Roseville, Minnesota, USA
August 5, 2020

• Focusing Go-to-Market Strategies to Optimize TALEN Technology Platform and Accelerate Trajectory to Positive Free Cash Flow
• Following Successful Proof of Concept, Advances Soybean Products to a Streamlined Business Model Focused on Seed Sales to Agricultural Processors
• 300,000 Bushels of Soybeans Sold to One of the World’s Largest Processors
• Cash Runway Extended into Fiscal Year 2022
• Dan Voytas To Lead New Scientific Advisory Board

Calyxt, Inc. (NASDAQ: CLXT), a plant-based technology company, has reported its financial results for the second quarter ended June 30, 2020.

Advancement of Soybean Products to a Streamlined Business Model

“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,” said Jim Blome, Calyxt CEO. “The success we achieved with this product has been amazing and represents a key milestone achievement for everyone at Calyxt. We quickly scaled up and within 15 months of our early 2019 launch are supplying some of the world’s largest companies in their respective industries. Having achieved proof of concept and pioneering regulatory success, we are now progressing into a new commercialization program seeking to supply Calyxt’s first product to large grain processors for their own soybean processing businesses. Moving upstream enables us to focus on developing and capturing greater value from high value innovations and plant-based solutions with substantial disruption potential,” continued Blome.

Summary of Soybean Processing Advancement:

• Final 2020 planted acres were nearly 72,000, representing a doubling of acres from the total planted in 2019;

• In 2021, we intend to target seed sales to large grain processors, representing at least $3 million to $4 million in expected revenue as seed transactions will be revenue-generating under the new go-to-market strategy;

• One of the world’s largest processors has purchased 300,000 bushels of Calyxt soybeans, which represents a significant portion of June 30, 2020 inventory, and the processor will retain the rights to process and sell the resulting soybean oil, while Calyxt will purchase and market the resulting soybean meal;

• We similarly aim to sell our remaining grain inventories and grain that we are contracted to purchase from the 2020 crop year to large processors;

• Contracted grain purchases of the 2020 crop are expected to be approximately 40 percent in the fourth quarter of 2020 and approximately 60 percent over the course of the first and second quarters of 2021;

• Including the sale of an expected percentage of grain that we are contracted to purchase in the fourth quarter, our base case 2020 revenue expectation is between $17 million and $19 million, and our cash usage for 2020 is expected to range between $43 million and $45 million, which includes an investment in accounts receivable and inventory of between $15 million and $17 million; 

• Our target is to convert the year-end 2020 investment in inventory and accounts receivable of between $15 million and $17 million to cash in the first 60 days of 2021;

• Based on the grain purchase plan described in the preceding three bullets, our grain revenue for 2021 is expected to be between $22 million and $24 million, with seed revenue incremental to that amount;

• If we are able to complete the sale of all grain we are contracted to purchase in the fourth quarter of 2020, our revenue would increase to between $23 million and $25 million, with a corresponding decrease in expected 2021 grain revenue, and if we collected all of the related receivables, our expected cash usage in 2020 would be in the range of between $32 million and $34 million; and

• Effective execution of our go-to-market soybean strategy decreases cash used by our soybean product line by over $45 million through 2022.

Focusing Go-to-Market Strategies to Accelerate Trajectory to Positive Free Cash Flow

“Calyxt was created with a mission to deliver disruptive plant-based innovations with an initial focus on food and agriculture,” said Blome. “Today, our innovations have applications across a broad spectrum of industries. To drive value for our TALEN® technology platform, our strategic focus is on traits with higher-margin, downstream benefits for end users, differentiating us from others who are focused on traits developed to provide distinct benefits to the farmer. Our commercial proof of concept, our strong intellectual property portfolio, and our position as a leader in gene editing has led us to extensive talks with top companies across several industries, including food, pharmaceutical, energy, and agriculture. We plan to develop projects with partners that leverage our strength in trait development and gene editing and our partners’ product commercialization expertise. Discussions with potential partners have focused on our development of plant-based input solutions for specific downstream issues, including consumer preferences, sustainability, cost, quality, and regulatory compliance. By leveraging our partners’ commercialization capabilities, this model will reduce our cash needs and enable efficient market penetration of Calyxt’s traits.

