Calyxt, Inc. (CLXT) on Q2 2021 Results - Earnings Call Transcript
Operator: Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to Calyxt's Second Quarter 2021 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 questions. This conference is being recorded today, August 5, 2021. At this time, I would like to turn the conference over to Cameron Willis, Assistant Vice President of Argot Partners, Calyxt's Investor Relations firm. Thank you, sir. Please go ahead.
Cameron Willis: Thank you, and good afternoon. I would like to thank you all for taking time to join us for Calyxt's Second Quarter 2021 Financial Results Conference Call. Your host today are Michael A. Carr, President and Chief Executive Officer; Bill Koschak, Chief Financial Officer; and Dr. Yves Ribeill, Executive Chair of the Board. A press release detailing these results crossed the wire after today's market close and is available on the company's website, www.calyxt.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 in 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 and adjusted EBITDA, both are non-GAAP financial measures. In Calyxt's press release and its filings with the SEC, each of which is posted on the company's website at www.calyxt.com, you will find additional disclosure regarding these non-GAAP 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. The webcast link is available in the Investor Relations section of www.calyxt.com. At this time, I would like to turn the call over to Calyxt's Executive Chair, Yves Ribeill. Yves?
Yves Ribeill: Thank you, Cameron, and thank you for joining us today for our second quarter conference call. I am pleased to report that we carried the momentum of the first quarter throughout the second quarter, including several key accomplishments by our talented and dedicated team. Before I turn the call over to Bill to run through these achievements, let me start to introduce and welcoming Michael Carr to the Calyxt's team as President and Chief Executive Officer and as a member of our Board of Directors. Michael joined us with more than 20 years of operational, financial and investment experience and diverse knowledge across key industries, including health, nutrient, bioenergy and services. He most recently served as the Vice President of M&A Strategy and Innovation at Darling Ingredients, a global developer and producer of sustainable natural ingredients and renewable energy. His skill set will be integral as we advance Calyxt's vision built around our cutting-edge plant-based technology. I'll now turn the call to Michael for some brief remarks.
Michael Carr: Thank you, Yves, for the warm welcome. This is an exciting time for Calyxt, and I'm thrilled to be joining the team. The opportunity to lead Calyxt was compelling based on my 20-plus years of professional experience, my view of the global marketplace and the opportunities that lie ahead for a company like ours. My work has been squarely focused at the intersection of the innovation of natural resources and the sustainability of our planet. Consider, despite the commitment of the world's largest companies to sustainable business practices, much of what is happening in the global economy today is not sustainable as evidenced by a host of metrics from carbon pollution to soil erosion. The fact is companies must produce products differently from sustainable sources such as plants and in a sustainable manner. Fortunately, there is a strong demand for sustainable production and a general awareness that such an approach is required. This shift to a sustainability economy is estimated to have a $30 trillion impact in the next three decades across all industries and economies around the world. Calyxt's fundamental business practice is what I call co-designing with nature and the opportunity is significant. I joined a company that has built a strong foundation over the past 10 years to become a leader in its field in terms of platform technology, tenure, intellectual property and industry know-how. These are incredibly valuable assets in and of themselves. When you consider how relatively quickly our company today is able to apply our technology and expertise to get to proof of concept for new potential products or to identify new materials derived from plants, you will begin to understand why I believe there is still so much value for our company to unlock. I look forward to closely collaborating with a smart and dedicated team here to advance our business, develop and commercialize high-value products for our customers and partners and achieve nothing short of revolutionizing how the world uses plants. With that, I'll turn it over to Bill for the full second quarter update. Bill?
