Q4 2020 Calyxt Inc Earnings Call
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Good afternoon, ladies and gentlemen, thank you for standing by and welcome to Calix fourth quarter, 2020 results conference call. During today's presentation, all parties will be in a listen only mode. Following the presentation. The conference will be open for question and if you have a question. Please press the star key followed by one on your Touchtone phone if you would.
Like to withdraw your question. Please press the Star Keys, followed by the two and if you were using speaker equipment. Please lift the handset before making their selections and this conference is being recorded today March 4th 'twenty 'twenty. One at this time I would like to turn the conference over to Chris Tyson Executive Vice President of MZ, North America, Calix and best.
And relations firm. Please go ahead Sir.
Thank you and good afternoon, I would like to thank you all for taking time to join us for Calix fourth quarter and full year 2020 financial results Conference call. Your hosts today are Dr to eat rebate executive chair of the board and Bill <unk> Chief Financial Officer.
A press release detailing these results crossed the wires after the market close today and is available on the company's website 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 may be subject to a number of risks and uncertainties that could cause actual results to differ materially from those described and Nicole. Please refer to the company's SEC filings for a list of associated risks and this presentation. Also includes a discussion of adjusted gross margin net loss net loss per share and EBITDA all our non-GAAP.
<unk> measures and Calix press release, and its filings with the SEC each of which is posted on the company's website at Calix Dot Com you will find additional disclosure regarding these non-GAAP measures references to these non-GAAP financial measures that should be considered in addition to GAAP financial measures and should not be considered a substitute for results that are presented.
And in accordance with GAAP.
Finally, this conference call is being webcast. This webcast link is available on the Investor Relations section of Calix Dot Com at this time I would like to turn the call over to Calix Executive chair of the board He's right I E. The floor is yours.
Thank you, Chris and thank you for joining us today for Kodak's fourth quarter Conference call.
I'm sure. Many of you on two day called work and following the colleagues. So we as a shareholder perspective and best Oh on that east of known my rules are car T X as a board member since 2018 debt interim CEO for a period of time and 2018 and most recently in December of 'twenty 'twenty.
And I was appointed to the position of chairman of the board.
My background and includes a long career and biotech, including funding that Nick seats and more than 25 years in large pharmaceutical company.
Currently the Chief Executive Officer of Bravos unique, Inc, which is a private biotechnology company walking on RNA biology.
Two weeks ago, we announced the transition of my role to executive chair, replacing CEO Jim Blome.
And I think it is important to note that our decision in 2020 to transition our business model was one of the primary reason for the leadership change.
And our decision and we present a continuum yep two focused colleagues on significant innovations opportunities be on commodity base agriculture.
We have retained the premier executive search firm and that will help guide to see you'll search on behalf of the board and supported the transition once the incoming CEO is selected.
On behalf of the board, we want to thank Jim for guiding colleagues to a streamlined business model that can capitalize on delivery and disruptive brand day innovation.
God is has experienced a strong and productive 2020, we are redirected calix innovation and Jean to new and high value opportunities and build the team with the right thought on mix to drive colleagues go to market strategy.
We are solidly positioned for future growth and success.
I'm excited to work directly with these extra and leadership ingredients into revalued and.
And I was so excited to announce the formation of Calix Scientific Advisory Board.
We announced that the U S. A b will report to the board of directors of colleagues and we'll be sure, but often done both us and in addition to them. They will initially be free members all of whom are would we know and bio kidney experts and.
And they include Doctor on OS.
Born group leader at the June and that center doctors E visa, but certainly at church and my investigator and that's what's yet to piss off give me call engineering at Stanford University and Dr. Paul Bodnar Cooney from a global function head for molecular biology, I'd be I said biosciences.
The scientific advisory board and stuff.
With the strategic mission of LP and colleagues identify disruptive kalambay solution that are near term opportunities as well as long term higher risk higher return and ideas some of which may be realized through partnership with all the commercial entity.
I believe this is an exciting time for colleagues and are rapidly developing disruptive put on base technology story.
<unk> is a technology company focused on delivering plant based innovations to end users across industry, including food and nutraceutical and knows he and agriculture, we see how technology being applicable to other industries as well we leverage differentiated technologies include.
