Marrone Bio Innovations, Inc. (MBII) 2013 Q3 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by and welcome to the Marrone Bio Innovations third-quarter 2013 financial results conference call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference to our host, Mr. David Niederman. Sir, you may begin.

Good afternoon and thank you for joining us on today's conference call to discuss Marrone Bio Innovations' fiscal third-quarter 2013 results. This call is also being broadcast live over the web and can be accessed in the Investor Relations section of Marrone Bio Innovations' website at investors.MarroneBioInnovations.com.

With me on today's call are Pam Marrone, Marrone Bio Innovations' Chief Executive Officer; Don Glidewell, Chief Financial Officer; Hector Absi, Senior Vice President, Commercial Operations.

After the market closed today, MBI issued a press release announcing the results for its fiscal third quarter ended September 30, 2013. If you would like a copy of the release, you can access it online at the Company's website or you can call The Blueshirt Group at 415-217-7722 and we will fax or email you a copy.

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-Q that the Company filed on September 13, 2013, and our earnings release posted on the Company's website. Should one or more of these risks or uncertainties materialize or any of the 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.

Now I would like to introduce Pam Marrone, Chief Executive Officer of Marrone Bio Innovations.

Thank you, David. I would like to welcome everyone participating on today's call.

We had a good third quarter. In addition to closing our IPO and becoming a public company, we made excellent progress on several fronts including further penetration of our products into row crops, broadening our distributor relationships, progress on the Michigan plant, and also continued validation of our product pipeline through field trials.

The momentum for bio-based solutions continues to grow and we see this validated in our conversations with our grower customers and with our current and potential distribution partners. Growth of biopesticide and interest in this segment by growers, distributors, and large agrochemical companies continues at a rapid pace.

Regarding distribution channels, during the quarter we signed MOUs with two new distributors for the European region for our Grandevo and Venerate products and are working at formalizing the agreements. In France, the MOU is with DeSangosse, the largest independent distributor in France. In Italy, our MOU is with CBC/Intrachem, one of the leading biological providers in Europe.

These are best-in-class distributors and they would greatly extend our reach as we look to bring our products and solutions to growers in Europe. We are extremely excited about these potential new partners who have pioneered selling biologicals for use in agriculture.

And, finally, our partner Syngenta has announced that they will be launching Regalia Maxx in Turkey this month. Turkey is a large provider of fruits and vegetables to the European Union and Asian markets.

Now I am excited to share with you data from our launch of Regalia Rx on corn and soybeans in the Midwest. These commercial applications showed very encouraging results with respect to yield increases and plant health. Regalia Rx was applied on top of the chemical treatments and resulted in 5 bushels per acre increase on average in corn and 4 bushels per acre increase in soybeans.

In addition to yield results, we also received data from the growers that indicate increased corn test weight. This increase would provide additional value to the growers beyond bushels per acre, which is very compelling to our grower customers.

The pictures we are providing show visual evidence of the performance of Regalia Rx applications: greener color, healthier plants, and increased ear and pod size. The success of this launch validates our expectations for penetration of Regalia Rx in the Midwest.

In addition, our products and product candidates continued to perform well in field trials. In a trial with Auburn University, MBI-203, the microorganism in Grandevo, showed excellent performance against soybean cyst nematode, increasing yields when applied in furrow and as seed treatment. Venerate also showed activity against this nematode as did MBI-302, which we mentioned during last quarter's call.

As noted on the slides provided, all three products decreased nematode numbers and increased plant health as measured by yield. We have filed patents on the use of the microorganisms against nematodes. These results have accelerated plans for increased investment in a field trial program against soybean cyst and a range of other nematodes in the southern hemisphere in 2013 and the US and Latin America in 2014.

We also have some results from the first field trials of Grandevo against corn root worm and the results are positive, such that we will be increasing our field trial program against this insect in 2014. Grandevo was applied on both traited and untraited corn and decreased corn worm damage and increased root mass on both.

