Cibus, Inc. (CBUS) Earnings Call Transcript & Summary

Thanks for joining, and good afternoon to everyone. We appreciate you making the time to be with us on this Calyxt First Quarter 2021 Financial Results Conference Call. Bill Koschak, our Chief Financial Officer, and Dr. Yves Ribeill, Executive Chair of the Board, are your hosts today. A press release covering these results went out over the wires once the market shut today, and you can find it on the company's website, calyxt.com. Prior to starting the formal presentation, I want to remind all of you that remarks delivered on this call and webcast — including those about future financial results, future operational goals, and industry prospects — are forward-looking and could be subject to several risks and uncertainties that might make actual results differ materially from what gets described on this call. For a list of related risks, please look at the company's SEC filings. Also, this presentation discusses adjusted gross margin, net loss, net loss per share, and EBITDA. Each of these is a non-GAAP financial measure. In Calyxt's press release as well as its filings with the SEC, both of which are posted on the company's website at calyxt.com, you'll find additional disclosure about these non-GAAP measures. Any reference to these non-GAAP financial measures ought to be viewed alongside GAAP financial measures and must not be treated as a replacement for results presented in accordance with GAAP. Lastly, a webcast of this conference call is being made. You can access the webcast link in the Investor Relations section of calyxt.com. I'd now like to hand the call over to Bill Koschak, Calyxt's Chief Financial Officer.

I appreciate that, Chris, and thanks to everyone for being here on today's call covering our first-quarter results. During the opening 4 months of 2021, our outstanding scientific team notched a number of wins while we kept moving forward with the shift in our soybean product line. First, I want to offer congratulations to Sarah Reiter on being promoted to Chief Business Officer. From the time she came aboard at Calyxt in October 2020, she has delivered a great deal. Nice work, Sarah — I'm eager to collaborate with you as you take on these broader responsibilities. When we tested our next-generation trait for premium high oleic, low linolenic soybean oil in its early stages, it beat the performance benchmarks the premium oil segment anticipates; that result marks a major step up from our first soybean product. According to preliminary composition analysis, our next-generation soybean trait should rank among the best anywhere for heart-healthy oleic acid content, along with extremely low linolenic acid levels, essentially matching high oleic sunflower oil; these findings have us enthusiastic, and we anticipate strong results when it comes to a desirable fatty acid profile, better stability, longer shelf life and less polymerization; commercial planting of this trait could happen as early as 2023. On the commercialization side, we're looking to team up with elite soybean firms so this trait can reach the market through their premium seeds, offering a strong choice versus commodity soybean and other premium oils. Our researchers have successfully transformed the hemp genome, proving we can engineer hemp in ways that open the door to selectively breeding and delivering better hemp traits. Transforming hemp has historically proven especially challenging. The crop is nondomesticated and completely suited to broadacre production. With the new hemp transformation technology we created, our team can now clear the technical obstacles that hemp poses. Through our transformation tools, hemp breeders and scientists will be able to choose plant characteristics that could help establish hemp as a modern, stable and valuable broadacre crop. We believe this milestone will speed up hemp development. By bringing the hemp crop into the modern era, we can now deliver traits that serve growers as well as consumers, who increasingly want plant-based and sustainable options across foods, material, pharmaceuticals, nutraceuticals and beyond. Commercial planting of the first such traits could come as early as 2023. Then, not long after the quarter closed, we signed a new seed sale agreement with an affiliate of one of our grains customers. As things stand today, over 50% of the 2020 grain crop has been sold to ADM, and we expect the rest of that grain to be sold to ADM over the course of 2021. Lastly, in the first quarter we made the first appointments of globally recognized plant biochemistry experts to our Scientific Advisory Board. This SAB answers to our Board of Directors and is led by Dan Voytas, our Co-Founder. Among the other appointees are Anne Osbourn of the John Innes Centre; Elizabeth Sattely, an Associate Professor of Chemical Engineering at Stanford; and Paul Bernasconi, formerly Head of Molecular Biology at BASF. The SAB is going to concentrate on finding high-value products derived from plants that we can develop and bring to market through our proprietary innovation platform. Within later-stage development, we currently have 8 projects, and 2 of those are in Phase 3. Our goal is to have no fewer than 5 product candidates ready for commercial planting to begin at some point between now and the close of 2024. In the quarter, we halted work on HOLL, our improved oil product, which had been in development with the aim of achieving a higher HOLL oil content; under our earlier go-to-market strategy, that product was meant to lower our cost per pound of oil. We also decided that trade development and licensing arrangements would become our baseline go-to-market strategy. Although we will take advantage of alternative arrangements when opportunities arise, we plan to license every product under development as traits. In 2022, we intend to shift our current high oleic soybean product to this go-to-market strategy, and right now we're in discussions with potential licensors. This transition brings down the capital requirements for these products even further and should generate high-margin royalty revenue streams once licensors commercialize those traits in the years ahead. Earlier today, we put out a press release covering our first quarter 2021 results, and this evening we filed our Form 10-Q as well. First quarter of 2021 revenue came to $4.4 million, which is $2 million more, or 85% higher, than the first quarter of 2020. Sales of a portion of the 2020 green crop drove that increase, in contrast to the first quarter of 2020, when we were selling soybean oil and meal. As of March 31, 2021, more than 50% of the 2020 grain crop has been sold. In the first quarter of 2021, gross margin was negative $2.3 million, or negative 53%, versus negative $1.5 million, or negative 63%, in the first quarter of 2020. Adjusted gross margin, which is a non-GAAP measure, came in at negative $1.3 million, or negative 31%, in the first quarter of 2021, compared with negative $1.2 million, or negative 49%, in the first quarter of 2020. The percentage improvement came from benefits tied to the advancement of our soybean product line go-to-market strategy. Total operating expenses reached $7.3 million in the first quarter of 2021, down $1.8 million, or 20%, from $9.1 million in the first quarter of 2020. Lower personnel costs drove that decline, reflecting cost reductions after the advancement of a go-to-market strategy for our soybean product line, along with other cash expense reductions versus the first quarter of 2020. Net loss for the first quarter of 2021 was $10 million, an improvement of $1 million, or 9%, over the first quarter of 2020. Net loss per share in the first quarter of 2021 was $0.27, an improvement of $0.07 per share, or 21%, from the first quarter of 2020. Adjusted net loss in the first quarter of 2021 was $8.8 million, an improvement of $2 million, or 18%, from the first quarter of 2020. Better adjusted net loss came about because adjusted gross margin got better and because we cut costs through pushing forward the go-to-market strategy for our soybean product line, plus other decreases in operating expenses. For adjusted net loss per share, Q1 2021 came in at $0.24, which is better by $0.09 per share, or 27%, versus the first quarter of 2020. The gain in adjusted net loss per share resulted from the shift in adjusted net loss. Adjusted EBITDA loss totaled $6.8 million in Q1 2021, better by $1.4 million, or 17%, compared with the first quarter of 2020. That shift came from better adjusted gross margin and cost cuts tied to advancing the go-to-market strategy for our soybean product line, along with other decreases in operating expenses. Our earnings materials, posted on our website, give important context on the non-GAAP measures we report and contain reconciliations of those measures to the most comparable GAAP measure. Net cash used during Q1 2021 was better by $50.3 million versus the first quarter of 2020. That gain came from shifts in purchases and sales of short-term investments totaling $47.3 million, plus a $2.8 million gain in net cash used by operating activities, mostly from better net loss and working capital. During the first quarter of 2020, we put cash and cash equivalents and short-term investments to work to diversify our counterparty credit risk. Looking at cash, Q1 2021 stood out for the major progress we achieved selling grain, managing grower deliveries so they best matched demand, and bringing our operating expenses under last year's level while remaining on track to hit our annual cash operating expense target of $25 million or less. We think these steps will be sufficient to fund our operations for at least the next 12 months and into the second half of 2022. After the quarter ended, the Small Business Administration told us that the entire amount of our Paycheck Protection Program loan had been forgiven. We expect to record income in Q2 2021 for the entire loan amount plus the related accrued interest. I'd now like to hand the call to Dr. Yves Ribeill, our Executive Chair, for his closing remarks. Yves?