Bill Koschak: Thanks, Michael, and welcome to Calyxt. I speak for the full team in extending our warm welcome to you. Yves, on behalf of the company, I'd like to thank you for your services as Executive Chair, and we look forward to continuing to work with you as Chair of our Board. We've made some exciting progress over the past quarter. Our scientists continue to innovate around the hemp genome, demonstrating the ability to engineer a hemp in a manner that can be used to unlock capabilities in order to selectively breed and deliver improvements in the species. In May, we shared the team's successful transformation of this genome. As announced in mid-July, our team has expanded our breeding platform with the addition of triploid breeding technology to create pollen-prof seedless hemp, which offers significant advantages in innovation, crop management and harvest potential. Additional benefits can now be delivered and, for example, a seedless crop can improve fiber quality and increase yield. Another benefit we plan to commercialize through a partner is grain production for hemp protein and oil derivatives that can be enhanced with a breeding program based on controlled pollination, effectively eliminating the threat of rogue pollinators that can lead to suboptimal yields. We expect this accomplishment will accelerate innovation in the species and using Calyxt's transformation tools will enable our scientists and others who have licensed the technology to select plant characteristics that may contribute to the establishment of hemp as a modern, stable and valuable broad acre crop. By modernizing this crop, we can now deliver products tailored for the benefit of both growers and consumers who are increasingly looking for plant-based and sustainable foods, materials, cosmeceuticals, nutraceuticals and more. The first of these products is expected to be available for commercial planting by a partner as soon as 2023. Since we began selling the grain to ADM in the third quarter of 2020, we have sold more than 75% of the 2020 grain crop to date, with the remaining grain projected to be sold to them throughout 2021. And finally, in the second quarter, our net cash used by operating activities improved by $11.6 million from the same period a year ago, driven primarily by an improvement in our working capital investment associated with the change in our go-to-market strategy for our soybean product line and a lower net loss in the period driven by a reduction in our operating expenses following that change and other actions we have taken subsequent to that time. In all, we believe we are positioned for profitable future growth. We believe Michael's experience in evaluating emerging technologies and leading innovation coupled with our recognized technology platform, recent technical advances and know-how that have led to our active partnership, innovation and licensing pipeline and the strength of our base business are the building blocks for this growth, as is our continued focus on expense management. As a plant-based biotechnology platform company, we are focused on delivering innovations that revolutionize how the world uses plants. Our strategy is based on focusing on our core strengths in research and development, including gene editing, plant breeding and trait development. We believe that our platform allows us to develop innovative, high-value and sustainable materials and products for our world-class and industry-leading customers and partners, and we are proud to be the first company to successfully commercialize a gene-edited food product in the United States. As we have shared previously, we have transitioned our business model to pursue product development agreements, product license agreements and technology licensing agreements as a baseline go-to-market strategies to allow partners to harness plant metabolism to meet their processing and downstream needs. To date, we've harnessed plant metabolism into products, including a soybean with a high oleic acid profile, our first commercial product, and alfalfa able to be better digested by livestock, which S&W Seed Company plans to commercialize and wheat with a higher level of fiber content than traditionally bread varieties. We've also engineered the metabolism of soybeans to improve their flavor to help enable wider adoption for plant-based protein applications. Using our research and development expertise, we are also developing products which focus primarily on improving climate resistance and reducing greenhouse gas emissions during food and energy production. These product candidates in development include winterized oats to shorten the growing season to allow for growth in lower latitudes during the winter season. This approach has several benefits, including transitioning grain fill to the temperate spring, increasing the likelihood of high-quality harvests and enabling the production of oats in the winter season following a summer crop, creating a crop value-driven incentive for growers to practice winter cover. This last point is significant because winter cover practices sequester more carbon and prevent soil erosion and runoff. We are continuing to develop hemp with improved characteristics for protein and oil production and for use in advanced materials. Hemp is a very high-quality protein and offers production benefits when compared with other protein or oil crops like soy, peas or canola. Hemp can also service a wide variety of material science needs, including strengthening plastics, reducing petroleum-based content and providing greater strength in longevity compared to other plant-based fabrics like