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

Thank you, and welcome this afternoon. I'm grateful that all of you could join us for Calyxt's conference call covering our financial results from the second quarter of 2021. Serving as your hosts today are our President and Chief Executive Officer, Michael A. Carr; our Chief Financial Officer, Bill Koschak; and Dr. Yves Ribeill, who serves as Executive Chair of the Board. A press release containing these results was issued shortly after trading ended today, and it's available on the company's website, www.calyxt.com. Ahead of the official slides, let me note that all remarks made on this call and webcast — among them projections regarding upcoming financial performance, upcoming operational objectives, and sector outlooks — constitute forward-looking statements and may involve various risks and uncertainties capable of making real outcomes diverge significantly from those outlined here. To review the relevant risks, kindly consult the company's SEC filings; additionally, this presentation addresses adjusted gross margin along with adjusted EBITDA, each being a non-GAAP financial metric. You can locate further information about these non-GAAP metrics in Calyxt's press release and the documents it submits to the SEC, both of which are available on the company's site, www.calyxt.com. Any mention of these non-GAAP financial metrics ought to be viewed alongside GAAP financial metrics, not as a replacement for figures reported under GAAP. Also, a webcast of this conference call is underway. You can find the webcast link within the Investor Relations portion of www.calyxt.com. Right now, I'd like to hand things over to Yves Ribeill, Calyxt's Executive Chair. Yves?

Cameron, thanks — and thanks to everyone for being with us on this call covering our second-quarter results. It's a pleasure to share that the momentum we built in the first quarter continued right through the second quarter, and that stretch included a number of important wins delivered by our highly capable, committed team. Before handing things to Bill, who will walk everyone through those wins, I want to take a moment to introduce and welcome Michael Carr, who is joining Calyxt as President and Chief Executive Officer and also as a member of our Board of Directors. Michael comes aboard bringing over 20 years of experience spanning operations, finance and investments, along with wide-ranging expertise in several key industries such as health, nutrient, bioenergy and services. Most recently, he held the role of Vice President of M&A Strategy and Innovation at Darling Ingredients, a worldwide developer and producer of sustainable natural ingredients and renewable energy. As we move Calyxt's vision forward — a vision centered on our advanced plant-based technology — his capabilities will play an essential part. I'll hand the call over to Michael now so he can offer a few brief remarks.

I appreciate that kind introduction, Yves. This marks a thrilling moment for Calyxt, and I couldn't be happier to come aboard. What drew me to take the helm here was the strength of the chance in front of us, shaped by more than 20 years in my career, how I read the worldwide market, and what lies ahead for a business such as this one. Throughout my professional life, I've worked right where natural resource innovation meets planetary sustainability. Think about it: even though the biggest corporations on earth have pledged themselves to sustainable business practices, a great deal of what the worldwide economy is doing right now simply cannot be sustained — you can see that in everything from carbon pollution to soil erosion. The reality is that businesses need to make their goods in a different way, drawing on renewable inputs like plants and doing so in a manner that lasts. Luckily, demand for sustainable production runs high, and people broadly recognize that this kind of approach is necessary. Projections put the move toward a sustainability economy at a $30 trillion impact over the next 3 decades, touching every industry and economy globally. At its core, Calyxt's business is what I'd describe as co-designing with nature, and the scale of the opportunity here is enormous. I've signed on with a company that spent the past 10 years building a solid foundation, making it a leader in its field when it comes to platform technology, tenure, intellectual property and industry know-how. Each of those things carries tremendous value on its own. Once you see how fast our company can currently take our technology and expertise and reach proof of concept for new potential products, or spot new materials derived from plants, you'll start to grasp why I'm convinced there's still so much value for us to unlock. I'm eager to work closely with the talented, committed people here to move our business forward, create and bring to market high-value products for our customers and partners, and ultimately transform the way the world uses plants. With that, I'll hand things over to Bill for the complete second quarter update. Bill?