“We are well positioned to establish licensing arrangements based on our TALEN technology, expertise in trait development, and leading know-how in the gene editing field. Strategic licensing arrangements provide an opportunity for broad market penetration of our technology while we are able to achieve milestone or royalty payments through our licensees’ commercialization efforts. For product development activities, our specific entry point into the value chain may vary by crop, depending upon a number of factors.  In crops like soybeans and wheat, we expect that the sale of seed to processors or other supply chain participants will provide the highest available margins and best path to delivering positive cash flow. For certain traits, we expect licensing arrangements to provide an efficient path to non-dilutive financing and potential revenue generation,” added Blome.

TALEN Technology Platform and Differentiated Go-to-Market Strategies:

Our streamlined business model comprises three go-to-market strategies. Specific deal structure and the amount and timing of cash flows will vary depending upon several factors, including cost to develop, size of the opportunity, and the stage at which a partner or licensee enters the development process. Summaries of our go-to-market strategies are as follows:

•  TALEN Licensing Arrangements: License Calyxt’s TALEN technology for licensees’ use in their own development of specific traits for negotiated upfront and annual fees and potential royalties;
• Trait and Product Licensing Arrangements: License Calyxt-developed traits or products to downstream partners with commercialization expertise for negotiated upfront and milestone payments and potential royalties; and

• Seed Sale Arrangements: Sale of seed to agricultural processors, including millers and crushers, or others in the relevant crop’s supply chain, with such sales expected to generate revenue for Calyxt.

“For each product candidate, we will evaluate which go-to-market strategy provides for the greatest value creation and most efficient path to bring the product to market,” said Travis Frey, Calyxt Chief Technology Officer. “We will engage with potential partners as early as possible to enable the most value capture. Our pipeline will shift as we complete proof of concept projects and focus on new, more disruptive projects,” concluded Frey.

Calyxt Current Development Pipeline*:

* The agronomic and functional quality of our product candidates and the timing of development are subject to a variety of factors and risks, which are described in our filings with the Securities and Exchange Commission. 

Calyxt is also actively negotiating agreements with potential partners with respect to specific opportunities for which development activity would only commence upon reaching a commercial agreement.  These projects are not included in the preceding table.

Today we have 8 projects at the Discovery stage or later in development across alfalfa, hemp, oats, soybeans, and wheat, and are exploring improved protein profile and flavor in pulse crops, with several options under consideration.

Second Quarter Highlights:

• Calyxt’s HOLL soybean was deemed a non-regulated article under the “Am I Regulated?” process by Biotechnology Regulatory Services of the Animal and Plant Health Inspection Service (APHIS), an agency of the United States Department of Agriculture (USDA). This product represents our second-generation high oleic soybean.

• Late in the second quarter we released our non-edited hemp germplasm by selling plants directly to a grower, driving several thousand dollars of revenue. This quick commercial success is an early step in making our hemp projects partner-ready, enabled the gathering of valuable insights and data, and it is expected to serve as the base germplasm for the development of other hemp projects expected to launch beginning in 2023.

• Licensed a new method to help increase product development efficiency from the University of Minnesota. The method has the potential to reduce the time needed to edit plants from approximately one year to several months.

• New provisional patent applications filed that are focused on expanding Calyxt’s gene-editing technology portfolio; advancements in hemp, soybean, and wheat; and additional germplasm generated from our breeding pipeline.

• Patent granted in Australia covering the use of CRISPR gene editing in plants.  The intellectual property was invented in Dr. Dan Voytas’ lab at the University of Minnesota and is exclusively licensed to Calyxt.  While TALEN gene editing technology remains the primary tool for Calyxt’s cutting‐edge R&D, our CRISPR intellectual property provides the opportunity to explore further monetizing our IP portfolio by offering this CRISPR IP for licensing.

New Scientific Advisory Board:

“As part of our scientific focus, Calyxt is planning to dedicate a portion of its research activity toward addressing near-term pipeline opportunities and longer-term large-scale opportunities,” said Dan Voytas, Calyxt Chief Science Officer. “It is clear from our discussions with potential partners that Calyxt is well-positioned to provide plant-based solutions with our TALEN technology to address many of the current problems they face.   

