Q4 2019 Earnings Call
[music].
Good morning, ladies and gentlemen, thank you for standing by welcome to catalyst fourth quarter and full year 29 chain financial results Conference call.
Based presentation, all parties will be in listen only mode.
Following the presentation the contracts will be open for questions. If you have a question. Please press the star key followed by the one on your touched Johnstown, if he would like to withdraw your question. Please press the star key followed by the chance if you're using speaker equipments play slip a handset for Medicare selection.
This conference is being recorded today March that's 2020.
At this time I would like to turn the conference over to Chris Tyson Managing director of NZ, North America catalyst Investor Relations. Sir. Please go ahead Sir.
Thank you and good morning, I like to thank you all for taking time to join us for Calix fourth quarter and full year 2019 business update and financial results Conference call.
Today, our Jetblue, Chief Executive Officer, Bill Kosh, <unk>, Chief Financial Officer, and Dan Boyd <unk>, Chief Science Officer, a press release detailing these results crossed the wires. This morning at 715 am Eastern today and is available on the company's website <unk> Dot Com Today's conference call will also include the formal presentation.
And that listeners can follow via the webcast link provided in today's press release downloadable version in the event section of the IR website, <unk> IR Dot calix Dot com before we begin the formal presentation I'd like to remind everyone that statements made on the call web cast, including those regarding future financial results and future operational goals and industry prospects or.
Forward looking and maybe subject to a number of risk and uncertainties that could cause actual results to differ materially from those describing the call. Please refer to the company's FCC filings for a list of associated risks.
This presentation also includes a discussion of adjusted EBITDA and gross margin as adjusted both our non-GAAP financial measures in Calix press release and its filings with the FCC each of which is posted on the calix website at Www Dot Calix Dot Com you will find additional disclosure regarding these non-GAAP measures right.
First of these non-GAAP financial measures should be considered in addition to GAAP financial measures and should not be considered a substitute for results that are presented in accordance with GAAP. Finally this conference call is being webcast. The webcast link is available in the Investor Relations section of our website at Www Dot Calix Dot com at this time I like to turn the call over to Calix Chief Executive.
Officer, Jim Bloom, Jim the floor is yours.
Thank you Chris Thank you for joining us today for Calix fourth quarter and full year 29 team results conference call.
Calix as a technology company focused on delivering plant based solutions that are healthy unsustainable.
We're focused on health and wellness benefits for consumers, including better tasting plant protein gluten free alternatives heart health higher fiber and reduced allergens.
Our product development efforts are also focused on sustainability benefits, including projects and alfalfa helman potatoes and soybeans.
Tell technology, which powers, our innovation platform enables us to produce plants with desired characteristics that can benefit people in planet.
Our gene editing and plant breeding techniques mimic how plants could develop in nature.
We can access we can assess the viability of a trade at less than two years with another three to four years required for commercialization all at a significantly reduce cost compared to traditional development methods.
To protect our market position, we have built a broad IP portfolio with over 70 patent families across multiple gene editing platforms.
We currently have 14 products in development and expect to launch as many as six product candidates over the next four years.
A major highlight for Calix and 29 team with the completion of our voluntary consultation with the F.D.A. for our higher leg soybean.
We were the first in the world to undertake this process and we believe this validates our leadership position in the industry.
With the commercial launch of our Heilig soybean projects underway, we have proven the commercial viability of our technology for use in place.
As we continue to innovate, we expect to bring future products to market with the options for more diversified and higher margin revenue streams that are also less capital intensive.
Outside of soybeans in a week, we expect to bring products to market using a collaboration business model, enabling us to capture cash flows from access to calix his talent technology.
While milestone payments.
[laughter] technology milestone payments as we achieve development success and ongoing payments from royalties or other streams tied to the value of the product developed.
Bill Kojak, our CFO will talk during his prepared remarks about how we expect to both expand on our margins.
On soybean products and how these new revenue streams will dramatically improve our gross margin profile in 2020 and beyond.
Before proceeding the Calix 2019, a couple of buds.
I want to touch on our U.S.G. initiatives here at Calix.
Sustainability is central to calix stemming from our commitment to innovation and our belief that by further by furthering environmental social and corporate guidance governments initiatives.
We will create a stronger company capable of improving the world and the lives of those living in it.
To that end, we're working diligently to create report U.S.G. metrics to improve our transparency with our stakeholders.
Yes, GE commitments will be based on three core calix principles.
The first principle is to successfully execute our core business, while maintaining strong corporate governance practices as our business success naturally improves and Revolutionizes agriculture.
The second principal revolves around environmental stewardship, we're calix seeks to make an impact by first establishing and then meeting calix emissions reduction targets and as importantly by helping our customers collaborators meet their targets.
