Calyxt, Inc.
Q4 2017 Earnings Call Transcript

Published: 18 Mar 2018

[Operator:]

Greetings and welcome to the Calyxt Full Year 2017 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference call over to your host, Simon Harnest, Vice President, Corporate Strategy and Finance. Please go ahead, sir.

[Simon Harnest:]

Thank you very much. Thank you, and welcome everyone to Calyxt fiscal year and fourth quarter 2017 financial results conference call. Joining me on the call today with prepared remarks are Federico Tripodi, our Chief Executive Officer; Manoj Sahoo, our Chief Commercial Officer; and Bryan Corkal, our Chief Financial Officer. Yesterday evening, Calyxt issued a press release reporting our financial results for the fourth quarter and 12-months ended December 31, 2017. This press release is available on our website at www.calyxt.com. As a quick reminder, we will make forward-looking statements regarding financial outlook in addition to make product development plans. These statements are subject to risks and uncertainties that may cause actual results to differ from those forecasted. A description of these risks can be found in our most recent Form 10-K on file with the SEC. I would now like to turn the call over to Federico.

[Federico Tripodi:]

Thank you, Simon. Good morning, everybody and thank you for joining us today. Welcome to our first fiscal year investor call since going public last July. We are extremely proud of our accomplishments in 2017 and are even more excited about what is to come in 2018. At Calyxt, we are pioneering a mindful revolution of our food system. We are building and leveraging our business model as a specialty food ingredient company powered by our proprietary industry-leading gene editing technology platform called TALEN. We are thrilled to see the pace of focus and development in the field of gene editing have picked up tremendously over the past 12 months. We see this as a validation of Calyxt so focused on gene editing as a technological disruptor. Calyxt is at the forefront of this development as the first publicly traded gene editing company in the field of food and agriculture. We are preparing to commercialize our first novel high oleic soybean product by the end of this year. I will start by sharing a few highlights of these program before handing over the call to Manoj, our Chief Commercial Officer, who will then go into more details. Over the past two months we have successfully contracted over 11,500 high oleic soybean acres with over 60 farmers; this is an increase of over 1,500 acres and 10 farmers since our last public release less than two weeks ago. What is even more exciting for us than these number is our extremely high farm retention year-over-year. Over 90% of our existing farm partners have signed up to replant our high oleic soybean this season. Furthermore, on average each repeat farmer is more than doubling their Calyxt acres year-over-year. Last December we launched our 2018 high oleic premium grower program and we our sea distribution relationship with the farmers business network. Our pioneering approach for FBN. We are very pleased by the capabilities and synergies the FDB brings to the table and could not be more excited about this partnership. With access to a growing network of progressive farmers across the entire U.S. and more specifically, in our target region, forward to building out our global performance with FBN. Farmers in South Dakota and Minnesota have already enrolled in Calyxt 2018 premium program. On the food customers side, we continue you to get acted interest. Around the dozen small to large food company customers are currently engaged to test our high oleic soybean oil across food service and food ingredient applications. These food company customers are in different stages of evaluating our oil for multiple end-use applications including frying both chips and meat, bacon, eggs, and vegan meat replacement products. On completion of these evaluations, these companies could become early adopters of our high oleic soybean oil in their specific market categories. Manoj, this is a good starting point for you to go into more detail. Please go ahead.

[Manoj Sahoo:]