Appreciate that, Bill. A number of noteworthy developments took place in our laboratory over the initial four months of 2021. Sarah Reiter moved up into the Chief Business Officer role, and we established our Scientific Advisory Board. Through that board, we gain scientific and technical expertise that can be put to use growing the business into new areas. We will likewise explore avenues related to plant-derived ingredients for therapeutic, cosmetic, advanced material, fragrance, flavoring, colorants and more. The SAB's efforts will focus on identifying both near-term opportunities and long-term technological breakthroughs, and certain of those may be pursued via partnership. The R&D group continues to push forward, discovering and unlocking valuable compounds and metabolites derived from plants. We do this through Calyxt's proprietary systems along with our sophisticated analytics platform — both of which were built on insights gained from our very first edited product. Testing of our HOLL soybean returned positive results regarding its fatty acid profile. I'm especially pleased that we successfully transformed the hemp genome; that milestone creates opportunities for future developments including trade delivery, gene editing and advanced plant breeding. What this accomplishment demonstrates is our ability to rapidly identify, comprehend and tap the potential within intricate planned biological pathways, enabling us to bring forward the next generation of plant-based solutions. We're eager to share further details on this progress before the year is out. Promoting Sarah Reiter to Chief Business Officer recognizes how strongly she has contributed to the business in her first 6 months with the organization. In this role, she will oversee all business activities of the company, including finding partners for the development and commercialization of our trade and product; she will also oversee communications activities, including corporate communications, public relation and product marketing. So a big congratulations to Sarah. I'd like to close with a few comments on our ongoing CEO search. On our last call, we announced the transition of my role to Executive Chair. Day-to-day, I am supported in leading Calyxt by this dedicated team of executives. The group focused on finding our next chief executive, which I chair, has been busy getting applicants ready. It's premature to say anything definitive about who we'll ultimately bring on board, but things are moving along well and we expect to wrap this up successfully. A lot is happening at Calyxt that's worth getting excited about. During the call we held to discuss year-end results, I mentioned that we're turning into the engine producing ingredients derived from plants for novel goods. These offerings will satisfy the fresh demands of buyers in numerous expanding markets, and at the same time they'll boost wellness, support ecological sustainability, and tackle a changing climate; that captures what Calyxt aspires to and envisions. That wraps up the remarks we had ready, operator. We're ready for your questions now. I appreciate it.

