Marrone Bio Innovations, Inc. (MBII) 2018 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Marrone Bio Innovations Third Quarter 2018 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Linda Moore, General Counsel. Please go ahead.

Good afternoon, everyone, and thank you for joining our call. 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 under the heading Risk Factors and elsewhere in the company's quarterly report on Form 10-Q for the third quarter of 2018 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 respect 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 statement 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 Founder and Chief Executive Officer, Pam Marrone. Pam?

Thank you, Linda. Good afternoon, and thank you to everyone for joining us. With me today is Jim Boyd, our President and Chief Financial Officer; Kevin Hammill, our Chief Commercial Officer; and as you just heard, Linda Moore, our General Counsel.

We had a very good quarter as we continued to build our company's infrastructure and execute upon our business plan. As the CEO and Founder of Marrone Bio Innovations, I continue to be confident about our growth opportunities and the future of our company.

We have seen progress in the following areas: First, from a financial standpoint, we are very pleased with the third quarter of 2018. We continue to make progress on our 3 target areas: growing our revenues, increasing our gross margin and keeping our costs in line. Let me touch on the highlights.

Revenues grew 29% to $5.4 million, a record third quarter revenue number for the company. Gross margins increased over 700 basis points to 48.3%, our highest quarterly gross margin in our history as a public company. Operating expenses decreased 19% to $6.8 million, while we experienced the lowest SG&A expense in 2 years. As for the balance sheet, the vast majority of our debt was converted to equity in the first quarter, and we ended the third quarter with over $22 million in cash, cash equivalents and restricted cash. Cash usage from operations this quarter decreased significantly to $1.9 million. With our stronger balance sheet, customers, distributors and growers can purchase our products with confidence.

Second, we continue to move our product pipeline ahead, commercializing innovative new products. As you know, we launched Haven Sun Protectant in March of 2017 and Stargus biofungicide last December. We launched Zelto bioinsecticide/nematicide, our first turf brand in January of 2018; and Amplitude biofungicide this spring. After the June launch of our CG brand of Regalia, Venerate and Grandevo into the cannabis and home garden market, sales of these brands started to contribute more meaningfully in this quarter. Cannabis remains a significant opportunity, especially since regulators are cracking down on illegal and unsafe pesticide use and Canada's national approval of recreational cannabis in October. And also, in the recent midterm elections, Michigan approved recreational cannabis, and Utah and Missouri approved medical uses. In the first few days of August, we submitted the registration of MBI-014, our breakthrough bioherbicide, to the EPA.

Third, U.S. and global field trials continue to show promising results. I'll share more about these shortly.

Fourth, we further expanded our commercial team, adding the Director of National Sales and Account Management and the Sales Manager of a Northern California territory. We continue to educate growers and key influencers about the benefits of biologicals in integrated programs. While biologicals are great for organic programs, they are still too often pigeonholed into organic only rather than integrated broadly into conventional programs. You will see more from us on this with our initiatives to hammer home that biologicals and chemicals are better together in integrated programs.

And finally, the International Biocontrol Manufacturers Association awarded MBI the renowned Bernard Blum Award for the innovations behind our Venerate, Majestene and MBI-014 products. Venerate was named Best New Biological Product at the prestigious Agrow Awards ceremony in London yesterday. These honors not only recognize the significance of what our products have to offer but also the recognition of the potential that biological technology in general has to offer the agricultural industry. These awards can be shared by all who are contributing to the advancement of biologicals.

While first half 2018 sales were affected by dry weather in California, lingering effects of the hurricanes in the southeast and negative rumors about the company, we continued our operational execution, which included several positive and noteworthy events as follows: We submitted the MBI-014 registration package to the EPA. Some of you are aware that MBI-014 is the company's first entry into the $20 billion weed control market. This is a significant milestone for MBI and the ag and food industries in general. The company continued to make progress on the art of use of 014 such as use rates, water volumes, adjuvants and combinations with other chemistry. We are very focused on moving this important new product into the marketplace.

We expanded MBI's international distribution network by signing a new distribution agreement with Hop Tri in Vietnam and Cambodia. Vietnam is an intensive pesticide market where growers are actively adopting biologicals to manage revenues -- residues for exported crops, presenting an exciting opportunity for us. We also just signed a distribution agreement with AMC/Agrimatco in Turkey, which is also a country with important vegetable markets for export.

