Marrone Bio Innovations, Inc.
Q3 2015 Earnings Call Transcript

Published: 18 Nov 2015

[Operator:]

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Marrone Bio Innovations third quarter update. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to hand the meeting over to Linda Moore, General Counsel. Please go ahead.

[Linda Moore:]

Good afternoon. Before beginning, 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 the Form 10-K that the company filed on November 10, 2015 under the heading Risk Factors and elsewhere and 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 answer your questions. There are slides with examples of key field data and product update information accompanying the information in this call which you can read at your leisure on our website in the Investor Relations section. Now I will turn the call over to our Chief Executive Officer, Pam Marrone. Pam?

[Pam Marrone:]

Good afternoon and thank you for joining us. With me today are Jim Boyd, our Chief Financial Officer and as you just heard, Linda Moore, our General Counsel. We have completed a comprehensive, deliberate and intensive process of review of our historical operational and financial results. We are pleased to report that we are now current in our SEC reporting obligations. And with today’s call we intend to resume a regular quarterly reporting schedule. On behalf of the entire team here at Marrone Bio Innovations, I would like to begin by thanking our investors, our customers and our employees for their commanded patience you have afforded us over this past year. The review process has prompted a great deal of self examination for our company. We’ve taken a careful and critical look at our strengths and weaknesses and the goals we must still achieve. This has driven us to fine-tune a concise strategy that will take us forward. Our refined market strategy is centered on three key considerations each of which is designed to accelerate revenue growth. First, we are focusing on growing our sales of our current commercial products. Second, we are currently focusing our development on products that we believe have the strongest near term market demand. Third, we seek to accelerate international market growth. The company’s core focus is developing commercial products that the global agriculture industry needs. Our products are unique and proprietary which we believe puts us in a position to be a clear leader in the growing sustainable agriculture movement. On today's call we have quite a lot of ground to cover. We will detail the current state of the business financially and operationally, we will detail the refined market strategy we’ve adopted to focus our resource allocation as we seek to accelerate revenue growth and we will update you on the status and developments of each of our products. As we have previously reported, in September 2014, on the recommendation of current management, the company's audit committee commenced an independent investigation focused on revenue recognition. We detail the findings of that investigation and certain remedial actions we’ve taken in recent press releases and SEC filings, including the 10-K filed last week. Because these matters are the subject of ongoing litigation, we cannot comment further. We have important work left to do and many important contributions to make. Our recent key objectives have been to reduce expenses, conserve cash and improve operating efficiencies and extract greater value from our products and product pipeline. We are also working to improve our communications to and connection with the global sustainability movement that is core to our cultural value. We believe that collectively these measures will position us to respond to the business challenges reflected in our financial results for recent periods, but our long-term global vision for our business and our commitment to that vision remains fundamentally unchanged. Our current strategy focuses on three essential elements; one, marketing of our current commercial products; two, developing products with the strongest near term market demand; and three, seeking to accelerate international market growth. As we strive to grow our business, we will also seek to better scale in our manufacturing, improve margins and leverage our operational costs. Stepping back for a moment, we believe that while growth of each product is itself important, the development of a strong fleet of proprietary agronomic solutions to serve the full range of customer needs is a growth catalyst. To position us to achieve critical mass and leverage our customer relationships with early adopter growers, we believe we should have multiple products that address a wide range of needs. While there are other paths to growth, we believe that product diversification leverages our product development competencies, speeds our path to market, reduces risks and helps mitigate seasonality, commodity price and weather fluctuations and variable demand for any individual product. As a reminder, we believe our products work both as standalone agronomic solutions and as part of a broader integrated agronomic program. As a standalone solution, our products meet stringent organic farming requirements. Demand for our solutions is linked to a powerful, customer driven global trends to organic foods and the need to increase US acreage to meet this demand. As part of integrated crop management program, out products increase the effectiveness of conventional solutions. They can improve pest control, increase yield, increase crop quality and delay pest resistance to conventional products. They can be used right up to harvest without worry about residues that will restrict export. As we look to capture growth, we have a strong foundation with four commercially available product lines; Regalia, Grandevo, Venerate and Zequanox and a market entry of Majestene. I’d note that over the past few