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Edited Transcript of CLXT.OQ earnings conference call or presentation 6-Nov-19 9:30pm GMT

Q3 2019 Calyxt Inc Earnings Call

NEW BRIGHTON Dec 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Calyxt Inc earnings conference call or presentation Wednesday, November 6, 2019 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Christopher Tyson

MZHCI, LLC - MD

* James A. Blome

Calyxt, Inc. - CEO

* Keith Blanks

Calyxt, Inc. - SVP of Sales & Marketing

* Manoj Sahoo

Calyxt, Inc. - Chief Business Development & Supply Chain Officer

* Travis Frey

Calyxt, Inc. - CTO

* William F. Koschak

Calyxt, Inc. - CFO

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Conference Call Participants

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* John Joseph Baumgartner

Wells Fargo Securities, LLC, Research Division - VP and Senior Analyst

* Kenneth Bryan Zaslow

BMO Capital Markets Equity Research - MD of Food & Agribusiness Research and Food & Beverage Analyst

* Jordan Shimabuku

Goldman Sachs Group Inc., Research Division - Research Analyst

* Laurence Alexander

Jefferies LLC, Research Division - VP & Equity Research Analyst

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to Calyxt's Third Quarter 2019 Earnings Conference Call. (Operator Instructions) This conference is being recorded today, November 6, 2019.

At this time, I would like to turn the conference over to Chris Tyson, Managing Director of MZ North America, Calyxt's Investor Relations firm. Please go ahead, sir.

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Christopher Tyson, MZHCI, LLC - MD [2]

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Thank you, and good afternoon. I'd like to thank you all for taking time to join us for Calyxt's third quarter 2019 Business Update and Results Conference Call.

Your hosts today are Jim Blome, Chief Executive Officer; Bill Koschak, Chief Financial Officer; Travis Frey, Chief Technology Officer; Manoj Sahoo, Chief Business Development and Supply Chain Officer; and Keith Blanks, the company's Senior Vice President of Sales and Marketing.

A press release detailing these results crossed the wires this afternoon at 4:05 p.m. Eastern 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 EBITDA, a non-GAAP financial measure. In Calyxt's press release and its filings with the SEC, each of which is posted on the Calyxt website, you will find additional disclosure regarding this non-GAAP measure. Reference to this non-GAAP financial measure 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 our website at www.calyxt.com/investors.

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

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James A. Blome, Calyxt, Inc. - CEO [3]

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Thank you, Chris, and thank you for joining us today for Calyxt's Third Quarter 2019 Financial Results Conference Call.

Before we begin, I would like to give a brief overview of our company for those of you who might be listening in for the first time today. Calyxt is a consumer-centric, food and agriculture-focused technology company, committed to making the food you love a healthier choice. We're excited to deliver healthier food and food ingredients to consumers, and I look forward to leveraging our first-mover advantage and cutting-edge technology to create long-term sustainable value for our shareholders.

We mimic the process of nature through science by applying gene editing and other cutting-edge plant breeding techniques to develop agricultural and food products that are healthier, sustainable and traceable from field to customer.

On the validation front, in February 2019, Calyxt completed a consultation with the Food and Drug Administration, the FDA, for our high oleic soybean. After review, the FDA had no further questions concerning human food ingredients or animal food derived from our high oleic soybean. To our knowledge, Calyno oil is the first gene-edited food product to undergo such review and be commercialized in the U.S.

In March, we launched our first commercial product, Calyno, a high oleic soybean oil, with 0 grams of trans fat per serving, a reduced saturated fat content and several unique benefits that make it particularly attractive in food manufacturing and foodservice applications.

To power Calyno's robust growth trajectory, we have built out a world-class supply chain, partnering with more than 175 farmers in the Upper Midwest to grow our proprietary soybeans; with Agtegra in the Dakotas to assist us with seed distribution, agronomy support, grain storage and transportation services; as well as with Landus in Iowa, which will amplify our geographic footprint for acreage growth and weather risk diversity by adding their seed distribution, agronomy support, grain storage and transportation services for Calyxt's high oleic soybean.

