Marrone Bio Innovations, Inc. (MBII) 2020 Q2 法說會逐字稿

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

Good afternoon, everyone, and thank you for joining our call. Welcome to the 2020 Second Quarter Earnings Conference Call for Marrone Bio Innovations. On the call today are CEO, Kevin Helash; CFO, Jim Boyd; and Chief Commercial Officer, Kevin Hammill.

If you would please refer to Slide 2, I would like to remind you that this conference call may contain statements regarding management's expectations, hopes, beliefs, intentions or strategies regarding the future as well as projections, forecasts or other characterizations of future events or circumstances. Such statements are based on management's current expectations and beliefs concerning future developments and their potential effects on the company. There can be no assurance that future developments affecting the company will be those that management has anticipated. Such statements involve a number of risks and uncertainties, some of which are beyond management's control or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these statements.

Important factors that could cause differences are contained in the reports filed by the company with the Securities and Exchange Commission, including under the heading Risk Factors and elsewhere in the company's annual report on Form 10-K for the year ended 2019 and the quarterly report on Form 10-Q for the fiscal quarter ended June 30, 2020, and under the heading Marrone Bio Innovations Forward Looking Statements in our earnings release posted on the company's website. Should one or more of these risks or uncertainties materialize or should any of management's assumptions prove incorrect, actual results may vary in material respects from those discussed today. Any guidance that management may offer in this conference call represents a point-in-time estimate. The company expressly disclaims any obligations to revise or update any guidance or other forward-looking statements to reflect events or circumstances that may arise after the date of this call.

After our remarks, we will hold a question-and-answer session. I will now turn the call over to our CEO, Kevin Helash. Kevin?

Thank you, Linda. It's a pleasure to join this call as the company's new CEO. I'm excited about the opportunity and honored to be chosen to lead the organization to its next level of success.

If you would turn to Slide 3. My passion for the biologicals industry stems from a life's career in agriculture and the recognition that macro factors affecting modern-day agriculture supply and demand are changing the way the industry brings food to our tables. Long before COVID-19 affected our individual lives, the world was focused on producing and delivering safe, affordable, high-quality food in an environmentally sustainable manner. A global pandemic has underscored this dynamic. And I'm very proud of our team for the role they have played to ensure our customers have access to the tools they need during these challenging times. I'm equally grateful to our channel partners and our growers for their support and trust in us as a preferred supplier of biological solutions.

Today's financial results point to the momentum that has been created and the opportunity to lift our growth trajectory. As you see on Slide 4, the company is entering a new phase as a commercial leader in biologicals. I think of our potential in terms of velocity, which, by definition, is speed with direction. We can accelerate commercial velocity by expanding in 3 ways at the same time. One, maximize the value and growth of our base business; two, expand into new markets, whether by crop, by geography or by type of product; and three, introduce new products with proven returns that add immediate value, whether we develop them in-house or we gain them through strategic acquisitions and partnerships.

The path to profitability, in my mind, is clear, as illustrated on Slide 5. As I work with the team in the near future, our focus will be on how we continue to leverage the base business, while accelerating our expansion plans and broadening our global reach. I want to hone in on the brand extensions and pipeline products that offer the greatest return on investment in the near term. I anticipate that synergistic, value-creating acquisitions and partnerships similar to Pro Farm or Jet-Ag will present themselves. We'll evaluate these only if they provide opportunities for near-term accretion from proven performance, established channel access and robust intellectual properties. Underscoring all of this has to be an unrelenting focus on driving operational and financial excellence with a key eye on income and cash flow.

If you would turn to Slide 6, we are clearly growing the top line, gross profit and gross margins, all important metrics for our success. However, we still have to work -- we still have work to do to bring other metrics in line to turn profitable and generate positive cash flow. I have a strong bias that operating expenses have a clear and direct relationship to bottom line growth, and we must view every dollar we spend through that lens. As our company grows, I fully expect our operating expenses on an absolute basis to grow; however, spending has to grow at a significantly lower rate than revenue and gross profit. We've looked at some historical CAGRs on operating expenses, and we'll share those with you in a moment.