months I have personally been meeting with our customers to get feedback from them about how they use our products, how they are performing and what solutions they are looking for and to build relationships to enable our team to better support our existing products and to help identify where we can bring new products that allow us to have early leadership in selected markets. Now I would like to update you each product. Regalia; UC Davis conducted a survey of almost 500 growers at our request, they support product efficacy, yield increase and other factors such as resistance management, residue management, length of effectiveness, pre-harvest interval, overall cost and ease of use. Regalia ranked the highest amongst five leading biological products. We targeted grapes and almonds for regalia growth in California and our efforts are showing results. Acreage growth on grapes more than tripled from 2013 to 2015 and more than doubled from 2014 to 2015. On almond, the 2013 to 2015 increase was 3.6 times and more than doubling from 2014 to 2015. Strawberry usage also grew year-over-year. New field data in 2015 show Regalia was competitive with conventional standards in controlling powdery mildew on grapes, strawberries, peaches and cherries. Regalia was as good as the standards on shot hole on peaches and almonds and in some trials on brown rot as well. On fire blight on apples, new data suggest Regalia can be a good fit in programs to manage this disease. We believe that this is important because antibiotics have been phased out in organic production and in conventional programs blight resistance to antibiotics is increasing. Early 2015 field data suggest that Regalia Rx for the third demo year continues to show increased yields in corn, approximately five to six additional bushels per acre and soybean, approximately two additional bushels per acre. For the second year in a row, Regalia Rx increased alfalfa sprout weight by almost a ton after the first cutting which provides approximately $200 greater return per ton. We have now seen significant yield increases alone or in a program with a chemical fungicide in corn, soy, wheat, rice, tobacco, sugar beet, sugar cane, canola, alfalfa cotton and sunflower. In multiple sugarcane trials, Regalia Rx not only increased biomass but also breadth. Regalia has shown plant health effects in nearly every crop we have tested thus far. This means increased follicles, plant vigor, yield and quality. Additionally, we are always searching for ways to improve our customer's experience with our products. We have received EPA approval for a solvent-free 5% Regalia formulation that we believe provides handlers with better mixing and dispersion in the tank and easier measuring and container recycling. We performed numerous field trials to prove comparable to better performance than conventional chemicals under a wide variety of environmental conditions. We are currently seeking to introduce this revised formulation in 2016. Grandevo, the number of acres seeded with Grandevo has significantly increased in the Western US, particularly in California where there was approximately a 2.4 times increase from 2013 to 2015. In 2015, Grandevo was used on more acres in the first 10 months of the year than all of 2014. In the first nine months of 2015, Grandevo was one of the top five brands used on strawberries in California based on seeded acres. Top crops in order of seeded acres are strawberries, grapes, vegetables, dry onions, raspberries, almonds and safflowers. Strawberry is driving growth in acres treated having a total growth from 2013 to 2015 of approximately 2.6 times and from 2014 to 2015 approximately 1.7 times. Usage on dry onions acres increased approximately 12.5 times from 2013 to ’15, raspberries by around 4 times and on blueberries around 18 times. [indiscernible] caterpillars and mites. We focused on confirming the efficacy of Grandevo against spotted-wing drosophila. This invasive fruit fly has rapidly spread across the US to infest many different soft fruits. We have conducted multiple field trials to confirm the efficacy on this test alone and in conjunction with conventional pesticides. Results suggest that Grandevo may provide growers a new way to reduce larvae in the fruit and manage resistance to conventional products. Results suggest that Grandevo may provide growers a new way to reduce larvae in the fruit and manage resistance to conventional product. Grandevo has been used for controlling pests and increasing yields on organic crops, used for seed, for dairy and meat. And this has been one growth driver. In our field trials on conventional [indiscernible] Grandevo control leafhoppers and increased pounds of dry matter as well or better than chemical standards. We have broken new ground by being the first ever dead microbial to be accepted into the European Commission Regulatory process, until a EU decision only pesticides containing live microbes to be evaluated under the EU regulations for microbial pesticides. For submission to the European Commission, we generated field trial data showing good efficacy on psyllids, and whiteflies on some fruits and vegetables. For submission to New Zealand with a partner, Grandevo’s control with great mealybug was competitive with chemical standard. We developed a new and improvement wettable dispersible granules formulation of Grandevo that was submitted to the EPA in October of 2015. In demos, growers report better mixing and dispersibility with minimal dust, faster kill and better efficacy at lower doses compared to our current formulation. We are seeking to replicate these results in additional field trials. We received patents that strengthened the intellectual property of Grandevo, one for use on corn rootworm and another for nematode. We have received noticeable allowance for use of Grandevo controlled several sucking effect, mites, grubs and some other pest