Appreciate that, Michael, and we're glad to have you at Calyxt. Everyone here joins me in giving you a warm welcome. Yves, from all of us at the company, thank you for what you've done as Executive Chair, and we're eager to keep working alongside you in your role as Chair of our Board; the last quarter brought some exciting strides. Our researchers keep pushing innovation on the hemp genome, showing we can engineer hemp in a way that opens up capabilities for selective breeding and delivering improvements to the species. Back in May, we told everyone about the team's successful transformation of this genome. Back in the middle of July, we shared that the team expanded our breeding platform through the addition of triploid breeding technology. With it, we're able to produce pollen-prof seedless hemp, and that delivers significant upside when it comes to innovation, managing the crop, and what we can expect at harvest. Extra advantages are now within reach — take a seed-free crop, for example, which can improve fiber quality while also lifting yield. There's another advantage we're looking to bring to market with a partner: producing grain that yields hemp protein along with oil-based derivatives. A breeding effort grounded in controlled pollination is able to boost that output, essentially eliminating the danger posed by stray pollinators, which drag down yields. We expect this milestone to accelerate innovation within the species, and by employing Calyxt's transformation tools, our researchers — along with outside parties who have licensed the technology — will be able to select traits that could help position hemp as a contemporary, dependable, and high-value broad acre crop. Through modernizing hemp in this way, we can offer products designed to serve both growers and consumers, who increasingly seek plant-based and sustainable options across foods, materials, cosmeceuticals, nutraceuticals, and beyond. A partner should be able to begin commercial planting of the first of these products as early as 2023. From the point when we started selling grain to ADM during the third quarter of 2020, we have sold over 75% of the 2020 grain crop so far, and the rest of that grain is expected to be sold to them over the course of 2021. To wrap up, looking at Q2: the money we burned through in operations was $11.6 million less than what we lost in the same quarter last year. The main reasons for that were better working capital, which came from shifting how we bring our soybean product line to market, plus a smaller net loss for the period, which resulted from cutting operating expenses after that shift and other steps we've taken since then. All told, we feel we're set up to grow profitably going forward. We think Michael's background in assessing new technologies and driving innovation, together with our well-known technology platform, the technical progress and expertise we've recently gained that produced our active pipeline across partnerships, innovation and licensing, and the durability of our core business, are the pieces that will fuel that growth — and so is our ongoing discipline around managing costs. We're a plant-based biotech platform business, and our goal is to bring forward breakthroughs that transform the way plants get used around the globe. Our approach centers on playing to what we do best in R&D, which covers gene editing, plant breeding, and trait development. We think this platform lets us create novel, valuable, and sustainable materials and products for our exceptional, top-tier customers and partners, and we take pride in being the first to bring a gene-edited food product to market successfully in the United States. As we've mentioned before, we've shifted our business model toward pursuing product development agreements, product license agreements, and technology licensing agreements as our foundational go-to-market approaches, so partners can tap into plant metabolism to satisfy their processing and downstream requirements. So far, we've turned plant metabolism into products such as a soybean with a high oleic acid profile, our first commercial product, plus alfalfa that livestock can digest more easily, which S&W Seed Company intends to commercialize, along with wheat that has a higher fiber level than traditional bread varieties; we've also engineered soybean metabolism to enhance flavor and help enable broader adoption for plant-based protein uses. We're leveraging our research and development expertise to develop offerings designed primarily to enhance resilience to climate challenges and reduce greenhouse gas emissions across the production of food and energy. Among these pipeline candidates are winterized oats, which would cut down the growing period, allowing cultivation at lower latitudes in winter. This approach offers multiple benefits: it moves grain fill into the milder spring months, improves the likelihood of premium-quality yields, and enables winter oat production following a summer crop, giving growers a crop value-based reason to embrace winter cover. That final benefit is significant, since winter cover methods capture more carbon and prevent soil loss and runoff. Our work on hemp keeps moving forward, aimed at improving its protein and oil output as well as its role in advanced materials. When it comes to protein, hemp ranks as an exceptionally high-quality source, and it offers growing advantages over rival protein or oil crops — soy, peas, and canola among them. Beyond nutrition, hemp addresses many material science applications: it can reinforce plastics, cut down petroleum-based content, and provide superior strength and durability relative to other plant-based fabrics like linen or cotton. All of these efforts — our trait portfolio and breeding gains — mean less risk in hemp production, stronger agronomics and yield, and better quality protein and oil output, plus more efficient crop processing. Earlier today, a press release went out covering our Q2 2021 results, and this evening we submitted our Form 10-Q as well. For the second quarter of 2021, revenue reached $11.9 million — an increase of $9.6 million, or 415%, over the same quarter in 2020. What drove that improvement was the volume and mix of products we sold in the period: Calyxt moved 25% of the 2020 grain crop during those three months, while a year earlier, in Q2 2020, our sales consisted of soybean oil and meal. As of June 30, 2021, over 75% of the 2020 grain crop had been sold. In Q2 2021, gross margin hit $350,000, equal to 3%, marking a $3.4 million improvement, or 112%, compared with the same period in 2020. Our adjusted gross margin — a non-GAAP figure — was negative $1.2 million, or negative 10%, during Q2 2021, versus negative $800,000, or negative 34%, in Q2 2020. That percentage improvement in adjusted gross margin stemmed from a more favorable product mix, driven by a shift toward grain sales instead of oil and meal. Operating expenses totaled $6.3 million in Q2 2021, a decline of $1.7 million, or 21%, relative to Q2 2020. That drop came about because we spent less on personnel after making cost reductions following our move to sell grain instead of oil and meal, combined with other reductions in operating expenses compared with the second quarter of 2020. For the second quarter of 2021, our net loss reached $4.8 million, which was $6.1 million better, or 56%, than what we saw in the second quarter of 2020. Our adjusted EBITDA loss totaled $5.8 million in the second quarter of 2021, improving by $700,000, or 11%, versus the second quarter of 2020. Those gains stemmed from advantages connected to our pivot toward grain sales instead of oil and meal, as well as further declines in operating expenses. During Q2 2021, our operating activities consumed $1.8 million in net cash, which was $11.6 million better than what we saw in the same quarter of 2020. The main drivers behind this gain were a reduced investment in working capital, reflecting the shift in how we bring our soybean product line to market, along with a narrower net loss for the period—thanks to lower operating expenses following that go-to-market change and the other steps we've implemented since. Looking at our cash position, Q2 2021 was notable for several wins: we made big strides offloading grain, coordinated grower deliveries to align better with what customers needed, and trimmed operating costs versus the same period a year earlier — all while staying on pace to meet our full-year goal for cash operating expenses of no more than $25 million. In our view, these moves give us enough runway to keep the business running for a minimum of twelve months, carrying us into the back half of 2022. Cash, cash equivalents and restricted cash totaled $18.5 million as of June 30, 2021. The materials we've posted on our site for this earnings release give you key background on the non-GAAP metrics we disclose, and they also contain reconciliations tying those metrics back to the closest GAAP equivalent; if you want the year-to-date figures covering the opening 6 months of 2021, those can be found in our press release or in our SEC filings. At this point I'd like to hand things over to Yves so he can offer some closing thoughts. Yves?