With the addition of Landus to our geographic footprint, we have access to geographies where 40% of the soybean acres grown in the United States are located, and we expect to achieve our targeted 100,000 acre -- contracted acres for 2020, up from 36,000 planted acres in 2019. We believe the 100,000 contracted acres is an important milestone because we believe it enables Calyxt to be considered a meaningful supplier to some of the largest U.S. food manufacturers.

Going forward, we expect to continue to double our acres annually, consistent with our past history.

I'm excited about the innovation we are developing, including how we are continuing to advance our current projects through our pipeline and with the 5 new varieties of soybeans we will be launching in 2020. We are also exploring other projects in canola, hemp, oats, peas, peanuts, potatoes, soybeans and wheat. All of this activity reaffirms our position as an innovation platform and leader in our industry.

Turning to our third quarter 2019 results. We continued to make solid progress on the commercial front. I am happy to report that we achieved our highest quarterly revenue in company history with Q3 high oleic soybean product revenue of $3 million, primarily driven by our growing customer base and penetration within Sysco's fast food service network.

Bill Koschak, our CFO, will expand on some other financial metrics later during the call, including our reaffirmed guidance for 2019.

Our commercial growth is gaining momentum, and in September, we were pleased to expand our leadership team to support commercial opportunities with the appointment of Keith Blanks to the newly created position of Senior Vice President of Sales and Marketing. Keith is responsible for driving sales with a focus on building the company's foodservice and food manufacturing customer bases, and he will give an update on this front in a moment.

With this addition, Manoj Sahoo assumed the role of Chief Business Development and Supply Chain Officer, focusing his efforts on the development of strategic collaborations across Calyxt platforms of wellness, plant-based proteins and sustainability. Manoj will continue to expand our grower network and supply chain and will elaborate on all of these initiatives later in this call.

With this, I'd like to hand the call over to our Chief Technology Officer, Travis Frey for an innovation update. Travis?

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Travis Frey, Calyxt, Inc. - CTO [4]

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Thank you, Jim, and good afternoon, everyone. I joined Calyxt in May to lead our R&D organization, and I was drawn to this opportunity primarily because of our incredible technology, clear freedom to operate from an IP perspective and the unmatched talent of the team that is poised to move this business forward. The opportunity to work alongside one of -- a world-renowned pioneer in gene editing, our Chief Science Officer, Dan Voytas, is also a very attractive process -- very attractive as well.

Within my R&D organization, I have been the most impressed with the depth of scientific talent that exists here at Calyxt. My team consists of nearly 40 people, including some well-respected scientists that have been part of the talent technology from its inception. This depth of knowledge and passion fuels the innovative engine here at Calyxt that I'm excited about for our future. We have an exclusive license to use TALEN technology in plants and it powers our innovation platform. We can selectively breed a plant based on its natural genome to deliver health benefits valued by consumers in a fraction of the time compared to traditional breeding methods.

As we review ideas for R&D exploration and development, we are focused on ideas that have benefits associated with wellness, plant-based proteins and sustainability. In addition to our previously disclosed product candidates, we are also exploring ideas across 9 crops, including soybeans, wheat, alfalfa, hemp, peas, oats, peanuts, canola and potatoes.

To date, we have brought several products into our development life cycle and are closing in on commercialization of our second product, an improved-digestibility alfalfa, which is expected to launch in 2021 through a collaboration with another party who will bring the seed to market. We will collect the royalty on the sale price of the seed, monetizing our technology platform.

I'm excited about our pipeline, and I'm working to expand it along with others inside and outside organization. We intend to bring other products to market in a similar manner or through our own Identity Preserved supply chain as we have done with the high oleic soybeans. We also continue to progress our high-fiber wheat product through its field testing. High-fiber wheat is expected to launch as early as 2022. Within our high oleic soybean product line, we expect to introduce 5 new varieties in 2020, which we believe will enable geographic expansion beyond our current growing zone, enabling improved diversification of weather risk and moving our grower -- growing areas closer to crush plants that we work with.

Finally, I'm very pleased with our robust patent portfolio that covers not just the talent technology, but other elements of our R&D achievements. We expect to continue to build Calyxt's patent portfolio with new filings and continued pursuit of potential in-licensing agreements.

Thank you for your time. Keith Blanks, our new Senior Vice President of Sales and Marketing, will now discuss product updates and key market opportunities.