Thank you, Federico. I will like to talk about our progress and what to expect as we build out our high oleic supply chain over the coming months including seed production, farm contracting, crusher relationships, and logistics. Let's start with seed production. This year along with grain production acres, we intend to plant additional acres for seed production. The number of acres for seed production planted in 2018 puts a cap on the number of high oleic soybean acres that we can potentially contract in 2019. This is also a key driver for our working capital needs in 2019. As we approach spring planting, we'll be deciding on the number of acres for seed production in 2018. The objective here being to balance working capital requirements with ensuring seed availability for next year acres is not a constraint. As you know, farmers are our key partners in building out the supply chain. Our commercial team implemented some innovative ideas for 2018 grower contracting. We are very happy with our grower retention. A key driver for existing growers to repeat planting was the connection with the Calyxt story about healthier foods and our teams personal touch. Our recent partnership with FBN [ph] provided a good launchpad for grower relationships through their existing grower database and the synergies we both bring to the table. In addition to this, we believe the most effective way to establishing a relationship with growers is our personal investment in face-to-face meetings. In these one-on-one meetings we share Calyxt's mission about healthier foods and how growers play a key role in helping Calyxt to fulfill our mission; and this really connects with them. Our team organized multiple oversubscribed town hall meetings to share Calyxt story with growers. Farmers in our target regions are really excited to be part of the gene editing story, be an early adopter of new technologies and work with a small innovative company like us to have more options for their farming operations. Obviously, there are certain challenges as it relates to grower acquisition. We are very young brand that is not well known to growers which is why it is important for us to tell our story directly. For example, our closing rate increased orders of magnitude when sharing Calyxt story through one-on-one interaction such as lunch and launch as opposed to traditional seed selling approaches which are transitional. We also choose to be highly selective for quality farmland and therefore did not enroll certain growers because of this natural limitations. As Federico mentioned earlier, we are pleased to have a high retention rate of 2017 growers with over 90%. Above that, our repeat growers will on average be planting more than 2x their last year acres with Calyxt high oleic variety. As of today, we have more than 60 growers contracted in 2018 for our high oleic soybean per gram [ph] with a total of more than 11,500 acres contracted. Overall, these farmers collectively farm 125,000 acres, half of which is expected to be planted with soybeans this year. More than a quarter of soybeans that are anticipated to be planted by these farmers consist of Calyxt's high oleic variety. On the crusher relationship, we continue to advance discussions with multiple crushers. As farm contracting transitions into final phases, we'll be focusing on crushers and logistics over the summer to finalize the most optimal contractual arrangement with one or multiple cross-plants keeping in mind grain logistics and logistics for soybean meal and high oleic shipments to potential customers. Now I want to transition from supply chain build out to growth drivers. As we all know, launching new high oleic varieties is important to enable mid-term acres acquisition growth in additional regions and growers. Our breeding program continues to make significant progress. The traditional breeding program started in 2016 with 24 diverse populations. To further accelerate breeding, Calyxt deploys a contract season planting in South America. For our Class of 2021 Bs over 3,000 lines were advanced to South America trials and out of that upto 800 are planned to be advanced to U.S. this spring. We are on-track to add 2 to 4 addition HO varieties by 2021. Furthermore, Calyxt's proprietary TALEN powered accelerating breeding program is designed to speed up traditional breeding through the precision of gene editing. Through our technology we know from the start which plant cells have the desired edit and we can grow the final plant from a single cell. Our objective with the accelerated program is to able to convert existing varieties farmers like to a high oleic version. Today we have gained commercial access to over 100 non-GMO finished varieties which are now available to our scientists to test our gene editing ability. Our intent is to one day be able to convert many varieties at once using our TALEN gene editing technology as a new breeding technique in the industry. This can further accelerate availability of additional elite varieties for commercialization. The breeding program will allow Calyxt to launch multiple elite varieties of high oleic soybean with improved agronomic traits such as reduce resistance across multiple maturity groups. This as you can assume, imagine has a very strong impact on our commercial strategy. The breeding program will be key enabler for Calyxt to expand our supply chain to multiple additional crushers, while at the same time allowing farmers to allocate a higher percentage of their portfolio to Calyxt high oleic soybean variety all the while maintaining the diversity as farmers typically plan 3 to 4 varieties of soybean. With that, I would like to hand over the call back to Federico.

[Federico Tripodi:]

Thank you, Manoj. I would like to put our high oleic soybean oil into the macro context. Why are we so interested in our high oleic soybean oil? The food industry, primarily driven by consumer preferences, is seeing a major trend towards healthier fats and oils. There are also regulatory tailwinds from the FDA action on trans fats. The FDA has declared trans fats not generally recognized as safe [ph] and human food must no longer contain partially hydrogenated oils by June 18 of this year. Other countries are also starting to follow the U.S. in initiating action on trans fats and partially hydrogenated oils. For example; Sales Canada finalized a ban on partially hydrogenated oils through a notice of medication adding partially hydrogenated oils to the list of contaminants and other adulterating substances. This ban will come into force on September 15, later this year. Argentina, recently added high oleic soybean oil to the Argentina food court, the local equivalent of Codex [ph]. This sets specifications and could allow Calyxt's high oleic soy to be sold and planned as such. We believe that high oleic soybean oils relevance and impact is continuously increasing and we are placing the Calyxt story right into these trend. On the customer front, we are in active discussions with our run of dozen food companies customers who have shown interest in evaluating our high oleic soybean oil for various food applications, including food service, frying and as a food ingredient. Approximately half of these customers are large consumer packaged goods companies. Their interest is not only in evaluating high oleic soybean oil but also in understanding potential ways Calyxt's unique gene editing platform can be leveraged to solve existing pain points and anticipated consumer needs by creating specialty food ingredients. We are actively exploring these discussions and are looking forward to sharing more updates on these front at the end of the year following our harvest of our high oleic soy fields. On the regulatory front, the U.S. has a consistent and predictable framework. We had anticipated that it may take years to get clarity around the global regulatory framework for new plant breeding techniques. We are excited to see how fast things are moving with multiple countries on these front. On the USDA regulatory site, we have received a mild regulated letters for 6 products across 4 different crops; and we are expecting additional news from the USDA confirming non-regulated status for additional Calyxt products. We have received the approval in Chile and Argentina for our first soybean submissions and we are pleased to see these as a global trend of a favorable regulatory environment. In January 2018, the European Court of Justice Advocate General published a non-binding opinion that mutagenesis products are not GMOs. This sets a positive base for gene editing products in the European Union. Developments in other countries include the recent publication in Brazil of an annex regulation defining most new breeding techniques which include gene editing as non-GMO, and establishing an evaluation process for gene edited products. Columbia has published a draft policy, proposing our process to evaluate gene editing products within a certain timeframe. With that, I will like to handover the call back to Bryan, our CFO, to discuss the financial results. Bryan?