“This initiative will also play an important role in the development of our approach to ESG issues. Potential projects may include using plants to better sequester atmospheric carbon and increasing nitrogen use efficiency to reduce the need for fertilizer. We believe that our TALEN technology can play an essential role in quickly advancing and achieving these goals. Calyxt intends to establish this board by December 31, 2020.

“While I continue in my current role as Calyxt’s Chief Science Officer, I am also very excited to work with thought leaders to identify critical problems that can be addressed using TALEN technology, and look forward to speaking more about this development at our Virtual Analyst Day in the fall of 2020,” concluded Voytas.

COVID-19 Disruptions Highlight Benefits of Streamlined Business Model:

“We have been exploring additional revenue-generating opportunities, including collaborations, licensing, and other value capture models for our technology platform since before the onset of the COVID-19 pandemic and have committed to evaluate our go-to-market strategy for product candidates on a case-by-case basis in order to pursue the most efficient paths to value creation,” added Blome. “The streamlined go-to-market strategy for our soybean products that we are announcing today executes on that commitment.

“The downstream demand disruptions and pricing volatility caused by the COVID-19 pandemic reinforced the potential benefits of our strategic trajectory toward more streamlined, lower cost, and more capital-efficient upstream-focused go-to-market strategies. Although over the course of the second quarter, initial supply and demand dislocations for premium oil and meal have generally moderated, led by the premium oil industrial market segment, and this has led to substantial price recovery in the premium oil and meal markets, our financial results and operations were negatively impacted by price, demand and supply dislocations, and our previously reported responsive actions. The crush schedule cancellations that we took in response to the COVID-19 pandemic provided an evaluation point for our soybean product go-to-market strategy,” continued Blome.

CEO Summary

“In summary, Calyxt’s focus on disruptive innovation utilizing plant-based inputs has energized our entire team. Through our streamlined 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 and anticipated cash receipts from our product development efforts with partners extends our anticipated cash runway into 2022. Additionally, the talent mix for the next stage of business must be adjusted, and positions related to soybean processing and product sales are being eliminated. I would like to thank the Calyxt employees we separated today.  All of them helped us build a first-of-its-kind business in the United States. Their contributions are valued, and I wish them well in their future endeavors. I am incredibly proud of our team for what they have built and how Calyxt is now positioned.

“We look forward to sharing more on our developing story at the upcoming 40th Annual Canaccord Growth Conference on August 11-13, the Intellisight 2020 Virtual Conference on August 12, the LD Micro Virtual Conference on September 1-3, and the 22nd Annual H.C. Wainwright Virtual Global Investment Conference on September 14-16. Further details with respect to the key projects and business model will be communicated during Calyxt’s soon to be announced Virtual Analyst Day in the fall of 2020,” concluded Blome.