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Keith Blanks, Calyxt, Inc. - SVP of Sales & Marketing [5]

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Thank you, Travis. I'm very excited to be here today to talk about Calyno. I've been at Calyxt for a little over 2 months and have gotten to know the product very well. I have a long career in the vegetable space across several roles and joined Calyxt to leverage that expertise and knowledge of the marketplace to drive sales of Calyno across all customer segments. Calyno has far exceeded my expectations of its performance and its broad spectrum of potential uses across several markets and multiple channels.

For those of you new to our story, Calyno, our proprietary high oleic soybean oil, is locally grown and traceable, making it suitable to a wide variety of uses, ranging from food service, food manufacturing, industrial applications, addressing a combined $15 billion market opportunity, which is 75% of the North American market.

Our high oleic soybean oil contains almost 3.5x as much oleic acid as conventional soybean oil with 20% less saturated fats and 0 grams of trans fat per serving. Calyno provides a wide variety of benefits to improve finished product performance and quality including superior stability and performance for improved taste and shelf life. It also has a clean neutral flavor and less oil absorption across applications. It also increases frying life by 3x versus conventional oils. This type of performance also leads to less polymerization and cleanup. All these benefits make our Calyno oil very competitive and versatile across multiple segments.

To validate what we saw, we also engaged third parties to perform testing on our Calyno oil compared to other premium and commodity oils in the marketplace. These third parties have validated our view of Calyno's performance compared to those other oils. We are very confident that when entering the oils marketplace with a compelling product that will deliver a meaningful value proposition to foodservice, food manufacturers and industrial companies looking to achieve higher performance.

I'd now like to provide an update on our customer activity. The first commercial sale of Calyno to a Midwest restaurant chain occurred immediately after its launch earlier this year. Subsequent to that sale, Sysco, one of the world's largest foodservice distribution companies, took interest and now stocks and sells Calyno to its customers. Sysco's customer count is now above 60 in those short 3-plus months since our launch with them. We are also generating momentum with other foodservice distributors and are testing our oil with other multi-unit restaurant chains.

In the food manufacturing market segment, we are working with more than 20 companies to actively explore, sample and evaluate Calyno's performance in a variety of applications. And these -- initial feedback has been that Calyno exceeds expectations with equal or better performance.

In this segment, we remain in testing with large multinational CPG companies for specific applications of our oil, including cereals, granola bars, nutritional supplements and more. Our Sysco growth and the opportunities we see for our oil has let us quickly bring on a small, agile group of sales and marketing resources to drive sales in foodservice and educate and trial our product with food manufacturers.

From a marketing standpoint, we are leveraging Calyno's versatility and have built our value proposition around high-performance applications, including longer fry life and exceptional taste, extending the shelf life of products and reduced cleanup in operations with high polymerization.

In closing, I am confident about the high quality of our oil and I'm excited to be leading the Calyxt sales and marketing team.

I will now hand off to Manoj Sahoo, our Business Development and Supply Chain Officer, to discuss business development and supply chain activities during the quarter.

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Manoj Sahoo, Calyxt, Inc. - Chief Business Development & Supply Chain Officer [6]

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Thank you, Keith. And once again, welcome to the team. Adding Keith to our team allows me to focus on 2 major objectives: first, the build-out and optimization of our Identity Preserved supply chain; and second, driving collaborations with third parties, thus bringing in new revenue streams and an additional source of cash.

The third quarter was a fantastic quarter for Calyxt in terms of execution.

During the third quarter, we successfully executed on multiple crosses, including our largest cross till date, which was over 200,000 bushels and were subsequently sold out of the resulting high oleic soybean meal at the end of the quarter. As a result, Q3 was our best quarter. Most of our high oleic soybean meal is being sold to the dairy sector, followed by pork and poultry.

We completed the purchase of all grain from 2018 crop in the quarter and are looking to sustain the pace of crushing for the fourth quarter in order to have product available to meet our 2019 revenue guidance.

We made significant progress in scaling up Calyxt's Identity Preserved supply chain in this quarter, especially focused on seed distribution and storage. We announced an agreement with Landus to expand our supply chain network and sell feed into Iowa's 10 million-acre soybean market, which is around 11% of the total U.S. soybean crop. During the period, we increased the number of our elevator storage locations by 75% and added another crush plant in our targeted growing regions.