The talent and Jenny Ping platform to develop product candidates. We are a leader in gene editing with exclusive access to appropriate to retail on techno regime for used and plan, which we used to successfully commercialize the first gene editing put product in the U S.
We all have a development pipeline that spans multiple crops and that was a substantial total addressable market of $8 8 billion daughter.
Products in the pipeline will be commercialized football on those and are targeted at critical industry dynamics, including consumer demand for specialty ingredients and supporting sustainability objectives.
We also believe that we are a capital efficient business model with multiple routes to market for our product candidate.
I would now like to on the presentation over to our CFO Bill go shock, we will share our 2020 I lied and walk you through our financial powerful month's Bill.
Thank you.
And we really appreciate your participation on today's call and look forward to working together to continue to scale the calix business we.
We have accomplished several key milestones since our last call.
We continue the development of our winter and old project, our trade concept could potentially support the growth of high quality owed to meet increasing consumer food and feed demand.
Our goal is to develop a winter grown version of Oates for food and food consumption and can also be used cars and winter cover crop with the potential to improve direct to consumer farm gate revenue for winter cover crop farmers and generate carbon credits for them.
And what is America's second largest plant based dairy product.
Protein and its also positioned for inclusion and forgetting plant based protein market.
We believe our own project will enable climate resilient and he hopes.
Hopes more competitive economically and able to be grown and new regions on the continent and over the longer term and additional regions of the world.
This project, which is expected to deliver sustainability benefits once commercialized and phase one of our development pipeline with targeted availability for commercial planting in 2020 six.
We've also continued the development of our health projects, our projects and help target protein nutraceutical fiber and advanced materials market.
Our first efforts are focused on standardizing the crop for broad acre adoption.
Risks and production and modernizing the bidding process.
Great that our innovations will initially come to market as licensed seed.
Operating platforms of traits and be commercialized by leading germplasm and have faced ingredient and material company.
These projects are in phase one of our development pipeline with a targeted availability for commercial planting and 2020 three 'twenty 'twenty four is respectable.
And late December we announced the sale of our entire 2000, twenty's soybean and grain production to ADM.
Total cumulative sales of over 4 million bushels. This.
It was a step and calix transition to advanced go to market strategy.
Sales began and the third quarter of 2020 and as of today, we have sold 40% of the 2020 grain crop to ADM.
And grain projected to be sold throughout 2020 one.
Also during the fourth quarter, we executed a commercial agreement with S and W seed company.
A global agricultural organization headquartered in Longmont, Colorado for the exclusive license sales and improved quality alfalfa trait and the U S and other select geographies.
Marks the Companys first commercial trade license agreement and based on U S long term sales projection.
Potentially generate more than $10 million of license revenue over the life of the pending patent for the trade.
The first trade license agreement and upcoming Alfalfa seed launch by S and W represents a milestone and your execution of Calix three go to market strategy and is a great demonstration of our ability to work collaboratively choose traits to enhance value to the research to make it happen and support and CWC and bringing it back.
And it's flat science to market.
Finally, given the strength of our industry and the overall market conditions, we thought it was true to fortify our balance sheet through the completion of a capital raise that netted calix and $14 million and net proceeds and extended the companys cash runway into the second half of 2020 two.
We intend to use this new capital to advance our current product development pipeline to continue advancing our technology platform, including talent.
Answering our intellectual property portfolio and to support the execution of our streamlined business model we.
We're also excited that select has decided to participate and this offering and it demonstrates their support of our business and confidence and our go to market strategy.
Now, let us turn to some of the subsequent events that recently occurred and the first quarter of 2021.
Last week, we were happy to report that we entered into a soybean seed sale agreement with Purdue Agribusiness and independent operating unit Perdue farms ranked among the largest green companies in the U S.
More importantly, this represents our first seed distribution agreement since advancing our business model.
Under the distribution agreement renewable contracts with growers for grain production and processing under and identity preservation process.
The dual contract directly with farmers for the 'twenty 'twenty, one high oleic soybean growing season, which was previously done by true for several years.
Agreement will result in helix seed sales to Purdue in 2020, one and meet their growing region specification.