We continue to believe that one of the ways to expand our business is to maximize the number of uses for our products. We anticipate that the potential uses for our products in high-value specialty crops will continue to grow as we see additional field trial data. Here are some of the first examples from 2013 trials.

In a strawberry trial in Florida we validated what we saw in previous grower demos, that Regalia applied at transplanting can significantly reduce the amount of irrigation required at plant establishment while yielding the same or better fruit weight and number.

Grandevo and Venerate both continue to show significant performance against a range of fruit and vegetable pests such as whitefly on tomato, aphids on apples, fruit worms on blueberries, and also against grubbs on turf. Performance was as good or better than the standard commercial programs. We believe these results for Venerate and Grandevo validate our strategy to offer growers the option to rotate from one bio-based product to another, further allowing them to reduce more toxic spray.

As a result of the success of field trials with our pipeline products and new uses of our existing products, we have increased our field trials in the southern hemisphere to accelerate development. We have also accelerated the toxicology tests on more new product candidates, which we believe will allow us to further derisk our pipeline and potentially accelerate growth by submitting more products to the regulatory agencies in the US and globally. We are concurrently conducting toxicology tests on six new active ingredients rather than three.

Now I would like to comment briefly on Zequanox. In the third quarter we commenced commercial treatment programs with Ontario Power Generation and Oklahoma Gas & Electric and have also performed open-water trials at Deep Quarry Lake in Illinois and Lake Minnetonka in Minnesota. We look forward to bringing you additional updates as commercialization work and orders continue.

In addition, we received California registration for this product in the quarter. Additionally, we commenced a demonstration of a more efficient and cost-effective method of applying Zequanox at the Hoover Dam. This program consists of periodic lower dose treatments for settlement prevention. We anticipate that this regimen will potentially lower costs and provide a compelling value proposition to the customer.

We also received California registration for our Opportune product. Opportune is a bioherbicide that is derived from a microbial compound and is effective against broadleaf weeds in turf and rice and a large spectrum of weeds when applied pre-emergence.

We are planning a targeted commercial launch of Opportune in the fourth quarter. As mentioned before, we continue to work on fermentation improvement of this product to reduce COGS.

I would like to comment on the potential impact from the current EPA closure caused by the federal government shut down. As you know, we submitted our Venerate bio insecticide product to the EPA, and barring the shutdown, anticipated approval in December, in time for the citrus treatments in Florida. Since the shutdown we were notified that the anticipated registration will not be granted until early first quarter. We do not anticipate any material impact to our financials in 2013 or 2014.

Additionally, earlier this year the US changed its patent law from first to invent to first to file. This means we had to change our patent strategy.

As you know, our intellectual property is fundamental to our business. As a result of the new law, this year and on an ongoing basis we are filing more patent applications earlier than we would under the old law. Our strong IP is one of our key defensible areas and we will work hard to maintain it.

Turning to our team, we recently added two additional board numbers to our Board of Directors, Dr. Pam Contag, CEO of Cygnet Biofuels. She was the founder and was Chairman and CEO of Cobalt Biofuels and has tremendous experience as a serial life science cleantech entrepreneur, having taken her first company, Xenogen, public.

Les Lyman is Chairman of The Lyman/Tremont Groups, an independent agricultural retail company with 15 locations in Northern California. We also added Jim Lappin as VP of Business Development and Product Management, and Kristie Jones as VP of Marketing, as previously announced. As we look to maintain our leadership, our Chief Science Officer, Allison Stewart, has organized an international science advisory panel of 10 world-class scientists to assist us in maintaining innovation leadership and advancing our global technology networks.

In closing, we had a productive quarter and continued to execute against our goals. Interest in our bio-based solutions remains very strong and we anticipate that we will continue to be a leader in the space with our broad product pipeline and robust IP.

I would like to turn the call over to Hector to discuss progress at our manufacturing plant in Michigan. Hector has been the lead for M3 for several months and will provide updates on this project going forward. Hector?

Thanks, Pam. As we discussed during the roadshow, the M3 project was planned as a $32 million project in three phases.