Kicking things off, Amit, could you give us some clarity? Is it just HOLL where you're halting seed sales, or does the same hold true for other items too?

That's a fair question, Amit. Our plan is to keep offering seeds for the HO product throughout 2021. After that, across every product — HO included — our intention going forward is to shift toward a trait-based go-to-market approach.

Regarding your push to shift this toward royalty and license arrangements — I understand Sarah was elevated to lead the business development group. What additional moves should we expect as you move toward a licensing-centric approach instead of one built on seeds?

More of the same is what I'd expect you to keep seeing from us. Elevating Sarah was excellent — as we mentioned, it recognized everything she has accomplished. A huge number of licensing chances sit before us across every product in the pipeline we've shared, plus in connection with a few of the press releases we issued about our technology's progress, particularly our hemp work. Interest has been flooding in around the hemp milestone we made public. Being able to transform it creates opportunity for plenty of parties, ourselves included, if they'd like to collaborate with us on crop improvements. That transformation capability we came up with is essential for editing the crop and carrying out other sophisticated breeding approaches. And as we see it, it opens markets that simply weren't reachable before, such as advanced materials — additional intricate, complex plant-derived inputs that beat what's used today on sustainability.

All right, got it. And regarding when you could first plant it — is 2023 roughly the goal, the intended timing for 2023 for that new soybean offering? Could it happen sooner? Or does it hinge on some other things that are what's moving it out to 2023?

I'd say 2023 works as a solid reference point; that's been our aim for quite a while in the schedule you're talking about. There may be factors that could speed it up, but I believe I'd stay with 2023 for HOLL arriving as a product. HO will keep going until HOLL replaces it in 2023.

All right, that makes sense. Regarding things like operating costs and your cash burn, can you shed any light on the number of quarters the balance sheet you have now will cover?

Sure thing. As I mentioned, we closed out the quarter holding $20.4 million in cash. During that quarter we achieved meaningful headway turning our grain inventory into cash, and we look for that to keep going throughout the year. Our approach with growers is to align supply as closely as possible with demand. Also, bringing down our operating expenses has been a major area of focus. If you take those pieces of what we've been working on, plus the cash flows we expect to come from business development efforts tied to licensing our technology and trait developments that we'll keep moving forward on, then our view is that the cash we have is enough to support our operations across no less than the coming 12 months and on into the second half of 2022.

Alright, and then the final question from me: apart from possibly wrapping up the CEO hunt, are there any short-term milestones we ought to be watching for?

The way I see it — and I'll have Yves share his thoughts on this too. Looking ahead, finishing that search is definitely a key item. On the operational side, what we'd be watching for is reaching the stage of letters of intent or memorandums of understanding, whichever legal label you prefer, together with our partners, as we aim to bring the development projects and products we've been working on to completion and get a partner officially on board. Then when it comes to soybeans, one thing we anticipate doing involves partnering with a few major elite soybean seed companies to place our HOLL trait into their germplasm, and that could be fantastic for us. So those are the sorts of items I'd be watching. Like we've mentioned before, nothing has changed — those points still hold true right now.

Bill, I'd go along with your point. To start, the 3 key priorities are clearly the hunt for a CEO and that person's arrival at the company. Next comes revealing a partnership involving certain other products we've shown you. Beyond that, I'd tack on what's already been mentioned: the SAB, along with potentially new products we'll be in a position to make known—likely the third item we could share fairly soon.

I suppose the initial thing is, if you were forced to rank your target commercial planting opportunities for 2023, does it roughly follow the sequence shown in your presentation? And is that the reason wheat appears in a color different from soybean and hemp? What I mean is ranking purely by risk-adjusted likelihood.

Correct. No, that's a terrific question, Bobby, and it's nice to speak with you today. The way we see it, those items aren't arranged by priority on that page; it comes down to how we decided to group them from a crop standpoint, nothing more. The one where our confidence is highest regarding liability is the soybean — the HOLL soybean — which we put out an announcement about previously, and then coming right behind it is the hemp trait we anticipate having ready during 2023 too. My view is that wheat shows up first since it has always been — ever since the IPO, we've consistently ordered these as HO, then alfalfa, then that wheat product; that's all there is to it.