Purdue is well suited to help take the calix soybean line to the next level.
And her extensive vertically integrated production system, bringing the calix team to focus on advancing our research and development pipelines and next plant based breakthroughs.
Our core go to market strategies provide differentiated paths and commercialization and have the potential to result in cash payments throughout the development cycle.
And the case of a trade license and we expect to receive fees upfront and then upon the achievement of major milestones from our partner.
Earlier partner has identified the more opportunity we have for the generation of positive cash flow during the development cycle.
We also expect to receive ongoing royalties upon commercialization by our partner.
When using our seed sales go to market strategy, we expect that revenue generation will be driven by the sale of feet.
And the case from a technology license, we expect to receive fees upfront and then annually from any perspective licensee.
Upon commercialization by that licensee, we also expect to receive ongoing royalties.
We recognize there are tradeoffs between certainty of upfront payments and milestones versus higher risk royalties and we want to strike a balance between the two potential cash flow streams.
We have a robust development pipeline.
Restful markets for him winter oats, and our high saturated fat soybean from Paul alternative are all substantial opportunities with more than $2 billion of opportunity and a new projects initiated by calix in the last year.
We have nine projects at phase, one or later and our development process across several crops, we target having at least five product candidates available began commercial planting now through 2020 four.
This development funnels and the measure of our R&D activity and does not include potential technology licensing opportunities.
And I'll, let us turn to our financial performance metrics.
Today, we issued a press release, describing our fourth quarter and 2020 results and we will also file our form 10-K.
Press release is available on the Investor Relations section of our website and our 10-K will be posted.
Revenue was $13 9 million and the fourth quarter of 'twenty, and 'twenty and increase of $10 1 million from the fourth quarter of 2019, primarily driven by sales of approximately 40% of the 2020 grain crop and.
And the fourth quarter of 2020.
Gross margin percentage improved by 900 points year over year to a negative 35% and the fourth quarter of 2020, principally reflecting the impact of our change and the go to market strategy for our soybean product line and lower net realizable value adjustments to our inventories.
Adjusted gross margin was a negative 28% for the fourth quarter of 2020.
Total operating expenses for the fourth quarter decreased approximately 21% year over year to $8 1 million and the fourth quarter of 2020, primarily driven by operating expense declines from the change and the soybean and go to market strategy and other reductions and general and administrative expenses.
Net loss was $13 4 million and the fourth quarter of 'twenty, and 'twenty compared to $12 2 million and the fourth quarter of 2019.
And adjusted net loss was $12 million on the fourth quarter of 2020, essentially flat with the fourth quarter of 2019.
Our earnings materials, which are posted on our website.
Important context about the non-GAAP measures. We report and include reconciliations of these measures to the most comparable GAAP measure.
As previously mentioned during the fourth quarter, we completed the sale of all soybean oil and meal ex.
Nearly all soybean processing and transportation contracts and sold approximately 40% of the 2020 grain crop.
Our 'twenty 'twenty, one and seed production is complete and we are anticipating the sale of seed the processors based on what we have available that matches their targeted growing regions.
Taking into account and a reduced operating expenses as a result of the soybean go to market strategy transition other cost reduction actions. We've taken we currently anticipate our targeted 21 operating expense cash burn rate to be around $25 million or less.
From a cash perspective, the fourth quarter of 2020 was highlighted by the significant progress we've made transitioning our soybean products to our seed go to market strategy, our capital raise and achieving reductions and operating expenses.
Approximately $9 7 million and net cash provided in the fourth quarter and increase of $17 6 million from net cash used of seven 9 million and the fourth quarter of 2019.
The increase was driven by net proceeds from our capital raise which included participation by our largest shareholder select us as well as new institutional investors.
And $9 1 million of proceeds from the sale of short term investments.
This was partially offset by a decrease in cash flows from operating assets and liabilities, primarily resulting from the timing of cash collections and payments to growers.
Now, let's review, our financial performance for calendar 2020.
Revenue was $23 9 million in 'twenty, and 'twenty and increase of $16 6 million or 227% from $7 3.002 million 19.
Primarily driven by the sales of approximately 40% of the 2020 grain crop and the fourth quarter of 2020.