Now, because of the rapid adoption of Grandevo in 2013, which has exceeded our forecast, we have decided to accelerate our investment in M3. With this, we expect to achieve greater flexibility, higher volumes, and a greater control to satisfy the demand of our products.

The original Phase 1 included one working 20 cubic meter fermenter. The new plan now includes the installation of three independently working 20 cubic meter tanks. This new plan should give us the ability to produce multiple products simultaneously and to more than triple the capacity that we expect from the original Phase 1.

We will be referring to the new plan as Phase 1A, Phase 1B, and Phase 1C. Phase 1A is planned to be completed by year-end, which means that we still expect to produce our first batch of Grandevo before the end of the year. Our total expenditure through 2013 is expected at $10.5 million, which also includes moving a portion of Regalia production to M3.

We expect to have phases 1B and 1C completed by July of 2014 at a total cumulative cost of $50 million. This acceleration is not expected to increase the total planned capital expenditure of $32 million for the entire buildout of the M3 facility. Phases 2 and phases 3 include increasing utilities and installing larger fermenters at M3 and we will be sharing more on our progress in future earning calls.

Now I will turn it back to Pam.

Thanks, Hector. I would like to address the announcement we made earlier that Don Glidewell will be retiring from the Company.

I want to thank Don for his tremendous contribution to the Company. Don has been an integral part of Marrone Bio Innovations for 2 1/2 years and was a key element in our recent initial public offering. We are grateful for everything he has done and we wish him well in his next endeavor. Don will continue in his role as CFO as we search for a successor.

And with that I will turn the call over to Don to discuss our financial results.

Thanks, Pam. I also want to extend thanks to everyone at MBI and also our investors. I am proud of what has been accomplished and of my role in putting the Company on a financially stable footing. I remain excited about the future of the Company and I'm committed to ensuring a smooth transition to a new CFO and will work closely with Pam and the other team during this period.

Turning to the quarterly results, we recognized $1.3 million of revenue and have deferred $770,000 of additional sales to future periods. The $770,000 is reflected as deferred revenue on our balance sheet, $1.3 million in revenue for the third quarter of 2013 compares to $740,000 for the same period in 2012 or an 82% increase for the quarter on a year-over-year basis.

For the first nine months of 2013, total revenues of $8.6 million, which excludes the deferred revenue piece, compares to $4.2 million for the same nine-month period in 2012 and represents a year-over-year growth of 102%. As mentioned in our last earnings call, third quarter has historically been our lowest quarter of our fiscal year as a result of seasonal trends.

I would like to discuss the deferred revenue piece I mentioned previously. $770,000 worth of product was delivered, accepted, and invoiced to our customers during the quarter in addition to the $1.3 million that was recognized.

In the ag industry, extended payment terms are commonplace, particularly in row crops and for large high-volume orders. We are entering row crops as a new segment of our business and will be offering extended payment terms compared to what we have offered in the past. We are deferring revenue on these invoices and will recognize this revenue in future periods.

There's three considerations to offering these extended payment terms. First, the proceeds from our initial public offering gave us the working capital required to offer such terms. Secondly, we entered the row crop market, where extended terms are the norm. Third, extended payment terms help us drive larger order size, which reduces logistical and other costs related to servicing these accounts.

Initially we will be deferring the revenue on these extended term sales. After we build a history of offering and collecting on these longer-term receivables, we can on a GAAP basis recognize these sales on sell-in versus sell-through model. We will continue to provide detail on the recognized and deferred revenue pieces.

The gross margin for the third quarter was 20%. This compared to 24.5% in the second quarter of 2013 and 29% in the same quarter last year and was in line with our expectations.

Turning to our operating expenses, total operating expense for the quarter was $8.9 million compared to $7 million last quarter and $6 million in the same quarter of 2012. These numbers include $537,000 in stock-based compensation.

One main driver of this increased OpEx is personnel-related. This is a combination of competitive response to attracting and retaining our human capital. Specifically, we have increased our accrual for incentive-based compensation both for cash and stock-based compensation. We also increased salaries across the organization to protect our prior investments in developing our team.

