Q3 2021 Calyxt Inc Earnings Call
Okay.
Okay.
Good afternoon, ladies and gentlemen.
Thank you for standing by.
Welcome to the Calix third quarter 2021 earnings result conference call and webcast.
During todays presentation, all parties will be in a listen only mode.
Following the presentation the conference will be opened for questions.
If you have a question. Please press the star followed by the one key on your Touchtone phone.
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This conference is being recorded today November 4th 2021.
At this time I would like to turn the conference over to Bill co Shack.
Chief Financial Officer. Please go ahead Sir.
Thank you and good afternoon. This is bill Schack, Chief Financial Officer of Calix, I would like to thank you all for taking the time to join US for Calix third quarter 2021 earnings results conference call and webcast.
Presenting with me today is Michael a car, our president and Chief Executive Officer, Dr. Travis Fry, our Chief Technology Officer will be joining Michael and die for Q&A after our prepared remarks press.
Press release detailing these results crossed the wire after today's market close and is available on the company's website calix desktop.
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 described.
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 profit.
Adjusted gross profit percentage and adjusted EBITDA, all non-GAAP financial measures.
<unk> 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 financial measures.
References 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, this conference call is being webcast webcast link is available in the Investor Relations section of Calix Dotcom.
I'd like to turn the call over to Michael for his opening remarks Michael.
Thank you Bill and thank you for joining us on our call today I'm pleased to report important progress in my first three months with Calix.
Any of you who participated in our business update call last month.
On that call, we announced our strategic initiative to expand our business offerings to provide innovative high value.
<unk> produced plant based solutions to a wider group of end markets and a diversified base of customers by virtue of these new offerings, we by definition or a plant based synthetic biology company.
This initiative marks a significant new opportunity for the company predicated on customer demand driven needs and the integration of our proprietary plant spring technology platform, coupled with our bio factory production system.
You May recall Plaid spring is built on our company's experience of more than a decade engineering plant metabolism are proprietary systems, our tools and technologies, our deep portfolio of intellectual property and an expanding set of artificial intelligence and machine learning or AI and ml capabilities. This license bull platform delivers.
Innovation through an efficient process from laboratory to pilot Midland Calix, you'd take a customer's plant based chemistry need through our design engineering and verification development process, but also complete pilot level production with their expected 36 month period in many cases calix expects to work with our customers.
Through this 36 month timeframe to concurrently develop regulatory submissions in an effort to expedite any necessary clearances for their end products.
These planned spring derived compounds for then produced through our proprietary bio factory, a synthetic biology bioreactor production system. The bio factory production system harnesses the potential of plant cells in a multi cellular matrix structure.
And with nutrient media group's production and Leverages multiple cell types without the use of fermentation.
These multi cellular matrix structures enabled a processing plant based chemistries of increased complexity relative to those possible using traditional fermentation systems or single cell plants culture methods. In addition, the speed of multi cellular matrix growth over time is expected to accelerate that.
Reduction of a compound at scale.
Together last spring in the bio factory enabled calix to help our customers produce consumer and industrial products incorporating plant based chemistries to meet their corporate sustainability targets and financial goals are process, which I'll be speaking to you in more detail shortly.
Capable of unlocking the power plants to produce complex plant based chemistries that are finite difficult to source sustainably and that may not be able to be produced using other production methods. These are all important points of differentiation as we market our offerings to our broad base of target customers.
And these highly productive past few months, we also announced a research collaboration with a leading global food ingredient manufacturer based in Asia. This collaboration is to develop an improved soybean capable of producing an oil sustainable commercial alternative to palm oil as part of this research collaboration.
<unk> expects to receive cash payments at each of the two years of its term and as of today. The initial payment has been made in the development work has begun. This collaboration agreement also includes the commercial option for the global food ingredient manufacturer.
I'm also pleased to report that we have nearly completed the sale of our inventory of 2020 grain to Adi as of today. We are fully paid all growers. The grain has all been delivered to calix. We are down to the last several trucks that are in transit to ADM. This series of transactions, which began in the third quarter of 2020.