linen or cotton. Across these programs, our platform of traits and breeding advancements minimize hemp production risk, improve agronomics and yield and drive quality protein and oil production as well as crop processing efficiency. Today, we issued a press release describing our second quarter 2021 results and we also filed our Form 10-Q this evening. Revenue was $11.9 million in the second quarter of 2021, an increase of $9.6 million or 415% from the second quarter of 2020. The increase was driven by the volume and mix of products sold in the quarter, as Calyxt sold 25% of the 2020 grain crop in the quarter as compared to the second quarter of 2020, when we were selling soybean oil and meal. As of June 30, 2021, we had sold over 75% of the 2020 grain crop. Gross margin was $350,000 or 3% in the second quarter of 2021, an increase of $3.4 million or 112% from the second quarter of 2020. Adjusted gross margin, a non-GAAP measure, was negative $1.2 million or negative 10% in the second quarter of 2021 compared to negative $800,000 or negative 34% in the second quarter of 2020. The improvement on a percentage basis in adjusted gross margin was driven by improved product mix as a result of the move to sell grain compared to selling oil and meal. Total operating expenses were $6.3 million in the second quarter of 2021, a decrease of $1.7 million or 21% from the second quarter of 2020. The decrease was driven by lower personnel costs as a result of cost reductions following the move to sell grain compared to selling oil and meal as well as other reductions in operating expenses from the second quarter of 2020. Net loss was $4.8 million in the second quarter of 2021, an improvement of $6.1 million or 56% from the second quarter of 2020. Adjusted EBITDA loss was $5.8 million in the second quarter of 2021, an improvement of $700,000 or 11% from the second quarter of 2020. The improvement was driven by benefits resulting from the move to sell grain compared to selling oil and meal and other reductions in operating expenses. Net cash used by operating activities were $1.8 million in the second quarter of 2021, an improvement of $11.6 million from the second quarter of 2020. The improvement was driven primarily by a lower working capital investment associated with the change in our go-to-market strategy for our soybean product line and a lower net loss in the period driven by a reduction in our operating expenses following that change in go-to-market strategy and other actions we have taken subsequent to that time. From a cash perspective, the second quarter of 2021 was highlighted by the significant progress we made selling grain, managing grower deliveries to best match demand and reducing operating expenses below last year and staying on track to achieve our cash operating expense annual target of $25 million or less. We believe these actions will be enough to fund our operations for at least the next 12 months and into the second half of 2022. As of June 30, 2021, cash, cash equivalents and restricted cash totaled $18.5 million. Our earnings materials, which are posted on our website, provide important context about the non-GAAP measures we report and include reconciliations of these measures to the most comparable GAAP measure. For year-to-date financials for the first six months of 2021, please refer to our press release or filings with the SEC. I'd now like to turn the call over to Yves for concluding remarks. Yves?
Yves Ribeill: Thank you, Bill. I'm proud of the progress this team has made in the first half of 2021, including the addition of Michael to the team as President and CEO and the promotion of Sarah Reiter to Chief Business Officer. Our Scientific Advisory Board has become operational and in the quarter held several meetings and their report is already positively influencing our technology platform and scientists. Our R&D team continued to innovate by intensifying and unlocking high-value, plant-based products and metabolites for the use of Calyxt proprietary system and advanced analytical platform that build upon the learning from our decade-plus of engineering plant metabolism. I'm especially excited by our continued innovation in hemp, with our successful transformation of the hemp genome, enabling future advancements like trade delivery, gene editing and advanced triploid plant breeding, allowing for pollen-proof seedless hemp. This development underscores our ability to quickly discover, understand and harness the potential of complex plant biological pathways to deliver the next generation of plant-based innovations. Finally, as Bill mentioned earlier, with the addition of Michael to our team, I will now transition out of the role of Executive Chair and will be handing the reins to Michael to work with the team to advance Calyxt's plant-based biotechnology platform. It has been my pleasure to work so closely with a dedicated team of executives at Calyxt, and I look forward to continuing my involvement with the company as Chair of the Board. As I've shared previously, there are many exciting developments taking place at Calyxt. And I continue to believe that we are rapidly becoming the source of power that generates plant-based sustainable and innovative products. These products will meet emerging customer needs across a variety of growth sectors, all while improving health, ensuring environmental sustainability and addressing climate change. This is the achievable vision of Calyxt. Operator, that concludes our prepared remarks. Please open the line for questions.
Operator: Our first question is coming from Laurence Alexander of Jefferies. Please go ahead.
