Calyxt, Inc.

Good afternoon, ladies and gentlemen. Thank you for standing by. 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 questions. If you have a question, please press the star key followed by one on your touch tone phone. If you would like to withdraw your question, please press the star key followed by the two. If you are using speaker equipment, please lift the handset before making your selections. This conference is being recorded today, March 4th, 2021. At this time, I would like to turn the conference over to Chris Tyson, Executive Vice President of MZ North America Kalix Investor 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 Kalix's fourth quarter and full year 2020 financial results conference call. Your hosts today are Dr. Eve Rebay, Executive Chair of the Board, and Bill Koshek, Chief Financial Officer. A press release detailing these results crossed the wires after the market closed today and is available on the company's website, calyx.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, net loss, net loss per share, and EBITDA. All are non-GAAP financial measures. In Calix press release and its filings with the SEC, each of which is posted on the company's website at calix.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 in accordance with GAAP. Finally, this conference call is being webcast. This webcast link is available in the investor relations section of calix.com. At this time, I would like to turn the call over to Calix Executive Chair of the Board, Yves Révé. Yves, the floor is yours.

Thank you, Chris, and thank you for joining us today for Calix's fourth quarter conference call. I'm sure many of you on today's call who have been following the Calix story as a shareholder, prospective investor, or analyst have known my roles at Calix as a board member since 2018, then interim CEO for a period of time in 2018, and most recently in the summer of 2020, I was appointed to the position of chairman of the board. My background includes a long career in biotech, including founding and more than 25 years in large pharmaceutical companies. I'm currently the chief executive officer of which is a private biotechnology company working on RNA biology. Two weeks ago, we announced the transition of my role to Executive Chair replacing CEO Gene Blum. I think it is important to note that our decision in 2020 to transition our business model was one of the primary reasons for the leadership change. Our decision represents a continuing step to focus Calix on significant innovations opportunities beyond commodity-based agriculture. We have retained a premier executive search firm, and I will help guide the CEO search on behalf of the board and support the transition once the incoming CEO is selected. On behalf of the board, we want to thank Jim for guiding Calix to a streamlined business model that can capitalize on delivering disruptive plant-based innovation. Calix has experienced a strong and productive 2020. We have redirected Calix's innovation engine to new and high-value opportunities and have built a team with the right talent mix to drive Calix's go-to-market strategies. we are solidly positioned for future growth and success. I'm excited to work directly with this excellent leadership team during this interim period. I'm also excited to announce the formation of Calix Scientific Advisory Board. We previously announced that the SAB will report to the Board of Directors of Calix and will be chaired by Dr. Dan Bortas. In addition to Dan, there will initially be three members, all of whom are world-renowned biochemistry experts, and include Dr. Anne Osborne, group leader at the John Innes Center, Dr. Elizabeth Satterley, HHMI investigator and associate professor of chemical engineering at Stanford University, and Dr. Paul Bernasconi, former global function head for molecular biology at BISF Biosciences. The Scientific Advisory Board is tasked with the strategic mission of helping Calix identify disruptive, plan-based solutions that are near-term opportunities as well as long-term, higher-risk, higher-return ideas, some of which may be realized through partnership with other commercial entities. I believe this is an exciting time for Calix and our rapidly developing disruptive plant-based technology story. Calix is a technology company focused on delivering plant-based innovations to end users across industry, including food, nutraceutical energy, and agriculture. We see our technology being applicable to other industries as well. We leverage differentiated technologies, including the talent gene editing platform, to develop product candidates. We are a leader in gene editing with exclusive access to proprietary talent technology for use in plants, which we use to successfully commercialize the first gene editing food product in the U.S. We have a development pipeline that spans multiple crops and has a substantial total addressable market of $8.8 billion. The products in the pipeline will be commercialized with partners and are targeted at critical industry dynamics, including consumer demand for specialty ingredients and supporting sustainability objectives. We also believe that we have a capital-efficient business model with multiple routes to market for our product candidates. I would now like to hand the presentation over to our CFO, Bill Koshak, who will share our 2020 highlights and walk you through our financial performance. Bill?