R&D expense of $4.5 million increased approximately $510,000 from the second quarter of 2013 and $1.1 million from the third quarter of 2012. This increase was driven by continued investments in human capital as spending related to direct R&D expenses such as patents and trademark applications and toxicology studies that Pam mentioned earlier.

SG&A expense of $4.5 million increased approximately $1.4 million from the second quarter of 2013 and approximately $1.9 million from the third quarter of 2012. There were several items that impacted the sequential increase in SG&A. These included aforementioned incentive programs, new hires across the commercial and administrative functions, and also the costs related to our initial public offering.

Interest expense for the third quarter of 2013 was $1.1 million, a decrease of $1.2 million from the second quarter of 2013. This reflected the reduction of our debt levels as a result of converting $49 million of debt into stock at our IPO on August 2, 2013. $12.5 million of straight debt did not convert and will remain outstanding through October 2, 2015. The interest expense on this debt going forward will be $375,000 per quarter.

Also, included in our other income section is $3.7 million of gain from change in fair market value assessment of financial instruments. This change was computed as of the IPO, at which time the financial instruments giving rise to this gain were converted to common stock. Therefore, no future adjustments for fair market value will be required on these instruments since they don't exist post-IPO.

Net loss for the third quarter of 2013 was $6.1 million. Our weighted average shares outstanding used in computing our net loss is 12.9 million shares per basic count and 14 million shares for diluted.

With regards to the balance sheet, cash and short-term investments as of September 30, 2013 totaled $53.5 million. Inventory increased $3.8 million to $10.8 million during the quarter, reflecting anticipated sales in our fourth quarter. Current deferred revenue was $1.1 million, reflecting the sales dynamics I detailed earlier plus additional deferred revenue from our license agreements.

Finally, we invested $900,000 on equipment purchases in the third quarter for both our Davis and Michigan operations.

Turning to our guidance, we expect to more than double revenues in 2013 compared to our full-year sales of 2012, including revenues subject to deferral. We expect operating expense level we report for this quarter to persist for the remainder of the year as we continue to bolster our team and make important investment decisions in our IP portfolio, which includes field trials, toxicology tests, and regulatory submissions.

With that we would be happy to take your questions. Operator?

(Operator Instructions) Laurence Alexander, Jefferies.

Good afternoon. I guess just a couple of things. First, it's obviously very early in your growth cycle, but as you look at last year your Q4 was about 4 times your Q3. Can you just give us a little bit of a sketch of how you see the CAGR into Q4 this year and how the Latin American (inaudible) might be shaking up?

Certainly, this is Hector. We are on track to deliver more than double the amount of business we delivered in 2012. As such, the ratio we experienced in 2012 will be mirrored in 2013 to be able to deliver against those numbers. And, again, that would include any deferred sales that we would obviously accrue as well.

Okay. And then with the expansion of the pipeline to six products that are in testing, can you give some detail as to which ones you've moved forward and also how that will affect your R&D run rate next year?

Sure. So the original plan was to submit -- was to do toxicology on a nematocide, a fungicide, and our systemic herbicide, and we have added into the tox a microbe that reduces stress in plants and another nematocide and a biofumigant. And so what we did was accelerate some toxicology expenses planned for 2014 into 2013 and the R&D expenses are relatively flat on the remainder of direct R&D expenses outside of the people cost.

Then one last one and then I will hop back in queue. In terms of the salary inflation you are seeing, can you give us a rough sense for both what has happened so far and also what you think a reasonable CAGR might be for the next several years? (inaudible) set expectations too high [internally].

Kind of a two-pronged question. I'd like to remind you that a piece of this on compensation inflation is the stock-based compensation, which we had not accounted for in our initial projections as it was non-cash and difficult. So we are reporting on a GAAP basis so there's $537,000 worth of stock-based compensation included in this quarter.