beetles and fly control. We have discovered and filed a patent of five proteins three of which we think are novel produced by the bacteria in Grandevo. We are showing that some of these individually of activity on caterpillars and\or corn rootworms. Insecticide approaching that could possibly be for plant for insect controls are in the high demand by larger companies in the business of genetically modified seed. We are seeking a partner to develop and commercialize products that are based on this technology. Now, for Venerate, we did a targeted placement with key customers in 2014 after we received EPA registration. In 2015, Venerate acres increased dramatically, albeit of a small base on a year-on-year basis through the third quarter. Top crops are strawberry, grapes and raspberries for lygus, beetles and caterpillars. We have been working with growers to combine Grandevo and Venerate in IPM programs to have two new modes of actions to manage their pests. In my meetings with customers, I specifically wanted to understand how they are using Grandevo and Venerate, they showed me strawberry fields where Grandevo and Venerate were used in three different test management systems in controlling for lygus, thrips and mites for organic, for export and for conventional for domestic consumption. In field trials, Venerate was as good a chemical standard against grape berry moth on Eastern wine grapes and both Grandevo and Venerate were competitive with the standards against leafroller on grapes in California. Like Grandevo, Venerate control of the invasive and spreading [indiscernible]. Both Grandevo and Venerate were competitive with chemical standards against San Jose scale of apples in the northeastern US and against Oriental fruit moth in South Africa. Neither Grandevo nor Venerate showed any negative effect on pollination and not set in common for any effects on forging these. We think Venerate is a valuable product because of its liquid versus dry formulation. We believe that this will make Venerate more efficient on large acre robust such as corn and soybean. 2015 field trials confirm data from 2014 against corn rootworm, the major pest of corn. Venerate increased yields as well as the leading chemical standard. In 2014, we showed that both Venerate and Grandevo could control rootworms where the pest was resistant to trade, engineered in the crop to control this pest. And field trials to control seed maggot on corn, wheat and soybean, Venerate and Grandevo each were as effective in increasing yields and reducing the pests as the commercial standard when applied or as seed treatment. Now turning to the newest EPA registered product Majestene. Majestene bionematicide has brought spectrum nematode control. Everyone in the company is excited by this product because of the consistently high level of efficacy in competitive field trials and demos. Growers have few options in this category which traditionally has been addressable primarily with the use of highly toxic and dangerous chemicals. Over 80 billion of damage is incurred by plant-parasitic nematodes annually and most of the chemical nematicides have been restricted. There are a few other biological solutions but we believe we have the only product that is broad spectrum, kills insects and nematodes and reduces high nematode populations, leading to better yields and quality. We are pleased with the Majestene trial data and demos in corn, soybean, cotton, banana, tomatoes, potato, strawberry and turf. An earlier registration than expected for Majestene enabled us to place commercial test crops this fall with selected growers in tomatoes and strawberry. We look forward to a wider rollout for 2016. Now for Zequanox, in some ways this is our most excited product. It worked very well and meets up very serious needs. Unfortunately because it has a discrete and different set of customers, commercializing Zequanox will not generate synergy with our agriculture business. While there is a solid product with great opportunity, we are working towards a partnership structure. We are currently in discussions with large water treatment companies to further expand Zequanox commercially. We have continued to treat Oklahoma gas and electric facilities achieving close to 100% mussel control in the treated areas and we are serving new customers as they come to us. In addition, we continue to work with state, federal and by national partners via the Great Lakes submission, invasive mussel collaborative and the EPA’s Great Lakes Restoration Initiative to further develop Zequanox in the Great Lakes Upper Mississippi river basin which has significant problems with zebra and quagga mussel invasion and the resulting toxic. In 2014, we measured 100% mussel mortality in the treatment area toward rapid emergency response of a newly invaded Christmas Lake in Minnesota. These five products can take us a long way but both our intermediate and long term growth strategy also incorporates significant contributions from international sales and revenues from our refocused pipeline. I’d now like to turn to our international growth opportunities. While the US is the largest biopesticide market, growth of biopesticide is higher in other world regions. We believe that our international business to be a potential growth driver. Our strategy going forward is to select regional or national distributors who will invest in the regulatory and field trial cost in market development required for commercialization. We currently are seeking regional managers to oversee and provide technical support to our current distributors and further build out our distribution network initially starting with Latin America where our progress in more advance. Our first priority countries are those with the shortest regulatory pathway to generate the quickest revenue. Followed by countries with the biggest market size. Our crop priorities are high value