The company has spent significant time and resources advancing its product line and building its infrastructure, plant capacity and global footprint. The time has come to leverage that scale and build a full-service biologicals company with the scope and capabilities across the highest growth segments in the industry. I want to underscore the importance of the opportunity to break out of a crowded and fragmented market and emerge as a clear leader in the biological space. Breadth and depth matter in order to gain shelf space with distribution and share of wallet with the grower. Channel access is as important as technological prowess. And the good news is that we have both.

It is my honor to have the opportunity to lead the company through this exciting phase and deliver a clear path to profitability. Now I'd like to turn the call over to Jim Boyd and Kevin Hammill who are going to provide more details on the commercial and financial success we saw in the second quarter and first half. Jim?

Thank you, Kevin. And I would add my thanks to our customers and our team for all that they have achieved in a difficult environment. On a high level, we recorded not only the eighth consecutive quarter of year-over-year revenue growth but the highest revenue quarter in the company's history. Revenues of $21.8 million in the first half are roughly equal to the entire year of 2018. We had our seventh consecutive quarter of gross margins above 50% and a record for any quarter at 60.6%.

If you would turn to Slide 7. Second quarter revenues rose 74% to $12.2 million from continued expansion of our base business coupled with further penetration in the seed treatment market and our international expansion. Global sales in row crops were particularly strong, led by the addition of Pro Farm's family of seed treatments. Second quarter gross margins of 60.6% were the highest in the company's history and reflected a high-value sales mix. These favorable dynamics also led to a 58% improvement in our net loss, which was $2.9 million as compared with $6.8 million in the second quarter of 2019. Adjusted EBITDA also improved 61% to a loss of $1.5 million. Similar dynamics drove the 39% increase in revenues for the first half with strong contribution across the whole portfolio, led by our expansion in the row crop and seed treatment markets.

Gross profit in the first half rose 47% to $13 million with margins of 59.3%. The first half also saw a decrease in our net loss, a 7% improvement to a net loss of $9.9 million and in adjusted EBITDA, an 18% improvement to a loss of $5.2 million.

To Kevin's earlier point, we want to keep a sharp focus on the ratio of operating expenses to revenues and gross profit. Our strategy is to identify opportunities to manage costs, while investing only where we can accelerate growth and profitability.

Slide 8 illustrates this point by comparing the first half of the last 4 years. From 2017 through 2020, first half revenues have increased at a 27% CAGR and gross profits at a 43% CAGR. Operating expenses have also increased but at a significantly lower CAGR of 9%, including noncash and nonrecurring items. The relationship of operating expenses to revenues and gross profit is moving in the right direction. And taken together, they accelerate our convergence on EBITDA breakeven.

Operating expenses in both the quarter and the year include the addition of Pro Farm as well as a noncash amortization charge from the acquisition. Expenses were reduced somewhat by a $1.4 million benefit from the PPP loan we secured to ensure our employees were continuing to serve our agricultural customers at the start of the COVID-19 pandemic, which coincided with the U.S. spring growing season.

Additional cost-saving measures also were implemented and were mostly realized starting in the second quarter. The full proceeds of the PPP loan also are reflected in operating cash in the amount of $1.7 million. Cash used in operations improved by 52% in the second quarter at $1.5 million and by 27% in the first half at $7.7 million, also due to growth in revenues and improved gross profit.

I also keep a close watch on cash on hand, which was $10.5 million at the end of the second quarter and in line with our unrestricted cash and cash equivalents at the end of the first year. We completed our warrant restructuring transaction in the quarter with $2.5 million of those warrants exercised in May. This agreement provides an additional $20 million in proceeds if the warrants are exercised in full over the next 2 years. Assuming the warrants are exercised, we believe this provides us with balance sheet and financing flexibility as we move toward breakeven.