Thank you, Yves. We really appreciate your participation on today's call and look forward to working together to continue to scale the Calix businesses. We have accomplished several key milestones since our last call. We continue the development of our winter oat project. Our trait concept could potentially support the growth of high quality oats to meet increasing consumer food and feed demands. Our goal is to develop a winter grown version of oats for food and feed consumption that could also be used as a 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. Oat is America's second largest plant-based dairy product. Oat protein is also positioned for inclusion in the purging plant-based protein market. We believe our oat project will enable climate resilience, making oats more competitive economically and able to be grown in new regions of the continent and over the longer term in additional regions of the world. This project, which is expected to deliver sustainability benefits once commercialized, is in phase one of our development pipeline with targeted availability for commercial planting in 2026. We've also continued the development of our hemp projects. Our projects in hemp target the protein, nutraceutical, fiber, and advanced materials markets. Our first efforts are focused on standardizing the crop for broad acre adoption, reduced risk hemp production, and modernizing the breeding process. We anticipate that our hemp innovations will initially come to market as licensed feed, breeding platforms or traits, and be commercialized by leading germplasm and hemp-based ingredient and material companies. These projects are in phase one of our development pipeline with a targeted availability for commercial planting in 2023 and 2024, respectively. In late December, we announced the sale of our entire 2020 soybean grain production to ADM The total cumulative sales are over 4 million bushels. This was a step in Calix's transition to advanced go-to-market strategies. Sales began in the third quarter of 2020, and as of today, we have sold 40% of the 2020 grain crop to ADM, with the remaining grain projected to be sold throughout 2021. Also during the fourth quarter, we executed a commercial agreement with SNW Seed Company, a global agricultural organization headquartered in Monmont, Colorado, for the exclusive license of an improved quality alfalfa trade in the U.S. and other select geographies. This marks the company's first commercial trade license agreement and, based on U.S. long-term sales projections, could potentially generate more than $10 million of license revenue over the life of the pending patent for the trade. This first trait license agreement and upcoming alfalfa seed launch by SNW represents a milestone in the execution of Calix's three go-to-market strategies and is a great demonstration of our ability to work collaboratively, choose traits to enhance value, do the research to make it happen, and support SNW seed in bringing advanced plant science to market. Finally, given the strength of our industry and the overall market conditions, we thought it was prudent to fortify our balance sheet through the completion of a capital raise that netted Calix 14 million in net proceeds and extended the company's cash runway into the second half of 2022. We intend to use this new capital to advance our current product development pipeline, to continue advancing our technology platform, including Calend, advancing our intellectual property portfolio, and to support the execution of our streamlined business model. We are also excited that Selectus decided to participate in this offering as it demonstrates their support of our business and confidence in our go-to-market strategies. Now, let us turn to some of the subsequent events that recently occurred in the first quarter of 2021. Last week, we were happy to report that we entered into a soybean feed sale agreement with Purdue Agribusiness, an independent operating unit of Purdue Farms, ranked among the largest grain companies in the U.S. More importantly, this represents our first seed distribution agreement since advancing our business model. Under the seed distribution agreement, Purdue will contract with growers for grain production and processing under an identity preservation process. Purdue will contract directly with farmers for the 2021 highly exciting growing season, which was previously done by Calix for several years. This agreement will result in calyx seed sales to Purdue in 2021 that meet their growing region specifications. Purdue was well-suited to help take the calyx soybean line to the next level by utilizing their extensive vertically integrated production system, bringing the calyx team to focus on advancing our research and development pipeline's next plant-based breakthroughs. Our core voter market strategies provide differentiated paths to commercialization and have the potential to result in cash payments throughout the development cycle. In the case of a trade license, we expect to receive fees upfront and then upon the achievement of major milestones from our partner. The earlier a partner is 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 sale go-to-market strategy, we expect that revenue generation will be driven by the sale of seed. In the case of a technology license, we expect to receive fees up front and then annually from any prospective licensee. Upon commercialization by that licensee, we also expect to receive ongoing royalties. We recognize there are tradeoffs between certainty of up front payment 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. The addressable markets for hemp, winter oats, and our high saturated fat soybean for a palm alternative are all substantial opportunities with more than $2 billion of opportunity and our new projects initiated by Calix in the last year. We have nine projects at phase one or later in our development process across several crops. We target having at least five product candidates