Laurence Alexander: Good afternoon. Could you sort of talk about two things. First, the degree to which the announcement of the change in strategy has led to a change in the types of incoming calls and then research proposals? And then, how are you prioritizing between small partners, large partners, different markets? And are there areas of research that had previously been kind of verboten within Calyxt or just not a priority that have now moved up into the priority list to be to make your platform more market relevant?
Bill Koschak: Laurence, this is Bill. Thanks for the question. Certainly, we've seen an increase in the interest in what we're doing based on the advancements that we've announced surrounding hemp, especially, our soybeans as well in terms of the next generation of our soybean product. And so, that increased interest is flattering to get. We also then need to, as you pointed, to prioritize. And so from our perspective, we are looking at how do we identify different verticals within those crops that we can find partners for, and that has been our focus. And so we've got a good idea inside. We've got filters that we use that are both strategic and financial that we apply. And we work when those opportunities come over the wall to determine, whether or not we can make it happen. Things like, is there financial return upfront, what is the size of the market, how strategic is the opportunity are all things that we consider among several others.
Laurence Alexander: And have you seen a difference in the kind of willingness or the type of outfits who are reaching out to you in terms of R&D capabilities or how they think about IP splitting or value share between them and you? I mean I just want to get a sense for -- to what extent sort of there's been clear...
Operator: It looks like we've lost Laurence. We'll move on to the next question. Our next question is from Bob Burleson of Canaccord Genuity.
Bob Burleson: Thank you. I hope he is okay. So I think probably, first of all, welcome, Michael. My first question is looking at -- if we put consumer acceptance aside, and we're starting to see a blurring distinction between GMO and gene-edited food on a regulatory front. And I don't know if that's the case, but there -- it seems like there's some movement in that direction. I'm wondering, just looking at your technology in terms of cost and time-to-market advantages versus GMO. Can you kind of just review that a little bit for us?
Michael Carr: I got cut off, but thanks for the question. Thanks for the warm welcome. Could you repeat the question Robert?
Bob Burleson: Sure. Should I repeat it? Yes, I'll go ahead and repeat it. So I think if we just put aside the issue of consumer acceptance and kind of whether or not non-GMO is embracing gene editing food -- gene-edited food. And we just look at what the regulators are doing and maybe if there's some blurring there between GMO and gene-edited food by regulators. How would we look at your technology platform in terms of cost and time to market versus GMO? Can we just kind of quantify maybe a review what those benefits are?
Michael Carr: Well, it's an interesting question. I think one of the good things that we have that we're facing based on the products that we're producing is so far, from a regulatory standpoint, we're really not facing the issues that the GMO is doing. So, when we look at a cost advantage, really, it's just two separate markets. Ideally, we can't really comment on what the regulatory environment is going to be in the future. But with our first soybean product, it was a voluntary consultation with the FDA and there was really none of the issues that you're seeing dealt with in the GMO market. So, from our perspective, the cost structures are entirely different.
Bob Burleson: Okay. Great. And then, I'm wondering, you guys have had a change in go-to-market, a couple of changes. And you put up some nice market TAMs earlier by trade and crop type, what your efforts are on a bunch of different crops. And I'm wondering, how closely should we follow those earlier TAMs? I know that seed sales are kind of now not part of the TAM, but should we still be getting our bearings there? And then are there -- what's the kind of opportunity maybe for things that you haven't announced coming into your pipeline in terms of potential planted acres? Is that are we at the point now where we're beyond the point where you could announce something that would be planted in 2023, or could we see announcements, things that we don't know about that could show up in terms of plantings in 2023 or even earlier?
Michael Carr: We're starting to get good visibility in 2023 and not in a position to actually announce that today, but it's starting to have great visibility. I would continue to go with the TAM that you've been working off of that we've recently presented to you as we continue to look at those markets. So, the good thing is we're feeling good about the visibility as we look out here almost year and a half from now.
Bob Burleson: Okay. So, you're not in a position where -- I guess, you're along you're kind of further along, I guess, with prospective licensees where something that we don't know about yet in the public realm could materialize in planted acres in 2023 or are we past that window?
Michael Carr: Let me ask Bill. Bill, are you back on yet? Do you want to jump in with that?