The third principle is social responsibility, where we support sustainable agriculture, and fair labor practices and strive to improve the sustainability of our supply chain Foster a diverse work environment and get back to the communities, where we live and work as we did with our harvest best in South Dakota last fall.
We look forward to reporting on our progress on various U.S.G. initiatives as appropriate and would encourage our shareholders to watch developments on this front.
Now turning to our operational accomplishments.
2019 was a transformational year for calix, having launched our first commercial products and setting the stage for robust growth in 2020 and beyond.
We have proven to the world that talent technology, which powers. Our innovation platform is capable of improving plans, enabling us to develop products with help with health and sustainability benefits.
[noise], we transformed our leadership science in sales teams at 29 team, bringing on several experienced talented individuals to operate the business.
The impact they have head is reflected in both the scientific and commercial progress we made.
I look forward to working to achieve even greater successes with this group in 2020 and beyond.
We are a technology company and 29 team saw us make multiple advances in our scope of activity and work processes, we more than doubled the number of projects. We have in development to 14 up from six at this time a year ago. We expanded the number of crops. We are working in two nine up from five figure.
I would go and we expect to launch at least six product candidates by 2024 and I'm excited to announce today that we expect to launch our first product in him later this spring.
In our work processes, we made at 50% improvement in the assembly time to make it talen construct and we've cut plant growth cycles in half under the leadership of Dan Travis and Bobby We expect this meaningful progress to continue.
I'm also pleased to report that we met our financial metrics for the year, we sold all of the Joe soybean meal, we produced and at year end, we had a small quantity of oil on hand.
We have a robust crush plan in place for 2020, and we expect that we expect will enable us to meet customer and demand as 2020 unfolds.
Our heilig soybean products have a robust sales funnel and is being tested by multiple customers.
The oil orders, we received in the early 2020 or a validation of our HR soybean oil capability and performance.
To meet the expected demand for oil and 2020, we have already nearly tripled our contracted soybean acreage compared to 29 team planning and expect to have a 25% market share of all age old soybean acres planted in the United States in 2020.
We've also built the supply chain to support the scaling of our business working with three leading agricultural cooperatives on seed distribution grain handling and green processing aspects of the operation.
All these activities give us confidence in our ability to meet the expectations of our customers both current and potential.
With this I'd like to hand, the call over to our Chief Science Officer, Dan Boyd to us for an update on innovation and our product pipeline.
Thank you Jim.
As a thunder the company I'm amazed by the progress, we make each year and especially with what we accomplished in 2019.
I'd like to provide a brief overview of how our talent technology and plant breeding techniques work.
The first steps in our development process are focused on identifying that target site and the plan genome for the selected crop.
Then we developed the Talon make the added are headed and confirmed the outcomes are what we expected.
After we have confirmed the results the plants progressed through our development process moving from the lab to a growth chamber to a green house and ultimately to attest clock.
We checked for accuracy every step of the way.
After the tests clot, we grow and collect seed from those plans to validate them and then began the commercialization process.
As Jim mentioned, we had many scientific highlights in 2019 helmet, culminating with our updated R&D pipeline.
We increased the number of crops were working on to nine up from five a year ago.
We added HAMP, Oh peas, and peanuts in 2019.
We increased the number of products under development to 14 up from 60 year ago.
Our pipeline projects address significant challenges in their respective markets and create new opportunities.
One Great example is our high fiber, we product, which we've been able to deliver three times more dietary fiber then tradition than traditional white we'd flower.
We expect to launch this project is early as 2022.
Outstanding achievements, such as these give me confidence and calix ability to revolutionize agriculture.
We expect to continue making advances on projects and our development process. In 2020, we expect to launch at least six prod product candidates from now through 2024, including our Ham product candidate and the second quarter 2020.
Our high Fibra wheat product candidate as early as 2022 and three additional product candidates either via our integrated business model or in collaboration with third parties.
This is particularly exciting as we continue to accelerate our efforts to develop rewarding collaboration agreements with industry, leading firms to bring our products to market in a high margin capital light manner.
We continue the commercialization progress of our alfalfa product and improved digestibility alfalfa expected to launch in 2021 through a collaboration with SFW seed.
We expect to collect a royalty on the sales of the seed monetizing our technology platform and the capital light manner.
This alfalfa product is an exciting example of what we're able to achieve as a more easily digestible alfalfa could mean, a reduction in the water intake and methane output of dairy cows to produce the same quantity of milk.
With this product calix will provide benefits to farmers consumers and the world to economical logistical and environmental efficiencies.
We look forward to sharing more about this and other sustainability products and our development process.