available to begin commercial planting now through 2024. This development funnel is a measure of our R&D activity and does not include potential technology licensing opportunities. Now, 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. The press release is available on the investor relations section of our website, and our 10-K will be posted this evening. Revenue was $13.9 million in the fourth quarter of 2020. an increase of 10.1 million from the fourth quarter of 2019, primarily driven by sales of approximately 40% of the 2020 grain crop in the fourth quarter of 2020. Gross margin percentage improved by 900 points year-over-year to a negative 35% in the fourth quarter of 2020, principally reflecting the impact of our change in 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 in the fourth quarter of 2020, primarily driven by operating expense declines from the change in the soybean go-to-market strategy and other reductions in general and administrative expenses. Net loss was 13.4 million in the fourth quarter of 2020, compared to 12.2 million in the fourth quarter of 2019. and adjusted net loss was 12 million in the fourth quarter of 2020, essentially flat with the fourth quarter of 2019. 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. As previously mentioned, during the fourth quarter, we completed the sale of all soybean oil and meal, exited nearly all soybean processing and transportation contracts, and sold approximately 40% of the 2020 grain crop. Our 2021 seed production is complete, and we are anticipating the sale of seed processors based on what we have available that matches their targeted growing regions. Taking into account our reduced operating expenses as a result of the soybean go-to-market strategy transition and 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 made transitioning our soybean products to a seed go-to-market strategy, our capital raise, and achieving reductions in operating expenses. We saw approximately 9.7 million of net cash provided in the fourth quarter, an increase of 17.6 million from net cash used of 7.9 million in the fourth quarter of 2019. The increase was driven by net proceeds from our capital raise, which included participation by our largest shareholder Selectus, 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 2020, an increase of 16.6 million, or 227%, from 7.3 million in 2019, primarily driven by the sales of approximately 40% of the 2020 grain crop in the fourth quarter of 2020. Gross margin percentage for 2020 declined by 2,000 points year-over-year, driven by higher volume of products sold, the impact of lower costs associated with products sold in 2019 because 3.3 million grain costs were previously expenses R&D, $2.8 million of unrealized commodity derivative losses from futures contracts sold to hedge our fixed price grain inventory and fixed price forward purchase contracts, and a 1.3 million increase in our net realizable value adjustment to period end 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 go-to-market strategy. Adjusted gross margin percentage for 2020 was a negative 30% compared to a negative 61% in 2019. Improvement on a percentage basis was driven by savings from the advancement of our soybean product line go-to-market strategy. Total operating expenses for 2020 decreased 14% driven by operating expense declines from the change in go-to-market strategy for our soybean product line and other reductions in general administrative expenses, partially offset by restructuring costs of $700,000. Restructuring costs include the impact of severance and other expenses resulting from the action we initiated in August 2020. We do not anticipate any further restructuring costs from this action. The same period in 2019 also included 400,000 of expense to write off R&D tax credits that were no longer realizable. Net loss was 44.8 million in 2020, an increase of 5.2 million, or 13%, from 39.6 million in 2019. The increase was driven by the increase in negative gross margin, partially offset by the decline in operating expenses. Net loss per share was $1.32 in 2020. an increase of 11 cents per share from a net loss per share of $1.21 in 2019, driven by the higher net loss. Adjusted net loss was 40.3 million in 2020, essentially flat with 40.5 million in 2019. We saw 41.7 million of net cash used in 2020, an increase of 6.4 million from 35.3 million in 2019. The increase was driven by the purchases of short-term investments the increase in net loss, a decrease in non-cash compensation expense, which meant more of our net loss was driven by cash items, and an increase in cash flows 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 2021 and beyond business milestones, The fourth quarter of 2020 and early 2021 was marked by several major achievements upon which we will continue to execute over the next several quarters, including completion of deliveries against ADM's commitment to purchase our grain, the delivery of seed to fulfill our agreement with Purdue, and the completion of regulatory consultations for IQ Alfalfa to support SNW's targeted commercial launch in late 2021. We expect other project milestones over the next several quarters as shown. We are a leader in gene editing and have a robust IP portfolio. We see immense opportunities across our portfolio and industries, including food, nutraceutical, energy, and agriculture. Our plan is to develop projects with partners that leverage our strengths in trade development and gene editing and our partners' product commercialization expertise. Discussions with potential partners have focused on our development of plant-based input solutions for specific downstream issues, including consumer preferences, sustainability, cost, quality, and regulatory compliance. We believe the necessary steps made in 2020 will now strategically position Calix for growth and delivery of shareholder value in the years to come. Yves, I'll turn the presentation over to you for concluding remarks.