The measures we have taken to drive growth, tighten spending and strengthen our balance sheet are reflected in our results so far this year. We remain optimistic about the remainder of the fiscal year, yet prepared for the potential ongoing effects that the pandemic may have on macro conditions in the agricultural sector. We expect to drive additional revenue growth and international expansion in the second half of the year with gross margins in line with our annual target in the mid-50% range.

As we saw in 2019 and as is common in the U.S. ag industry, a slightly higher percentage of our 2020 revenues occurred in the first half. That said, we are pulling multiple levers to accelerate revenue growth through year's end. Long term, we are on track to deliver profitability and greater shareholder value.

I'd like to turn the call over to Kevin Hammill now for his insights on our commercial prospects.

Thanks, Jim. As I think back on the first 6 months of this year, I can't help but reflect on the incredible work done by everyone in the agricultural industry. It's taken remarkable tenacity and creativity during this pandemic, and our customers are to be thanked for ensuring the safety of our food supply. It's been our privilege to support them. The results we achieved in the first half of the year have the roots in the commercial strategy we put in place starting in 2018.

If you would turn to Slide 9. Our analysis showed that we could unlock material value by, first, driving growth of the existing portfolio including the creation of the BioUnite program; second, accelerating new growth by expanding our seed treatment and international presence; and third, extending our reach with next-generation products. These may come through accretive acquisitions like Pro Farm or from our internal pipeline, such as our advanced insecticides and nematicides.

We also have opportunities through brand extensions as well as manufacturing or formulation improvement that lower cost of goods and grow share. I will first note that the base business is thriving, either through increased market share or further market penetration. The BioUnite strategy, which combines the power of biology with the performance of chemistry, remains a cornerstone of our ability to expand in new and existing markets. Our portfolio of bioprotection products in specialty crops and cover crops represents roughly 2/3 of our projected annual sales. Over the last year, we have seen it grow in that 30% range, first half to first half and full year to full year.

A second pillar of our growth strategy is expanding our international presence, including new distribution agreements outside the U.S. This reflects both breadth and depth. We now work with 50 ag distributors worldwide in more than 20 countries. We anticipate that by the end of this year, our global mix will shift to roughly 70% U.S., 30% international. This compares with a 90-10 split last year. But the biggest change is coming from the greater sales in Europe and Latin America. A cornerstone of our international strategy is our seed treatment business.

If you would turn to Slide 10. The acquisition of Pro Farm has been a major component of this success and is tracking to be accretive to net income and cash from operations this year as we had forecasted. Sales in the second quarter in Europe were strong, and we will have some initial revenues on Latin America later this year as we begin to tap that market. Overall, there is an aggressive trial program underway with Pro Farm in the world's largest growing regions, including the U.S.

Additionally, we are reaching beyond corn and soybeans into other crops, such as canola and cereal grains. At the time of acquisition, we anticipated synergies between our portfolios. The potential for cross-selling is just starting to play out. Out of the total trials in Brazil, 86 are seed treatment demonstrations, testing our insecticide and nematicide, combined with Pro Farm's UBP in corn. New product introductions have to be part of any successful growth strategy. And we are advancing both near and midterm opportunities. We have 2 strong near-term candidates from our internal pipeline, both of which are next generation of insecticide and nematicide. They can be applied across a range of application metrics, such as foliar, in-furrow and seed treatments. Both offer growers enhanced performance and will improve our manufacturing, productivity and potential market reach.

Initial field trials have been positive. And as we prepare for regulatory submissions, both are in additional testing in the United States and Europe, with plans to test in Latin America in the second half of the year. While the opportunity is a little further out, we also continued to invest in MBI-014, 015, our novel bioherbicide with field testing and formulation work as well as advancing the necessary regulatory packages to gain EPA approval.