I'm excited about our R&D pipeline and working to expand it along with others inside and outside our organization advancing our technology and expanding our IP portfolio, enabling us to continually push the boundaries of what we previously thought was possible through talon.
Through this will explore new target crops trades pathways and transformation methods.
In addition to our already disclosed products, we will continue to expand our pipeline to bring what could be blockbuster products to the marketplace.
Some examples of products, we are aggressively pursuing our and sustainable oil replacement, where we'd replaced one oil with another more sustainable are healthier our alternative.
We are working on non gluten alternatives in the areas of protein flavor, where you're exploring project ideas like improved tasting plant proteins.
We also have multiple projects under way in hemp, including several that enable us to leverage our plant breeding expertise to accelerate market introduction as no gene editing is required.
In summary, we accomplish much then we accomplish much in 2019 setting the stage for an exciting 2020.
I'll now hand off to our CFO Bill call Shack, who will give an update on are highly it so I mean sales and marketing efforts as well as our financial results.
Thank you Dan are high awake soybean oil has several characteristics that make it as good or better than any other premium oil in the market today.
Including its fat content and polymerization levels. This includes other HR soybean oils.
When we started out with our idea we were fortunate to get an acre planted.
We have demonstrated that there is demand for each of those soybean products in the market today.
As we scale our business, we have brought on several leading agricultural co-operative to run our supply chain at scale and we have expanded both our acreage and state footprint overtime.
With the new soybean varieties, we are launching in 2020, we will be able to access acres across six states. Those six states also represent 45% of the total soybean acres in the United States and a significant portion of the wheat acres as well as creates room for us to grow both the market and our share.
Our estimates of the high oleic soybean market 2020 indicate we will have 25% of the planted acres, which we will expect give us a seat at the table with major vegetable oil users as they evaluate their purchasing needs.
We break the U.S. vegetable oil market down into commodity a premium oils to assess the target addressable market for our products.
We compete in the premium oil segment, which in 2018 was nearly 15 billion pounds. According to you Sta estimates a variety of oil many of which are imported comprise this portion of the market.
Within the premium oil market, we intend to focus on four segments based on the quality of our oil and ability to scale with large customers, while working with others in the market.
For foodservice, sorry, foodservice food ingredients industrial and animal nutrition are prioritized market segment, we estimate these four represent.
11 billion pound addressable market.
Our oil as a value proposition at each of these four market segments. In addition to several several overarching points of Distinguishment.
For example.
Oil has superior stability, a clean neutral fit flavor and low polymerization.
These benefits make our oil very competitive and versatile across our target market segments, particularly in food ingredients and foodservice.
We've developed a robust sales funnel and our sampling testing and going through supplier approval processes with multiple customers.
Through today, we have demonstrated customer success in the foodservice and industrial market segments and are in late stage testing with multiple customers in the food ingredient segment.
Supplier approval processes underway in multiple instances with large widely known brands and the companies.
We also recently received a series of purchase orders for future deliveries of our HR soybean oil as a plant based alternative to synthetic fluids. These orders are from a new world class customer that operates at all for premium oil target market segments.
Foodservice food ingredients industrial and animal nutrition.
To enable the best probability of success we segment.
Further these prioritize market segments by customer type.
And foodservice and by product category and food ingredients, focusing our efforts to maximize results.
Within foodservice, we've achieved success with distributors, who sell our products to their account.
We also directly or pursuing large operators with a focus on those who from extensively.
Within food ingredients, we prioritized for market categories, Celltrion grain snacks plant based proteins industrial frying non dairy Creamers. These categories are also where we have significant users of oil.
Provide benefits to their customers.
Two other categories, where we see near term opportunity are baked snacks and roasting applications.
The inclusion of a brand in this presentation does not indicate we have any existing contracts with the Brad.
That simply to show, where we have opportunities.
In summary, we represent a significant share of the H O soybean acres and with our focused approach to customer acquisition. We believe our oil is poised for growth.
I will now give an update on our fourth quarter and full year 2019 financial results.
Our press release contains a full discussion of the fourth quarter and annual results. We also filed our form 10-K. This morning.
The fourth quarter was a continuation of our rapid pace of operational execution.
Revenue in the fourth quarter of 2019 was 3.8 million driven entirely by sales volumes of our HR soybean products.
All right John soybean oil was 32% of revenue in the fourth quarter.
Cash used in the fourth quarter was 7.9 million better than our annual run rate projection for 2019 as the operational savings we projected earlier in the year began to impact our spending.
For 2019, we reported revenue of 7.3 million.
H O soybean oil revenue represented 23% of the total.
We sold out of our HR soybean meal production in the year.