As generated $35 $7 million in total cash proceeds and as a result, we are on track to complete this activity as soon as the end of the month when we received the final payment from ADM.
We ended the third quarter with cash and cash equivalents and restricted cash of $14 $9 million.
Bill will provide a financial update later on this call.
We also recently appointed Doctor steps Dobra, Ibm's, Chief Global AI Officer to our scientific Advisory Board, Seth as a visionary, whose deep experience, bringing AI based business solutions to a major global corporations will be invaluable as we refine our AI ml data strategy and initiatives.
This includes the continued development and augmentation of our team's skill sets and our capabilities to improve the efficiency and scalability of our offerings.
Helix has a unique opportunity to revolutionize how the world uses plants. Our focus is on innovating, where the consumption of finite resources and the sustainability of our planet intersect. The global economy today is not sustainable evidenced by metrics such as carbon pollution water scarcity and soil erosion increasingly.
Shareholders and other stakeholders demand companies produce products differently in a sustainable manner and plant based chemistries represent a differentiated and more sustainable alternative to many products and materials in use today more.
More than 20% of the world's 2000 largest public companies are committed to be carbon neutral and we believe that in order to achieve their goals companies across industries will need to incorporate plant based solutions into their businesses.
Furthermore, consumers are demanding that companies across industries, including cosmetics personal care and wellness food advanced materials and chemicals produced their products with sustainable and environmentally friendly plant based chemistries.
The Boston Consulting group recently estimated that nature derived products such as those develop from plants will affect 30 trillion dollars of the global economy over the next 30 years, driven by sustainability, the carbonization and carbon neutral goals.
This creates a massive opportunity for calix to work with its customers developing plant based chemistries to satisfy and customers' demands. This powerful trend provides an opportunity for customers and other stakeholders to participate with calix in the development and production of high quality ingredients and materials that not only expand the hip.
Oracle plant based food and feed chain, but also transcend other industries and segments that increasingly seek to decarbonize and improve their environmental footprint.
When we speak of synthetic biology, we are speaking to the design and engineering of biological organisms. Synthetic biology is built on knowledge gained from the last several decades of genomic research, which has led to its core principle that biology is fundamentally programmable.
<unk> not acting Soviets information stores, but also as processors of information.
And the same way that computers can be programmed by code sales can be programmed using natural coat their own DNA.
Importantly, synthetic biology can be used to program Michelle to make applications that are physical plants represent a uniquely qualified platform to be leveraged.
Reliant on calix deep understanding of metabolic pathways provided by plants, leveraging our expertise and proprietary tools to drive efficiency gains.
Alex is positioned to be a key driver and the sustainable biologically driven revolution.
The world speaking to evolve to more sustainable solutions.
We are uniquely capable of producing many chemistries that cannot be produced through other means including microbial fermentation.
Calix estimates that more than 80% of all known natural compounds are being produced by our plants.
These known natural compounds comprise over 170000, Chemistries today, and we believe plants have the potential to access many of the nearly $1 million estimated chemistries not yet discovered.
Plants are uniquely capable of producing these chemistries and in comparison to single cell organisms are a better system for generating.
This is due to the fact that plants are natural producers of so many compounds and plans do not require the programming a micro dose to produce the same compound.
If it is even possible for the microbe to produce the complex chemistries, but plants can produce.
Joseph scientists are experts in engineering plant metabolism, which includes enabling the plant cells to produce more or less a certain chemistries are novel Chemistries that may be unique to plants. Our scientific team has demonstrated this capability many times over across multiple plant species. This demonstrated expertise creates a unique perspective on the power.
<unk> Plas and how they can be used to shape, our future and gives calix and expertise advantage over others.
Well I'd like to turn to our planned spring technology platform.
Helix is focusing on deploying planet spring to address customer driven innovation needs utilizing plans to produce high value products and materials that may address customer sustainability targets and financial goals.
We expect in light of current industry trends such needs will increasingly focus on replacing existing compounds with more sustainable alternatives, we leverage plant spring through the development process, enabling the reduction of cycle times and leveraging of knowledge gained with developing the next compound.
