Calyxt, Inc.

Thank you, and good afternoon. I would like to thank you all for taking time to join us for Calyxt’s third quarter 2020 business update and results conference call.

Your hosts today are Jim Blome, Chief Executive Officer; Bill Koschak, Chief Financial Officer. A press release detailing these results crossed the wires this afternoon at 4:05 p.m.

Eastern Time today and is available on the company’s website, calyxt.com. Before we begin the formal presentation, I’d like to remind everyone that statements made on the call and webcast, including those regarding future financial results and future operational goals and industry prospects are forward-looking and may be subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the call.

Please refer to the company’s SEC filings for a list of associated risks. This presentation also includes a discussion of adjusted gross margin, net loss, net loss per share and EBITDA.

All are non-GAAP financial measures. In Calyxt’s press release and its filings with the SEC, each of which is posted on the Calyxt website at calyxt.com.

You will find additional disclosure regarding these non-GAAP measures. Reference 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 our website at calyxt.com.

At this time, I would like to turn the call over to Calyxt’s Chief Executive Officer, Jim Blome. Jim, the floor is yours.

Thank you.

Okay. Thank you, Chris.

And thank you for joining us today for Calyxt third quarter 2020 results conference call. A lot has been accomplished since our last call.

So I will dive into the key highlights. First and foremost, last week we executed a commercial agreement with S&W Seed Company, the global agricultural company headquartered in Longmont, Colorado, for the exclusive license of an improved quality alfalfa trait in the U.S.

and other select geographies. This marks the company’s first commercial trait license agreement and based on U.S.

long-term sales projections, we potentially generate more than $10 million of license revenues over the life of the pending patent for the trait. Calyxt worked in collaboration with S&W to identify quality enhancing traits for a more sustainable alfalfa product with increased bioavailability for livestock.

The enhanced trait gives farmers the opportunity to produce alfalfa forage for livestock with improved digestibility, which may lead to greater animal performance. The trait is designed to result in a higher value alfalfa produced on the same acre with the same inputs, putting greater profitability in the hands of the farmer.

The new alfalfa seed will be sold as part of the S&W Seed portfolio and branded IQ Alfalfa. S&W will work with alfalfa researchers on yield and animal performance through proof-of-concept in field trials.

They will also be a demonstration trials in key regions in 2021 to show IQ Alfalfa’s attributes and value creation for growers. The first trait license agreement and upcoming alfalfa seed launch by S&W represents a milestone in the execution of Calyxt three go-to-market strategies and it’s a great demonstration of our ability to work collaboratively, choose traits to enhance value, do the research to make it happen and support S&W Seed in bringing advanced plant science to market.

In August, we announced a major initiative to transition our soybean products to a seed go-to-market strategy. With our high oleic soybean product, we were the first company to successfully deliver a proof-of-concept for food developed with gene editing technology.

Having achieved proof-of-concept and pioneering regulatory success, we are now progressing into a new commercialization program seeking to supply Calyxt first product to large grain processors as seed, which they will work with growers to produce, process and sell the resulting soybean oil and meal. Moving upstream enables us to focus our resources on developing and capturing greater value from innovative plant-based solutions with substantial disruption potential.

During the third quarter, we completed several important actions as part of the advancement, including making staffing adjustments in our supply chain and sales organizations, exiting many supply chain contracts and selling all soybean oil and meal. We also remain on track to complete the contracted grain purchases and subsequent sales of grain in late 2021.

The impact of these selling activities drove an increase in the third quarter revenue of 77% to $5.2 million, including sale of nearly all of the 2019 grain crop. We’re also maintaining our goal to establish seed sales to large processors, representing at least $3 million in projected 2021 revenue.

I’m also happy to report that our focus on three go-to-market strategies to accelerate trajectory to pre-cash flow that optimizes our TALEN technology is progressing nicely. We recently added Sarah Reiter as Vice President of Business Development.

Sarah is a plant based technology and agribusiness leader who has focused on establishing world class partnerships and value chain that lead to the successful commercialization of emerging technologies for startup, early-stage and Fortune 500 companies. She will apply her expertise to develop, refine and implement the overall commercial strategy for Calyxt future products, including the prioritization of markets, customers and product types.

With respect to our balance sheet, and given our recent mark -- and given recent market volatility, we had an opportunity in October following the transition of our soybean products to exceed go-to-market strategy to fortify our capital position and we raised $15 million in an SEC-registered offering. The $15 billion in new capital not only contributes to the extending our cash runway, but can be used for advancing our current product development pipeline to continue to advance our TALEN technology and our intellectual property portfolio, and also to support the execution of our streamline business model.