fruits, vegetables and ornamentals. The international crop market will be addressed through partnerships with larger agrochemical companies or distributors. This brings us to the last of our three strategic focus points. Under our revised product development strategy, we seek to concentrate our efforts on developing new products that we believe will provide the best opportunities contributed to revenue growth in a near-term time frame. There are four such products in our pipeline; Haven, MBI-010, MBI-601, and MBI-110 and I’d like to detail each one and its opportunities briefly. Haven, Haven is a plant help product candidate that helps prevent plants from drying out or anti-transpirant based on technology of naturally derived plant-based components. We have been actively developing new formulations in conducting field trials showing that Haven for [indiscernible] yield by reflecting heat from leave. This reduces plant water loss, allowing plants to strive better at sun stressed environment. Field trials demonstrated a reduction in sun stress fruit and an increase in quality characteristics on citrus, apples and grapes. We also saw increased yields on walnuts, almonds, wheat and herbs. Unlike competitor product, Haven does not leave an undesirable white deposit on crops. Haven does not need EPA registration or registrations with the state. We are currently refining the formulations for better shelve stability. MBI-010, we hear from our customers that there is an unmet market need for a bioherbicide for organic production and also new modes of actions to help control wheat that have developed resistance to chemical herbicides and conventional production. MBI-010 is based on the same species of bacteria used to produce Venerate which we isolated using a patent to discovery process that identifies herbicides that inhibit a certain plant enzyme. MBI-010 produces several herbicidal compounds, some of which are novel that are rapidly taken up by the terminating seeds and by the root of seedling and matured seed. MBI-010 has demonstrated effectiveness against a range of wheat including wheat resistance to leading conventional chemical herbicides. MBI-010 has also demonstrated a novel mode of action and some of its active components are transmitted systematically. We are working on formulations to provide the needed commercial shelf life stability, efficacy and fermentation processes to increase yields and lower cost. We expect to submit MBI-010 for the EPA in 2016. MBI-601, MBI-601 is a biofumigant based on a proprietary genus of fungus, Muscodor, which was discovered by a professor at Montana State University. We obtained a license for several strains and species of this fungus which produces a suite of gaseous natural product compounds that have been shown to control certain plant diseases, nematodes and some insect species. We believe that MBI-601 may be used for agricultural and industrial applications including post harvest control of fruit and flower decay and pre-planting control of plant diseases and nematodes as a viable alternative to methyl bromide and other chemical fumigants which are subject to significant regulatory restrictions and for which few effective non-toxic alternatives are available. We submitted to the EPA a strain of Muscodor in MBI-601 that showed the best efficacy in our tests and we expect approval in 2016. We obtained a license to an artificial mixture of the gaseous component produced by the Muscodor fungus, which extends the potential uses of this technology by enabling development of product at a potentially lower cost and better self stabilities and versions using the living fungus. MBI-110, MBI-110 is based on microbial fermentations of a newly identified Bacillus strain we isolated using our proprietary screening platform when targeting uses complementary to Regalia. MBI-110 is being developed as a biofungicide targeting difficult to control plant diseases such as Sclerotinia white mold, gray mold and downy mildews. We have identified compounds some of which are novel produced by the microorganism MBI-110 that control a broad range of plant diseases. We expect to submit MBI-110 product to the EPA by early 2016. Several field trials were conducted in the US, Europe and Canada that showed good efficacy against white molds and downy mildews. As I said, our development pipeline is a key focus and we continue to be a technology-driven company. As such, I would like to take a moment to discuss with you our current R&D capabilities. We have cut our R&D headcount significantly, but we have focused our efforts on key deliverables in our plans. Our business model incorporates relative to other companies an early launch of our products followed by continued R&D investment that enhances and develops those products and their opportunities for years after the initial market introduction. This gives us revenues to reinvest in that product, an important feedback on test and application methods as we grow into the opportunity. This includes field trials that expand the label to additional crops and pests. This expands our addressable market. We also continue research on new formulations to broaden test spectrum and acres supply, increase potency and reduce field use rate, again expanding our addressable market. Finally, we utilize our R&D resources to improve the efficiency of our manufacturing processes so that our scale of production is accompanied by greater operating efficiency and margin improvement. We believe that our ability to rapidly identify, develop test and qualify new products both on our own and in partnership with other industry leading companies is a key sustainable advantage for us. I’ll reserve some comments for closing, but I’d like now to turn the call over to Jim to go through the numbers and to provide some additional detail on our manufacturing, sales initiatives, strategic financing and other partnerships.

