Calyxt, Inc.

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to CAELIC's third quarter 2021 earnings result conference call and webcast. 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 the one key on your touch-tone phone. If you would like to withdraw your question, please press the star key followed by the two key. If you're using speaker equipment, please lift the handset before making your selections. This conference is being recorded today, November 4th, 2021. At this time, I would like to turn the conference over to Bill Koschak, Calix Chief Financial Officer.

Please go ahead, sir. Thank you, and good afternoon. This is Bill Koschak, the 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 Acar, our president and chief executive officer. Dr. Travis Fry, our chief technology officer, will be joining Michael and I for Q&A after our prepared remarks. Press release detailing these results crossed the wire after today's market close and is available on the company's website, calix.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 profit, adjusted gross profit percentage, and adjusted EBITDA. All are non-GAAP financial measures. In Calix's 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 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. The webcast link is available in the investor relations section of calix.com. At this time, 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. I know many of you 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, and sustainably 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 are 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 PlantSpring technology platform coupled with our biofactory production system. You may recall, PlantSpring is built on our company's experience of more than a decade of engineering plant metabolism, our proprietary systems, our tools and technologies, our deep portfolio of intellectual property, and an expanding set of artificial intelligence and machine learning, or AI, ML capabilities. This licensable platform delivers innovation through an efficient process from laboratory to pilot, enabling Calix to take a customer's plant-based chemistry need through our design, engineering, and verification development process, and then also complete pilot-level production within an expected 36-month period. In many cases, Calix expects to work with our customers through this 36-month time frame to concurrently develop regulatory submissions, in an effort to expedite any necessary clearances for their end products. These plant spring derived compounds are then produced through our proprietary biofactory, a synthetic biology bioreactor production system. The biofactory production system harnesses the potential of plant cells in a multicellular matrix structure combined with nutrient media for its production and leverages multiple cell types without the use of fermentation. These multicellular matrix structures enable the processing of plant-based chemistries of increased complexity relative to those possible using traditional fermentation systems or single cell plant culture methods. In addition, the speed of multicellular matrix growth over time is expected to accelerate the production of a compound at scale. Together, PlantSpring and the BioFactory enable Calix to help our customers produce consumer and industrial products, incorporating plant-based chemistries to meet their corporate sustainability targets and financial goals. Our process, which I'll be speaking to in more detail shortly, is capable of unlocking the power of 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 a broad base of target customers. In 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 as sustainable commercial alternative to palm oil. As part of this research collaboration, Calix expects to receive cash payments at each of the two years of its term, and as of today, the initial payment has been made and the development work has begun. This collaboration agreement also includes a 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 ADM. As of today, we have fully paid all growers, their grain has all been delivered to Calix, we are down to the last several trucks that are in transit to ADN. This series of transactions, which began in the third quarter of 2020, has 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 receive final payment from ADN. 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 Dr. Seth Dobrin, IBM's Chief Global AI Officer, to our Scientific Advisory Board. Seth is a visionary whose deep experience bringing AI-based business solutions to 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. Halix 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 their stakeholders demand that companies produce products differently and in a sustainable manner, and plant-based chemistries represent a differentiated and more sustainable alternative to many products and materials in use today. More than 20% of the world's 2,000 largest public companies have 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, produce their products with sustainable and environmentally friendly plant-based chemistries. The Boston Consulting Group recently estimated that nature-derived products, such as those developed from plants, will affect $30 trillion of the global economy over the next 30 years. driven by sustainability, decarbonization, and carbon neutral goals. This creates a massive opportunity for Calix to work with its customers developing plant-based chemistries to satisfy end 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 span the historical 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, with cells not acting solely as information stores, but also as processors of information. In the same way that computers can be programmed by code, cells can be programmed using natural code, their own DNA. Importantly, synthetic biology can be used to program a cell to make applications that are physical, and plants represent a uniquely qualified platform to be leveraged. Relying on Calix's deep understanding of metabolic pathways provided by plants and leveraging our expertise and proprietary tools to drive efficiency gains, Calix is positioned to be a key driver in the sustainable, biologically driven revolution. In a world seeking to evolve to more sustainable solutions, plants are uniquely capable of producing many chemistries that cannot be produced through other means, including microbial fermentations. Kalix estimates that more than 80% of all known natural compounds are being produced by plants. These known natural compounds comprise over 170,000 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-celled organisms, are a better system for generating them. This is due to the fact that plants are natural producers of so many compounds, and plants do not require the programming a microbe does to produce the same compound, if it is even possible for the microbe to produce the complex chemitries that plants can produce. Geoscientists are experts at engineering plant metabolism, which includes enabling the plant cells to produce more or less of certain