Thank you, Bill. I want to reiterate my excitement for the future of Calix. I have always found that analogies are an effective way for me to communicate And I would like to use one today to describe the vision for our business. At Calix, we represent the battery in the electrical vehicle revolution or the EV revolution. If we think about the automotive industry, I believe the EV revolution occurred because car companies were fighting yesterday's battle. This created the gap that innovators, particularly small companies with big ideas, were able to disrupt. Calix is feeding this innovation gap in our industry. Calix is becoming the source of power that generates plant-based ingredients for 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 dream and the vision of Calix.

Thank you, sir. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. 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. Thanks for taking my question. So, Eves and Bill, not sure. You should take this one, but I was just wondering, high level, if we think about the partition between gene editing and GMO going forward, do you see any challenges there on a regulatory or consumer acceptance front? You know, how are the kind of non-GMO labeling folks looking at gene editing, just implications there for what you guys are developing?

Go ahead if you want to take that one, Yves.

I can take this one. I can try at least to take this one. I think your question is obviously a very good one. I think the gene editing, as we see across the world, is getting some momentum. I think the big difference that may exist between gene editing and GMO is why are we doing this gene editing. And I think if you're responding to the customer needs to bring help, sustainability, response to the climate, and we explain the technology, the engine editing, compared to the technology about GMO, I believe that there is going to be more and more acceptance in the market. We have proven that with the first soy product that we move forward. We have a very strong regulatory group that has proven that subject. And we believe that we will be able to move forward with the gene editing and not being, I would say, amalgamated with the GMO.

Fair enough. And then just wondering about the product pipeline. You have a nice addressable market. You're going after a bunch of different crops that you're, you know, enabling with advanced traits. I'm curious how deep the pipeline can get or how broad the pipeline can get under the current headcount. How many, could you double the number of projects you have, you know, currently with the headcount you have or is there a limit that you're running up against?

There's always a limit. I mean, there is so much thing that you can do with the science that we have and the fact that we really well mastered the star an technology i think the way we see is that we want to prove the the new crops and focus on this new crop winter oats and i will have some work to say also about the hemp but one of the aspects that we are looking is that if we can put in place partnership with industry that would like to focus in a very particular crop and wants to work with us to develop that crop, we will be able together to deploy the resources. And that's also part of the business plan that we now put in place inside Calix.

Okay, great. And then just one last one from me on the CEO role. of, you know, once you're replaced as interim CEO, what are the practical changes that you envision to the kind of daily role or focus of that incoming CEO, given, you know, this is meant to align better with the new business model? Are there some practical things that that CEO needs to do that weren't being done before?

I think the main message that needs to be carried on is bring and make the innovation that is generated by Cali understand and well understand by the market. I think we want to be able to show how much, I said it during the presentation, there is so much things that we can do. And your question in reference to do we have enough resources in R&D, to be able to do that is also a reflection to all the technology that we can bring out there. I think the path of innovation focusing on what is of high value and high margin at the moment, showing that we can deliver and deliver fast, but more and more explaining that we are part of the next generation of food, nutraceutical, and other chemistries that are happening in the market, we want to be part of that world, and we want to enhance that world to be even more successful.

I think that would be the main mission of the new CEO. Sorry for interrupting. Great. Thank you very much. Thanks for taking my questions.

Pleasure.

