin, look, excuse me, Kevin Helash, you commented in your prepared remarks about kind of an intense focus on controlling OpEx here. And I have a couple of questions in that context. First, has your level of spend as it pertains to 014 and 015 changed? And then second, I'm curious if you can elaborate on what you say no to. I mean there's a huge amount of opportunity in your pipeline. And I'm really curious kind of where you draw the line from an OpEx spend standpoint.

[Kevin Hammill:]

Yes. Kevin, here, Kevin Helash again. So, as everybody's figured we have to Kevin -- he's with us. So, I'll make sure we clarify. So, in terms of our level of spend, we're quite comfortable where we're at now, in terms of being able to drive the results we want. And I think about OpEx in terms of relative ratio to revenue or gross profit. So, what I'm getting at is as our business grows, I expect our operating expenses to grow. But as I said in my opening remarks, that number has to be significantly smaller. In terms of -- you asked a great question on our pipeline. The thing that we're going to focus on or the area we're going to focus on Ben is evaluating very carefully, where we get our biggest bank for the buck, so to speak, where we can drive shareholder value quickly, what projects should we be fast forwarding slowing down. And it's a dynamic environment for us, but I can assure you that that will be a strong focus for us in terms of continuously looking at our portfolio, analyzing the make versus buy scenario question and really focusing in on ensuring that we're driving ROI, we're driving shareholder value, we're growing the business in the most efficient and effective way possible.

[Ben Klieve:]

Got it. Very good. I guess, two other quick ones for me and then I'll jump back in queue. First, I might have missed it, but did you guys report the revenue contributions from acquisition in the quarter?

[Kevin Helash:]

Ben, Kevin Helash again. We did not. And as your -- I guess, see in our results, we don't segment by product or by sector. But let me say that Pro Farm has been thus far an excellent acquisition for us. As Kevin Hammill mentioned, it's been a creative so far in the year and we fully expected it will be accretive in the full year. And if I had the opportunity to acquire another Pro Farm, we'd certainly love to do so. It has been an excellent addition to the company and I think we're really just starting to see the positive synergies of combining that business with our base.

[Ben Klieve:]

Okay. Perfect. I think that's it for me. Again, congratulations on a good quarter and I'll get back in queue here.

[Kevin Helash:]

Thanks, Ben.

[Operator:]

Next question will come from Sameer Joshi with H.C. Wainright.

[Sameer Joshi:]

Good afternoon. Thanks for taking my questions. How are you Kevin? Welcome to your first call. So, just about, last year and the previous years, you have despite the nature of your business experience, seasonality quarter-over-quarter, and has the acquisition of Pro Farm changed that? Should we expect to see more not too much of a seasonality between quarters going forward?

[Kevin Helash:]

Thank you, Sameer. It's Kevin Helash here. I'm going to answer your question on my part and I'm going to hand it over to Kevin Hammill. So, you're right, Sameer, agriculture by its nature has seasons and quarter-over-quarter. There is difference in terms of volume and product mix. For us, the first-half of the year will continue to be the stronger part of our year, both in terms of revenue and gross margin and gross profit, but we certainly still continue to see a strong second-half of the year. The addition of Pro Farm, which we like broadens our footprint and our market reach. And it does get us a stronger foothold in the South American or the Southern Hemisphere, which will certainly serve to even out our performance in first-half and second-half. We got a little ways to go there, I'd say in terms of building that out, but it certainly will support a bit more even flow throughout the year. Kevin Hammill?

[Kevin Hammill:]

Yes, thanks. I agree with you, Kevin Helash. This is Kevin Hammill. And that the Pro Farm acquisition gives us a more of an international presence, helps us smoother quarters and good penetration in the row crop market. But Sameer, I think maybe the best way to answer this question is give a little bit of flavor of what's happened in the second quarter, and a little bit what we see happening in the second-half of this year. So, the second quarter, we're really driven by our investments that we've made in Pro Farm and our BioUnite strategy with our base specialty business. So, what happened in our base specialty business is that we saw the insecticide and fungicide portfolio grow across the board, despite market headwinds. And as I mentioned that we saw 30% growth in this business over the last year first-half to first-half and second -- full year to full year. Then in Pro Farm, we had growth in Europe, where they applied -- they're starting to apply the product on seed that will be planned in 2021. So, specialty business and Europe Pro Farm in second quarter of 2020. As we move forward to the second-half of this year, we're going to have a bit of a mix of sales, between our USA base specialty business, our U.S. seed treatment business and our international business. So in this second-half, as I mentioned, we'll be finishing up harvest and most crops in the U.S. specialty business, and then we'll be transitioning to plantings in the Southeast and Southwest in the U.S. In our domestic U.S. seed treatment business, we'll start treating seeds that are being harvested and will be planted in 2021. The main international opportunity will be in this half will be in Latin America, with foliar applications in both Pro Farm and MBI products. So again, the second-half will be a strong mix of our sales platforms of our U.S. specialty business, domestic seed treatment and international, primarily focused in Latin America, with Pro Farm products.

