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MBII: Innovative financing and acquisition announced. Record second quarter revenue and continued margin expansion are positive.

By Ian Gilson, PhD, CFA



Marrone Bio (NASDAQ:MBII) has announced a new financing that allows Marrone to convert existing warrants to equity as long as the stock price is over $1 a share. There are 41.7 million warrants with an exercise price of $1.00. Ten million dollars worth is being converted and the number of shares outstanding will increase. There will be $26.6 million available from warrant conversion of existing warrants if it is needed. Warrant holders can convert their holdings if they wish to.

There are other warrants with varying conversion prices but, in our opinion, the company will not need to convert them since operations should be at least cash flow positive before all of the $26.6 million would be needed.

Part of the cash raised will be used to provide working capital to the recently announced acquisition, Pro Farm.

There have been several agreements signed by MBII, as mentioned below. Each agreements addresses a separate need within the areas of pesticide treatment.

Pro Farm is strong in seed treatments and gross margins are high. Compass Minerals (CMP $51.32) strengths are in soil treatments and Valagro is strong in leaf treatments. As a result Marrone Bio Innovations has access to a "stack" of treatments within its BioUnite concept.

Pro Farm also expands the geographical reach of Marrone since Pro Farm is strong in Europe. However, products have to registered in each country and this takes time.

Second quarter results were a record second quarter revenue of $7 million and gross margins expanded to a new high of 54.4%. Since the quarters vary in the pesticide applications between raw crops and specialty crops and between what pests are treated. As the operations move from what pests are treated so margins will vary. We anticipate margin changes within the high 40s and low 50s to occur in future quarters. .

We have adjusted our forecasts to include the increase in shares outstanding, 134 million at year end. We have not included any contribution from Pro Farm since historical financials are not available. We expect some financials will be released in an 8K when the acquisition is complete.

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