Across our portfolio and our pipeline, the row crop markets have become a major part of our growth story, and the size of those key markets is shown on Slide 11. We believe the row crop market will represent roughly 1/3 of our projected sales this year. We have an immediate opportunity with Pacesetter, which is our new entry into the plant health market and is available for corn, soybean and wheat. Pacesetter is a foliar product used in an integrated pest management program with the growers fungicide of choice. It has been applied this summer in 90 trials across the United States. It is being tested in a tank mixed with conventional fungicide or in combination with Pro Farm's emerging foliar product for plant health.

Pacesetter hits our growth strategy in multiple fronts. It's a new product. It's another entry into row crops. It's synergistic with other products in the portfolio, and it expands our BioUnite offerings. Last week, we announced that we are working with Vive, a commercial partner that is seeking U.S. EPA approval for our BioUnite premix containing the active ingredient in Regalia. This will be our first ever BioUnite premix offering, which will improve ease of use and adoption on farms. Once approved, we will have exclusive rights to sell this in the California market.

In summary, the commercial strategy we're implementing and the progress that we're delivering are proof of the market opportunity and our ability to lead in the biologicals industry. This quarter's results were delivered despite the headwinds created by global pandemic and uncertain international trade environment and shifting market dynamics across agriculture.

As we finish the second half of the year, we are optimistic about our ability to continue to grow the base business, expand our footprint globally, particularly in row crops and bring new productivity tools to growers around the world.

I'd now like to turn the call back to Kevin Helash for his closing remarks before we open the call to questions.

Thank you, Kevin. And kudos to you and everyone on the commercial team for the results we've delivered so far this year. I would add my thanks to our channel partners and to our ultimate customers, the growers, as well. Farming is hard work in the best of times. It has taken even greater perseverance and vision across the agriculture industry to bring food to our tables during a pandemic. I know I speak for the entire team when I say that we are here to support our customers and ensure we contribute to their continuing success.

In closing, I'd like -- I'd ask you to turn to Slide 12. This chart is an annual snapshot of the revenue, gross profit and operating expenses Jim showed earlier for the first half. This chart confirmed for me what I believed instinctively, that the company has entered new territory with its trajectory for growth, leadership and profitability. Unlike Jim and Kevin, I'm the newcomer on the team, and I have a steep learning curve ahead of me. That said, my years of experience in agriculture bias me toward analyzing and evaluating key metrics to find opportunities that will accelerate the velocity of a business. We've introduced one today with a focus on the operating expense ratio. I'll be working with the team on other metrics across the income and cash flow statements as well as on the balance sheet that will provide clarity on where the opportunities lie to advance growth with the greatest return on investments. The opportunities in front of us are more exciting than the ones behind us. I believe a customer-driven focus with superior products, coupled with operational and financial discipline, will allow us to accelerate our velocity and deliver exceptional value for our customers and shareholders.

At this time, I'd like to turn the call over to the operator to begin our Q&A session. Operator?

(Operator Instructions) First, we'll hear from Ben Klieve with National Securities.

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

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

Okay. Thanks, Ben. It's Kevin Hammill here. A couple of areas where, in terms of second quarter revenues, set this up is that really the Pro Farm acquisition, our BioUnite strategy where the base business -- base specialty business has helped us really a lot in the second quarter. And how I define the base specialty business is basically all the U.S. nonseed treatment uses. And here in the market, we saw good growth across the U.S. including the Pacific Northwest and the Southeast. And part of this growth drivers actually was the BioUnite strategy. And if you remember back to the earnings call, we mentioned that our base specialty business is actually doing well and delivered about 30% growth over last year, first half to first half and full year to full year.

Looking at the seed treatment business and when you referenced corn and soybean, actually, the balance and mix between soybeans and corn were favorable for us. And we actually had good applications into that seed. Now what we'll do is we'll be setting up now in the second half for applications in seed that's being harvested now in the U.S. going into to be planted next year. And overall, in terms of the second quarter, Pro Farm had a strong quarter in Europe as they prepare for application of the product portfolio in the seed that we'll be planting in 2021. So in summary, good U.S. base specialty business. The soybean corn mix was good for us overall. And also, as we go, had good European application season upcoming in Europe with Pro Farm.