Cost of goods sold in 2019 increased by 9.3 million, reflecting the cost of products sold in the period and adjustment to the net realizable value of our inventories that reflects the higher costs. We've experienced at this early stage of commercialization.
Gross margin as reported for 2019 were negative 2.0 million or 27%.
We also reported gross margin as adjusted which for 2019 was a negative 4.5 million or 61%.
We are providing gross margin as adjusted at this time, because we believed that this non-GAAP financial metric provides investors with useful supplemental information at this early stage of commercialization as the amounts being adjusted affect the period to period comparability of our gross margins and financial performance.
Net loss for 2019 was 39.6 million or a loss of 1.1 dollar 21 cents per basic and diluted share as compared to a net loss of 27.9 million or negative 91 cents per basic and diluted share in 2018.
Driven by higher personnel costs higher stock compensation expenses and negative margins associated with the launch of our HR soybean products.
Adjusted EBITDA for 2019 increased to a loss of 29.8 million as compared to a loss of 18.9 million for 2018, driven by increased personnel costs as the cost of commercialization in 2019 were largely offset by reductions in grain cost expenses R&D in 2018.
Net cash used in 2019 was 35.3 million as compared to 18.4 million in 2018.
The commercialization of our HR soybean products, including investments in personnel and purchases of grain drove the increase in cash used during the year.
Cash and cash equivalents totaled 58.6 million as of December 30, Onest 2019.
Appeared to 93.8 million as of December 30, Onest 2018.
In summary, I am pleased with our financial progress, we achieved more than 7 million of revenue and use less than 36 million of cash.
Our investments in the team are expected to enable us to rapidly advance our pipeline and expand both our customer and collaborator relationships and bring future products to market.
Looking forward into 2020, we expect to nearly doubled revenue year year over year and use approximately 34 to 38 million in cash.
We are managing our cash position in spending such that I expect our cash position will be sufficient to fund our operations in the mid 2021.
We also expect to expand our gross margin as adjusted in 2020.
To accomplish the margin expansion, we expect to sell our products at higher prices that we did in 2019 and we also expect begin the optimization of cost in our supply chain as we scale production.
We do not provide a reconciliation of gross margin as adjusted on a forward looking basis as we are not able to determine without unreasonable effort.
The 20 twice.
Adjusted gross margins, because we're not able to determine the amount of potential.
Net realizable value adjustments to our inventories at year end 2020.
With that I turn the call back to Jim.
You Bill.
We're proud to offer products to our customers and collaborators focused on health and wellness benefits for consumers and sustainability benefits for all our.
Our pipeline advancements and commercial success set the stage for a breakthrough 2020, where we expect to power, our R&D pipeline with new projects processes and tools.
We expect to initiate voluntary 'cause consultations with regulatory authorities and continue to advance products through our development process.
We also have multiple projects and help including several that enable us to leverage our plant breeding expert expertise to accelerate market introductions as no gene editing is required in this project.
Our new have breeding program is set for commercial launch in the second quarter of 2020.
What excites me most about this launches that are scientific team was presented with a challenging him and was able to develop a solution, including a strategy tools and work processes and just a few short months demonstrating the power of our technology platform and our team.
We expect to expand our soybean product because customer base across our prioritize market segments.
Realize synergies and our supply chain and improve our adjusted gross margin profile.
We also expect to develop and report on our ESG commitments and accomplishments.
We are in innovation platform and leader in our industry.
We continue to drive execution of key operational milestones across R&D, and our commercial activities and our regularly exceeding our internal goals.
We have a first mover advantage, we intend to defend and rapidly repetitively capitalize on.
We will share more on our developing story at our upcoming 32nd annual Roth Conference in Orange County, California, and our soon to be announced analyst day in May 2020.
With that I'd like to open it up the call for any questions.
Thank you Sir we will now begin the question and answer session. As a reminder, it is star one to ask a question and start to to remove your question from the Q.
One moment, please while they pose your question.
The first question is from John Baumgartner as Wells Fargo. Please go ahead.
Good morning, Thanks for the question.
Hardinge, our you know.
Bill just just to come back the 2020 guidance a bit more I guess im trying to understand the revenue the outlook. The acreage is tripling year on year, you've announced more customers for the product.
We can see the underlying commodity prices as well. So I guess are more still shifting into 2021 doesn't seem to your pricing issue Im just trying to bridge the uptick in.
Raw materials in NHL versus what you're going to actually book on revenue for this year.
Sure John the.
The start your question. The remember we've got a one year lag between acres planted and harvested and when we convert those to revenues as a tripling has actually of will be of revenue.
For 2021 not 2020.