Our integrated business model with 2 of the largest cooperatives in the country covering seed distribution, seed treatment, agronomy, crop imports, elevator storage, crush plants and rail logistics is an important part of Calyxt's head start and enables scaling up of our Calyxt Identity Preserved supply chain model to be a reliable partner to our customers.

The harvest of 2019 acres is progressing well in spite of the wet fall season. As of today, more than 70% of our growers who contracted for harvest delivery have completed their deliveries. The observed yields are largely in line with expectations.

As Jim stated, our 2020 acreage goal remains at 100,000 contracted acres. As of October 31, we had contracted more than 70,000 acres for 2020. And I am happy to report that we have continued the momentum and that as of today, we have contracted more than 75,000 acres for 2020.

We have signed up more than 150 growers at an average of nearly 470 acres per grower. Our retention rate is already close to 70%. Our average retained growers are committing to 41% additional acres to our high oleic program in 2020 versus 2019.

In addition, an average grower is committing to approximately 33% of their soybean acres to Calyxt high oleic varieties, which is almost double that of last year. This is a great achievement for Calyxt and reflects our efforts to earn farmers' trust and adoption of our product in such a short span of time.

Jim also mentioned the 100,000-acre mark in his opening remarks, and I want to echo that this is an important milestone as we believe this inspires confidence in our potential future foodservice and food manufacturing customers related to our ability to supply them.

We see strength in the value of our offer to U.S. farmer and intend to capitalize on these relationships, underlying our 2019 contracted acres, our supporting distribution channels, and 5 new high oleic soybean varieties that will launch next spring to increase penetration with existing growers and expand geographically from our current base.

We now have growers in 5 states. Geographic expansion diversifies our grower base and supply chain, and thus, we believe it makes us a more reliable partner for food companies.

I would like to now shift to business development. Our strategy is to leverage our technology platform and create new revenue streams while focusing our innovation efforts around 3 pillars, as Travis said: wellness; plant-based proteins; and sustainability.

These pillars are also rooted in feedback from prospective partners who are interested in collaborations to develop products by applying Calyxt's proprietary TALEN precision plant breeding technology to solve specific pain points or unmet needs. In addition to direct customer pool, industry trends highlight the importance of these 3 pillars as well. To give an example, since 2015, 98% of Consumer Goods Forum members have reformulated more than 320,000 products to align with new health and wellness initiatives.

Nielsen data suggests that sustainability claims are the fastest-growing messaging sewn on pack for fast-moving consumer goods brands. Lastly, at the Center of Wellness and Sustainability, consumers view increasingly plant-based protein consumption as a healthier and more environment-friendly. For example, Global Food Institute estimates that there has been more than $17 billion investment in plant-based food brands since 2009.

In addition to the alfalfa collaboration we mention frequently, I would like to provide another example of a collaboration project we are actively engaged in, wherein food industry collaborators have shown strong interest in a healthier and more sustainable alternatives to palm oil.

According to USDA statistics, over 4 billion pounds of palm oil was consumed in U.S. last year for applications like baking, confectionery and meat analogs, where palm oil's functionality and performance is unique. A cost-effective domestically sourced palm replacement is highly sought after by food companies who seek comparable performance and ability to differentiate their brands with healthier ingredients and a sustainability message. We believe we can develop such a solution. Calyxt plans to monetize collaboration projects like this example, with an upfront access fees for our TALEN precision plant breeding platform, followed up by milestone payments and royalties upon commercialization of the products. This is driven by size of the opportunity and what we are -- what we and our collaborators each bring to the solution.

Our product innovation cycle is 3 to 5 years and gives us the ability to solve for the industry's unmet needs in an accelerated fashion and keep up with the consumer trends -- consumer-driven trends.

I'll now hand off to our Chief Financial Officer, Bill Koschak, who will give an update on our third quarter financials. Bill?

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William F. Koschak, Calyxt, Inc. - CFO [7]

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Thank you, Manoj, and welcome to Calyxt, Keith. Thanks, everybody, for joining our call.

Before I continue, I'd like to pause and thank Simon Harnest, our Head of Finance and Strategy, who has handled Investor Relations so well for both Calyxt and Cellectis, who is now transiting back to support Cellectis' full time, as he has recognized supporting both organizations is too much for a single person, even for Simon.