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

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

Yes, Kevin here. Kevin Helash, again. So -- as everybody has figured, we have 2 Kevin Hs with us. So I'll make sure we clarify. Ben, so in terms of our level of spend, we're quite comfortable where we're at now in terms of being able to drive the results we want. And I think about our OpEx in terms of relative ratio to revenue or gross profit. So what I'm getting at is, as our business grows, I expect our operating expenses to grow. But as I said in my opening remarks, that number has to be significantly smaller.

In terms of -- you asked a great question on our pipeline. The things that we're going to focus on or the area we're going to focus on, Ben, is evaluating very carefully where we get our biggest bang for the buck, so to speak, where we can drive shareholder value quickly, what project should we be fast forwarding, slowing down. And it's a dynamic environment for us. But I can assure you that, that will be a strong focus for us in terms of continuously looking at our portfolio, analyzing the make versus buy scenario question and really focusing in on ensuring that we're driving ROI, we're driving shareholder value, we're growing the business in the most efficient and effective way possible.

Got it. Very good. I guess, 2 other quick ones for me, and then I'll jump back in queue. First, I might have missed it, but did you guys report the revenue contributions from acquisition in the quarter?

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

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

Welcome to your first call. Look, just about -- last year and the previous years, you have, just by the nature of your business, experienced seasonality quarter-over-quarter. And has the acquisition of Pro Farm changed that? Should we expect to see more -- not too much of a seasonality between quarters going forward?

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

Yes, thanks. I agree with you, Kevin Helash, this is Kevin Hammill, in that the Pro Farm acquisition gives us more of an international presence, helps us smoother quarters and good penetration to the row crop market. But Sameer, maybe best way to answer this question is to give you a little bit of flavor of what's happened in the second quarter and a little bit of what we see happening in the second half of this year. So in the second quarter, we're really driven by our investments that we made in Pro Farm and our BioUnite strategy with the base specialty business. So what happened in our base specialty business is that we saw the insecticide and fungicide portfolio grow across the board despite market headwinds. And as I mentioned, we saw a 30% growth in this business over last year, first half to first half, second -- full year to full year. Then at Pro Farm, we had growth in Europe, where they applied -- they're starting to apply the product on seed that will be planted in 2021. So specialty business in Europe, Pro Farm in second quarter of 2020.

As we move forward to the second half of this year, we're going to have a bit of a mix of sales between our U.S.A. base specialty business, our U.S. seed treatment business and our international business. So in this second half, as I mentioned, we'll be finishing up harvest on most crops in the U.S. specialty business. And then we'll be transitioning to plantings in the Southeast and Southwest in the U.S.

In our domestic U.S. seed treatment business, we'll start treating seeds that are being harvested and will be planted in 2021. The main international opportunity will be -- in this half will be in Latin America with foliar applications of both Pro Farm and MBI products. So again, the second half will be a strong mix of our sales platforms of our U.S. specialty business, domestic seed treatment and international, primarily focused in Latin America with Pro Farm products.

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

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

Yes. Sameer, this is Kevin Hammill, again. Everyone really defines pipeline differently. Here's how I define. I define it really in 3 ways. First, there's new product introductions into new crops or geographies. A great example that we talked about earlier on was using Pacesetter to penetrate the U.S. soybean and corn market. And this also has the potential to go into other global markets. The second way I define our pipeline is brand extensions or next generation of products. A great example of this is our advanced insecticides and nematicides. We believe this product will deliver to growers increased ease of use and greater ROI, allowing us a little to increase our market share and crop expansion. And the final third way I define the pipeline is brand-new novel offerings. A great example of this is our longer-term herbicide offerings.