We’re excited that Cellectis decided to participate in this offering, as it demonstrates their support of our business and confidence in our go-to-market strategies. And finally, we also announced our virtual Analyst Day scheduled for November 17, 2020, at 4 p.m.

Eastern Time. We look forward to providing you with an update on our product development activities and other matters at that time.

I would now like to hand the presentation off to our CFO, Bill Koschak.

Thank you, Jim. Our soybean product line is important to the success of Calyxt.

It’s proof-of-concept enabled much of what we’re working on today. A reminder that our final 2020 plant acres were nearly 72,000, representing the doubling of acres in the total planted in 2019.

We have completed all 2020 objectives related to the advancement of our soybean products and are in process of completing the wind down of the remaining grain activity. As Jim said, we remain on track to complete these activities in late 2021.

The effective execution of this transition is projected to decrease the cash used by our soybean product line by $45 million through 2022. Going forward, we will sell feet as our go-to-market strategy for this product and in 2021 we intend to target seed sale to the large grain processors representing at least 3 million in projected 2021 revenue.

Our core go-to-market strategies provide differentiated paths to commercialization and have the potential result and cash payments throughout the development cycle. In the case of the trait for product license, we expect to negotiate for fees up front and that upon the achievement of major milestones from our partner.

The earlier partners identified the more of the development expense we can recapture from this payment. On commercialization by our partner, we may also receive ongoing royalties.

When using our seed sales go-to-market strategy, we expect that revenue generation will be driven by the seed sales and will occur immediately. In the case of a TALEN license, we expect to receive fees up front and then annually from any prospective licensee.

On commercialization by that licensee, we also would expect to receive ongoing royalties. With these core go-to-market strategies, we’re targeting high double-digit margins over time, depending upon the level of ongoing investment required by Calyxt.

We have a robust development pipeline as well. As Jim mentioned earlier, we executed a commercial agreement with S&W Seed Company on IQ Alfalfa, marking our first trait license agreement.

We also have eight projects at the Phase 1 stage or later in development across alfalfa and oats, soybeans and wheat. And we’re also exploring improved protein and flavor profile in pulse crops with several options under consideration.

We target having at least five of these product candidates begin commercial planting now to 2024. We’re also actively negotiating agreements with potential partners with respect to specific opportunities for which development activity will only commence upon reaching a commercial agreement.

And finally, for product development activities, our specific entry point into the value chain may vary by crop depending upon several factors. We will seek the highest available margins and best path to delivering positive cash flow.

Today we issued a press release describing our third quarter to 2020 results and we also filed our Form 10-Q. Both documents are available on our Investor website.

Revenue increased by $2.3 million or 77% from the third quarter of 2019 to $5.2 million in the third quarter of 2020. The revenue growth was driven by 15 basis points of volume and 64 basis points of pricing, both partially offset by 2 basis points of unfavorable product mix as we sold more meal in 2020 as a percentage of total revenue than in the prior period.

Most oil revenue in 2020 was from a single customer who purchased our oil to be used as a plant-based alternative to synthetic fluids and we expect to fulfill the remaining orders in the fourth quarter of 2020. Gross margin was a negative $1.8 million or negative 35% in the third quarter of 2020, a decrease of $1.2 million or negative 16% from the third quarter a year ago.

The decline in gross margin in the third quarter of 2020 reflects the impact of lower costs associated with products sold in 2019 because $2.8 million of grain costs were previously expensed as R&D, $1.1 million of commodity derivative losses from hedging contracts sold to convert our fixed price grain inventories and fixed price Forward Purchase Contracts from fixed to floating prices, consistent with how we expect to sell the grain and a $0.2 million increase in the net realizable value adjustment to period-end inventories. These increases were partially offset by lower product costs and the benefits resulting from the advancement of our soybean product line go-to-market strategy.

Gross margin, as adjusted, was negative $1.3 million or negative 24% in the third quarter of 2020, as compared to negative $20 -- $2.5 million or negative 86% in the third quarter of 2019. The improvement in gross margin as adjusted was driven by higher selling prices, lower product costs and the benefits resulting from the advancement of our soybean product line go-to-market strategy.