We've made the decision to engage MZ Group, represented by Chris Tyson, to handle Investor Relations for Calyxt. Chris' full contact information is at the end of every press release and is on our IR website. Please reach out to him directly, just as you would have with Simon, and he will ensure a prompt response. Simon's impact and presence will be missed, and we wish him all the best in his focused role at Cellectis. Thank you, Simon.

The third quarter of 2019 was a good demonstration of our execution of operational milestones. Our revenue increased to a record $3 million, primarily driven by scaling crushing activity, generating sales momentum in oil through foodservice distribution and continued testing with food manufacturers. We were also sold out of meal as of the end of the quarter. We plan to crush over 300,000 bushels of grain in the fourth quarter.

Cost of goods sold increased $3.5 million, reflecting the cost of products sold in the period and adjustment to the net realizable value of our inventories that reflects the higher costs we're currently experiencing at this early stage of commercialization.

R&D expenses in the third quarter of 2019 were $3.6 million compared to $3.4 million in the third quarter of 2018. The increase in R&D expenses is primarily due to an increase in noncash stock compensation expense of $567,000, a reversal of payroll tax benefits that are no longer realizable of $536,000 and the addition of personnel.

R&D expense for the third quarter of 2018 also included $1.1 million of grain costs we incurred prior to our commercialization earlier this year, which affects the comparability of R&D expenses year-over-year.

SG&A expenses in the third quarter of 2019 were $6.2 million compared to $3.3 million in the third quarter of 2018. The increase was driven by higher noncash stock compensation costs of $1.6 million, increased personnel costs of $880,000 and an increase in professional fee expenses of $455,000.

The increases in personnel costs and professional fees are partially offset by a reduction in the management fees that we have paid to Cellectis as we completed the internalization of nearly all services previously provided by Cellectis as of September 30, 2019.

Net cash used in the third quarter of 2019 was $10 million, substantially in line with previously announced financial guidance of $3 million to $3.25 million per month.

Net loss for the third quarter of 2019 was $10.7 million or $0.32 loss per basic and diluted share compared to a net loss of $7.5 million or $0.23 loss per basic and diluted share in the third quarter of 2018. The increase was driven by a higher noncash compensation expense of $2.1 million and costs associated with launching our first products in 2019.

We've also introduced adjusted EBITDA, a non-GAAP measure, this quarter, which increased to a loss of $6.9 million for the third quarter from a loss of $6.4 million in the third quarter of 2018, driven by increases in personnel costs as the costs of commercialization in 2019 were largely offset by reductions in grain cost expenses, R&D in 2018. This measure was introduced to supplement our unaudited financial results that we prepared in accordance with GAAP. This is not a measure that's defined by GAAP. We define it as net loss, excluding interest, income tax expense, depreciation and amortization and then also make adjustments for noncash stock-based compensation, payroll tax benefits that are no longer realizable that I mentioned earlier, Section 16 officer transition expenses and forward purchase contracts gains and losses.

Because adjusted EBITDA excludes noncash items and discrete or frequently occurring items, we believe that adjusted EBITDA provides investors with useful supplemental information about our operational performance within the business and facilitates comparison of our financial results between periods where certain items may vary significantly independent of our business performance.

Cash and cash equivalents totaled $66.4 million as of September 30, 2019, compared to $93.8 million as of December 31, 2018.

In conclusion, I am pleased with our cash usage trajectory in the third quarter of 2019. We've largely completed investing in our general and administrative platform required to scale the organization.

We expect our future investments will be in R&D as we grow our collaboration projects in pipeline and in sales, supply chain, quality and food safety to support growth in our soybean product lines.

We are reiterating our prior fiscal year '19 guidance of $7 million to $8 million in revenue and $3 million to $3.25 million in cash usage per month. Taking into account our anticipated usage going forward, I believe our cash position will be sufficient to fund operations into mid-2021.

With that, I'd like to turn the call back to Jim.

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James A. Blome, Calyxt, Inc. - CEO [8]

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Thank you, Bill. In summary, the remainder of the year will see us driving increased marketing and customer acceptance of our soybean oil. We are pleased with the results of the extensive third-party testing results of how Calyno can be applied in food manufacturing and foodservice and in other channels. And we believe we are further in the development cycle with potential customers than at any other time in our past.