Right. So we'll be doing revenue for 2020 will be geared off of 18000 acres. We started the 36000 acres, we have plateaued in 2019.
Okay.
Okay, and then on the service.
Okay. So there's nothing there is nothing unusual in terms of customers or anything like that it's just it's just a simple Tommy I forgot.
Secondly, we did the hey, John we did the seven to eight 7.3 million. This year off of the anchors we grew in 2018 and prior.
Our.
Pricing number of other factors way Dan.
Changes in soybean prices and things like that what drive the range of numbers for next year, but it's all driven off the 36000 acres.
Okay, and then secondly in terms of the speaking to the middle of the piano.
Can you walk through your expectations for the split between R&D and asked DNA in 2020 year looks like the underlying R&D run rates consider I guess 9 million adjusting for the green adjustments. There. So how do you think about R&D SDN and then also your thoughts on working capital as well, it's kind of get to that cash burn number.
Yes, so our.
Sorry, R&D number for 2019 was closer to 12 right and there is no noise in that number the comparability is affected by what went through the R&D expense a year ago. So I'd expect our run rate to be at that level and as we gear up on some of these projects that would be our focal point for investment.
2020.
From an EPS DNA perspective.
From a working capital standpoint.
We learned a lot through the 2019 harvest in terms of how much grain might be delivered what expectations were how quickly we're able to converted to cash and we have a crush plant as we mentioned in the remarks that will allow us to burn through our current great inventory.
With a high level of certainty in.
Twentytwenty.
And that it will all be about how much of those acres that we are harvesting in the fall of 2020 that will drive the working capital need at the end of calendar year.
Okay. Okay. Thanks for your time.
The next question is from Ben Klieve National Securities Corporation. Please go ahead.
All right. Thanks, a couple of questions here first a follow up on the 2020 revenue outlook on to clarify the 18000 acres that work that were harvested last last fall.
To what degree our.
Our 100% of those acres expected to be revenue in 2020 or was there. Some that was that was realized in late 2019.
Theres some percentage of acreage that is going to be harvested, but utilized for R&D purposes or for demo purposes.
How how one for one is your harvest from 19.
On to convert into revenue and 20.
Thanks, Ben I appreciate the question I need to clarify the acres, we planted in 2019 were 36 style.
So I apologize no yeah, I just missed both there I'm sorry about that no worries fell at the 36000 will be converted to revenue in 2020.
The impact of samples and other things like that on that on the total quantity of product we have available for sale.
Is not meaningful if somebody wants to do a large sample we would likely not likely we would sell them. The oil we would just give them a tanker for example.
Okay got it and then I guess, just just to be clear no no no meaningful revenue from the harvest in the fall was realized before the end of the calendar year is that correct.
That is correct.
And then.
Turning to 2020 acreage I guess first it's a clarifying question you you said that that acreage was nearly tripling.
Throughout that press release that few weeks ago that acreage hit 100000.
Try to contract contracted acreage at this point still 100000 or is it north of there.
We announced that number about a month ago and obviously, there's still time to contract acres. So it's continued to increase.
We're more focused on our share of the Hzo anchors.
In the U.S., which is the number that we're really excited about having a quarter of the share based on our estimates.
But your point is a good one Ben we sold all the way up through past April 1st last year.
To reach our goal and so.
Just reaching our goal earlier told you a little bit about the demand but.
We'll continue to look in support growers.
Got it okay. Thanks Jen.
And then last question for me and I'll get back in line here. How are you looking at how are you.
You know setting the company up.
Advance of planting this spring to provide you a seed inventory going into 2021.
Are you are you increasing not.
That planted acreage.
More than your double your goal of doubling how how can you. How can you help of trying to understand what your outlook is for 2021 from a seed inventory perspective.
Yes.
We are introducing thanks for the opening Ben were introducing five new soybean varieties in 2020, which allows us to expand geographically and reduce our our risk to weather.
Which was real risk in 2019, but it also then allows us to multiply those seeds during the growing season in 2020 to expand further at our chosen geographies to improve the optimization of our margins. So we have.
We said in our original business plan that we were focused on a plan that would double acreage every year.
That's our public guidance so far.
Alright.
Thanks for the time I will jump back in queue here.
Your next question is from Adam Samuelson of Goldman Sachs. Please go ahead.
Yes, thanks, good morning, everyone.
Hi, So a clarifying question just on the 2019 revenue number in the K. This morning, you disclose the revenue from meal of 5.7 million in oil of of 1.6, and I guess I'm trying to think about the mix of that in the premium.
Kind of oil value that you generate a that revenue split.
Would it I think be below what you'd expect to generate if you're just crushing commodity meal and oil.
And I I'm sensitive that you still have some carryover oil.