There's accruals for increasing incentive compensation besides just stock-based, which is just a higher accrual rate which we took on this time. I think it's important to incentivize the folks. And there's -- other employee-related was around 500 for the quarter.

Returning to kind of a CAGR, there is intense competition for talent in this space. One of the things that I have always said that keeps me up at night is retaining, attracting and retaining the talent. And because we have an advantage here that we train these people because we have higher knowledge of how to do biopesticides, it's really important that we retain.

So it's only natural as more companies enter the space that there's going to be more competition for this talent and people trying to pick off our employees. We have had to increase that competitive response to that so we did a significant increase this year. I don't see that level of increases going forward year-over-year.

Mike Cox, Piper Jaffray.

This is Amanda Durow representing Mike Cox. Congratulations, everyone, on the fantastic quarter. The question we have is what does your order backlog look into first half of 2014? Are the growers who tried the Regalia Rx on corn making orders to apply for higher acres?

This is Hector again. The answer to your question is yes. We see the demand and backlog in our system consistent to be able to deliver against the expectations we have set forth. And, again, the good news the Pam shared, specifically in the row crop area in the Midwest, is actually very consistent in setting our business up to deliver against the numbers we expected into 2014.

Okay, great. Then my second question is today at Monsanto's analyst day they expanded their biological program and this follows FMC's expanded effort. Can you speak to the importance of the first-mover advantage you have in the category since those products are likely not going to be out for another five years?

Absolutely. We do have a significant headstart. They said five years; I give it even longer than five years. I think we have a seven-plus year headstart. We -- in that regard.

So we continue to have the broadest, fastest-moving, and more market entries than anybody else with a unique capability to characterize the compound and patent the compounds produced by the microbes, giving us a higher performing product than others.

Perfect. Thank you so much.

Philip Shen, ROTH Capital.

Good afternoon, guys. This is Matt on for Phil. Thanks for taking our questions.

Just wanted to start out with some commentary from one of your chemical-focused competitors who has recently talked about a lack of innovation in herbicides. In particular, they also highlighted that customers are willing to pay a premium for more innovative products. Are you seeing this as well and is this something that sort of opens up an attractive opportunity for Opportune for you guys? What are your thoughts here?

That's a great question. We noticed the lack of new active ingredients for herbicides. The Company was founded on that lack and so we are one of -- probably the only company in the industry, biopesticide company, that really has a major focus on bioherbicides. And so we are innovating to that and have a number of products coming, our most exciting [O&O], our systemic herbicide, which is moving along.

And then Opportune has a lot of potential opportunities more in the high-value segments, Scotts and home and garden and turf, professional turf. And then as we get the fermentation costs down, the yield up, then it can expand into what we see mixtures into with other herbicides in other markets.

Okay, thank you. That's helpful. And then one more here.

Just counting the $770,000 in the revenue line, it looks like this would have represented about 40% of revenues in total. Going forward is there a rule of thumb that we can use for the mix of deferred revenue and how will seasonality come into play in this situation?

Sure. We don't intend to offer extended terms across the board, so the continued business in specialty crops will -- unless there's a volume driver or something, we will continue to be -- we will be in the 90-day terms which are currently recognized.

I also want to point out that this deferral of revenue with extended terms is a temporary, if you will, phenomenon until we build the history. From a GAAP perspective need to build the history to show that these are sales that are made and collected on time and on due date. So I think we will see this go away in the coming year or two. It should be in the coming year just depending on our history there.

So as a percentage I think in the row crop business that's a high percentage. That's the way competitive business is done. And so to the extent our businesses in the row crops and in the high-volume areas you will see these extended terms. We will defer some of that revenue, and I think Hector has a better handle on the ratios and I don't think we are really commenting on giving much guidance on these segments.

What is important to note is that we are doing everything we can to ensure that we are competitive in the marketplace, that we provide both our grower and retail partners the best opportunity to be able to experience and value our technologies and use our technologies. This again is a temporary gap situation that it is difficult for us to forecast when this will actually change, but that's not going to change our strategy to continue to provide competitive solutions to our growers and customers.

