Q3 2020 Calyxt Inc Earnings Call
Good afternoon, ladies and gentlemen, thank you for standing by welcome to the <unk> third quarter 2020 results conference call. During todays presentation, all parties will be in a listen only mode. Following the presentation. The conference will open up for questions.
This is being recorded today November <unk> 2020.
This time I'd like to turn the conference over to Chris Tyson Senior managing director of MZ North America Calix.
Investor Relations firm. Please go ahead Sir.
Thank you and good afternoon.
We'd like to thank you all for taking time to join US for Calix third quarter 2020 business update and results conference call. Your hosts today are Jim Bloom, Chief Executive Officer, and Bill Schack, Chief Financial Officer, a press release detailing these results crossed the wires. This afternoon for all five PM Eastern time today and is available on the company.
<unk> Calix dot com before we begin the formal presentation I'd like to remind everyone that statements made on the call and webcast, including those regarding future financial results and future operational goals and industry prospects are forward looking and maybe subject to a number of risks and uncertainties that could cause actual results to differ materially from those two.
Driving the call. Please refer to the company's SEC filings for a list of associated risks.
This presentation also includes a discussion of adjusted gross margin net loss net loss per share and EBITDA, all our non-GAAP financial measures in cable <unk> press release and filings with the FCC each of which is posted on the calix website at <unk> Dot Com you will find additional disclosures regarding these non-GAAP measures reference.
To 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.
Finally, this conference call is being webcast. The webcast link is available in the Investor Relations section of our website at Calix Dot com.
For security commercial agreement with S. A W seed company the global agricultural company headquartered in Longmont colorful Colorado.
For the exclusive license of an improved quality alfalfa trait in the U S and other select geographies.
This March the company's first commercial trait license agreement and based on U S. Longterm sales projections could potentially generate more than $10 million of license revenues over the life and depending pet for the trip.
Calix worked in collaboration with S. A W to identify quality enhancing trades for a more sustainable alfalfa product with increased bio availability for livestock.
The enhanced trade gives farmers the opportunity to produce alfalfa forage for livestock with improved digest, the ability, which may lead to greater animal performance the.
The trade is designed to <unk> result in a higher value alfalfa produced on the same acre with the same inputs, putting greater profitability in the hands of the farmer.
The new Alfalfa C will be sold as part of the S. N W C portfolio and branded.
Q alfalfa.
That's N W will work with alfalfa researchers on yield an animal performance through proof of concept and field trials.
There will also be.
There will also be a demonstration.
And sell the resulting soybean oil and meal.
Moving upstream enables us to focus our resources on developing and capturing greater value from innovative plant based solutions with substantial disruption potential.
During the third quarter, we completed several important actions as part of that investment.
Including making staffing adjustments in our supply chain and sales organizations.
Exiting many supply chain contracts and selling all soybean oil and meal.
We also remain on track to complete the contracted green purchases and subsequent sales of grain in late 2021.
The impact of the selling activities drove an increase in the third quarter revenue of 77% to $5.2 million, including sale of nowhere nearly all of the 2019 grade crop.
We're also maintaining our goal to establish seed sales to large processors, representing at least $3 million and projected 2021 revenue.
I'm also happy to report that our focus on three go to market strategies to accelerate trajectory to free cash flow that optimizes, our talent technology is progressing nicely.
We recently added Cerro rider as vice President of business development.
Sarah is a plant based technology in agribusiness leader, who has focused on establishing world class partnerships and value chains that lead to the successful commercialization of emerging technologies for start up early stage and fortune 500 companies.
She will apply our expertise to develop refine and implement the overall commercial strategy for calix future products, including the prioritization of markets customers and product types.
With respect to our balance sheet and given our recent mark and given recent market volatility we had an opportunity in October following the transition of our soybean products to exceed go to market strategy to fortify our capital position and we raised $15 million and an FCC registered offer.
Thanks.
The $15 million in new capital not only contributes to the extending our cash runway.
But can be used for advancing our current product development pipeline to continue to advance our talent technology and our intellectual property portfolio.
And also to support the execution of our streamlined business model.