Gross margin percentage for 'twenty, and 'twenty declined by 2000 points year over year, driven by higher volume of products sold in.
In fact of lower cost associated with products sold in 2019, because 3.3 on grain costs were previously expenses R&D.
$2.8 million of unrealized commodity derivative losses from futures contracts sold to hedge our fixed price green inventory and fixed price forward purchase contracts and.
And at 1.3 million increase and a net realizable value adjustment to period and inventories, including write downs of excess seed produced for 2020 plantings.
These increases were partially offset by higher selling prices and benefits from the advancement of our soybean product line and go to market strategy.
Adjusted gross margin percentage for 'twenty, and 'twenty was a negative 30% compared to a negative 61% and 2019.
Improvement on a percentage basis was driven by savings from the advancement of our soybean product line and go to market strategy.
Total operating expenses for 'twenty, and 'twenty decreased 14% driven by operating expense declined from the change and go to market strategy for our soybean product line and other adjusted reductions and general and administrative expenses, partially offset by restructuring costs 700000.
Friction costs include the impact of severance and other expenses, resulting from the actions we initiated in August 2020.
We do not anticipate any further restructuring costs from this action. The same period and 2019 also included 400000 of expense to write off R&D tax credits that were no longer realizable.
Net loss was $44 8.002 million 20, and increase of $5 2 million or 13% from $39 6.002 million 19.
The increase was driven by the increase and negative gross margin, partially offset by the decline and operating expenses.
Net loss per share was $1 32, and 2020 and increase of 11 cents per share from a net loss per share of $1 21, and 2019 driven by the higher net loss.
Adjusted net loss was $40 3 million in 'twenty, and 'twenty, essentially flat with $40 5.002 million 19.
We saw $41 7 million of net cash used in 'twenty, and 'twenty and increase of $6 4 million from $35 3.002 million 19.
The increase was driven by the purchases of short term investments.
Increase and net loss.
A decrease and noncash comp and stock compensation expense, which meant more of our net loss was driven by cash items.
And an increase in cash flow is used by operating assets and liabilities primarily from activity related to our soybean product line.
These drivers were partially offset by net proceeds from our capital raise.
As we turn to our 'twenty 'twenty, one and beyond business milestones the fourth quarter of 2020 and early 'twenty 'twenty. One was marked by several major achievements upon which we will continue to execute over the next several quarters, including.
Including completion of deliveries against Adm's commitment to purchase their grain.
The delivery of seed to fulfill our agreement with Purdue and the completion of regulatory consultations for IQ alfalfa to support S and W targeted commercial launch and late 2020 one.
We expect other project milestones over the next several quarters as shown.
We are a leader and gene editing and have a robust IP portfolio, we see immense opportunities across our portfolio and industries, including food Nutraceutical energy and agriculture are.
Our plan is to develop projects with partners that leverage our strengths and trait development and gene editing and our partners product commercialization expertise discs.
Discussions with potential partners are focused on our development of plant based inputs solutions for specific downstream issues, including consumer preferences.
Stay and ability cost quality and regulatory compliance.
We believe the necessary steps made in 2020 will now strategically positioned calix for growth and delivery of shareholder value and years to come eat I'll turn the presentation over to you for concluding remarks.
Thank you Bill.
I want to reiterate my excitement for the future of Ekati.
I have always found that and that Oh, jeez and effective way for me to communicate and I would like to use one two day to describe the vision for our business.
Our colleagues we represent the battery in the electrical vehicle Revolution on the E V will loosen.
Think about the automotive industry I believe the EV Revolution, OCA because car companies with fighting yesterday's Battle East.
And he has created the GAAP the innovators, particularly small company with big ideas and we're able to disrupt.
Calix is feeding these innovation GAAP in our industry.
<unk> is becoming the source of power that generate plane they ingredient for innovative products.
These products will meet emerging customer needs across a variety of growth thick.
All while improving and.
Ensuring environmental sustainability and accuracy and ground may change.
He sees the dream and the vision of <unk>.