Across the business, we continue to surpass our operational milestones and are leveraging our lead in industry with our technology and aggressive growth. We're using our TALEN technology to create a pipeline of products that we intend to bring to the market, either through our commercial organization or alternatively in collaboration with other companies.

The internal foundation has been fortified as we assembled a great leadership team to drive the business, and we will continue to add strategic hires. We have constructed our supply chain that provides a competitive and first-mover advantage while expanding collaboration with Landus leverages their footprint and reach to expedite the launch of our new varieties.

Working with Agtegra, we have launched the first full year campaign to contract acres for next year and expect to achieve 100,000 contracted acres for 2020.

I look forward to seizing the opportunities for Calyxt in creating long-term value for our shareholders. We look forward to sharing more on our developing story at the upcoming Morgan Stanley Global Chemicals & Agriculture Conference on November 13, the Citi Agriculture and Chemicals Conference on December 4, the Jefferies Alternative Protein Summit on December 10 and the LD Micro Annual Main Event on December 11.

With that, I'd like to open up the call for any questions. Operator, please go ahead.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Adam Samuelson with Goldman Sachs.

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Jordan Shimabuku, Goldman Sachs Group Inc., Research Division - Research Analyst [2]

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This is actually Jordan for Adam. So I wanted to first ask if we can get an update on the realized yields for 2019 that they were lowered and its impact, if any, on crop availability for crush and seed in 2020?

And then the second question would be if you could provide any color on how you're evaluating financing options for your working capital looking ahead?

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James A. Blome, Calyxt, Inc. - CEO [3]

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Bill, I'll take the first part on yield, and you'll take second part. Jordan, we're in the middle of harvesting. We're gathering that data, but we're pleased with where we're at. The yields have been as expected in our relative position. So it has been a bright spot for us in our retention. In our program, we measure it by growing acres and retention of current acres, and we see that continuing.

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William F. Koschak, Calyxt, Inc. - CFO [4]

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Thanks, Jim. And Jordan, appreciate your question. Regarding financing options, we've talked about extensively that our current cash need for the crop that's currently being harvested would be financed internally. And that we have plans that get us out, as I said on the call, to mid-2021, based on our internal projections. We're always talking with people about what options are available to us, and any financing would be upside to those projections.

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Operator [5]

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Our next question comes from Ken Zaslow with Bank of Montreal.

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Kenneth Bryan Zaslow, BMO Capital Markets Equity Research - MD of Food & Agribusiness Research and Food & Beverage Analyst [6]

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Two questions. One is as you expand the number of traits with the soybeans, are you actually -- is the 100,000 included in that? Or is there opportunity to expand the geography beyond the 100,000? How does that all play out? And what are the basic assumptions within that? I know you didn't change anything, but it does seem like you're a little bit more comfortable with the varieties.

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James A. Blome, Calyxt, Inc. - CEO [7]

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Yes. Thanks, Ken. That was the reason for us jumping up to 100,000-acre target this year. They're not additional traits. They're just more varieties and maturity groups that allows us to take the soybean into different types of soil into different geographies. So that will be helpful for us. We're growing the seed, and of course, we'll have seed production that will cover that plus room for replants and other growth as we did last year. So that's kind of the point. We're not adding a new trait. We're adding new varieties.

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Kenneth Bryan Zaslow, BMO Capital Markets Equity Research - MD of Food & Agribusiness Research and Food & Beverage Analyst [8]

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And then the second part is it sounds like you're adding a new -- new crops, like there was more alfalfa, there's -- there was talk about hemp. Do you have the capital to do that? Does that change any of the time line for high-fiber wheat? How does that all play out? Is this anything new? Can you just talk about the direction of -- in which you're going to go on these new crops?

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James A. Blome, Calyxt, Inc. - CEO [9]

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Well, thanks, Ken. I appreciate that question because it's nothing new for us. It's a restatement of our strategy that will complete our complete identity preserved supply chain for soybeans. We'll utilize that for wheat as well, and we'll market those projects as Calyxt directly.