All right, that's helpful. That's it from us. Thank you.

Paul Massoud, Stifel.

Thanks for taking my question. I apologize for any background noise you might hear, but I guess first off my first question is just on the implications for cost as you start to move more products to Michigan. I imagine over time the costs come down, but especially with Regalia going in, as Regalia production coming from Michigan sooner rather than later, I was just curious if you expected a step up in costs as you worked out kinks.

No. As a matter of fact, the objective of modifying our Phase 1 strategy is to try and bring the cost issue more in our hands than in the hands of contract manufacturers. We certainly expect, consistent to what we have shown you, there will be increased margins year to year from 2013 into 2014. Specifically as we start getting margins in Grandevo.

Our expectation as we continue to rely now on our own people for the manufacturing is that we will have greater flexibility to continue to obviously assess and implement future product development or fermentation efficiencies that our R&D group brings to us on a timely fashion.

Okay, that's helpful. My second question is just again going back to the issue of salary inflation. More specifically, I guess what I'm curious about, especially in the context of Monsanto today talking about their biologicals segment starting to get more attention, I'm curious when you talk about the need to retain talent, are you seeing multiple potential poachers of talent or is it one in particular? Just kind of curious what it's starting to look like.

Our employees are heavily recruited by all other companies looking to bring talent into the industry, so it's across the board.

I'm sorry, could you say that again? I didn't really come through.

I said it's across the board, there's no one company. It's a --

And no one employee.

-- equal opportunity situation and across all levels in the organization.

Okay, thanks.

Laurence Alexander, Jefferies.

Just a couple of follow-ups. First, in these studies where you compared against a nematocide, was that against another biological product or was that against a chemical product?

It was against Avicta, which -- you know what that is, okay.

Secondly, I know you don't want to get into too much detail on your crop-by-crop exposures, but could you give us a rough, say, rank of your top two or top three crops? Like what was driving your sales this year and then how you think that might change next year?

Really what I'm trying to tease out is at what point does the row crop penetration become a significant driver for you?

You bet. Laurence, the top crops that delivered revenue or will deliver revenue for us in 2013 will be a combination of both horticultural crops and row crops. I will be more specific: citrus, obviously corn and soybeans on the row crop, and grapes.

We have had significant results, as Pam indicated, with some of our trials with Grandevo and Venerate in several horticultural crops so we continue to expect growth in that area. We expect, in general, to see the same three crops as the leading crops in 2014 as well.

Then as you look at the competitive landscape, I guess maybe just to come at it from a different angle. I think in the past, Pam, you have characterized the difference in your philosophy or one way to think about it in terms of focusing more on delivering chemistry via the microbes rather than just trying to deliver the microbes.

Could you maybe just sort of flesh out a little bit if that's right or how you see that showing up in terms of differences in the types of products that you would be bringing to market?

You've got that right, Laurence, that a key competitive advantage is that we focus on the chemistry produced by the microbes as well as the microbe and most others focus on just the microbe. So that is a very fundamental difference, a key competitive advantage for us, because when you characterize the compounds you can optimize those compounds in fermentation and then deliver a consistent level of performance.

And we also patent those compounds so we get much better patent protection than if you were just delivering a microbe. Somebody can deliver a microbe on a seed. Someone else can come up with another microbe that does a similar thing. But if we have one, like our three nematocides, that are producing chemistry, we characterize and patent those compounds and then deliver those compounds plus the microbe, it gives us a much -- a more consistent, higher performing, better patent-protected product.

And then I guess just to follow on on batches, do you think about sort of the threshold for launching a product in this market? Is it around a 3%, 4% yield gain or something comparable as a value creation, or is it a higher hurdle than that? Just given the number of people who are now targeting research in this area, how are you thinking about that?

Yes, in terms of yield gain of the crop?

Right. Like what sort of marker makes it worth getting it placed with other products in your portfolio?