So in summary, our pipeline is important to generate both revenue in the short term, medium term and long term. We believe our pipeline is set to deliver revenue next year throughout through new product introductions. And then in the midterm, our next-generation products. And longer term is our novel herbicide offering. So the 3 different phases, we got products in each of those phases.

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

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

Yes. So Sameer, I think you -- to make sure I understand the question properly, my signal on this side was a little bit blurred, but you're asking if COVID impacted our 014 or 015 testing this year, is that correct?

That is it, yes.

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

Next question comes from Bobby Burleson with Canaccord.

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

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

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

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

Great. And then just one last one from me. Just thinking about CapEx needs. You guys, I think you're planning a production plant upgrade and you might need to raise a little debt to help fund that. It's a pretty dynamic environment out there just kind of across the board. I'm wondering if kind of your CapEx needs, if that's fluid in any way? Are there opportunities to save costs maybe relative to that kind of $4 million that you have planned?

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

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

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

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

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

Next from Jefferies, we have Laurence Alexander.

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

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

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

Right. Yes. Thanks, Adam. So in terms of, do we expect COVID-19 to affect our path to breakeven? Certainly, we are paying very close attention to the impact of that virus on the market. We're happy to say that due to the importance of agriculture and the importance of food production around the world, our industry has been prioritized to the top of the list in every single country that I can think of around the world, whether you're talking India or Europe or China or North America. Everybody is working extremely hard to make sure the agriculture, food supply chain and industry is working. So that, to me, is very positive, and I'm very happy to see that happen because, obviously, creating food for the world is, I can't think of anything more important, actually.

So I think that we need to be aware of it, Adam. We need to be prepared for any disruptions that may happen, whether it's in supply chain, manufacturing and the like. But at this time, we don't see a major or material impact to our 20 -- second half of the year, 2021 and going forward. But as everybody knows, we're in a dynamic environment, and we'll be paying very close attention to changes as it happens. But we feel we're well positioned to continue to grow. We're taking lots of precautionary measures to ensure our ability to supply our customers is in place. And so I think we're sitting here today feeling relatively comfortable in our plan. But I'll pass it over to Kevin Hammill to have some comments around the outlook for us from a revenue standpoint.

Yes. Thanks, Kevin Helash. This is Kevin Hammill. I talked about this a little bit earlier on in terms of our -- as you go into the second half and the forecast in revenues that, that we really do see continued growth in the second half from a mix of the 3 core pillars to our business, the U.S. base specialty business, U.S. seed treatment business and our international business. So we really see those harvest finishing up in the U.S., transitioning to some new planting in the Southeast and Southwest that drive continued growth in our domestic U.S. base specialty business. Our domestic seed treatment business will start treating the seed that's being harvested. And we'll -- and they will be planted in 2021. And then finally, in the international side of things, the main -- the foliar business is Latin America, both from MBI and from the Pro Farm portfolio. So strong sales mix across the different platforms and regions should continue our growth in the second half of this year.

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

Yes, Kevin Helash here. I will make a comment and hand it over to Jim Boyd, our CFO. So Adam, I am a big believer in looking at ratios to benchmark ourselves. Obviously, the first thing we've put out is the operating expense ratio to revenue. And our objective is to continue to drive that down. So you can do it 2 ways, obviously, you grow your revenue and/or you lower your operating expenses. And I say ideally, I would like to do both, but we're going to be very careful in terms of how we manage the OpEx.

Going forward, the way I think about the year is that the second part of the year is a bit lower in terms of revenue versus first half. So the OpEx ratio is probably going to decline somewhat in the second half of the year, which I think is relatively normal. But on a year-over-year basis and looking at it moving forward, I want that number to keep coming down. Quarter-by-quarter, it gets a little bit variable because of our business, but directionally, we're going to seek to continue to improve that number. Jim?

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

Next, we have Nathan Weinstein with Aegis Capital.