Our operating expenses decreased by $2.8 million to $7.3 million, driven by a decrease in non-cash stock compensation of $2.1 million from the forfeiture of unvested stock awards and lower personnel costs, partially offset by an increase in insurance cost and restructuring expense for incurred for severance and other expenses resulting from the action we took on our product line in August 2020. In the same period in 2019 also included $0.5 million of expense to write-off R&D tax credits that were no longer realizable.

Net loss was $9.5 million in the third quarter of 2020, an improvement of $1.2 million from the third quarter of 2019. Adjusted net loss was $9.3 million in the third quarter of 2020, an improvement of $2.6 million from the third quarter of 2019, driven by the benefits resulting from the advancement of our soybean product line for the market strategy.

Our net loss per share was $0.29 in the third quarter of 2020, an improvement of $0.03 per share from the third quarter of 2019, driven by the change in net loss and then adjusted net loss per share was $0.28 in the third quarter of 2020, an improvement of $0.08 per share from the third quarter of 2019, also driven by the change in adjusted net loss. Finally, adjusted EBITDA loss was $7.1 million in the third quarter of 2020, an improvement of $1.8 million from the third quarter of 2019.

Our press release and Form 10-Q include a discussion of gross margin as adjusted and adjusted net loss, adjusted net loss per share and adjusted EBITDA. They also include reconciliations of each of those measures to the most comparable GAAP measure.

That information may be found under the heading, Use of Non-GAAP Financial Information in either the press release or the Form 10-Q. To summarize our operating results for the third quarter of 2020, we were pleased with the significant progress we made on transitioning our soybean products to a streamlined go-to-market strategy.

We shed most of our freight leases and other soybean-related costs in the period. We expect to sell the remaining grain we own or will purchase at market prices.

And to help protect the cash margins of those sales, we utilize commodity derivatives to convert our fixed price exposures to market prices. We expect those hedges will protect our margins from those grain sales.

Our adjusted gross margin performance in the quarter was as expected. We sold all of our soybean oil and meal inventory in the quarter and have sold nearly all of our 2019 grain inventories.

These results demonstrate the on track progress we’re making toward completing the transition of the products on schedule. Cash, cash equivalents, short-term investments and restricted cash totaled $29.4 million as of September 30, 2020.

Net cash used in the third quarter of 2020 improved by $4.2 million to $5.8 million, driven by a $4.6 million net decrease in cash flows used by operating assets and liability, primarily the result of the timing of cash payments to growers and changes in inventory balances year-over-year and $8.6 million reduction in purchases of land buildings and equipment, as the improvement in net loss of $1.2 million was driven by a $2.1 million decline in non-cash stock compensation expense. We expect cash use by operating activities in the fourth quarter of 2020 to be higher than in the first nine months of the year driven by an expected increase in working capital associated with the grain we are required to purchase in the period.

After the closing of the third quarter, Calyxt completed a capital race with gross proceeds of $15 million. Investors in the SEC-registered direct capital raise included Cellectis, our largest shareholder and several new institutional investors.

We believe the support of Cellectis and our new shareholders is a testament to our go-to-market strategy. I would now like to turn the call back to Jim.

Thank you, Bill. In summary, we believe we’re well-positioned to deliver on the promise of our technology and disrupt industries by delivering plant-based inputs to partners across multiple industries.

Our TALEN technology, our scientists and our intellectual property are strong and provide us with an innovation platform that will drive our company going forward. We were the first to market with our proof-of-concept soybean and have established a first mover advantage and pathway to commercial planting that can be leveraged by new innovations.

The advancement of our soybean products to the seed go-to-market strategy is an important milestone for Calyxt. It extends our cash runway and brings our first product closer to the partnership strategy we expect.

Our differentiated go-to-market strategies generates focus and improves the financial model of the company. Calyxt focus on disruptive innovation utilize plant-based inputs has opened new doors during the third quarter and our continuing conversations with potential partners are progressing nicely.

Through our streamline business model with differentiated go-to-market strategies, we are targeting diverse revenue streams across multiple industries, a high double-digit margin profile and an accelerated path to free cash flow. We believe the advancement of our soybean products, anticipated cash receipts from our product development efforts with partners and new cash infusion extends our anticipated cash runway into the second half of 2022.

We look forward to sharing more on a developing story with respect to key projects and business model during Calyxt virtual Analyst Day on November 17, 2020. And with that, I would like to open the call for any questions.

Operator, please go ahead.

Yeah. Good afternoon.

Thanks for taking my question. So, this is either for Jim or Bill or both.