[Jim Boyd:]

Thank you, Pam and good afternoon, everyone. I’d like to first walk you through our restatement for fiscal year 2013 and the first six months of 2014. I’ll then detail for you our financial performance for the full year of fiscal 2014 and the first nine months of 2015. I’ll also update you on our sales infrastructure, strategic financing, R&D restructuring and our manufacturing capabilities. Let’s start with a walk through the restatement. The primary driver for the restatement in all periods reflects the change in our revenue recognition method or a portion of our customer base. In the past, we had exclusively used the salient method of recognition, under which we recognized revenue when we shipped to our customer. We determined that certain transactions for certain customers, primarily those that were given return privileges should be accounted for under the sell-through method, under which we recognize revenue upon their shipment to our products to their customers. For the full year of 2013, we restated revenues as $8.4 million compared to our prior report of $14.5 million. For the first six months of 2014, we restated revenues of $5.8 million compared to our prior report of $6.4 million. While this reduces 2013 sales by $6.1 million and the first six months of 2014 by $600,000, it is important to note that in all periods, we agreed to take returns for a total of $2 million in sales. As a result, as of December 31, 2013, we had $4.7 million of deferred product revenues, which as we recognize them, will have a positive impact on forward periods. As of December 31, in parallel, we also recorded $2.9 million of deferred cost of products on the balance sheet. On the bottom line, our reported net loss for 2013 is restated to $32.6 million compared to $29.9 million we originally recorded, an increase of $2.7 million or $0.31 per diluted share. I’d like to now move to the 2014 income statement, which we reported for the first time in our 10-K last week. Revenues in 2014 were $9.1 million, an increase of 8% compared to 2013. As of December 31, 2014, we had $3.2 million of current deferred product revenue and in parallel $1.8 million on deferred cost of products. The 8% growth in 2014 was less than anticipated and resulted from various factors that reduced demand and impeded sales including the departure of our former Chief Operating Officer as well as sales and marketing staff in the second half of 2014, disruption to the Venerate product launch, low commodity prices, extended drought in California and the Western United States, bad weather in other parts of the US and the lack of anticipated sales internationally, including a long delay in the registration of Regalia in Europe. As I turn to our margins, there are several significant discrete items that you should consider as you analyze our results. I’ll call those out as we go through the numbers. With respect to 2014 gross profit, you’ll see that our cost of goods was $9.4 million, which exceeds the sales for the full year. This includes about $2.8 million of discrete factors. We took charges against our inventory position of $1.9 million to adjust the carrying value of inventory to make sure it was not overstated. We also picked up about $900,000 of unabsorbed costs related to low capacity utilization at our manufacturing operations. In 2014 and 2015, excess inventory that resulted from lower than planned sales caused the lower than planned plant utilization. As we ramp up sales and production rates, and improve capacity utilization, we’ll be able to absorb these costs and achieve scale related benefits but only overtime and with growth. Turning to 2014, SG&A, you will see an increase to approximately $29 million from $15 million in 2013. This also reflects significant discrete items. More than half of this increase, $8.5 million was related to an increase in outside services, a vast majority of which were directly related to the accounting, consulting and legal costs of the audit committee investigation and the restatement as well as other related costs including $1.8 million accrual related to the SEC investigation. Finally, we also incurred $1.4 million in costs in SG&A from the startup of our manufacturing facility. As I turn to results through the first nine months of 2015, I’ll note that in October of this year, we did an additional restructuring with the aim to reduce operating expenses by another approximately $8 million annually. Through both these restructurings, our headcount has been reduced by approximately half from 161 at the end of 2013 to 84 today. I’d like to now turn to our nine months and third quarter results for 2015. Through the first nine months of this year, we’ve recorded revenues of $7.9 million, roughly flat to the prior year total of $8 million. As of September 30, 2015, we had $2 million of current deferred product revenues. Reconciling growth to the change in revenue recognition is difficult as deferred revenues are moving in and out of each period. This performance, particularly in the early part of the year, reflects the disruption to our business from the events of 2014 and a continued challenging agricultural market. That said, revenues in the third quarter increased by 12.5% over prior year and we’re