The design phase it would use of systems and insights to identify metabolic pathways target genes controlling these pathways develop strategies for optimizing expression of the target genes and design that technical approach to achieve the targeted compound.
In the engineering phase Salix direct changes in the plant cells using a combination of tissue culture gene editing capabilities and transformation.
After the target has been designed and engineered calix rapid prototyping system can quickly produce compounds, which can be verified against customer specifications using natural product chemistry medical Omics genomics and gene expression tools. This system and these analytic tools and quickly ensure the exact plant based chemistry.
Desired by the customer has been produced and speeds new product development and delivery, all while collecting data and learning and reapplying, These learnings and future product offerings.
Helix has developed early stage AI ml.
Capabilities in class spring, enabling knowledge gained from past activity to be combined with predictive analytics to rapidly prototype and provide feedback as I mentioned with the Onboarding of Dr. Seth <unk> to our scientific Advisory Board, we expect to make continued progress further developing and refining our AI ml across.
All elements of plant spring and the bio factory, which I will address in a moment.
These capabilities leverage <unk> deep scientific experience the vast amounts of data that has accumulated over its history, including the large proprietary database of genomic information across numerous plant species will also integrate publicly available and other data.
As a result, calix believes it can developed engineered bio molecules implants for customers at faster speeds than its competitors in the synthetic biology industry.
Fundamentally the bio factory production system will enable calix to expand our production methods from outdoor agriculture systems to include controlled environment Bioreactor based production systems.
We consider the bio factory to be a natural evolution of how a plant spring is acquired.
Factory harnesses the potential of plant cells in a multi cellular matrix structure unusual is nutrient media for its production.
Our bio factory also leverages multiple cell types in a multi cellular matrix structures enable controlled replication and processing of compounds with our replication accelerating exponentially over time.
The bio factory is driven by the output from our plants screening platform in combination the bio factory and plant spring are capable of producing high value compounds for use in a wide range of sectors at greater speed compared to other approaches.
We also believe the bio factory has the potential to be what are the most sustainable production systems across industries because of its production methodology.
It does not use fermentation and there are fewer of the sustainability of challenges associated with other controlled environment production systems, including lower levels of off gases reduced water demands and lower energy requirements.
The bio factory is also expected to have limited downtime between production cycles because it produces these plant based chemistries year round in a controlled environment Bioreactor system is protected for many of the adverse climate effects typically associated with agricultural production.
Yeah.
When we complete the verify phase of product development for our customers' production in the bio factory begins.
We had been running lab scale bioreactors for almost six months now.
Mission to our first pilot scale bioreactor and is on track to be online by the end of this calendar year. The initial pilot bioreactor is scalable up to nearly 200 liters and we expect to further expand the scope of our pilot facilities based on customer demand ramping up to commercial level production using a range of vessel sizes.
For our commercial production. Our current plan is to use third parties, which we referred to as infrastructure partners for at scale Bio factory production.
We have targeted a number of companies who are prospective infrastructure partners will begin to advance those discussions after our pilot bioreactor comes online.
This way, we can operate the bio fractions of asset light manner and mitigate the risk of achieving production at scale. These are both key elements of our business model and strategy for commercializing bio factory.
I'd like to take you quickly through a couple of examples that serves as proof of concept for our plant screening platform and bio factory working in combination the.
The first was a plant derived protein called <unk> human but is similar to approaching egg whites and can be used in several end markets included as a protein replacement.
The second which is leverage what has learned to produce the old human proof of concept was better.
That means there's a natural anti oxidant and red color normally produce through ph extraction.
<unk> grown beats.
<unk> has potential for use in the cosmos political nutraceutical flavoring ingredients and markets and likely others commercially available beat derived buttoning his water soluble and degrades quickly under medium to high temperature ultraviolet light and ph changes limiting its market acceptance and calix is bet mean proof of <unk>.
Sept can overcome the challenges associated with beat derived Bettany, we may seek a partner to fund further development and commercialize the compound.