I’m curious, in terms of yield not -- yield isn’t always the best measure of value creation, I guess, where we are talking about the tranquility you guys are delivering to your customers. And with the better performance, I guess, for protein creation in the overall -- as did the seed you guys are delivering in this new alfalfa, I guess, is just better performance in terms of the mass of the animal, in terms of how it grows, quickly it grows, et cetera.

How complicated is that matrix of different types of value creation, right? If we can’t just look at yield as a measure of what you’re going after, how many different types of performance measures are you guys looking at right now on these various projects?

Thanks, Bobby. You’re right.

There are different ways of measuring it rather than yield because we’re moving out of the commodity stage of production in into contracted or value-added stages. And that supply chain and the things that that Calyxt has been able to create and sustain to deliver that at higher margins above commodity prices is really a key to our business model.

So, whether it’s a better performing high oleic soybean oil or a more sustainable or a much more digestible alfalfa, these are the types of projects that we’re looking at to develop and provide value at the consumer or end-use markets. So it’s a total difference from the market that most commodity growers have and Calyxt is really pleased to be finding the innovative growers who are interested in these new models and giving them some diversity on how they’re marketing their products from their farm.

And is that an advantage for you in terms of figuring out your share of the overall -- share of that incremental value? Is it kind of more opaque in this new world you’re entering into where there’s an opportunity to get creative with how you negotiate these agreements?

Yeah. As we take partners and kind of whiteboard the issues that have been -- they’ve been dealing with and can’t find a solution to, and as we look into identity preserve where we can get paid in the end markets for the value created above commodity levels, these open up really interesting discussions with really large players.

So I’m confident that this model is interesting and has a place and there are plenty of, what I call, stumps, right? People have been stumped by a few problems and so we’ve been approached with really interesting challenges.

And I think our intellectual property and our scientists and our position in the market are the absolute best toolbox to help some of these companies find answers to some lingering issues or opportunities.

Okay. Just one more before I hand it over.

In terms of the S&W license for alfalfa, can you just walk us through that development process? I’m assuming that they had to do a lot of work on top of what you had to do.

How long did that take and was this ever a pivot from some other approach that you were taking? Was this always intended to be a licensing agreement?

Yes. The business arrangement was fairly similar to what was envisioned when the research began.

And so it really was looking at how to make more of the alfalfa that’s harvested from the field have nutritional value to the cow who was eating it or the animal who’s eating it. So that was kind of the premise for starting the project and then looking at pathways that made sense and using TALEN’s editing to get us there in the timeline that will allow us now to be in the marketplace in 2021.

And how long did you start on this project with S&W.

It predates me, but I’m -- I think it was in 2017 or 2016, when they started talking about this project in the conceptual form.

So that includes regulatory and everything, so it’s fairly compressed, compared to some of the other timetables that are out there?

Yeah. I think that’s the one of the advantages we’ve seen with gene editing over some of the other sciences and regulatory paths.

And so our voluntary reviews with USDA -- with the FDA and some of the things that we’ve done to pioneer that process has made it a quicker to market option versus some of the other sciences.

Great. Thank you.

Thank you.

All right. Thanks for taking my questions.

Just a couple here. One, I am curious about the wheat product.

Now that you’re kind of three months into the kind of the new business model here, I’m wondering if you can elaborate on kind of how -- and really what the outlook is for the wheat product launching here in a couple years. From the perspective of, you spent a lot of time and effort building a supply chain that really overlapped with the high oleic soy over the last few years and so now with this model shifting, I’m curious if the kind of scale of a commercial launch in the first year or two is potentially going to be any different now under the new model than you were considering under the old?

No. Great question, Ben.

And we were really looking at overlapping the two and utilizing supply chain efficiencies. But now going with larger partners who have that supply chain in a massive scale really allows us to scale even quicker and also allows us to focus our efforts on the different types of weeds in different geographies that can also provide value in the consumer market.

As you know, the added fiber, if you add fiber to food in the food laws has changed and so companies are really looking for higher fiber in the grain rather than adding fiber to get to their fiber claims and that seems to generate the most interest in this project and we’re excited that it’s coming and looking forward to launching.

And I guess you kind of alluded to what my follow up question on this is going to be in that. When you consider these big processors, a number of them have a high oleic soybean oil already in their product portfolio.

But high fiber wheat is effectively a new product. And so I’m curious if you are -- I am curious if you can kind of describe the -- how these processors are treating these to kind of wheat products differently or is there kind of greater excitement on the fiber side because it is so new or are they may be less excited about it because it is so new.