Bill Koschak: Yes, I've been on for -- yes, I've been back for a little while. Sorry about that, everybody. I don't know what happened. Hey Bobby. So, we are -- in terms of where we're at, I think from a planning perspective in 2023, I think what's in terms of what could be done there perhaps could be something in hemp but, otherwise, I think likely not with where we're at. The two big ones that are coming at us where we'd have something that I think from our perspective would be cash and revenue between now and 2023 would obviously be as you think about those types of transactions to get cash from a partner to work on the product development or for licensing our technology are two things that we absolutely expect to happen between now and then. And frankly, that's a better driver of near-term value for the company than focusing on commercial planting for anything we might do as that's how we're looking at it.
Bob Burleson: Okay, great. Thanks. I'll jump back in the queue.
Operator: Our next question is coming from Sameer Joshi of H.C. Wainwright. Please go ahead.
Sameer Joshi: Yes, thanks. Good afternoon everybody and Michael, welcome to the team. Michael, just wanted to get your view on the product pipeline. And would you have are you going to review the product pipeline based on discussions with your scientific advisory board or with the R&D team, or is the product pipeline that we see going to stay and no changes to be expected in the future?
Michael Carr: Well, again, thank you very much for the warm welcome. And here we are as I'm in the day seven in the role. But a quick answer to your question is yes, I think we have one of the exciting pipeline. I mean, clearly, the company has a foundation of 10 years and a tremendous amount of success here recently with a foundation of 10 years in technology. You can certainly expect that we'll be doing a review. That's one thing I think having a fresh pair of eyes coming into the organization to be able to take a review of the pipeline and see not only how we can further enhance it, but perhaps augment it. So, I'm excited for the future here. Again, it's a very exciting time for me personally, and I think also for Calyxt and certainly any of their stakeholders.
Sameer Joshi: Okay. Good. And then assuming that there wouldn't be any changes, in terms of timing of these targeted commercial planting years, is there any magic to these dates, or is it that you're prioritizing certain products depending on the likelihood of them being licensed with a partner or is it some technological challenges that or yes, challenges that your R&D team is overcoming? Is there any magic to this planting year targets?
Michael Carr: Bill, do you want to speak to the targets real quick?
Bill Koschak: You bet. So, the way that we approach the target is based on when we expect, from all the work that we've been doing, any of the planting to occur post a regulatory pathway being cleared, right? There's so if it's a food, both USDA and FDA. In some cases, these product candidates have gone through the first round with the USDA and were in the process of gaining a non-objection from the FDA, as we're doing now with alfalfa and expect to do soon with wheat. So that's what really is driving the target commercial planning year. In the background, we're actively working for on finding partners for those products who will actually work to get the seeds put in the ground.
Sameer Joshi: Got it. Understood. Moving to more near-term, 75% of the grain crop is sold. Should we expect it to be completely sold within the next quarter or at least before the end of the year?
Bill Koschak: Yes, by the end of the year has been our consistent statement and don't see anything to change that at this time.
Sameer Joshi: Okay. And then operating cash levels are nicely down. Should we expect that these levels, going forward, are further cuts expected in the future?
Bill Koschak: Yes. As you can appreciate, we've continued to look closely at our expenditures. And as we work on negotiating with partners, we expect to have our R&D expenses, especially the cost of trials and things like that outside being covered by our partner. That's definitely one of our expectations as we look at things. So, I think we're at a good level. We're continuing to evaluate what we can where we need to invest and where we need to take money out. So, I think, looking forward, yes, your assumption is fairly straightforward and good.
Sameer Joshi: Okay. Thanks. That's all from me. And welcome again, Michael, and thank you for shepherding the company for the last few months.
Michael Carr: Appreciate it. Thank you.
Operator: At this time, I'd like to turn the floor back over to Mr. Bill Koschak for closing comments.
Bill Koschak: Thanks everyone for joining us on our call today. If we are not able to address all of your questions on the call, please feel free to contact us or our Investor Relations firm, Argot Partners, who would be happy to help you. Operator?
Operator: Thank you. Ladies and gentlemen, this concludes today's event. You may disconnect your lines at this time or log off the webcast and have a wonderful day.