Financial Results for the Three Months Ended June 30, 2020

• Revenues increased by $1.9 million, or 465 percent, from the second quarter of 2019 to $2.3 million in the second quarter of 2020. The revenue growth was driven by 487 basis points of volume growth and 16 basis points of favorable product mix as we sold more oil in 2020 as a percent of total revenue than in 2019, both partially offset by 37 basis points of pricing, primarily the result of lower meal prices than the prior period. High oleic soybean meal was 79 percent of revenue in the period, compared to 89 percent a year ago.  Most oil revenue in 2020 was from a single customer purchasing our oil to be used as a plant-based alternative to synthetic fluids, and we expect to fulfill their remaining orders over the next three months.
• Cost of goods sold increased by $5.0 million from the second quarter of 2019 to $5.3 million in the second quarter of 2020. The increase in cost of goods sold reflects an increase in the cost of product sold in the period as a result of higher sales volumes, the impact of lower costs associated with products sold in 2019 because grain costs were previously expensed as R&D, and a $3.2 million net realizable value adjustment to inventories based on expected selling prices, grain processing costs, and a significant amount of excess seed produced for 2020 plantings.
• Gross margin, as reported, was a negative $3.0 million, or a negative 131 percent, in the second quarter of 2020, a decrease of $3.1 million from the second quarter of 2019. The decrease in gross margin in the second quarter of 2020 reflects the higher costs we have experienced during the high oleic soybean product’s proof of concept period. The primary drivers of gross margin, as reported, were net realizable value adjustments to inventory based on expected selling prices, grain processing costs, and a significant amount of excess seed produced for 2020 plantings. Gross margin, as adjusted, was negative $0.8 million, or negative 34 percent, in the second quarter of 2020, as compared to negative $0.3 million, or negative 69 percent, in the second quarter of 2019. See below under the heading “Use of Non-GAAP Financial Information” for a discussion of gross margin, as adjusted, and a reconciliation to the most comparable GAAP measure.
• R&D expenses increased by $0.1 million to $2.8 million, driven by incremental professional service expenses related to new patent filings to bolster our intellectual property portfolio.
• Selling and supply chain expenses increased by $0.1 million to $1.3 million, driven by additional personnel costs.
• G&A expenses decreased by $1.4 million to $3.8 million, driven by decreases in Section 16 officer transition expenses of $0.5 million and $0.4 million less non-cash stock compensation expenses.
• Net loss was $10.9 million in the second quarter of 2020, an increase of $1.5 million from the second quarter of 2019, driven by the increase in negative gross margins and changes in operating expenses described above. Net loss per share was $(0.33) per basic and diluted share in the second quarter of 2020, an increase of $(0.04) per basic and diluted share from the second quarter of 2019.
• Adjusted EBITDA loss was $6.5 million in the second quarter of 2020, a decrease of $0.1 million from the second quarter of 2019. See below under the heading “Use of Non-GAAP Financial Information” for a discussion of adjusted EBITDA and a reconciliation to the most comparable GAAP measure.
• Net cash used in the second quarter of 2020 was $12.2 million compared to $7.8 million in the second quarter of 2019, driven by the increase in net loss of $1.5 million and a net decrease in cash flows from operating assets and liabilities, primarily the result of the timing of cash payments to growers and carrying of higher inventory levels following the halting of crush activity in early May.
• Cash, cash equivalents, short-term investments, and restricted cash totaled $35.3 million as of June 30, 2020.

Financial Results for the Six Months Ended June 30, 2020

• Revenues increased by $4.1 million, or 728 percent, from the first six months of 2019 to $4.7 million in the first six months of 2020. The revenue growth was driven by 751 basis points of volume growth and 19 basis points of favorable product mix as we sold more oil in 2020 as a percentage of total revenue than in 2019, both partially offset by 42 basis points of pricing, primarily the result of lower meal prices compared to the same period in 2019. High oleic soybean meal was 82 percent of revenue in the period, compared to 89 percent a year ago. Most oil revenue in 2020 was from a single customer purchasing our oil to be used as a plant-based alternative to synthetic fluids, and we expect to fulfill their remaining orders over the next three months.
• Cost of goods sold increased by $8.9 million from the first six months of 2019 to $9.2 million in the first six months of 2020. The increase in cost of goods sold reflects an increase in the cost of product sold in the period as a result of higher sales volumes, the impact of lower costs associated with products in 2019 because Grain Costs were previously expensed as R&D, and a $4.2 million net realizable value adjustment to inventories based on expected selling prices, grain processing costs, and a significant amount of excess seed produced for 2020 plantings.
• Gross margin, as reported, was a negative $4.5 million, or a negative 97 percent, in the first six months of 2020, a decrease of $4.8 million from the first six months of 2019. The decrease in gross margin in the first six months of 2020 reflects the higher costs we have experienced during the high oleic soybean product’s proof of concept period. The primary drivers of gross margin, as reported, were net realizable value adjustments to inventory based on expected selling prices, grain processing costs, and a significant amount of excess seed produced for 2020 plantings. Gross margin, as adjusted, was negative $2.0 million, or negative 42 percent, in the six months ended June 30, 2020 compared to negative $0.3 million, or negative 54 percent, in the same period in 2019. See below under the heading “Use of Non-GAAP Financial Information” for a discussion of gross margin, as adjusted, and a reconciliation to the most comparable GAAP measure.
• R&D expenses increased by $0.7 million to $5.6 million, driven by incremental professional service expenses related to new patent filings to bolster our intellectual property portfolio, increased experimental seed expenses, and higher personnel costs.
• Selling and supply chain expenses increased by $0.8 million to $2.9 million, driven by additional personnel costs, including $0.3 million of Section 16 officer transition expenses.
• G&A expenses decreased by $0.8 million to $8.5 million, driven by a decrease in non-cash stock compensation of $0.5 million and lower Section 16 officer transition expenses of $0.3 million.
• Net loss was $22.0 million in the first six months of 2020, an increase of $5.2 million from the first six months of 2019, driven by the increase in negative gross margins and changes in operating expenses described above. Net loss per share was $(0.67) per basic and diluted share in the first six months of 2020, an increase of $(0.16) per basic and diluted share from the first six months of 2019.
• Adjusted EBITDA loss was $14.8 million in the first six months of 2020, an increase of $2.5 million from the first six months of 2019. See below under the heading “Use of Non-GAAP Financial Information” for a discussion of adjusted EBITDA and a reconciliation to the most comparable GAAP measure.
• Net cash used in the first six months of 2020 was $24.8 million compared to $17.3 million in the first six months of 2019, driven by the increase in net loss of $5.2 million and a net decrease in cash flows from operating assets and liabilities, primarily the result of higher cash payments to growers and the halting of crush activity in early May. Calyxt expects its cash usage to improve in the second half of 2020 as it sells grain, and its burn rate is reduced because of headcount reductions. 