We are excited that select this decided to participate in this offering as it demonstrates their support of our business and confidence in our go to market strategies.
Finally, we also announced our virtual analyst day scheduled for November 17, 2020 at four PM Eastern time.
We look forward to providing you with an update on our product development activities and other matters at that time.
I would now like to hand, the presentation off to our CFO Bill kosher.
Thank you Jim.
Our soybean product line is important to the success of Calix. It's proof of concept enabled much of what we are working on today.
A reminder, that our final 2020 planted acres were nearly 72000, representing a doubling of acres from the total planted in 2019.
We have completed all 2020 objectives related to the advancement of our soybean products and are in process of completing the wind down of the remaining grant activity.
As Jim said, we remain on track to complete these activity in late 2021.
The effective execution of this transition is projected to decrease the cash used by our saving product line by $45 million through 2022.
Going forward, we will sell feed is our go to market strategy for this product and in 2021, we intend to target seed sales different large grain processers, representing at least $3 million projected 2021 revenue.
Our core go to market strategies provide differentiated path to commercialization and have the potential to result in cash payments throughout the development cycle.
The case in the trait product license, we expect to negotiate for fees upfront and that upon the achievement major milestones from our partner.
The earlier partners identified the more of the development expense, we can recapture from this payment.
Upon commercialization by our partner, we May also receive ongoing relative royalties.
When using our seed sales go to market strategy, we expect that revenue generation will be driven by the seed sales and will occur immediately.
In the case of the town license, we expect to receive fees upfront and then annually from any perspective licensee on commercialization by that licensee. We also expect to receive ongoing royalties.
With these core go to market strategies, we are targeting high double digit margins overtime and depending upon the level of ongoing investment required by Capex.
We have a robust development pipeline as well as Jim mentioned earlier, we executed a commercial agreement with SWS see company.
Alfalfa, marking our first trait license agreement.
We also have eight projects at the phase one stage or later in development across alfalfa HAMP, both soybeans and wheat.
We're also exploring pro improved protein and flavor product profile and pulse crops, but several options under consideration.
We target having at least five of these product candidates begin commercial planting now to 2024.
We are also actively negotiating agreements with potential partners with respect to specific opportunities for which development activity will only commence upon reaching a commercial agreement.
And finally for product development activities are specific entry point into the value chain may vary by crop depending upon several factors, we will seek the highest available margins and best path to delivering positive cash flow.
Today, we issued a press release, describing our third quarter two.
2020 results and we also filed our form 10-Q both.
Both documents.
Are available on our Investor website.
Revenue increased by $2.3 million or 77% from the third quarter of 2000 $19 million to $5.2 million in the third quarter of 2020.
Revenue growth was driven by 15 basis points of volume and 64 basis points of pricing, both partially offset by two basis points of unfavorable product mix as it sold more meal in 2020 as a percentage of total revenue than in the prior period most.
Most loyal revenue and 2020 was from a single customer who purchased our oil to be used as a plant based alternative to synthetic fluids and we expect to fulfill their remaining orders in the fourth quarter of 2020.
Gross margin was a negative 1.8 million or negative 35% in the third quarter of 2020.
A decrease of $1.2 million or negative 16% from the third quarter a year ago.
The decline in gross margin in the third quarter of 2020 reflects the impact of lower cost associated with products sold night 2019, because $2.8 million of grain costs were previously expensed as R&D.
$1.1 million of commodity derivative losses from hedging contracts sold to convert our fixed price green inventories and fixed price forward purchase contracts from fixed to floating prices consistent with how we expect to sell the grain on a point 2 million increase in the net realizable value adjustment period and inventory.
These increases.
Were partially offset by lower product costs, and the benefits, resulting from the advancement of our soybean product line go to market strategy.
Gross margin as adjusted was a negative 1.3 million or negative 24% in the third quarter of 2020 as compared to negative 22.5 million or negative 86% in the third quarter of 2019.
The improvement in gross margin as adjusted was driven by higher selling prices lower product costs and the benefits, resulting from the advancement of our soybean product line go to market strategy.
So the EBITDA.