We had a successful first commercial demo with an organic strawberry grower of MBI-601 biofumigant, which we have branded Ennoble. We continue to work on the manufacturing process in order to bring this product to conventional growers who have an acute need for a replacement for heavily restricted fumigants.

In 2017, one of our microbes was launched via our strategic partner, Albaugh, into the row crop seed treatment market. This 2018 season, the product was well received, where it is on track to achieve our expectation. Seed treatment is an important strategic growth area for MBI.

Data coming in from both the U.S. and international regions show outstanding results. I will now discuss some of the highlights.

California data were particularly strong. We continue to learn about the spectrum and performance of Stargus. For example, on walnut and pistachios, Stargus and Regalia programs control Botryosphaeria Blight, which is currently one of the most important emerging nut diseases due to resistance to the leading chemicals. On grapes, we have a 1, 2, 3 punch with Regalia, Stargus and Haven. Regalia continued to show stellar efficacy against powdery mildew, Stargus performed well for Rhizopus and Botrytis and Haven reduced sun damage. On almonds, both Venerate and Grandevo performed well against the leading pests, navel orange worm and peach twig borer. We successfully launched the navel orange worm grower program this year. On tomato and pepper, the Venerate program reduced damage due to the main caterpillar sucking and weevil pests. On cotton, a new focus for MBI, Venerate and Grandevo programs performed well against the toughest pests, lygus and whiteflies.

And now some highlights from the rest of the U.S. A study showed that Venerate can control the psyllid pest by one injection into pear trees. This is a very exciting result, and it's not the first time we saw efficacy this way. Tree injection is a viable approach and would be a consideration to help with the Asian citrus psyllid control on citrus trees. Venerate showed good control of wireworm on potatoes. Wireworm is a serious pest of many crops worldwide that needs better solutions.

We continue to focus on international expansion. Here are some highlights. The label for REGALIA MAXX in Mexico was expanded to bacterial diseases on tomatoes, peppers and potatoes; and in Brazil, to melons. Our distribution partner in Brazil has recently completed trials that support another significant label expansion in 2019, several fruit and vegetable crops, including mangoes and bananas. REGALIA MAXX demonstrated its plant health and yield enhancing effects on sugarcane in Panama, corn in Argentina and wheat and corn in Brazil. In 3 regions in China, Regalia performed as well as the chemical standard against the major diseases on strawberry, tomato, cucumber and grapes. In Europe, Majestene on tomato performed well against nematode pests. In 3 African countries, Venerate performed well against key caterpillar and sucking pests on cotton. Grandevo and Venerate performed well against mites on cannabis in Canada. These data will help fulfill Canada efficacy requirement for regulatory approval. One of the largest global fruit companies is testing our entire portfolio in banana and other fruit crops.

On the intellectual property front, we continue to bolster our portfolio. We received a patent for the Venerate microbes for use against corn rootworm. The claims also cover the use for important seed treatment market. We also received the patent for the genes of the bacterium Chromobacterium subtsugae in Grandevo. This patent also covers the use of Chromobacterium proteins expressed in engineered plants and uses for seed treatment.

In the third quarter of 2018, manufacturing and R&D continued to have an impact as follows: R&D margin improvement work and manufacturing efficiency efforts, combined with product mix, continued to increase gross margins, which grew 740 basis points to 48.3% in the third quarter when compared to the prior year. This quarter, we sent our improved Grandevo product, which was scaled again successfully at MMM, to field trials. Early field data looked promising. R&D continued to successfully amp up the nematicidal properties of Majestene via fermentation, which we believe will drive the cost of goods to a very competitive market position.

On the commercial front, we continue to focus on increasing demand at the grower level. This quarter, we launched a number of educational initiatives aimed at increasing awareness for all farmers. We were featured in numerous industry podcasts, articles, blogs and presentations while adding 2 industry-leading large growers to our board, who have already been invaluable in providing grower perspective as well as allowing product demos. We also focused on working with large growers in the food channel to help meet consumers' desires for sustainability and transparency through the development of on-farm, sustainable crop production programs. Because of this increased activity, we believe that the awareness of biologicals in integrated programs is growing.

Chemicals of human health concern such as chlorpyrifos or of environmental concern such as neonicotinoids continue to be highly controversial. We continue to work with regulators and growers to help develop shovel-ready alternatives using our current products, along with chemical and biological tools in Integrated Pest Management programs. As you can see, we have achieved significant accomplishments in the third quarter.