Thanks, Bobby. Thank you. Our next question comes from Amit Dayal with HC 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, you know, what level of contribution you expect from this in 2021 and then how this relationship potentially grows for you going forward? And then also in relation to this, what kind of margins do you expect from, you know, the Purdue partnership?

Sure. Thanks, Amit, for the question. Appreciate it. Great to talk to you this afternoon. From a produce standpoint, recently struck that deal, we're in the midst of sorting out with what seed 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. We expect them to leverage the same growing region we've been in in the past. which creates some opportunity, but again, there's nuances to how this all gets planned out. That includes putting together our plan for future years, right, in 2022, and we'll see what that looks like. From a margin perspective specifically, we've said consistently when we produce seed in the U.S., we make money when we sell it. It's been buried in our financial statements, and we expect that to be the case. with Purdue based on the terms of the agreement that we struck with them. We haven't commented specifically on what that margin percentage might be, but it'd be in the range of our prior public statements of mid-double digits.

Okay. Thank you for that. And with respect to, you know, the transition in the company's business model, you know, moving more towards technology licensing and collaborations of trade developments, Can you give us any additional color on what that pipeline looks like? Do we have potential catalysts on that front that could materialize this year?

Sure. As we talk about our pipeline, as you know, the nine projects that are in the development funnel that we have listed are those that we are pursuing and looking for partners on and would expect that there would be catalysts that occur for any of those or 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 that we also expect, again, assuming we get to a deal, that we would be able to announce those as well. we're trying to be very focused on things that Eve has said and we've said in the past that we want to move fast. We also want to be selective to pick the projects that can give us the highest returns because we do have a finite resource when it comes to how much people and space we have 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. We've you know, get the funding from the partners to carry that forward as well.

Got it. Thank you, Bill.

Just one last one for me. Your cash runway, you know, I think you previously said maybe this gets you through, say, mid-2022. Is that still the case?

Yeah, sorry. Statements around cash runway into the second half of 2022 remain the same.

Okay. That's all I have, guys. Thank you so much.

Thank you.

As a reminder, you may press star 1 if you would like to ask a question. A confirmation tone will indicate that your line is in the question queue. Our next question comes from Lawrence Alexander with Jefferies. Please proceed with your question.

Hi, everyone. This is actually Dan Rizzo, Honorable Lawrence. Thank you for taking my question. You mentioned the roughly $9 billion intangible addressable market. I was just wondering how much of that the current pipeline of nine products addresses.

Great question, and good to talk to you, Dan. The current pipeline winds up with that $8.8 billion approximate addressable market. square on so we don't have any any there's nothing outside of the nine that equates to the 8.8 most of the 8.8 is driven by three projects the project in oats the projects in hemp and the project in the palm oil alternative with oats being the biggest that's slightly over three billion dollars

So would that suggest that as the other projects are developed or become closer to commercialization that the market could grow or should grow?

I'm not sure I follow your question.

Well, so you said that three projects account for most or a majority of the $8.8 billion in tangible addressable market. So with the other roughly six projects, I was wondering – if there's upside potential for those potential markets beyond what's already, you guys already calculated.

Got it. From our perspective for the other projects that are in there are around alfalfa, wheat, the and HLL, soybeans. I think there are five projects that fall into that category. They comprise the remainder of the 8.8 billion, and I think from our perspective, what we have in as an addressable market represents what we think, you know, as we capture our share, that would still be the addressable market we're going after. We'll capture our share of it with those other projects, all through partners. All right. Thank you very much. All that said, I do want to add on to that. The thing I wanted to add on to that is we could come with another project in SOI that is accretive to the addressable market that we have, right? So I don't want to confuse what's In the pipeline with what the opportunities are, there are addressable markets that are bigger than, or sorry, broader than what is included in the 8.8. The 8.8 equates back to what we publicly disclosed. If we were to come with a different sort of slaving 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 the clarification.

You bet.

Thank you. There are no further questions at this time. I would like to turn the call back over to Bill Koschak for any closing remarks.

Thank you, and thanks, 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. We'd be happy to answer them. Operator?

This concludes today's conference call. Thank you for your participation, and have a wonderful day.