What is important with these first two compounds both of which are proofs of concept that they were able to move through the plant spring design engineer and verify phases of development in a matter of months. This work demonstrates the power of plant spring to produce plant based chemistries at high efficiency and as Calix continues to.
Scale, we intend to pursue numerous opportunities among an expanded group of end markets and a diversified base of customers.
In summary, Calix is plant spring platform and its Biofact reproduction system are emerging force in plant based synthetic biology based on their unique combined capabilities their plant based foundation and the speed and cost at which calix intends to bring more sustainable compounds to its end markets.
A strong new technology that exemplifies the innovation necessary to meet a significant unmet and accelerating need for differentiated and sustainable ingredients and inputs.
After the target has been designed and engineered calix rapid prototyping system can quickly produce compounds, which can be verified against customer specifications using natural product chemistry medical Omics genomics and gene expression tools. This system and these analytic tools and quickly ensure the exact plant based chemistry.
<unk> desired by the customer has been produced and speeds new product development and delivery, all while collecting data and learning and reapplying, These learnings and future product offerings.
Target addressable markets for Calix plant spring platform and bio factory production system are valuable and diverse since plant based synthetic biology can be used to produce compounds and products more quickly and less expensively and more sustainably.
Broadly speaking, we believe the potential end markets for plant based sustainable solutions are best in the near term, we intend to focus our customer observation and development activities and narrow market segmentation, where we believe our current capabilities gives us the best opportunities to win.
These end markets include the nutraceutical caused masuda cool pharmaceutical advanced materials and chemical industries. These end markets contained strong potential customers for our innovation as they all have current business needs to reduce their carbon footprint.
Prior to our announcement in early October we had initiated numerous discussions with potential customers in the four weeks the number of inbound inquiries from potential customers have been significant.
Despite the recency of our announcements we are engaged in discussions to develop products can be produced in our bio factory with six of the Wall Street Journal's top 100, most sustainable companies along with several others.
Feedback from these potential customers have been very positive. We are already currently evaluating buying compounds for potential development using our focus at criteria that bill will speak to in a moment.
We believe we have a compelling offering for our target customers and we are working to secure our first contracts for the bio factory.
I'll now turn it over to bill to discuss our business model and financial updates Bill.
Thanks, Michael Historically calix supplied its technology platform to opportunity is identified primarily focused on the outdoor agriculture end market.
Our cost to develop a product several million dollars in the timeline to commercialization was five to six years or more.
Our approach to the Biofact your business model will be customer focused and demand driven.
We are aware of the market dynamics and synthetic biology in terms of how we approach compound economics, and we have developed a set of criteria by which we will evaluate opportunities and drive focus for our development efforts that includes consideration of factors such as the nature of the customers need the size of the market on markets served.
<unk> adoption.
<unk> capabilities and financial returns.
We call this our target product profile or TPP.
We use this approach to ensure we select the compounds from customers that drive the best potential for success at this stage of the business.
When combining plant spring with the bio factory our cost to develop the compound are expected to decline significantly.
As all of the associated development cycle times as we continue over time to leverage plant spring and expand our AI ml capabilities.
We expect our customers to work with us to fund development of their target compound in plant spring.
With the funding sufficient to enable us to make a margin on that development activity.
Those payments should begin upfront and run over the 36 month development cycle.
The amounts will vary depending upon how the customer intends to fund regulatory costs.
We are targeting customer agreements for the development of up to two to four compounds by the end of 2022 and are also targeting similar agreements to bring two to four new compounds per year into development thereafter.
As the business evolves those amounts could accelerate.
Customers are expected to purchase the compounds from calix pursuant to a supply agreement our.
Production will be handled by infrastructure partners, who would be paid a fee to produce the compound for us.
There's been a selection criteria, we are targeting the compounds, we develop for customers to have at least $1 billion of revenue within the first 12 months of launch.
Gail rapidly over the next four years.
We believe the growth rates of 100 per cent or more per year over that period could be possible with actual revenue and growth driven by the size of the end markets being pursued by the customers and various other factors.