Thank you Sir we will now begin the question and answer session. If you would like to ask a question. Please press star one on your telephone keypad and confirmation tone will indicate that your line is and the question and kill you May Press Star two if you would like to remove your question from the queue for participants using speaker equipment and may be necessary.
Pick up your handset before pressing the Sarkies one moment, please while we poll for questions.
Thank you. Our first question comes from Bobby Burleson with Canaccord. Please proceed with your question.
Yeah, good afternoon, and thanks for taking my question.
So ease and and and bill not sure.
And take this one but.
I was just wondering high level.
If we think about the partition between gene editing and and and GMO going forward do you see any challenges, there and a regulatory or consumer acceptance front.
How are the kind of non GMO labeling folks looking at gene editing.
Just implications are for what you guys are developing.
Okay.
Go ahead, if you want to take that one.
And we I can take this one can troy it used to take these web.
And I think your question Lisa obviously, a very good one I think the the gene editing as we see it close to world. These good getting some momentum.
And the big difference that may exist between gene editing and Jim will is why are we doing this junior debt.
And I think if we were responding to the customer needs to bring health sustainability and the restaurants to the climates and weak.
Explain the technology be on gene editing.
Compared to the signals you are both G. M O I believe that there is going to be more and more acceptance in the and the market.
We are moving debt with the first soy codell.
Product that we move forward, we have a very strong regulatory group that is proven that took that and we believe that we will be able to.
Moving forward with the gene editing and are not being Oh say amalgamated with the gym.
Okay fair enough.
And then just wondering about the product pipeline you have a nice addressable market you're going after a bunch of different.
And the crops that you're enabling with wind and advanced trades.
I'm curious how deep the pipeline can get or how broad the pipeline can get under the current head count how many could you double the number of.
Projects you have.
Currently with the head count you have or is there is there a limit that you are running up against.
There's always a limit I mean, there is so much skiing debt you can do with the things that we have and the fact that we really were masked to decide on technology I think the way we see as debt. We will know who are the new crops and focus on these new core wins.
Winter Oleds and Oh, we'll have some work and say also about him.
But one of the aspect that we are looking is that if we can put in place partnership with industry that we like to focus and nobody very particular accrual and wants to work with us to develop the crop we will be able to get it to deploy the resources and that's also part of the business.
And that we now put in place and so the Cali.
Okay, Great and then just one last one from me on the CEO role of.
Once Inc.
And once you are replaced as interim CEO.
What are the practical changes that you and vision to the kind of daily role or or focus of that incoming CEO. Given this is Matt.
And to align better with the new business model are there are some practical things that that CEO needs to do that that weren't being done before.
I think the the.
The main basis, there need to be carry on EPS.
And the brewing and make.
The innovation day, these junior weighted by Kelly, and it's then and where and to spend by the market.
I think we want to be able to chew on much I've said during the presentation. There is so much things that we can do and your question in reference to do we have enough resources and R&D to be able to do that either through reflection to two older technology that we can bring out there.
The path of innovation Buchu singles, what is high value and high margin at the moment showing that we can de lever and de lever, but more and more explaining that we are all of the next generation of food Nutraceuticals and know the.
Chemistries that are happening and the market, we want to be part of the world and we want to and then that flow to be even more successful I think that would be the range section of the new C U E.
Sorry for interrupting great. Thank you very much thanks for taking my questions.
Russia.
And sorry.
Our next question comes from Amit Dayal with H C. Wainwright. Please proceed with your question.
Thank you Hi, guys I appreciate you taking my questions.
With respect to this Purdue deal could you give us any color on it.
And at what level of contribution you expect from this in 2020, one and then how this relationship potentially growth for you going forward and then also in relation to this what kind of margins do you expect from.
And the Purdue partnership.
Okay.
Sure Thanks, and that's where the question appreciate it great.
Great to talk to you and this afternoon.
From a produce standpoint recently struck that deal we're in the midst of sorting out with what we have available and what demand they have on their side in terms of where they would like to grow the seed to determine what will work for the two parties.
Well, we expect them to leverage the same growing region, we've been on in the past.
Which creates some opportunity, but again theres nuances to how this all gets planned out that includes putting together our plan for future years, 2020, two and we'll see what that looks like.
From a margin perspective, specifically.