To be sold in 2020.
And you probably there was some some trialing and sampling kind of volumes out there, but just help me think about the revenue mix. There just if you're kind of crushing or commodity value added oil I would have presume the revenue mix will would be more skewed towards the oil versus the meal.
Thanks, Adam the way, we think about it and 2019 that and this is one of our margin optimization levers as we look forward that we sold our oil and 2019.
End of different parts of the market, but not at the premiums we expect on a go forward basis, because we are more focused on making sure. We didn't incur more costs as we are working to manage our crush plants and demand. So we we believed we had to move the crop out so that our farmers could put new crop in the bins and Oh.
That that conversion so we weren't sitting out a large amount of inventory resulted in the prices that you saw reflected in the reported numbers.
Okay, and today I would add to that Thats one of the excitement around the 100000 acres were were finally added acreage in the oil supply contract that allows us to talk about bigger volumes with bigger customers on a reliable stable process.
And I would chalk 2019 experience up to startup.
Okay. So I mean, I mean, maybe so I could circle up with this offline, but I wanted to I mean, if I went what's going to go back and think about some statements you guys have made on earnings calls over the past the over the past year as you started to commercialize the highly excitement oil kind of the messaging has been pretty consistent.
That you were gantry getting the premium values that you had been targeting and some.
What's the dissonance there.
The answer to two things when we were selling the oil to customers that we expect to on a long term basis, we were getting premiums when we were selling it to make sure we didn't incur additional costs.
Turning to converted to cash we didn't get the premium that we've talked about.
Exactly right customer mix.
Okay established south establishment and reliable supply will be able to move to the top segment rose.
Okay. That's helpful color and then so and then just.
More on a long term basis thinking about how you're laying out the the product pipeline and I think it's notable though the word collaboration.
Features considerably more prominently in that forward view today than it might have sticks or 612, or 24 months ago, and I and I guess, Jim I'd be interested in your thoughts and how.
Maybe the learnings of having the value the fully integrated kind of.
Product chain on the Heilig soybean has maybe change your thinking in terms of collaboration versus versus integrated in the model and how how that how that it's impacted your your forward thinking on the business.
Great question Adam I.
I think we've been.
I think we've been consistent in saying that.
In the soybean market, we had the go farmed afford to proof of concept and control the supply chain and we built a wonderful supply chain around soybeans that could also be utilized for we so you'll see over the past year, we've always talked about doing soybeans in wheat, because theyre diluting the fixed costs that we add.
The system that we build that we would consider doing those on our own but would always.
Consider collaborations with people in other crops in markets that had to go to market brand in north strategy and or resources.
I think it's consistent what you're seeing talking today is the fact that all the hard work of 29 team to build that soybean system will be useful for weve, but now we're turning and pivoting to use the science to go into other crops, which as we've said will take us into collaborations with other companies that already have established distribution networks.
At least crops in markets and we're excited to do it but that's the difference between the last earning calls in today you are seeing us. Finally, so yes, we have successfully built that soybeans last week.
Distribution system, and we're moving on into other crops that other collaborations okay, well cash payment just sorry, this baby point of emphasis there.
If why wouldn't you leverage the existing infrastructure and relationships you're building on the soy and wheat side to further develop additional traits.
And capabilities in those crops to sustain that franchise into the future wise the incremental investment not continuing that in that direction versus I'm, not saying that the investments in the other crops. So bad idea I'm just trying to make sure I understand why doesn't seem like the future R&D is actually on soybean at all.
Ben some early we you have five fiber we paid after that Theres nothing else.
Yes, that's a good point in this call, we really talked about what we're introducing before 2024 and that's the difference.
We continue to invest we continue to invest as waves. The easiest thing we could do a stacked traits for more value with the same cost in soybeans and we.
You can rest assured those reviews that are kicking around.
For us.
Okay. That's all Super helpful. I'll pass it on thanks.
The next question is from Ken Zaslow as bank of Montreal. Please go ahead.
Hey, good morning, everyone.
Jeff.
A couple of questions. One is can you frame the potential opportunities of the product outside of.
Hi Lake soybean oil and can you put in relative terms too high.
Well, so we just get a concept the that that's my first question.
Sure. So when we talk about that we'll talk about the near term as mentioned on this call, which is ham and alfalfa and high fiber we in that 2024 period. So bill you want to talk about the.
The relativity sure. So from a I think we're just seeing kind of what do we expect certainly is that as we move in the crop like have.
Where we're able to bring a product to market.
The revenue in 2020 from that project won't be significant relevant to the soybeans, but it proves the people we can quickly get into that crop and we'll as we talked about will launch a number of other projects between now and 2024 those revenue streams will be because we're going out of all of them from a from those projects will be 30.