getting back on our feet again. Our cost of goods in the first nine months of this year was $7.3 million. This still reflects unabsorbed costs due to the low -- very low utilization rates of our manufacturing facility. We believe we’ll begin to see improvements as we enter 2016 and we expect growth in sales to drive better utilization and then scale as we see revenue growth in the future. R&D costs through nine months were $10.2 million versus $13.4 million in the same period of 2014, reflecting our restructuring. Selling, general and administrative costs in the first nine months of the year continued to reflect the cost of the audit committee investigation restatement activities. This accounts for $5.5 million of the $20.6 million in SG&A we reported through the nine months. Our third quarter SG&A spend of $5.3 million reflects $900,000 of investigation related expenses. If you take out the investigation restatement related expenses from our nine months results, we begin to see the effectiveness of our first restructuring activities in October of 2004 and that our operating expenses were reduced by approximately 16%. Excluding our earlier M3 and headquarters moved related capital expenditures and any non-operating costs from the investigation or other extraordinary items, we believe that our rate of quarterly cash burn over the last seven quarters has been approximately $8 million per quarter. This however does not include the benefits of additional restructuring and budget reductions undertaken in August of 2015. As you may know, our Michigan facility was formerly a biodiesel plant that we acquired in 2012. We have been repurposing and expanding the plant in phases. Phase 1, which was the installation of fermentation tanks and the building that houses them was completed in 2014. We began commercial production of Regalia, Zequanox and Grandevo in 2014. We recently installed pilot drying capabilities there to prevent or to help development, I’m sorry, there to help develop manufacturing processes. During 2015, we developed a team approach to manufacturing efficiencies with R&D and supply chain that we believe will support a significant improvement in economies from the scale-up of this facility. I’d now like to discuss the strategic financing we completed in the third quarter. As described in our recently filed 10-Q, we received a significant capital infusion from a supportive institutional investor. This is described in the related party section of the 10-Q. We issued $40 million of senior secured notes at a rate of 8%. $10 million is payable in three years, a second $10 million in year four, and the final $20 million in year five. There are customary covenants for the debt and an obligation that we maintain cash and cash equivalents of at least $15 million, which is recorded on our balance sheet as restricted cash. The debt included a warrant attachment for 4 million shares of common stock at an exercise price of $1.91 per share with an expiration date of August 20, 2023. We determined a fair value of the warrant at $4.6 million, which is listed in the equity section. The loan value is reduced by the same amount as a debt discount and amortized over the life of the loan. This financing gave us a much needed breathing room as we believe it is sufficient to take us through at least the next 12 months of operations as we focused on growing the business. Of course, our sales strong function is a key to this effort. We have turned over nearly the entire sales and marketing teams since the beginning of 2014. We have hired new sales leadership for the sales team and are rebuilding it. In April of this year, we realigned the sales organization by region. We are fully staffed in California and the Pacific Northwest with a focus on high value specialty crops. We are still in the process of pressing the resources we need in the East, Midwest and South, to focus on areas with the highest concentration of specialty crops and our current thinking is to use partners to most effectively position ourselves to better commercialize our technology in the row crop and water market. In international, we expect to add in a Manager for our Latin American business soon. In marketing, last week, a strong [indiscernible] accepted our offer to start in December and late last year, we added two product managers, one for insecticides and nematode and one for fungicide. We have surveyed growers and some firms that are -- they have a positive perception of our product often exceeding leading chemicals and other biologicals. We also found that we increased our market share fastest where we have knowledgeable, trained sales staff focusing on educating our customers about biologicals in general in our specific products. We continue to hear over and over again that our customers want to use biologicals, but they are generally risk adverse and need information and education to take their step. Biologicals have a different mode of action than chemicals and require education about how they work, when to use them, which conventional products they are used with, why and when. We have an opportunity to demonstrate our leadership in this industry and we have a number of initiatives going along this path. I’ll now turn the call back to Pam.