Before going further, I would like to turn the call over to Jim to go through the numbers and provide additional detail on our financial performance. Afterwards, I'll walk you through some of our other strategic initiatives for the balance of 2018 and for 2019 before wrapping the call up with Q&A. Jim?

Thank you, Pam. As noted, I would like to walk you through our third quarter 2018 results.

Revenues for the third quarter of 2018 totaled $5.4 million compared to $4.2 million in the third quarter of 2017, a 29% increase and a record for what historically has been our lowest quarter of the year. Gross margins in the third quarter grew to a record 48.3% compared to 40.9% in the third quarter of 2017. This again is a record for our company.

Gross profit for the quarter was $2.6 million, up $900,000 from $1.7 million in the third quarter of 2017. This 52% year-over-year increase is significant and an important example of the potential that quarterly revenue growth and a quarterly margin improvement can have on our level of cash usage, which we will discuss in a moment.

We expect to see long-term gross margin improvement over the life cycle of each of our products. As we continue to communicate and are now demonstrating, we launch our products early and then focus on continuous improvements, improvements in the field with art of use, improvements in R&D with efforts to increase the yield and potency of our various microbes and improvements in manufacturing as our great Michigan team continues to drive efficiencies in each product's production processes. Our investment in R&D and manufacturing translate directly into margin improvement across all of our products and is now showing in our financial results. Growing sales and gross profits are both improving long-term profitability and reducing our cash usage.

SG&A in the third quarter decreased 20% to $4.1 million, our lowest in 2 years, compared to $5.2 million in the same period last year. R&D expenses in the third quarter of 2018 decreased 16% to $2.7 million compared to $3.2 million in the third quarter of 2017.

As Pam has already mentioned, operating expenses totaled $6.8 million in the third quarter of 2018, a notable decrease of $1.6 million per quarter or 19% compared with $8.3 million last year. These significant operating expense reductions are part of a group of key performance indicators that we are focused on to drive long-term profitability and improved cash usage. A combination of growing revenues, improving margins, reduction of interest payments and disciplined cash management of expenses drives improvement in profitability and cash usage.

Net loss was $4.4 million in the third quarter of 2018 as compared to $8.5 million in the third quarter of 2017, a decrease of $4.1 million or a 48% reduction. This improvement was primarily driven by a $1.6 million reduction in interest expense, a $1.6 million reduction in operating expense and a $900,000 improvement in gross profit.

Now turning to the balance sheet. Total ending cash and cash equivalents, including restricted cash, was $22.1 million as of September 30, 2018, as compared to $24.9 million as of June 30, 2018, a reduction of $2.8 million. This is the first quarter in several quarters that cleanly reflects our current cash usage.

Similarly, cash usage from operations for the 9 months ended September 30 was $16.8 million compared to $14.4 million for the 9 months ended September 30, 2017. Cash usage from operations during the third quarter was $1.9 million, which compares very favorably with $4.6 million for the third quarter of 2017 and another indicator of how steady improvements in our 3 KPIs, that is revenue, gross profit and expense management, can have a significant impact on our profitability and cash usage.

I'd now like to turn the call back to Pam for a discussion on some of our initiatives for the remainder of the year and into 2019.

Thank you, Jim. We certainly had a good quarter and have made good progress on key strategic goals and operations. And I want to highlight where our focus will remain for the balance of 2018 and into 2019.

On the commercial front, we expect continued concentration on customer demand creation, including on-farm demos and an increased number of customer and food channel educational programs to build awareness as well as expand our labeled uses.

Expand our seed treatment offerings, approval of MBI-110 Stargus in California, early '19 -- 2019 approval of MBI-110 Stargus and Amplitude in Canada. The federal government has already posted an intent to approve on October 19, 2018, and it is now in the public comment phase.

Working with the Ontario Ministry of Agriculture, Food and Rural Affairs, MBI has received approval from federal regulators to add greenhouse cannabis uses to the existing REGALIA MAXX label. As with MBI-110, the proposed cannabis label expansion is being posted for public comment, the final step prior to federal regulators finalizing the new label for commercial sales to the cannabis industry in Canada.