Thanks, Bill. The strides this group has taken through the opening six months of 2021 make me proud, and that includes bringing Michael aboard as President and CEO along with moving Sarah Reiter up to Chief Business Officer. Our Scientific Advisory Board is now up and running, and during the quarter it convened multiple times; the findings they've produced are already having a favorable effect on both our technology platform and our scientists. On the R&D side, the team kept pushing forward with innovation, stepping up efforts to unlock and intensify high-value, plant-based products and metabolites, drawing on the Calyxt proprietary system and sophisticated analytical platform, all of which extend what we've learned from more than a decade of engineering plant metabolism. What truly energizes me is the ongoing hemp work, where we've achieved a successful transformation of the hemp genome, which opens the door to things like trade delivery, gene editing and advanced triploid plant breeding down the road, making pollen-proof seedless hemp possible. That milestone highlights how we can swiftly identify, grasp and channel the power of intricate plant biological pathways to bring forward the coming wave of plant-based breakthroughs. And as Bill noted before, now that Michael has joined us, I'm stepping away from serving as Executive Chair and passing the baton to Michael, who will collaborate with the team to move Calyxt's plant-based biotechnology platform ahead. Being able to work so closely alongside such a committed group of Calyxt executives has been a real joy, and I'm eager to stay involved with the company in my capacity as Chair of the Board. As I've said before, plenty of thrilling things are happening at Calyxt. I remain convinced we're fast becoming the wellspring of power behind plant-based, sustainable and innovative products. Such products will satisfy rising customer demands spanning numerous growth sectors, while simultaneously enhancing health, safeguarding environmental sustainability and tackling climate change. That vision for Calyxt is within reach. Operator, that wraps up our prepared remarks. Kindly open the line for questions.