[Pam Marrone:]

Thank you, Jim. We are rebuilding a focused and effective sales and marketing team that shares our value, including hiring highly experienced personnel, training our sales force and hiring a new Head of Marketing that we expect to join in December 2015 to guide an expanded marketing department. We have also worked diligently to reduce expenses, conserve cash and improve operating efficiencies. We remain focused on extracting greater value from our products and product pipeline and improving our communication to and connection with the global sustainability movement that is core to our cultural values. The market opportunity in front of us remains clear and compelling. Sustainability is key to both conventional and organic growers. They have a global movement that drives this trend and our business. Consumer demand for organic and for sustainable practices is reshaping our industry, our products, which are all listed for organic, made conventional crop production and helped management more effective and sustainable. Additionally for organic growers and growers wanting to transition to organic practices, we can be a key partner in this high-growth opportunity. While today it is a smaller part of our business, US organic acreage must grow at faster rates than the rest of the industry to meet consumer demand. This is why developing a broad suite of products across a wide range of growers’ need is the right strategy for growth. Our products are effective, enable sustainability and address real and significant and escalating needs. I’d like to thank you again for your attention and continued interest in Marrone Bio Innovations. And now operator, we are ready to take questions. Thank you.

[Operator:]

[Operator Instructions] Our first question comes from the line of Laurence Alexander from Jefferies.