They also include reconciliations of each of those measures to the most comparable GAAP measure.
That information may be found under the heading use of non-GAAP financial information in either the press release or the form 10-Q.
To summarize our operating results for the third quarter of 2020, we were pleased with the significant progress we made on transitioning our soybean products to a streamlined go to market strategy.
We shared most of our freight leases and other soybean related cost in the period Weve.
We expect to sell the remaining grain, we own or will purchase at market prices and to help protect the cash margins of those sales, we utilized commodity derivatives to convert our fixed price exposures to market prices.
We expect those hedges will protect our margins from those crane sales.
Our adjusted gross margin performance in the quarter was as expected.
Instead of our technology and disrupt industries by delivering plant based inputs to partners across multiple industries.
Our talent technology, our scientists and our intellectual property are strong it would provide us with an innovation platform that will drive our company going forward.
We were the first to market with our proof of concept soybean and have established a foose first mover advantage and pathway to commercial planting that can be leveraged buy new innovations.
The advancement of her soybean products to the seed go to market strategy is an important milestone for calix. It extends our cash one way and brings our first product closer to the partnership strategy we expect.
Are differentiated go to market strategies generates focus and improves the financial model of the company.
You know yield is not yield isn't always the best measure of value creation I guess when you were talking about the pretty clearly you guys are delivering to your customers.
And with a better performance I guess for a protein.
Protein creation in the overall.
As it the feed you guys are delivering in this new alfalfa.
I guess is just better performance in terms of.
It's a massive the animal and in terms of how it grows how quickly it grows et cetera.
How complicated is that matrix of different types of value creation right. If we can't just look at yield as a measure of what you're going after how.
You know a licensing agreement.
Yes, the the business arrangement was fairly similar to what was envisioned when the research began and.
And so it really was looking at how to make more of the alfalfa that's harvested from the field have nutritional value to the Cao who is either the animal whose eating it.
So that was kind of the the premise for starting the project and then looking at pathways that made sense and using a 10.
Talons editing to get us there in the timeline that will allow us now to be in the marketplace and 2021.
And how long did you start on this project with as I said W.
It predates me, but I'm I'm I think it was in 2017 or 2016, when they when they started talk.
Talking about this project and in the conceptual for.
So that includes regulatory and everything so.
Certainly compressed.
Compared to some of the other time tables that are out there.
Project and we're excited that it's coming in and looking forward to watching it.
And I guess, you kind of alluded to what my follow a follow up question. On this is gonna be in that you know when you consider these big processors a number of them you know have a high O X soybean oil I'm already in there in their product, but for Leo, but but the high fiber wood.
<unk> is is is effectively new product and so I'm curious if you are I'm curious if you can kind of describe D. I.
You know how how these processors are treating these to kind of lead products differently or is there they're kind of greater excitement on on the fiber side because it is so new or or are they maybe.
We have a question from Adam Samuelson Goldman Sachs. Please go ahead Sir.
Yes, thanks, good afternoon, everyone.
Hi, Adam.
Hi, So I guess, the but my first question is on the on the sales sales next year.
Bill you talked about a $3 million. So is that from an acreage perspective, its expectation and target to be kind of at or above.
You would see something from us on the seed side for 2021.
Got it okay, Jim if you'd like to add Jim wants to add to that at all but no bill you're spot on thank you.
Okay, and then and then last one just for me just you talked about kind of being approached it kind of use the talent technology to kind of solve these kinda thorny problems and I just want to be clear on this that if I look at your development pipeline I mean.
Okay, and then just one one more quick one the the the cash runway out to 2008 to the second half 2022 does that make any assumptions about.
Kind of initial kind of development or kind of upfront licensing fees or for new product development in there or is that based on kind of what is already in the books on the books today and any development fee upfront development piece would be additive to that cash runway.
[noise] bill election, the runway yeah collect all ticket the runway that goes into the second half of 2022 is based on our projections for what our cash burn is.
And as Jim said in his remarks are some expectation of development fees as well so.
Okay numbers that you know, obviously, we feel comfortable enough to put into our projection to get us to.