2020 Financial Guidance

• Contracted grain purchases of the 2020 crop are expected to be approximately 40 percent in the fourth quarter of 2020 and approximately 60 percent over the course of the first and second quarters of 2021;

• Including the sale of an expected percentage of grain that we are contracted to purchase in the fourth quarter, our base case 2020 revenue expectation is between $17 million and $19 million;

• Cash usage for 2020 is expected to range between $43 million and $45 million, which includes an investment in accounts receivable and inventory of between $15 million and $17 million; 

• Our target is to convert the year-end 2020 investment in inventory and accounts receivable of between $15 million and $17 million to cash in the first 60 days of 2021;

• Based on the grain purchase plan described in the preceding four bullets, our grain revenue for 2021 is expected to be between $22 million and $24 million, with seed revenue incremental to that amount;

• If we are able to complete the sale of all grain we are contracted to purchase in the fourth quarter of 2020, our revenue would increase to between $23 million and $25 million, with a corresponding decrease in 2021 grain revenue, and if we collected all of the related receivables, our expected cash usage in 2020 would be in the range of between $32 million and $34 million; and

• Effective execution of our go-to-market soybean strategy decreases cash used by our soybean product line by over $45 million through 2022 and extends cash runway into 2022 versus previous guidance of late 2021.

“The advancement of our soybean products to a streamlined business model focused on seed sales to agricultural processors positions Calyxt with an upstream go-to-market strategy that over time substantially reduces Calyxt’s significant working capital investment requirement, its exposure to the commodity markets, and complexity in the business model,” said Bill Koschak, Chief Financial Officer of Calyxt.

“From a financial standpoint, an effective advancement enables Calyxt to reduce its cash usage and realize higher gross margins faster, and it would extend our cash runway into 2022. Moreover, the migration upstream in terms of our soybean business with large processors also accelerates our trajectory to achieve positive cash flow from operations as the cash flows expected from products coming to market by 2023 utilizing our differentiated go-to-market strategies are all expected to be accretive to gross margins and cash flow generation.

“During this period and given the complexity of timing and multiple contracts, Calyxt is unable to provide guidance with respect to our gross margins. However, management is focused on cash usage and developing new partnership arrangements leveraging our streamlined business model with differentiated go-to-market strategies. Calyxt also expects to provide additional updates during our soon to be announced Virtual Analyst Day in the fall of 2020,” concluded Koschak.

The revised 2020 financial guidance is as of August 5, 2020 and we undertake no obligation to update our assumptions, expectations, or our guidance as of any subsequent date. See the information in the section titled “Forward-Looking Statements” for factors that may impact the achievement of the revised guidance.

Website: http://www.calyxt.com

Published: August 5, 2020