Laurence, two questions, if I can. To start with, how much has the strategy change announcement shifted what kinds of inbound calls you're getting, and what research proposals look like? Then, when it comes to small partners versus large partners and different markets, how do you decide what gets priority? Also, are there research areas that used to be off-limits at Calyxt, or simply weren't a focus, that have now been elevated on the priority list so your platform becomes more relevant to the market?

Laurence, Bill here. Appreciate the question. For sure, interest in our work has grown, driven by the progress we've shared around hemp and also our soybeans, specifically regarding the next generation of that soybean product. Getting that kind of heightened interest is flattering. As you mentioned, though, we still have to set priorities. From where we sit, we're examining how to pinpoint distinct verticals among those crops where partners can be found, and that's where our attention has been. We therefore have a solid sense internally. We apply filters, both strategic and financial, and when those opportunities arrive, we work to figure out whether we can bring them to fruition. Among the many factors we weigh are whether there's financial return upfront, the market's size, and how strategic the opportunity is.

Has there been any shift in the level of interest, or in the sorts of companies getting in touch with you, when it comes to R&D skills, or their thinking on splitting IP or dividing value between themselves and you? I'd like to understand — how much has there been a clear...

Well, I suppose, to begin with, welcome, Michael. What I want to ask first is this — setting aside whether consumers accept it, we're beginning to notice the regulatory line between GMO and gene-edited food getting fuzzier. I'm not sure that's actually happening, but it does appear there's some momentum in that direction. I'm curious — just considering your technology's advantages in cost and time-to-market compared with GMO, could you walk us through that a bit? Hello?

All right. Did you catch what I asked, or should I begin again?

Seems like we've lost part of the team. This is Yves. Bill, are you on the line? Michael?

Sorry, I was interrupted there—appreciate the question, though. And I appreciate the kind welcome. Robert, would you mind asking that again?

Absolutely. Do you want me to say that again? Alright, I'll repeat it. So let's set aside for a moment the question of whether consumers accept this, and the broader matter of whether non-GMO includes gene editing food — gene-edited food. Instead, let's focus on what regulators are actually doing, and on the possibility that they may be blurring the line between GMO and gene-edited food. Given that, how should we think about your technology platform when it comes to cost and time to market compared with GMO? Could we try to put some numbers on it, maybe walk through what those advantages look like?

Well, that's an interesting question. One of the favorable things we have going for us, given the products we're making, is that up to now, from a regulatory perspective, we truly aren't confronting the problems that GMO is dealing with; so if we consider cost advantage, honestly, these are just 2 distinct markets. In an ideal world, we can't really say what the regulatory landscape will look like down the road. 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.

All right, that's great. Next thing I'm curious about — you've made a couple of shifts to how you go to market. Earlier you shared some attractive market TAMs broken out by trade and crop type, covering what you're doing across a range of crops. How literally should we take those prior TAMs? I realize seed sales are no longer included in the TAM, but is that still the right frame of reference for us? And beyond that — what sort of chance is there for items you haven't yet announced that could enter your pipeline, measured in potential planted acres? Have we reached a stage where it's too late to announce something that would go in the ground in 2023? Or might there be announcements, things we're unaware of, that could turn up as plantings in 2023 or perhaps sooner?

Visibility for 2023 is beginning to look solid, and while we aren't able to make an announcement right now, that visibility is becoming quite strong. I'd suggest you keep using the TAM you've been relying on, the one we presented to you not long ago, as we keep evaluating those markets; the positive here is that we feel good about what we can see looking roughly 1.5 years ahead.