[Sameer Joshi:]

Understood. Thanks for that diversification. Basically, with a variety of products in a variety of regions north and south, you're basically evening out, as well as growing at the same time, your revenues. Moving down -- the recent news about Vive, can give us some flavor of what to expect there? What is the scale of the first product that is expected to come out? And what is the pipeline of products that you will be working on or are planning to work on?

[Kevin Helash:]

Yes. Sameer, thank you. It's Kevin Helash here again. So that you hit on one of our current projects in the company today, I can tell you that being very new here, and an insider into the portfolio, I'm very excited about the pipeline that the company has. In fact, we have more products to work on and we have time and resources to focus on all at once. So what the team is doing is refreshing the look on all of our pipeline in terms of ROI, time to market, market potential, all of those metrics. And then we're going to reset our path here in the next 30, 60 days in terms of what we're going to focus upon. The idea will be obviously, what can we bring to the market the fastest, the cheapest that bring us to the most ROI and create the most shareholder value. So, that's a very high level. Kevin, I'll ask you to give some more color in terms of what we have coming near-term in our pipeline to the market.

[Kevin Hammill:]

Yes. Sameer, this is Kevin Hammill again. Everyone really defines pipeline differently. Here's how I define, I define it really in three ways. First, there's new product introductions into new crops or geographies. A great example that we talked about earlier on was using Pacesetter to penetrate the U.S. soybean and corn market. This also has the potential to go into other global markets. The second way I define our pipeline is brand extensions or next generation of products. A great example of this is our advanced insecticides and nematicides. We believe this product will deliver to growers, increased ease of use and greater ROI, allowing us to increase our market share and crop expansion. In the final third way I define the pipeline is brand new novel offerings. A great example of this is our longer-term herbicide offerings. So, in summary, our pipeline is important to generate both revenue in the short-term, medium-term and long-term. We believe, our pipeline is set to deliver revenue next year throughout, through new product introductions. And then in the mid-term, our next generation products and longer-term is our novel herbicide offering. So the three different phases, we got products in each of those phases.

[Sameer Joshi:]

Understood. Thanks for that. Just one clarification and sort of follow-up on Ben's question earlier, as it regards 014 and 015. In terms of the approval process or the development process did the COVID present any hurdles? Was it delayed by any means?

[Kevin Helash:]

Yes. Kevin, I'll leave that one with you please.

[Kevin Hammill:]

Yes. So, Sameer, I think to make sure I understand the question properly. My signal on this side was a little bit blurred. But you're asking, if COVID impact there 014 or 015, testing this year? Is that correct?

[Sameer Joshi:]

Yes. That’s correct.

[Kevin Hammill:]

Yes. In last call, we talked about this little bit of that. Right now, our primary focus was on getting through regulatory submission like 014. And in doing so, we actually found another high performing opportunity with this molecule, recombinant [ph recombinant 015. So we're continuing to proceed with our regulatory submission, and then also work with this novelty of 015 in terms of the rate of performance as we go forward. So, that is the major focus of 014 and 015 right now.

[Sameer Joshi:]

Okay, thanks. I'll take the rest of my questions offline. Thanks.

[Kevin Helash:]

Thank you, Sameer.

[Operator:]

Next question comes from Bobby Burleson with Canaccord.

[Bobby Burleson:]

Hi. A couple of Kevin's here, so I think this is for Kevin Helash. So, I was just curious, obviously, you're going to focus a lot more on execution and try to rationalize costs. Is there anything under your portfolio that you would consider calling or trimming? It seems like there's some holes that you'd like to plug but anything that you think maybe would wind down in terms of investment going forward?

[Kevin Helash:]

Yes, Bobby Kevin Helash here. Again, I'm relatively new, so I will talk little bit of a high level but I can tell you that I'm very impressed with how the internal pipeline has been managed. I think that company has been focusing on the products that really do have the potential to be game changers for us. And they've done some excellent work in terms of working on the formulation aspect of our existing products, so that we can make them faster, cheaper, better, and expand our margin opportunity and allow us to get on more acres by being -- providing easier use formulations for our customers. So, we don't have that many projects going that I would say, there's a bunch that we need to kill right off the bat. But what I would say, Bobby is that we will definitely be continuously evaluating the projects that we are working on, to make sure we are working on the right ones. And that takes some discipline, and some rigor obviously, because you got to be careful, you don't get embedded or entrenched in the product line when something better comes along. But it's a fun place to be that we do have those options for us, and we have lots internally. And I fully expect we're going to get a look at a lot of external products as well from others that we can collaborate, acquire in license, et cetera, going forward. So, I am really excited about the future and things that we'll get to work on going forward.