These new crops that you're hearing about are the other model where we take on collaboration partners like we did with SW (sic) [S&W] on alfalfa, where we will be having upfront money and shared expenses in developing that and also taking it to the market through their system in that collaboration. So it is in our plan. It doesn't change our financials or our burn rate from that standpoint, as we're base loaded and ready to go at this time.

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Operator [10]

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Our next question comes from John Baumgartner with Wells Fargo.

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John Joseph Baumgartner, Wells Fargo Securities, LLC, Research Division - VP and Senior Analyst [11]

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I wanted to stick with the topic of R&D in the pipeline. Because I think 2 years ago, the initial emphasis once the HO soybeans were in market, there was an emphasis on potatoes and some of the canola varieties. And the release today noted a few others that have the oats, the peas, some of the emphasis on plant protein.

And I'm curious how you kind of go about the vetting process. If you've got 50,000 edible plants on the planet, how does that process -- how does it proceed from here? Has the process changed from starting with maybe an established crop and tweaking it to maybe identifying novel crops that haven't been mainstreamed yet? I'm just kind of curious, big picture, how you think about that vetting process and kind of the stage gating going forward.

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James A. Blome, Calyxt, Inc. - CEO [12]

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Sure, John. I'm going to give you a couple of comments, but I'm going to turn it over to our CTO, Dr. Travis Frey. But when I came in a year ago, we did do a lot of technology, and we had a long list of things in the IPO that we were working on. We felt it was very important as a public company reporting quarterly that we narrow our focus to soybeans and wheat, complete our supply chain proof of concept -- nobody had done it -- and just make sure that we were successful in doing that.

We're kind of today celebrating that success by saying now we're ready to move back out and look back at these projects, again, based on technical feasibility, market need and other things. And I'll leave it at that and let Dr. Frey talk a bit about how we sort through that.

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Travis Frey, Calyxt, Inc. - CTO [13]

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Thanks, Jim. John, great question. It's actually one of the real drivers for me wanting to be here. We've got a lot of great scientists that were very, very good at focusing to get the high oleic soybean in the right place and the right varieties and get that up and running. And they have been thinking and dreaming and innovating that whole time and getting ready to sort of unleash this innovative engine that we've created here. And so we're now allowing them to sort of see that fruition through.

And so as Jim and Bill mentioned, it was always in our plan to go this direction. It was just a matter of timing and knowing when the right time was to ensure we had our first product on the market and to demonstrate our supply chain and that preserved identity. And then now we're getting a lot of interest in these other crops, and innovating and bringing some value to the consumer. So super exciting to see, and I think you're going to be very excited about the new products we're coming out with in the future.

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John Joseph Baumgartner, Wells Fargo Securities, LLC, Research Division - VP and Senior Analyst [14]

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Great. And just a follow-up maybe for Bill. The commentary about the operational savings that extend that cash runway out to mid-2021, can you elaborate a little bit in terms of those cash savings, where they're coming from, what sort of buckets where they're being sourced from?

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William F. Koschak, Calyxt, Inc. - CFO [15]

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Thanks, John. You bet. As you can appreciate it, we're working our way through our annual budgeting cycle and looking at what we spent this year, and so we were able to project forward what we need now that we -- this team is here and knows the business and how we expect to grow it. So it's largely through that that we've determined where we would sit with several months of operating under our belt.

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Operator [16]

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(Operator Instructions) Our next question comes from Laurence Alexander with Jefferies.

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Laurence Alexander, Jefferies LLC, Research Division - VP & Equity Research Analyst [17]

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Could you give a little bit more granularity on the operational rhythm at your customers? That is, once they -- how long does it take in terms of trialing for them to significantly put in place a significant order? Any sense for how fast they scale up? And I guess more important, what's the cadence for them to get market feedback to then change their minds? So at what point can we look at the order patterns and say this is real end-market pull-through as opposed to customers experimenting?

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James A. Blome, Calyxt, Inc. - CEO [18]

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It's a great question, Laurence, I'm going to let Keith talk to that a bit. But you're right, we've always talked about 2 different trialing periods. One is shorter for our foodservice, where it's a faster turnover in decision and then a longer pipeline for trial on the food ingredients. So we have somebody on staff now that understands, that's been in it and is really creating the data to help us with that. And I'll turn it over to Keith to kind of tell you what his plans are and what he's seen in the brief time that he's been here.