Can you -- maybe I’m reading too much into this, I don’t know, can you just kind of elaborate on that if possible?

So, it’s an excellent point, Ben, because a lot of the customers that we were -- that we are working with on high oleic soybean oil also have a wheat need or a flower need or intrigue by the high fiber wheat product that we have. So we could see it as an early introduction to some of these companies and getting comfortable with some of them as we sell oil as an entree to prepping and getting ready for the new wheat project.

So we’re excited about it. I think it really is what the market is looking for more fiber in their diet and the second benefit is a cleaner label.

So instead of added fiber, this will be fiber from grain, which really seems to have a consumer benefit in this new sophisticated consumer label reading environment. And I think this product is going to fit right -- very nicely into that demand as it as it grows.

Got it. Got it.

Very good. Okay.

Appreciate the comments, Jim. I think that does it for me.

I’m looking forward to the Investor Day and I’ll get back in queue.

Great. Thank you, Ben.

Thanks, Ben.

Yes. Thanks.

Good afternoon, everyone.

Hi, Adam.

Hi. So I guess the -- my first question is on the seed sales next year.

So Bill you talked about $3 million. So is that from an acreage perspective, is the expectation on target to be kind of at or above the planted acres this year?

Obviously, you’re not going to be committing to buying the grain at the Calyxt level, but the planted acreage would be flat to up versus the 72,000 that you delivered or you achieve this year?

Yes. Adam, the expectation would be that the baseline target for next year is equal to what we had contracted for this year, which was quietly more than 100,000.

Okay. And just can you help me think about the channel there and I looked at your development pipeline, you talked about prospecting for a partner, just to help me think about how imminent is that partner kind of -- how imminent do you think that partner lines up, because if you’re not committing to buy the grain to get that -- to get those acres done from the growers and they’re making those seed decisions relatively soon, right?

Don’t they need to know where that’s going and so you’d have to -- that’s something we should be expecting in the coming months before we even get to planting?

I would expect that’s a near-term milestone for us to achieve, right? We’ve got -- to your point, the planning begins in the spring, but the contracting has begun or will be begun -- will begin shortly.

And so I would think between now and March, you would see something from us on the seed side for 2021.

Got it. Okay.

Jim, if you’d like to add, Jim wants to add to that at all, but…

No. Bill, you’re spot on.

Thank you.

Okay. And then last one just for me, just you talked about kind of being approached to kind of use the TALEN technology to kind of solve these kind of thorny problems.

And I just want to be clear on this that, if I look at your development pipeline. I mean, does that include this -- is that, I guess, would the pulse product be what you’ve been approached on something you’re going to look at or I am going to think about the opportunity set beyond kind of what you’ve laid out in this pipeline of things you’ve been approached on to work on that maybe aren’t fully categorizing here yet?

He’s trying to say, how wide that’s been cast?

That’s a great question, Adam. And we’ve laid out are our projects, the eight projects that are we’ve been publicly talking about, some of those came from prior to this conversion or us achieving scale and having bigger discussions.

We have chosen to announce those when we have a partner. So we will be -- we are in active discussions and projects on that.

And we’ll bring those forward and be talking a bit more about that process at Investor Day.

Okay.

We’re excited to take this turn. There are some big issues and some big challenges from the sustainability and the -- in the food market out there.

And we’re -- we have a toolbox, we’re ready to go. So these are pretty exciting.

Okay. And then there’s just one more quick one, the cash runway out to ‘20 -- to the second half of 2022.

Does that make any assumptions about kind of initial kind of development kind of upfront licensing fees or -- for new product development in there or is that based on kind of what is already in the book -- on the book today and any development fees, upfront developement fees will be added into that cash runway?

Bill, I will let you.

Runway. Yeah.

Go ahead. I will take it.

The runway that goes into the second half of 2022 is based on our projections for what our cash burn is. And as Jim said in his remarks are some expectation of development fees as well.

So…

Okay.

… numbers that, obviously, we feel comfortable enough to put into our projection to get us to the second half of 2022.

Okay. All right.

Perfect. Thank you so much.

Thank you, Adam.

Thanks.

Thanks to everyone for joining us on this call today. And if we’re not able to address all of your questions on today’s call, please feel free to contact us at our Investor Relations firm, MZ Group, we’d be happy to answer them.

We look forward to providing more updates at our virtual Analyst Day on November 17, 2020. Operator?