[Bobby Burleson:]

Great. And you guys have touched on R&D somewhat and just generally on OpEx staying disciplined there. I know you've already started to be lean on the SG&A, as you tried synergies across your product portfolio on the R&D front, and with selling. Is there a lot of leverage, particularly on SG&A going forward? How would you draw a distinction between the R&D and the SG&A leverage potential?

[Kevin Helash:]

Bobby, that's a great question. So, when I think about driving profitability -- it’s Kevin Helash here so. I think about everything from top to bottom revenue, margin, OpEx, SG&A, supply chain, working capital, and we'll be looking at all those as we move forward. I'm happy to say this is a company with lots of potential. Can you do better? Of course, right, I mean, that's why we're here. Our job is to continue to drive efficiency, make all of our ratios better move them in the right direction. And so, I'd say from our perspective, and I'm happy to say my team is with me, we're going to look at everything and we will continue to look at everything in terms of making sure we are a top class company in all aspects of running a business in our sector.

[Bobby Burleson:]

Great. And then just one last one from me. Just thinking about CapEx needs. You guys, I think you're planning a production plant upgrade and you might need to raise a little debt to help fund that. It's a pretty dynamic environment out there. Just kind of across the board, I'm wondering if kind of your CapEx needs if that fluid is any way? Are there opportunities to save costs, maybe relative to that kind of formula that you have planned?

[Kevin Helash:]

Bobby, I'll start to answer that question for you, and I'm going to hand it over to Jim Boyd to give a bit more detail. But in terms of your question, do we need to raise capital to meet our plan, at this point in time, we believe we have enough with our warrant product to get us through the cash breakeven on an adjusted EBITDA basis. So that includes OpEx. And I'll get Jim Boyd to clarify that in case I'm speaking out of turn. In terms of overall CapEx, that again is something that we're looking at. We have multiple options for expanding our plant capacity and what products we manufacture, where that is being discussed. And we'll have more clarity on that, I'd say, by the next quarter. Jim, I'm going to hand it over to you, because I've ran out of my experience on that topic thus far. I'll get it over to you to add some more color.

[Jim Boyd:]

Yes. Well, Bob its correct that we do have a $4 million addition to the plant to bring in Majestene and Venerate that we've been looking at. We are also looking at alternative ways to make it. So it's not clear if we are going to actually go forward with that, but we also have been talking to many debt sources, and there appears to be sources available to us that we could borrow the money if we needed it for that plant expansion.

[Bobby Burleson:]

It sounds like there's a decent amount of flexibility in terms of how you go about that?

[Jim Boyd:]

Yes, I think there is. I think, we always try to be creative, we try to not only about running the business, but how to meet our desired goals. And we're really, really looking very hard at this $4 million and seeing if we have to spend it.

[Bobby Burleson:]

Okay. Great. Thank you.

[Kevin Helash:]

Yes. Bobby, I would echo Jim's last comment that, we will be going through that project with a very, very intense scrutiny before we pull the trigger.

[Bobby Burleson:]

Thanks, Kevin. Thanks, Jim. I appreciate that.

[Kevin Helash:]

Thanks, Bobby.

[Operator:]

And next from Jefferies, we have Laurence Alexander.

[Adam Bubes:]

Hi, this is Adam Bubes on for Laurence today. I was wondering, taking a step back, can you talk about if the current environment shifts your expectations around the path to EBITDA breakeven? And then if you could just touch on maybe the more certain parts of that bridge versus uncertain?

[Kevin Helash:]

Hi, Adam, it's Kevin Helash here. Can you just sort of repeat your second question? I didn't quite catch it.

[Adam Bubes:]

Yes, just the past to breakeven, does coronavirus shift your expectations there? And if you could just talk about the bridge to breakeven levels and what maybe the more certain parts of that bridge are versus more market dependent parts of that bridge?