Once the scale production and optimize costs, we are targeting a gross profit in the mid double digits for product related revenue from the bio factory.
This is largely driven by the end markets, we are targeting where compounds can sell for hundreds and even into the thousands of dollars per gram.
In contrast to our prior business, where we were selling our products for pennies per pound.
Together these reduced development cycle times and potential development revenues product revenues and profit margins represent significant advancements of calix business and financial models. We also believe we can mitigate two key risk to this business model by focusing on customer demand as a selection criteria and our application of our T. P T.
And using infrastructure partners for at scale production.
We also expect to continue to license our technology and develop new products for agricultural partners based on their needs.
With respect to technology licensing this activity spans calix vast intellectual property library built over 10 years as a leading plant based biotechnology company.
Adding multiple gene editing platforms.
Breathing and other capabilities. This activity also includes the licensing of historically developed product candidates such as improved digestibility alfalfa higher.
Well, then I'll, let it go.
Soybeans.
Candidates derived from IHOP advancements.
Well, we will pursue licensing opportunities for these product candidates. We expect there will be limited investment in further development until the licensee customers are identified.
As demonstrated by the recent announcement of a new product developed for a partner in soybeans Calix will continue to opportunistically develop products for partners focused on traditional agriculture.
Managed prioritization of resources and to drive returns on its investment Calix has developed a set of criteria for which all opportunities are evaluated which include the size of the overall opportunity.
Each of the product can be developed and they're not as cash to be received by care extra both upfront and over time.
We believe that the technology licensing and opportunistic product development agriculture, each have the potential to generate revenue streams for calix.
Project inception development and commercialization.
Today, we issued a press release, describing our third quarter 2021 results and we also filed our Form 10-Q for the third quarter. This afternoon.
Revenue was $7 $8 million in the third quarter of 2021, an increase of $2 $5 million or 48% from the third quarter of 2020.
Alright.
The decrease in adjusted gross profit percentage was driven by net prices paid for grain sold in the third quarter of 2021 compared to the mix of products sold in related profit margins realized in the third quarter of 2020.
Total operating expenses were $6.4 million in the third quarter of 2021, a decrease of point $8 million or 11% from $7.2 million in the third quarter of 2020.
The decrease was driven by lower personnel expenses as a result of cost reductions following the move to sell grain compared to selling oil a meal.
Other reductions in operating expenses and restructuring costs recognized in the third quarter of 2020.
We are on track to achieve our 2021 target for cash operating expenses of $25 million or lower inclusive of any biofact, we related spending in the fourth quarter.
Net loss was $7.3 million in the third quarter of 2021 and improvement of $2.2 million or 23% in the third quarter of 2020.
Improvement in net loss was driven by improved gross profits and reduced operating expenses.
Adjusted EBITDA loss was $6.9 million in the third quarter of 2021, essentially flat compared to the third quarter of 2020.
We are actively marketing our proprietary planned spring technology platform and our pilot bio factory to new potential customers, including six of the top 100 sustainable companies as identified by the Wall Street Journal ease in other initial target customers represent industries, such as Nutraceuticals Cosmos, <unk> personal care and pharmaceuticals.
As well as companies that manufacture advanced materials and chemicals, we've made other strides in the third quarter announcing the research collaboration with a leading global food ingredient manufacturer based in Asia, and welcoming Doctor Seth Doberman to our scientific Advisory Board, where he will advise us on our AI ml strategy and other Matt.
<unk>.
Altogether I am excited about our future and confident that our expertise scale technology and Knowhow has the potential to deliver compelling financial returns for our shareholders.
Look forward to providing you with updates on our progress in the future.
That concludes our prepared remarks, please open the line for questions.
Thank you Sir we will now begin the question and answer session.
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Today's first question comes from Bobby Burleson Canaccord. Please go ahead.
Hi, Thanks for taking my questions.
<unk>.
So I guess the first one is when we think about.
<unk>.
When we think about the regulatory issues around plant trait development versus the bio factory products you guys are.
So is that included in that 1 million, that's essentially correct, yes, no. Let me let me clarify if I think this is dale.