We've said consistently when we produce seed and the U S. We make money when we sell it it's been buried and our financial statements and we expect that to be the case.
With Purdue and based on the terms of the agreement we struck with them.
And I've been commenting specifically on what that margin percentage might be but a D and a range of our prior public statements of.
Mid double digits.
Okay.
Thank you for that and.
With respect to the transition and the company's business model and are moving.
And more towards technology licensing and collaboration on trade developments.
Can you give us any additional color on what that pipeline looks like do we have potential catalysts on that front.
Could materialize this year.
Sure. He is we talk about yes sure.
And as we talked about on our pipeline as you know the nine projects that are in the development funnel that we have listed on.
Are those that we are pursuing and looking for partners on and and would expect that there would be catalysts that occur for any of those are several of those I should say over the course of the year as articulated on the slide. We also have some ongoing discussions occurring with other partners for projects, we haven't talked about.
But we also expect okay, and assuming we get to and a deal and we would be able to announce those as well we're trying to be very focused on things that ive as said, we've said in the past that we we watch them too fast, but we also want to be selective to pick the projects that could give us the highest returns because we do have a finite.
And when it comes to how much.
People and space, we have from from a greenhouse perspective.
If somebody wanted to help fund that project, obviously that is something that is up for conversation as well, which will allow us to take on more and we.
And they'll get the funding from our partners to carry that forward as well.
Got it thank you.
Just one last one from me.
Your cash flow I think you previously said maybe this on.
It gets you through say mid 'twenty 'twenty two is that still the case.
Yes, our statements around cash runway into the second half of 2020 to remain the same.
Okay. That's all average thank you so much.
Thank you.
As a reminder, you May press star one if you would like to ask a question and.
A confirmation tone will indicate that your line is on the question queue.
Our next question comes from Laurence Alexander with Jefferies. Please proceed with your question.
Hi, everyone. This is actually Dan Rizzo on for Laurence. Thank you for taking my question.
You mentioned, the roughly 9 billion and intangible addressable market.
Just wondering how much.
Of that the current pipeline of nine products addresses.
Great question and talk to you Dan.
Current pipeline winds up with that $8 $8 billion.
Net addressable market.
Square on so we don't have any.
And if there's nothing outside of benign equates to 8.8 most of the 8.8 is driven by group projects the projects and oats.
Rejects and Pam.
And the project and the Palm oil alternative.
And with old scheme, and the biggest that's slightly over $3 billion.
So would that suggest that as the other projects are developed or become closer to two two.
<unk> and that the.
The market could grow it should grow.
Not sure I follow your question and so you said that 33333 projects account for most or a majority of the $8 8 billion intangible addressable market. So with the other roughly six projects I was wondering.
And if there is upside potential for those photos and.
Potential markets beyond what's already you guys were already calculated.
Got it.
From from our perspective for the other projects that are in there.
On.
And our around alfalfa, we the pie of Lake and <unk>.
H O L L soybeans.
And I think there are five.
Projects to fall on that category.
Comprised the remainder of the $8 8 billion and and I think from our perspective, what we have and as our addressable market represents what we think as we.
We capture our share that would still be the addressable market. We're going after we'll capture our share of it what goes on the projects all through partners.
Alright. Thank you very much for all of that said all of that said I do want to add onto that and I'll go ahead, and I think I wanted to add onto that as we said come with another project and soy that is accretive to the addressable market that we have right. So that they don't want to confuse what and.
On the pipeline with what the opportunities are there our addressable markets that are bigger than or sorry broader than what is included in the 8838 and quick back to what we publicly disclosed and if we were to come with them on a different sort of soybean project as a for example.
It could very well add to the addressable market depending upon what the target was.
Okay. Okay. Thank you I understand thanks for clarification.
You bet.
Thank you there are no further questions at this time I would like to turn the call back over to Bill <unk> for any closing remarks.
Thank you and thanks to everyone for joining us on our call today.
We were not able to address all of your questions on today's call. Please feel free to contact us or our Investor Relations firm MZ group, who would be happy to answer them.
Operator.
This concludes today's conference call. Thank you for your participation and have a wonderful day.
Thank you.
Thank you.