[Kevin Helash:]

Correct. Yes. Thanks, Adam. So in terms of do we expect COVID-19 to affect our path to breakeven, certainly we are paying very close attention to the impact of that virus on the market. We're happy to say that due to the importance of agriculture and the importance of food production around the world, our industry has been prioritized to the top of the list, in every single country that I can think of around the world, whether you're talking in India or Europe or China or North America. Everybody is working extremely hard to make sure the agriculture food supply chain and industry is working. So, that to me is very positive. And I'm very happy to see that happen, because obviously creating food for the world is I can't think of anything more important actually. So, I think that we need to be aware of it, Adam. We need to be prepared for any disruptions that may happen, whether it's in supply chain, manufacturing, and the like. But at this time, we don't see a major or material impact to our '20 -- the second-half of the year, 2021 and going forward. But as everybody knows, we're in a dynamic environment and we'll be paying very close attention to changes, as it happened. But we feel we're well-positioned to continue to grow. We're taking lots of precautionary measures to ensure our ability to supply our customers is in place. And so I think we're sitting here today and feeling relatively comfortable in our plan. But, I'll pass it over to Kevin Hammill to add some comments around the outlook for us from a revenue standpoint.

[Kevin Hammill:]

Yes. Thanks, Kevin Helash. This is Kevin Hammill. I talked about this a little bit earlier on in terms of our as you go into the second-half and our forecasting revenues that we really do see continued growth in the second-half from the mix of the three core pillars to our business, the U.S.-based specialty business, U.S. seed treatment business and our international business. So, we really see those harvests finishing up in the U.S., transitioning to some new plant in the Southeast and Southwest will drive continued growth in our domestic U.S. space based specialty business. Our domestic seed treatment business will start treating the seed that's being harvested, and then they will be planted in 2021. And then finally, in the international side of things, the recombinant [ph] foliar business is Latin America, both from MBI and from both line portfolio. So strong sales mix across the different platforms and regions should continue our growth in the second-half of this year.

[Adam Bubes:]

Great, that's very helpful. And then just my last question on SG&A, just wondering if you could give a little more color on the cadence of the cost expense ratio moving forward, around the next upcoming quarter. How we should think about that kind of moving around as sales accelerate?

[Kevin Helash:]

Yes, Kevin Helash here. I will make a comment, and hand it over with the Jim Boyd, our CFO. So, Adam, I'm a big believer in looking at ratios to benchmark ourselves. Obviously, the first thing we put out is the operating expense ratio to revenue, and our objective is to continue to drive that down. So, you can do it two ways. Obviously, you grow your revenue and/or you lower your operating expenses, and as I'd say, ideally, I'd like to do both. But we're going to be very careful in terms of how we manage our OpEx. Going forward, the way I think about the year is that the second part of the year is a bit lower in terms of revenue versus first-half. So, the OpEx ratio is probably going to decline somewhat in the second-half of the year, which I think is relatively normal, but on a year-over-year basis and looking at it moving forward, I want that number to keep coming down. Quarter-by-quarter, it gets a little bit variable, because of our business, but directionally, we're going to seek to continue to improve that number. Jim?

[Jim Boyd:]

Yes. Thanks for the question, Adam. I guess I'll sort of address both of your questions. We obviously have more control over operating expenses and improving our margin line or gross profit line than we do over revenues, especially in light of COVID-19. I think that we tightly manage those all. And we're always open to opportunities or are looking for opportunities rather, to reduce those expenses. And we would do that to the extent that we could if we saw COVID impacting us greater than it has to-date. Our big levers or the most discretion we have without laying off people are in field trials and our R&D projects, as you mentioned. And we can we can tweak them up or tweak them down a bit. But we do sacrifice longer-term growth when we do that. So we try to maintain a good balance in our investment in the future, and in keeping that ratio of revenues to operating expenses in line with as Kevin mentioned.

[Adam Bubes:]

Great. That's super helpful. Thanks a lot.

[Kevin Helash:]

Thank you, Adam.

[Operator:]

Next we have Nathan Weinstein with Aegis Capital.

[Nathan Weinstein:]

Hi, Kevin, Kevin and Jim. Thank you guys for taking my question. Congrats on the strong quarter. My first question, just about the financial health of your distribution partners and also the end market, the farmers, I mean. How are they looking after we've come through a pretty unprecedented first-half of 2020?