[Unidentified Analyst:]

Hi, this is Jeff on for Laurence. On the product order flow, to what extent did the audits disrupt the orders in certain categories? Were some impacted more than others? And were there any bright spots that you saw in the past year versus maybe competitor products?

[Pam Marrone:]

I would answer that Jeff by saying that – this year was a transitional year and we are putting those distractions behind us, but we started the year with high – with channel inventory that was built for higher growth expectations. So as we depleted that inventory, worked off that channel inventory, then new sales started. So if you look at what was burned off in the channel and then the new shipments, we have increased pounds on the ground growth that are in a number of our markets. So particularly in California with Grandevo and Regalia, nuts and stone fruit, and as I mentioned on the call in a number of the berries and vegetable crops. So those are some of the bright spots.

[Unidentified Analyst:]

Great. And then if I can, on the R&D side, can you talk about where Marrone Bio is most differentiated versus your competitors?

[Pam Marrone:]

Yes, you know, that there is a – right now, there is a real push for all kinds of start-up in big companies and even our channel customers going into biosimilars. So we have reordered and reprioritized our pipeline, so that biosimilars like microbes that enhance growth are lower priority because we think that there is so many people in that segment that our strength is that registered, regulated bio pesticides that contain natural chemistry, then that chemistry gives us an effective dose on the pest and consistent good products killing the pest, and that we have the broadest portfolio across the full range of customer needs. And once we get our herbicide and biofumigation and some of the other things in the pipeline, it will – the real suite of needs of both organic and conventional growers.

[Unidentified Analyst:]

Great. Thank you.

[Operator:]

[Operator Instructions] I do have a follow-up from Jeff on Laurence Alexander’s line from Jefferies.

[Unidentified Analyst:]

Sorry. Pam, if you could just talk about what the most important milestones over the next 12 to 18 months where investors are focused on, that would be really helpful? Thank you.

[Pam Marrone:]

Yes. So obviously by becoming current with our financials, that was the most biggest one to get through and then I think that you should look for -- we will report on our improvements and increase in acreage adoption as we did on this call. You should look for international distributor agreements that we inked, announcement about our activities in row crop like a row crop partner and adding through some of extraordinary expenses that we have had.

[Unidentified Analyst:]

And does MBII have the balance sheet to withstand a continued tough environment – product environment?

[Jim Boyd:]

Well, I think without giving any guide that we have told you that we have at least 12 months’ worth of cash. We have also told you that we have been burning cash at about $8 million per quarter and that we had done an additional restructuring in August of 2015. So I think that gives us a pretty good balance sheet.

[Pam Marrone:]

I’ll type in here and that has been a challenging ag market, but the organic acres and the need for sustainability and growth in that sustainable segment are actually more important factors we think. The low cost commodity prices are dominating in the row crops and we are not heavy in that market. Although – obviously that’s what might dampen future growth of getting into that segment. So it’s not – maybe not as severe on us as with some other company.

[Unidentified Analyst:]

And I appreciate all the color. Last one, if I can. On the turnover in employees, you mentioned I think the number was – they were cut in half. Did you see most of that in R&D or is most of that sales or how does that sort of break out?

[Pam Marrone:]

A bulk was in R&D. Yeah, R&D was cut by over – probably 50%.

[Jim Boyd:]

It was significant.

[Pam Marrone:]

It was significant across, sales no -- because of rebuilding our commercial side, but R&D [indiscernible].

[Operator:]

Thank you. And that concludes our question-and-answer session for today. I would like to turn the conference back over to management for any additional comment.

[Pam Marrone:]

We don’t have any additional comments. Thank you, operator and I thank everybody for listening.

[Operator:]

Thank you. Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program and you may now disconnect. Everyone have a good day.