Patients they will be.
Lower because it will be likely be recurring revenues, but they'll also be very high margin.
We haven't provided a quantification, but from an alfalfa perspective, we did layout size of the market and our expectations for.
What we think SFW our partner there their market share would look like and applying a royalty rate gets us to a royalty stream that's in the.
Greater than a million dollars, a year, but less than $15 million year, there's that based on the size of the market and the pace at which they expand geographically beyond just the U.S.
Okay and then.
Yes.
Yeah.
No I just going Ed we're planning on our very first year of high fiber. We did 2022 so just.
And at 24 horizon will be scaling up so as we continue to grow soybeans relativity of its a great point and I think you can see the relativity of it in that shorter window for an R&D company.
Okay.
Let me just good.
It's interesting. The first question is if I think about how are your revenues.
Hi can I use the proportion of 30 to 36000 acres to this year and then it by Triple It do I kind of put a well do they can I do almost like a if this that that kind of the analysis of okay. That's what's going to be in 2021 based on 100000.
Acres, you know given the relationship between the 36000 into $15 million at revenue and it did do we add on top of that.
Some of the incremental opportunities how do I think about that doesn't make sense.
It does Ken and that.
That is a great way to think about it is to take.
Revenue from this year based on acres and projected forward using what we've talked about for just soybeans and then these other revenue streams would be incremental to the soybeans.
Our goal is to get as many of those rep incremental revenue streams into RPL.
Over the next.
12 to 36 month.
Okay and then.
And then within that know that profitability would go.
Greater than that percentage, just because as you go into higher margin products and become more efficient. So the relative improvement in operating profit will accelerate and a greater rate then the sales growth is that fair.
How to think about it.
Yes.
Okay and then my last question, we will we will get we will get margin leverage from things, we will do in soybeans, and we will add higher margin revenue streams to it.
Okay.
Changes in management for the last call yourself.
Is there more to go and how do you think about that you have your your team set now is this could we assume that this is the team can you talk about that and I'll leave it there. Please.
Sure a lot of of 2019 and taking the first commercial product to the marketplace and this farm to Fourq.
Modeled meant bringing in significant talent to build out whole departments. So you've seen us add several and we believe in listed them here in the release, but several key talent into lead these departments and create the systems and all of the things that have to go with being a food and R&D in the Meg company all in one.
And we have.
We have a base group here that can take us to the next level.
So the answer your question is.
Pretty much yes.
No.
Great greatly appreciate it thank you.
Thanks Kim.
The next question is from Laurence Alexander of Jefferies. Please go ahead.
Hi, This is Adam view this on for Laurence today.
I just have one question I was wondering if you guys you're seeing any delays in R&D collaboration discussions with peers given the economic in Corona virus concerns or do you think the AG R&D community failing insulated.
I can answer your question upfront, we haven't seen a delays we have business going on and have had and don't see any change from week to week so far.
Okay. Thank you.
The next question as you Robert Leboyer as Latin Berg Solomon. Please go ahead.
Good morning.
I think Robert.
Hi, congratulations on the nice quarter.
Thank you Mike My question has to do with the market.
In this year.
Going or.
Market.
Segments.
Recreational medical industrial or.
Also discuss some changes.
That made.
The plant.
Yes, two questions.
We're focused solely on helping the AG use in the wellness use of hemp forces.
The other product in that family.
And our first product has been done without gene editing our other projects on the board and what we're working on in the lab likely will.
And so that's where we're at today.
Okay and you also discuss some of the changes.
No.
And he's.
Those plans.
Yes, we haven, we haven't talked about the targets or what were doing there specifically on those publicly.
But with those crops, you'd probably get I'd get ideation of level, what we're working on around in those areas and looking at.
Okay, and any revenue guidance on the hemp rollout or any.
The peak.
Sure.
The type of things that you laid out.
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Not at this time Robert are our expectations for that have product are included in the overall guidance for the company for 2020.
Okay, great. Thank you very much.
Thank you. Thank you.
The next question is from Steve Byrne of Bank of America Merrill Lynch. Please go ahead.
Yes, just wanted to M continued on the hemp products, you're developing it would seem that gene editing would be a vik the key to adjusting all these various cannabinoids in that product and so it seems well suited to you are you developing relationships with.
Pharmaceutical companies to to develop these products that would then go through clinical trials or is it more likely going down the path of of you know over the counter food products.
Thanks, Steve we're focused on the wellness aspect of it but we're learning and what we've learned quickly which leads to his first product volume in the market is that we as we better understand how to cultivate and how to look at this thing genome basis, we have several opportunities and we're keeping all of those.