[Kevin Helash:]

Nathan, Kevin Helash here. That's a great question. I don't know if we have the answer in terms of how our distribution partners and the farmers are doing. I think about it, maybe I'll answer this way, Nathan. The long-term viability of agriculture is unquestionably strong, and it will be unquestionably healthy to me. I think different customers of ours around the world and growers around the world have been impacted differently. But certainly from my standpoint, we're seeing this as a bump in the road, I'll cross my fingers when I say that, rather than a long-term systemic challenge to our industry. I always go back to the fundamentals of people need to eat. So we as an industry, and we as a global economy will figure out a way to make that happen. With that being said, I'm certainly not aware of any what I would call financial hardships in any of our customers. As we all know, there's been lots of assistance provided from government agencies around the world to ensure agriculture continues to function. And so, I think we're going to get through this just fine. And I don't mean to underplay the impact of COVID-19 it's been a horrible situation for many, many people around the world. But I think in terms of agriculture, we need to stick to our knitting, we need to continue to do what we do to support our customers, whether the distribution channel or the grower. And that's what we aim to do. Kevin, I'll hand it over to you Kevin Hammill to provide any comments you like in terms of our customers and feedback we've heard from them.

[Kevin Hammill:]

Yes. This is Kevin Hammill. And I just want to build on what you said at the end there, Kevin Helash is that the agriculture community did incredible work over the last few months to ensure the safety of our food supply. We can't thank them enough for what they've done. But specifically you asked about the couple of levels in the distribution chain with the distribution of grower. As you would expect there for the distributor their daily practice or daily routine has been really upended in terms of social distancing, making sure everything's in place, the supply chain, but they've done a great job of it, really there's not been any averages of products in the marketplace. They've been able to serve the grower well. They've been working really, really well, making sure that we have continuous production of our food supply. From the growers perspective, there's three things there, the impact of labor, more crops you grow and some growth areas. So one area that's impacting especially the labor intensive crops, such as almonds, you're seeing a lot of precautionary measures taken to protect the laborers and their workers in the farm safety. Let's take a lot of more resources and time to make sure they are able to manage that. And also make sure they have a lot of the sufficient labor to manage those crops. So labor has been a bit of a high, very intensive management issue for our growers. The second part to it is in terms of specific growers, it's interesting if you're a lettuce grower, you had really good success if you were selling to the retail or the grocery store business, because the demand was really high. If you're assigned to an industrial business in lettuce or potatoes, that market was a little bit difficult because you had that -- you didn't really have the packaging or the setup of your systems to really serve those sides of the business. But overall, the growers have fared out well. One interesting segment that done well is the organic segment, we saw that business grow, continue to grow this quarter. And that's because of people making more food selection at their grocery store. And I just have to finish this out by commending the sales team. They're really the big credit in terms of getting this quarter as successful as it was. They really had to redo how they plan their daily routine. They had to figure out new ways to educate their distribution and the growers of how to use our products. We find ways to let them be aware of our products and the value to them. So, I commend our sales force in terms of how they performed the last quarter during COVID-19.

[Kevin Helash:]

Thank you, Kevin. I think that all those -- thanks as well.

[Nathan Weinstein:]

Thank you. That was really interesting answer. So I could just maybe ask a question that came up during your answer, but it sounded like with the lettuce comment. You sort of saw some shift in customer preferences. And I don't know if you saw that maybe early on with COVID, but has there been some persistence in that in whatever change or trends you saw?

[Kevin Hammill:]

Kevin Helash, do you want me to answer that?

[Kevin Helash:]

Yes, go ahead Kevin.

[Kevin Hammill:]

So let's take -- we're coming into a new planting season in parts of the U.S., and growers are preparing to put the product in the ground right now, adjusting to this new market reality. But if you take, for example, the potato industry, whereby with one of the biggest consumers of potato who is actually in the French Fry industry through industrial, like universities, restaurants, hospitals. And so you are seeing a really big switch in certain core crops like potatoes. Meanwhile, you go to another crop, like corn, COVID-19 impacted it in a different way and that the ethanol -- the oil prices went down because everybody was traveling less which impacted ethanol which goes into our petroleum and then some trade wars went on. So, it's interesting, crop-by-crop has their own idiosyncrasies that you have to look at, potatoes is retail. Corn was due to ethanol production driven by oil et cetera. And then we go to almonds, the almonds hasn't been impacted by the COVID-19 in terms of consumption, but more so from a labor. They're dealing with labor issues in that crop.

[Kevin Helash:]

Great. Thank you, Kevin. I would like to thank everyone for your time and interest today. Unfortunately, we ran out of time, but I can assure you that we are open to speaking with any of you at your leisure or at your convenience. So please reach out if you have more questions. As we move forward, I know I will have the advice and experience with a great team. The roadmap is clear, and I strongly believe we can build on a results orientated customer driven culture to achieve these goals, and the second-half results to deliver greater shareholder value. Thanks for your time and attention everyone, and we'll talk to you at our third quarter call, if not sooner. Thank you.

[Operator:]

Once again, ladies and gentlemen, that does conclude our call for today. Thanks for your participation. You may now disconnect.