We expect to get paid during the development process as Michael said and then once we start to sell product to our customers.
Whether that be before they've got clearance or not right because they could be buying product from us to get through any regulatory.
Sure efforts that are necessary, we would expect in that first 12 months to have product revenue. In addition to the development revenue of a $1 million or more in that first 12 months and then that that product revenue with scale.
Okay, Great and then just.
On the liquidity comments.
You guys talked about 12 months Bill you talked about 12 months of <unk>.
Runway here does that include the $3 7 million that you guys just took in.
Yes, it does.
Okay.
Just as kind of maybe a little bit of a tangent, but curious if you guys have been following the C. O P 26 of our top 26.
In Scotland, and Theyre talking about things like.
Managing forests and managing.
The land is as part of <unk>.
<unk> these climate targets and I know you've got this.
This partnership with a global food manufacturer to kind of come up with an alternative to palm oil.
How have you guys noted anything from that conference that you think kind of reflects well on on what youre doing in that area.
Yeah, absolutely and in fact, I think there was announcement this morning about the amount of capital that investors are devoting to what amounts to sustainability and environmental friendly investments and so to us it really sort of drives home. The point that we were pleased about securing that deal with the company. They are located in Asia.
To address what amounts to palm oil and the sustainability or lack of the sustainability of palm oil. So the announcements coming out of that conference I think bode well for what we're doing here with our new initiative.
Okay fantastic. Thanks.
And our next question today comes from Brian Wright at Roth Capital Partners. Please go ahead.
Could you repeat your question.
[noise], yeah, so of of that of that overall tan.
Where that were.
Unaware of even at this point.
But just big picture thinking about it maybe more thematic Lee and sorry about the specific number but it would seem that given the nascent stages of synthetic biology that that this more that this this plant multi cellular matrix should.
More open a much larger segment of the segment then could be done by by microbes is that a fair way to think about it.
Yeah, that's a very fair assessment generally when you look at what our PCM. The plant cell matrix can produce in comparison to a lot of the single cell systems, whether it be microbial as or even some of the single cell plant based systems. They are very specific to our.
Tools that.
A lot of times are.
More commodity based or or even you find in large quantities the more complex materials take on a much larger.
I would say finite.
Percentage in the plants and really when you harvest a plant the percentages of those complex materials.
They can't be produced anywhere else those are specific to plants and so we have the ability because of the precursors to so many chemistries are.
Our inherent in plants their preexisting with our metabolic engineering capability. We actually can then up regulate downregulation and then pull from different precursors to then create or produce more through our PCM of those unique chemistries. So I think thats really what.
What we're looking at as an advantage here that 80% that you can't produce anywhere else you can only get from plan. So we have access not only to.
To change the percentages of those inherent but also with our PCM capability to produce it.
In a very productive way within the bioreactor.
Great. Thank you.
Ladies and gentlemen, as a reminder, if you'd like to ask a question. Please press Star then one.
Today's next question comes from Sameer Joshi with H C. Wainwright. Please go ahead.
Hey, Michael Thanks.
Thanks for taking my questions.
Uh huh.
Three months and so that's why they were proof of concepts is really showing the capabilities of the system.
Okay, and just a clarification at one point you mentioned 200 liter.
Maybe I misheard, but is that the capacity of the bio reactor.
My factory.
Yes.
Oh, okay.
And just a clarification on that one the collaboration in Asia.
That has nothing to do with the new planned spring in the bio factory technologies. It's it's from your legacy existing business.
Business and technology.
Correct, but it's.
Based on the same as I think we've mentioned on a couple of occasions.
The foundation of the plant spring platform is really based on the 10 years of work and development of Calix is done and it's just continuation of that process.
Understood.
Just two housekeeping questions.
What remains of the 'twenty 'twenty crop to be sold is it in the single digit millions or.
Just a few hundred thousand.
Bill Yeah, I'll I'll take that one.
Samir from a 2020 crop we are down to the very very end of the quantity that needs to be delivered at this point as Michael said, we're down to the last few trucks that.
That need to make their way to ADM and so it's in the.