Again, this is Hector, Laurence. As it relates to the horticultural crops, we are not -- as it relates, for example, with Regalia in the uses as fungal and bacterial control, we are looking to perform as good or equal to our competitive conventional products. So we are not necessarily claiming any additional yield or any additional benefit other than equal control. The benefit here is if you use our technologies you will be able to manage residues better and you will be able to manage resistance better.

The same goes for insecticides in this area. As it relates to the Midwest, when we are looking to -- we don't necessarily specifically look at a specific number on yield, but instead our return of the investment to the grower. So we say -- again you have heard me say several times invest five and get 20 back in return in the form of two bushels of soybeans or four or five bushels of corn.

As Pam noted in our presentation, we've been able to deliver at least that amount to growers in the Midwest based on the data we've been able to receive and we are very excited about what that value proposition holds in terms of the continued growth in that area.

But I would say, though, if we're looking at a 3% to 4% increase in yield, it would not be that exciting to our R&D folks or to me.

Okay. Then just lastly, on the CFO transition, any sort of rough sense for potential timing or is it just early days?

Yes, this is a fairly recent event, and while we do have some candidates, nothing on the immediate horizon right now. We are really happy that Don has agreed to stay through the transition.

At a minimum it's through March and through the year unless they find somebody sooner, so all of the reporting requirements and moving on in my CFO capacity, we are still -- we will work through the transition. I don't think there should be a hiccup in any way.

Fair enough. Okay, thanks.

And I show no further questions. Actually, we have a follow-up from Paul Massoud, Stifel.

This will just be very quick. On the benefits of using your products to row crops, one of the things that started to come up recently and in a lower price environment is that farmers are now starting to look not just at yield but also at the kernel quality of the corn. I'm just curious if you have seen any benefits or any effects from your products that might actually imply some benefit other than just yield results to corn.

Yes, Paul, this is Hector. The slide sets we have provided that are available, I believe, on the website --.

I apologize, I'm in the car.

They show exactly what you are talking about. So the impact of product on yield, even lead insecticides in the marketplace, can tend to be fairly erratic. So you are right that the real value and what is getting our growers really excited, as Pam also noted in the call, is a concept that we call test weight.

We have been very consistent showing improvement on test weight and that goes to demonstrate that Regalia is actually having an impact on the plant itself. You will see on the slide sets greener fields. You will see on the slide sets better standability. You will see on the slide sets better root mass, bigger plants, and inevitably better fill on the ear and ultimately on the kernel. All that translates to this concept of test weight that our growers are very excited about.

That's all I had, thanks. I apologize. I will go back and look at the slides.

Laurence Alexander, Jefferies.

Sorry, just one last quick one. On Zequanox can you give a little bit more color on the initial commercial sales you have? How long you have been in discussions with those customers? And then also the California approval, sort of what the implications are for that.

Laurence, a little more color on the commercial transactions is that we have received purchase orders. We have commenced treatments. I'm not sure if you are aware of this or not, but these treatments tend to go on for a period of time, so we are not completed with the complete treatment to be able to start reporting against those commercial relationships. But we will, obviously, in future earnings calls.

Now we did complete some of the treatments in the lakes in Illinois and Minnesota, where obviously we are in a place to say that the results have been very consistent with our expectations and we are excited about those.

Since we are not registered yet, we can't get any revenue for the lakes.

For the open waters. Then regarding the registration in California, obviously we have been expecting that. There is a significant opportunity in California.

It is not as significant as it is in the Great Lakes area, where the infestations originally started. But as you know these infestations are moving west so we are very eager to get in front of a lot of customers in this area to get in front of this problem so it doesn't become a significant issue over time for them.

The big infestation in California is in the lower Colorado River and LA and San Diego area and certainly they've expressed interest, but it's early stages there.

Thank you.

There are no further questions.

Thank you for joining us on the call. Our product launch and trial results in the third quarter were extremely encouraging and we look forward to providing updates in future calls.

Ladies and gentlemen, that does conclude today's conference. Thank you for your attendance. You may now disconnect. Have a great day.