To sign at least one more international distribution agreement in a key global market. Several international regulatory submissions such as South Africa, Kenya, Europe, Brazil, Ecuador, Canada, Australia and Vietnam; several new international regulatory approvals, including Mexico, Morocco, New Zealand, Kenya, the Philippines, South Korea and Canada.

Operationally, driving revenue growth by increasing our presence with key large growers and strengthening our channel partnerships, all the while continuing to build a high-performance commercial team. Plans are proceeding to add Venerate and Majestene production to our Michigan facility.

Continued gross margin improvement over the longer term as R&D and manufacturing initiatives continue to increase efficiencies and yield.

In summary, we remain laser focused on commercial execution and building our longer-term vision of being the market-leading biologicals company through our own products, combined with other potential synergistic products and technologies.

With that, I'd like to now open up the call for questions.

(Operator Instructions) We'll take our first question from Sameer Joshi with H.C. Wainwright.

The first question relates to the accounting standard, ASC 606. Were the revenues in 2018 increased because of that accounting standard? Because it -- that's not exactly an apples-to-apples comparison to the peers.

Yes. Yes, I think the previous revenue number for the quarter would have been approximately $1 million higher.

$1 million higher. Okay. Got it. And then Pam mentioned several initiatives on the commercial front with grower-focused efforts, industrial podcasts, publications. At the same time, we see a reduction in SG&A sequentially as well as year-over-year. What was the reason for this reduced SG&A expense?

Well, just general operations reduce throughout, everything, audit fees...

Yes, audit fees is a big one. Legal fees is a big one. We're not raising money later in the year.

But I think just general, a reduction across the board.

Was there any effect of further employee attrition or any such thing because of negative press?

Not really.

Well, we had a number of open positions...

In the sales, yes.

Yes, in the sales area, but I don't think it was unusually weighted toward that.

So in fact, in the last 3 quarters, we added people to our commercial operations. As noted by Pam, we added Barner Jones to the Head of National Sales and Marketing, and over the last little period, we've hired 2 additional sales reps to help us out in the California area. So we continue to add to drive our sales forward in the sales and marketing group.

So going forward, we may see a slight increase but not further reduction, right, in SG&A?

Yes.

Yes.

Yes. And that's consistent with what we said in the past. We're investing slightly in sales and marketing.

Yes.

Okay. And so moving on to the additions to the Board of Directors, how do these people help you in your commercialization effort? Or was there any other angle that you're looking at when you brought these people on board?

Well, the great thing about our 2 new board members, they have so much commercial insight, and they're able to give us a lot of insight into how the opportunities are out there and also how we can use our product as is. And also, two, opens up a number of opportunities to talk to other growers that they're associated with.

So it was commercialization focused as against R&D or any other focus?

Yes. Although they are quite senior business people, they know the business from start to finish, but one of -- for myself, the greatest insight they give is from the commercialization, ground-truthing all our options as we go forward.

Okay. Just 2 more questions for me. I think a couple quarters ago, there was talk about study on induced systemic response for cannabis. Has there been any progress on that? Or is that not required?

So we were looking at the increase in the compounds, the phenolics and others, that led to quality of cannabis. And Kevin, maybe you have an update, but as far as I know, that study is still under...

Yes, the study has not -- we do not have the results back yet.

We do not have the results back yet. When we have the results, we'll let you know. Growers can report good thing, but yes.

Yes, that could be important for all regions, right, including Canada and the U.S.?

Yes.

And the last one is, when you look at your current product portfolio and your efforts around the world, which regions and which products are emerging as major revenue contributors currently? And then which do you expect to grow in the future?

We expect growth, actually, in all of our key active ingredients, our key microbes or in plant extracts as we go forward. One of the greatest opportunities we see is increasing need in both seed treatment and soil applications. And we will continue to build our portfolio, both the fungicide and insecticides and nematicides in that territory, in that area, that space. But as we look forward in the 5-year plan, we see growth in all of our key brands and active ingredients.

Okay. I know I said the previous question was going to be the last, but just a couple more. What is the expected timing of the MBI-041 (sic) [MBI-014] clearance by the EPA? And then how do you see the MBI-110 application going forward -- moving forward?

Yes. So 014 was submitted in August, so minimum is 18 months. We figured about 2 years for approval. So the first targeted placement would be in 2020 to organic growers as we, by that time, figure out all the art of use and how it's going to fit much bigger into the conventional market. And then 110, what was your question about 110?