chemistries or 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 of plants and how they can be used to shape our future and gives Calix an expertise advantage over others. Now I'd like to turn to our PlantSpring technology platform. Calix is focusing on deploying PlantSpring to address customer driven innovation needs utilizing plants 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 PlantSpring through the development process, enabling the reduction of cycle times and leveraging of knowledge gained with developing the next compound. In the design phase, Kalich uses systems and insights to identify metabolic pathways, target genes controlling these pathways, develop strategies for optimized expression of the target genes, and design the technical approach to achieve the targeted compound. In the engineering phase, Calix directs 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's rapid prototyping system can quickly produce compounds which can be verified against customer specifications using natural product chemistry, metabolomics, genomics, and gene expression tools. This system and these analytic tools can 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 in future product offerings. HALICS has developed early-stage AI ML capabilities in PlantSpring, 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 Dobrin to our Scientific Advisory Board, we expect to make continued progress further developing and refining our AI ML across all elements of PlantSpring and the BioFactory, which I will address in a moment. These capabilities leverage Calix's deep scientific experience, the vast amounts of data that has accumulated over its history, including a large proprietary database of genomic information across numerous plant species, and will also integrate publicly available and other data. As a result, Calix believes it can develop engineered biomolecules in plants for customers at faster speeds than its competitors in the synthetic biology industry. Fundamentally, the biofactory production system will enable calyx to expand our production methods from outdoor agriculture systems to include controlled environment bioreactor-based production systems. We consider the biofactory to be a natural evolution of how plant spring is applied. The biofactory harnesses the potential of plant cells in a multicellular matrix structure and utilizes nutrient media for its production. The biofactory also leverages multiple cell types, and the multicellular matrix structures enable controlled replication and processing of compounds, with the replication accelerating exponentially over time. The biofactory is driven by the output from our plant spraying platform. In combination, the biofactory and plant spraying 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 biofactory has the potential to be one of the most sustainable production systems across industries because of its production methodology. It does not use fermentation and there are fewer of the sustainability challenges associated with other controlled environment production systems, including lower levels of off gases, reduced water demands and lower energy requirements. The biofactory is also expected to have limited downtime between production cycles And because it produces these plant-based chemistries year-round in a controlled environment bioreactor, the system is protected from many of the adverse climate effects typically associated with agricultural production. When we complete the verify phase of product development for our customers, production in the biofactory begins. We have been running lab-scale bioreactors for almost six months now. We commissioned 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 refer to as infrastructure partners, for at-scale biofactory production. We have targeted a number of companies to our prospective infrastructure partners, and we'll begin to advance those discussions after our pilot bioreactor comes online. In this way, we can operate the biofactory in an asset-like manner and mitigate the risk of achieving production at scale. These are both key elements of our business model and strategy for commercializing the biofactory. I'd like to take you quickly through a couple examples that serves as proofs of concept for our plant-based platform and biofactory working in combination. The first was a plant-derived protein called ovobumen that is similar to protein in egg whites and can be used in several end markets, included as a protein replacement. The second, which has leveraged what has learned to produce the ovobumen proof of concept, was betamine. Betonine is a natural antioxidant and red colorant, normally produced through pH extraction of field-grown beets. Betonine has potential for use in the cosmeceutical, nutraceutical, flavoring, and ingredients and markets, and likely others. Commercially available beet-derived betonine is water-soluble and degrades quickly under medium to high temperature, ultraviolet light, and pH changes, limiting its market acceptances. If Calyx's betamine proof of concept can overcome the challenges associated with beet-derived betamine, 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, is 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's PlantSpring platform and its biofac reproduction system are an 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. It is 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, Kellogg's rapid prototyping system can quickly produce compounds which can be verified against customer specifications using natural product chemistry, metabolomics, genomics, and gene expression tools. This system and these analytic tools can 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 in future product offerings. Target addressable markets for Calix PlantSpring platform and biofractory production system are valuable and diverse since plant-based synthetic biology can be used to produce compounds and products more quickly less expensively, and more sustainably. Broadly speaking, we believe that potential end markets for plant-based sustainable solutions are vast. In the near term, we intend to focus our customer activation and development activities in a narrow market segmentation where we believe our current capabilities gives us the best opportunities to win. These end markets include the nutraceutical, cosmeceutical, pharmaceutical, advanced materials, and chemical industries. These end markets contain 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 since, the number of inbound queries for potential customers have been significant. Despite the recency of our announcement, we are engaged in discussions to develop products to be produced in our biofactory with six of the Wall Street Journal's top 100 most sustainable companies, along with several others. Feedback from these potential customers has been very positive. We are already currently evaluating nine compounds for potential development using our focused 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 biofactories. I'll now turn it over to Bill to discuss our business model and financial updates. Bill?