Congrats on the strong quarter. My first question, just about the financial health of your distribution partners and also the end market, the farmers. I mean how are they looking after we've come through a pretty unprecedented first half of 2020?

Nathan, Kevin Helash here. That's a great question. I don't know if we have the answer in terms of how our distribution partners and the farmers are doing. I think about it, maybe I'll answer this way, Nathan, the long-term viability of agriculture is unquestionably strong and it will be unquestionably healthy to me. I think different customers of ours around the world and growers around the world have been impacted differently. But certainly, from my standpoint, we're seeing this as a bump in the road, I'll cross my fingers when I say that, rather than a long-term systemic challenge to our industry. I always go back to the fundamentals of people need to eat, right? So we will -- we, as an industry, and we, as a global economy, will figure out a way to make that happen.

With that being said, I'm certainly not aware of any, what I would call, financial hardships in any of our customers. As we all know, there's been lots of assistance provided from government agencies around the world to ensure agriculture continues to function. And so I think we're going to get through this just fine. And I don't mean to underplay the impact of COVID-19, it's been a horrible situation for many, many people around the world. But I think in terms of agriculture, we need to stick to our knitting, we need to continue to do what we do to support our customers, whether they're a distribution channel or the grower. And that's what we aim to do. And Kevin, I'll hand it over to you, Kevin Hammill, to provide any comments you like in terms of our customers and feedback we've heard from them.

Yes. Yes, this is Kevin Hammill. And I just want to build out what you said at the end there, Kevin Helash, is that, the agriculture community did incredible work over the last few months to ensure the safety of our food supply. We can't thank them enough for what they've done. But specifically, you asked about the couple of levels in the distribution chain, the distribution and the grower. As you would expect there, for the distributor, their daily practice or daily routine has been really upended in terms of social distancing, making sure everything is in place, the supply chain. But they've done a great job of it. Really, there's not been any outages of products in the marketplace. They've been able to serve the grower well. They've been working really, really well, making sure that we have continuous production of our food supply.

From the growers' perspective, there's 3 things there: The impact of labor, what crops you grow and some growth areas. So one area that's impacting, especially the labor-intensive crops, such as almonds, you're seeing a lot of precautionary measures taken to protect the laborers and the workers in the farm safety. And that's taken a lot of more resources and time to make sure they have managed that and also make sure they have a lot of the sufficient labor to manage those crops. So labor has been a bit of a high -- very intensive management issue for our growers.

The second part to it is in terms of specific growers. It's interesting, if you're a lettuce grower, you had really good success if you were selling to the retailer or the grocery store business because the demand was really high. If you're signed to an industrial business in lettuce or potatoes, that market was a little bit difficult because you had that -- you didn't really have the packaging or the setup of your systems to really serve those side of the business. But overall, the growers have fared out well. One interesting segment that's done well is the organic segment. We saw that business grow -- continue to grow this quarter. And that's because of people making more food selection at the grocery store. And I just have to finish this out by commending the sales team. They're really the big credit in terms of getting this quarter as successful as it was. They really had to redo how they plan their daily routine. They had to figure out ways -- new ways to educate their distribution and the growers of how to use our products and find ways to let them be aware of our products and their value to them. So I commend our sales force in terms of how they performed the last quarter during COVID-19.

Yes. Thank you, Kevin. I endorse to all those thanks as well.

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

Kevin, do you want me to -- Kevin Helash, do you want me to answer that?

Yes. Go ahead, Kevin.

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

Great. Thank you, Kevin. I would like to thank everyone for your time and interest today. Unfortunately, we ran out of time, but I can assure you that we are open to speaking with any of you at your leisure or at your convenience. So please reach out if you have more questions.

As we move forward, I know I will have the advice and experience of a great team. The road map is clear, and I strongly believe we can build on our results-orientated, customer-driven culture to achieve these goals on the second half results to deliver greater shareholder value. Thanks for your time and attention, everyone, and we'll talk to you at our third quarter call, if not sooner. Thank you.

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