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Keith Blanks, Calyxt, Inc. - SVP of Sales & Marketing [19]

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Jim's correct. Foodservice moves at sometimes a faster pace. The food ingredient folks move a little bit slower. What we're seeing is that we're right in the inception of kind of this trend cycle where we're new to the marketplace, but the product is performing at a very high level. And so the testing phases are moving up. So just in the 9 weeks I've been here, we're seeing a lot more testing activity and some positive results through that. So I think in some situations, it could move faster, and then some with larger, more sophisticated customers obviously will go through their controls and their measures like normal.

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Laurence Alexander, Jefferies LLC, Research Division - VP & Equity Research Analyst [20]

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And then I guess just secondly, just to sort of nail this down because I get asked it periodically, what's the -- are there any outstanding regulatory hurdles that need to be hit after your customers have started purchasing products? That is, is there anything that gets triggered once they're -- it's embedded in the finished product? Or are you completely out of the regulatory sort of stage?

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Travis Frey, Calyxt, Inc. - CTO [21]

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Laurence, this is Travis. I'll take that one. So right now, everything that we -- because we're focused on only the U.S., all of our sales and usage has been in the U.S., and we're really just focused on that right now. So we haven't thought a lot about going any further than the U.S. We've got a great base and a lot of room to grow here first, and I'll leave it at that.

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Laurence Alexander, Jefferies LLC, Research Division - VP & Equity Research Analyst [22]

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Right. But just to be clear, in the U.S., there's no kind of second stage that gets triggered once you're embedded in the customer products. Is that correct?

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Travis Frey, Calyxt, Inc. - CTO [23]

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No, no. Once we've gone through the advisory period, which we've already completed, that's all.

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Operator [24]

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(Operator Instructions) Our next question comes from John Baumgartner with Wells Fargo.

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John Joseph Baumgartner, Wells Fargo Securities, LLC, Research Division - VP and Senior Analyst [25]

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Thanks for the follow-up. Bill, just wanted to come back to the P&L. When we think about the R&D, that's been pretty lumpy quarter-to-quarter, and it sounds like Q3 had a number of one-off factors as well. So how do we think about the run rate R&D, I guess, at least for Q4; then if you've gotten that far, even thinking about maybe the year-on-year increase in 2020 to support the business?

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William F. Koschak, Calyxt, Inc. - CFO [26]

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Yes. So you're exactly right, John. There are a number of factors that drove the comparability that we called out both in the release and my remarks. I think that will -- other than stock comp, that should be behind us, and I expect the fourth quarter to provide you a cleaner run rate when we get there.

We're looking at R&D expense, obviously in a company like ours, having it be a big portion of our growth. That is very important, and we would look to try and manage it as a percentage. We're not looking to keep it as a percentage of sales. It's more a percentage of our total spending. As we work with Travis on his budget, in our plans for next year, we would continue to make investments in R&D. I don't want to comment on a specific number for next year, but it will be an area that you'd see a higher level of growth than you would have in SG&A this year. As we've finished investing in the G&A platform, I would expect that to taper off as that growth is to taper off, as I said in my remarks.

The last thing that I would say on the comparability, it is largely behind us. However, there is another -- you can do the math on what the number is because I think we said it was $3.1 million or $3.2 million for the full year. We've got $1.6 million behind us. So there's another $1.4 million of grain expense that we pushed through Q4 last year that will affect comparability. I just did some math for you on the fourth quarter. But that -- that's a number that will affect comparability in the quarter -- next quarter.

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Operator [27]

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At this time, this concludes our question-and-answer session. I'd now like to turn the call back over to Mr. Jim Blome for his closing remarks.

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James A. Blome, Calyxt, Inc. - CEO [28]

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Yes, thank you. Thanks to everyone for joining us on our call today. We have dedicated and hard-working people here at Calyxt who push themselves to further our mission each day. And I want to take a time to give a sincere thanks from all of the management to all of you. We could not do it without you.

And lastly, if we weren't able to address all of your questions on today's call, please feel free to contact us or our Investor Relations firm, MZ Group, who would be happy to answer them. So we look forward to providing more updates on our next call. Operator?

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Operator [29]

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Thank you. This concludes today's conference. Thank you all for your participation. All parties may disconnect.