You mentioned in your -- yes, same question, basically. Label expansion.

So 110 was launched very late last year, just when we were getting a few key state registrations. And it's not approved in California yet, but as we said in the script, it is expected. And then -- and to our surprise, it was quite fast in Canada, so we expect that first quarter. But maybe Kevin can talk about the trajectory, any comments about the trajectory of it over all the crops that we're in.

Yes. We see great promise in the 110 molecule as we go forward, both as a stand-alone and in combination with conventional chemistry out there. As Pam mentioned, we do not have the California market, which will be one of our largest market opportunities. So we're anticipating that and looking forward to that registration. And in Canada, it will be coming -- similar timing to our other active ingredient or other brand, Regalia, and we see that as a great opportunity, both in the greenhouse market, including vegetables and cannabis, but also the outdoor market in Canada.

(Operator Instructions) We'll take our next question from Ben Klieve with National Securities Corporation.

I've got a few here. First, I'm wondering if you can talk a bit about the productivity of the new sales force. Curious kind of what degree do you think the ramping of the new force has contributed to revenue growth in this quarter. And then maybe if you can just elaborate a bit on the typical time line that it takes new reps to ramp up and any kind of metrics you can provide that will give us any kind of visibility to their progress would be helpful.

Yes. We're actually really excited where we are with the sales force. To answer part of your question, usually typically, 6 to 12 months depending on the individual to get up to speed and contribute in the territory. So most of our sales reps who were with us early in the year. Not only do we see some good contribution to this quarter's success, but we really, really see the -- we're excited about their contribution for the 2019 period as we go forward.

Okay. Thanks, Jim. And also, I'm wondering...

Kevin.

That was Kevin.

I'm sorry. Sorry, Kevin. And I have another question as well for anybody, but Pam, really curious about your insights here. You seem to be really excited about the opportunities that Vietnam presents. And I'm wondering if you can elaborate a bit on kind of how you see the next 12 to 24 months unfolding here. Is there any kind of estimated time line of kind of when you think that could become a meaningful revenue contributor?

Yes. So the trials -- so every trial outside of the United States -- California requires efficacy data, none of the other states do, and then all countries outside of the U.S. require efficacy data. So we have to have a couple seasons of efficacy data under our belt in order to submit in these foreign countries. So we have the efficacy data now with Vietnam. And what was really interesting on some very large hectares or acres. So for example, rice. Regalia showed substantial yield increase when applied to rice. And so there's several million hectares in Vietnam. And then a number of fruits and vegetables which are exported and because of the sensitivity of residues by the importing countries, which could be Japan, for example, there's an intensity of the pesticide market where they literally spray every 5 days for some of these pests. So while a little country, it's a very intense pesticide market and will be a significant one for us. I think that -- what I said was that we're expecting some registration approval in 2019. So if that happens, then we would expect revenue next year.

Got it. Another question I have here is now that you have a few months of CG brands kind of in the market under your belt, I'm wondering if you can compare how you see the commercialization process here as compared to your traditional products. And I guess, really specifically, I'm wondering if you can touch on kind of given the controlled nature of the cannabis market and high dollar value of the crop here, if you can -- if you see that time line from initial demos into initial sales being condensed relative to your other products. Or am I getting ahead of myself here?

It's definitely a different ramp-up pace, and we're excited about how 2019 is going to go. We had a great year in 2018. But it's interesting is that kind of a different end-user clientele set, and they're actually -- in terms of how you approach them and how you access them is a little bit different in that they tend to be more social media focused. And so what we have done is put a concerted effort in terms of reaching these end users, working with our channel partners to make sure the product is there, they're educated on there and how it's using it. Why this market is so exciting for us is very similar to the organic market in that both of them are rapidly growing. They need great products such as the Marrone Bio products and -- but also they are highly regulated, and there is also a restricted number of products in that market. So we see this as a very attractive and growing market for us as we go forward.

Very good. I guess one last one, then I'll get back in queue here. Wondering if you can comment a bit, get a bit more granular with the progress you made on your on-farm demos. Can you talk a bit about the degree to which the progress has been made on initial small acreage plots versus larger acreage plots with growers who are maybe in their second or third year of demos?