Open going forward.
And then on your hydraulic soybeans, you indicated is 70 or 25% of the acres.
Is it fair to assume that the other 75% are the.
The old transgenic products. This doesn't plenary session and just wanted to.
Sure how you.
How you incentivized to the grower to.
Go down your path, where are you essentially give them a.
Benefit on top of basis and by the crop.
Back from them as oppose the other route where I don't really know how the farmer captures value on on those products and Theres.
They're basically on their own the to sell that to sell the soybean how do you how do you compare those do pass those two pounds.
Oh, great question.
Just to answer your first one yes, the bulk of the other market shares held by by those.
Older products.
How we're penetrating and what we're doing is we're bringing a different values. So our growth rate is is much higher than theirs and one of it is due to the fact that we pay a premium to the grower that were sharing from the food ingredient companies, but one of the other ones as agronomic, where there is gms.
No and still using some of the herbicide tolerance dress ours is not so a for a farmer whose add experienced.
Roundup ready crops and rotations for maybe 20 to 30 years. He is experiencing some weed resistance issues on as farm one of the benefits to two rotating to our non GMO product is that you're using different we control system that takes out the resistant weeds and improves the value of your land. So.
Many people are really excited about doing this and getting that benefit there landlords are happy and secondly, because ours is not GML RC does a lot less costly to buy so when you think about financing a grower and one of the first things you finances are buys a seed.
Ours is significantly lower cost seed because we don't have the GM of trade in it and therefore, the bankers and other people supporting the farmer are much happier because their financing cost for that crop are lower because of that specific thing.
For civic reason or should be as utilizes howie with crop which is the growth.
And then maybe just one one more on that so your 25% of the acres, but if I understood you correctly, you're you're capturing 70% of the of the high value.
Oil end markets in these these four key end markets.
Our do I have that right and.
Why are you able to capture so much more share of that is it.
Is it the non GM, although oil having.
Benefit or an access to a end market. They only your products and achieve as opposed to the the transgenic route products don't have access to them.
Steve It's bill I'll take that one the market penetration for premium oil is the 70% of the saw 11 billion pounds of the 15 billion pound market size for offering in miles our share of the effect of that 11 billion pounds is that is obviously very very small.
As is HR soybean in total and so what we're excited about is as people look at what oils. They could use in their products. The expectation is that hzo soybean oil will become a greater share of the total market and that's how we and others will all.
Benefit if you will as we look forward so thats the tailwind that we're writing.
As customers evaluate oil options there, they're trading off those transgenic into a soybean oil, perhaps but they're also trading off highway canola or sunflower or one of those other premium whiles mentioned on our slides.
To look at soybean.
And some of the reasons for the conversions are people are looking at sustainability. So a local soybean grown here, so it'd be great crop anywhere.
And crushed in use here locally is a lot different than some of these imported oils.
Moving from Canada, or the Ukraine or from Argentina. So that's also a reason for people switching and moving among the premium oils that are available on now that we have the health profile to compete.
That's helpful. Thank you.
Thank you Steve.
The next question is from Adam Samuelson of Goldman Sachs. Please go ahead.
Yeah, Hi, I, just one quick follow up and it got it goes back to Ken's question, a little bit so you're 19 versus 18 acreage was basically double year on year.
Yeah, and you're talking about revenue doubling year on year, but you also said that in 19, you had not fully captured the kind of premium heilig soybean oil price.
So.
Just wouldn't your revenue be up more if you're actually getting the full premiums in 20 versus 19 or was the yield loss in in your key growing regions significant enough to that you just have.
Notably lower production.
To our soybeans to to process this year.
Great question, Adam There are number factors that drive the year over year revenue expectations and.
Yields are one prices or other.
Full price is that we pay for the grain as well as.
Prices, we expect to receive in the market based wherever meal prices slow to our oil prices for that matter.
Capital are capturing premiums over the the cash price or the board price dependent upon customer and product. So with all of those factors considered that's how we arrive at our guidance for 2020.
Okay all right. Thank you.
[noise] at this time. This concludes our question and answers questions I'd now like to turn the call back over to Mr., Jim Bloem for his closing remarks.
Yeah, I want to thank everyone for joining us on the call today.
Just a reminder, we have a really dedicated and hardworking team here at Calix, who really push themselves to further our mission each day and I just want to give them a sincere. Thanks from all of the management all of them. We certainly couldn't do this with without them and lastly, if we weren't able to address all of your questions on todays call. Please.
Feel free to contact us or our Investor relations firm, which is MZ group, who would be happy to answer them.
So we look forward to providing more updates on the next call and thank you very much for your time today operator.
This concludes today's conference. Thank you for your participation.
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