So the major demonstration emphasis was this year, and with all crop protection product -- crop protection usage in crops, we traditionally only get one cycle with our products as we go through the year. There's very few crops such as lettuce where we get multiple crops. So we're expecting the -- be able to build on our success in the various crops that we did demonstrations this year with into 2019. I think Pam referenced in the comment section is that, for example, we had a great performance of our products with traditional chemistry and controlling and reducing damage on navel orange worm. So that trial is coming off this year. We got the results back here in the last 2 or 3 weeks. And now that will be used to continue to ramp up our business as we go into 2019 and for the control of navel orange worms and reducing the damage on almonds.

I think we have more than 300 demos this year so far, right, year-to-date?

Right.

Yes, yes.

Which is significantly up...

That's significantly up from last year, yes.

And then -- sorry, I said that was my last question. I guess a clarification on that. 300 up significantly from last year, can you quantify what that was last year?

Double?

No.

50 was it last year? I think it's up from 50 last year.

From 50, yes, okay. So quite a bit.

50 to 300.

We'll take our next question from Robert Smith for the Center for Performance Investing.

In the process of educating growers, when you say you want to educate them on the use of your products in conjunction with chemicals, is this -- are you using your products as an add-on? Or is there the opportunity also to reduce the chemical input to usage?

Yes, both. Yes.

There's probably 3 opportunities we see how to fit our products into growers' crop management system. One is how can we increase the return on investment, whereby we combine our products with a label rate of the traditional chemistry and whereby they get increased yield or decreased damage or increased performance. Another opportunity we see is how do we help the farmer manage his crop management systems where some of his products are getting restricted by regulatory assignments. And the third area where we see a great opportunity for our products is fitting in, helping them in the management system. This could be where they have a reentry interval restrictions or preharvest interval restrictions. We can go in there and allow them -- allow their harvest earlier or their workers to reenter their crop sooner, or maybe they're looking for -- to combine in the crop management systems with beneficials. So overall, as we've entered into their crop management systems, we can play different roles. As I mentioned upfront, we can complement the chemistry they're using to increase yield, decrease damage or increase performance. We can help them manage their pests, wherein their products are getting restricted due to regulation, and we can help them in the management systems if they have reentry intervals or preharvest interval requirement.

And just additional question is -- focuses or centers on Zequanox. Pam, can you just say a few words about what's happening with that -- usage of that product?

You got a good answer.

Yes. So this year, we're doing -- with some improvements in our manufacturing initiatives, we see an opportunity to improve our value proposition to large energy users out there. So what we're doing is a significant beta trial with large customers to quantify and beta test our new value proposition. And we already started this about a month ago, and we'll be progressing with this over the next 4 months. And at that time, we'll be analyzing the beta test and confirming our assumption that this has a great value proposition to large energy companies and continue to move forward with Zequanox.

So is that -- if the results are positive, what is the opportunity then?

Well, this is a...

Can you quantify it in any way?

I don't think we get into quantifying our future revenues, but the market size for this is in the hundreds of millions of dollars in terms of the total available market.

In energy?

No, in terms of the pipeline opportunity, in terms of products they're currently using. We offer a great alternative to their current management practices in terms of controlling the (inaudible) in their pipes.

Yes, but you said that this was a test really for the energy companies, right?

With, with. I should say with the energy companies.

Yes. There's energy, and then there's -- in the pipe treatment market, there's energy and then there's other facilities like steel and paper and pulp, but the largest users are the energy one, which is where we're doing -- we know the product works. This is not an efficacy demonstration. This is a commercial demonstration of the value proposition relative to their other tool.

Yes. I was just wondering, if it's targeted specifically at energy, what is the size of that market opportunity?

It's in the hundreds of millions.

Yes.

Ladies and gentlemen, at this time, I'd like to turn the conference back to Pam Marrone for any additional or closing remarks.

Yes. Thank you, operator. In closing, I want to thank each of you for joining us today. And we sincerely thank our dedicated and committed employees, board members, suppliers, partners, shareholders and customers for the confidence they have placed in us. We recognize the tremendous responsibility we have to realize MBI's significant potential as a leading force in the adoption of biologicals in global crop protection and sustainable food production practices. We continue to conduct roadshows and attend conferences on both coasts. If you're interested in a meeting, please contact management or our IR firm, MZ Group, to arrange. We look forward to updating you on our progress as we move forward with a number of key initiatives to build shareholder value over the longer term. Thank you very much.

Ladies and gentlemen, this concludes today's conference. We appreciate your participation.