[Bryan Corkal:]

Thank you, Federico. Calyxt successfully completed it's first fiscal year as a public company. I'm pleased to report that we made positive progress on all our corporate goals while maintaining a discipline spend. We ended the fourth quarter with a cash balance of $56.7 million, and during the quarter Calyxt incurred $5.9 million in cash burn including $1.6 million in IPO costs that were paid for in the quarter. Eliminating these IPO costs, Calyxt incurred approximately $1.4 million per month in cash burns. Last year our operating cash burn was $12.8 million or approximately $1.1 million per month. With this smartest spend, we advanced several products in an R&D pipeline and set the groundwork to launch our first gene edited product in 2018, high oleic soybeans. The IPO and sale leaseback were two major cash inflows that provided Calyxt with over $60 million in cash in 2017. These inflows set us up financially to execute our strategy and fund operations through mid-2019. During the IPO and details in the S1 [ph], we outlined our strategy for the use of cash to deliver on our business milestones. Looking forward to 2018, we anticipate that the cash burn will increase as we continue to expand our R&D team to advance key products in the portfolio and build out our commercial capabilities. We continue to project a cash burn rate in the range of $2 million to $2.2 million per month, not including working capital for grain purchases after the 2018 harvest. In 2017, our net loss was $26 million. The net income includes a significant non-cash expense of $12.1 million for stock options. For the stock options plan we currently have in place, we expect a non-cash stock option expense in the neighborhood of $2 million per quarter in 2018. As we execute our plan to build the premier gene editing company, I would like to highlight our progress in building the first-ever concept-to-work [ph] facility leverage gene editing in the food sector. We have been working diligently with the developer to manage the investment. We are currently projecting that the total product cost will be less than originally budgeted and cost under $18 million. 100% of the savings will be reflected in lower lease payments once we occupy the facility in the spring of 2018. Before handing it back over to Federico, let me share our forecast for cash burn in the near-term. We will incur expenditures for seed production and promotional activities, in particular, a lot of work has started to condition, treat, bag and tag seed for the 2018 campaign. For Q1 2018 we project the cash burn rate in the range of $6 million to $7 million. An acknowledgement that we are still operating at a net operating loss and have a requirement to continuously invest in R&D and commercial capabilities, we will be evaluating alternative sources of financing such as equipment leases and loans for working capital to build off our successes in 2018 and grow the business dramatically in 2019. In closing, our team is focused on building R&D and commercial expertise in a measured and disciplined approach. The cash raised so far funds our growth through mid-2019 and underpins the launch of our high oleic soybeans. So with that, I'll pass it back to Federico.

[Federico Tripodi:]

Thank you, Bryan. We are very pleased with the progress we have made in building our capabilities in gene editing and preparing to launch our first product. We believe that we are at the very forefront of a true revolution in the world of agriculture. Our strategy is to establish a commercial footprint by commercializing the first-ever gene edited agricultural product, our high oleic soybean program. We then intend to leverage our success in this market segment and use the same business model to advance one product after another. Take the analogy of freemason [ph] that started as an online bookstore. For Calyxt, our high oleic soybean oil is just the beginning, our books. We will extend our lead in developing a broad portfolio of high value food ingredients such as high oleic soybean oils, improved composition canola oils, and high fiber with flours, and we will continue to advance our pipeline of crops with added benefits for both the environment and consumers. Thank you for your time today, and I look forward to seeing you at one of the upcoming conferences we will be attending. So with that, I'll pass it back to Simon.

[Simon Harnest:]

Thank you so much Federico for the great overview. I would now like to open the call to questions. Joining for Q&A will be Federico, Bryan and Manoj.

[Operator:]

[Operator Instructions] Our first question comes from the line of Akshay Jagdale with Jefferies. Please proceed with your question.

[Akshay Jagdale:]

I wanted to first ask about the farmer side of things, again, lot of good progress ahead of our expectations. Can you share with us some color on the economics there in terms of the premiums that you might be offering to farmers, obviously, and the performance of the seeds themselves in terms of the yields; maybe give us a little bit of color there? And I have a couple of follow-ups.

[Federico Tripodi:]

So maybe I'll start with the premium program and Manoj can add a little bit more color. What we've done this year is we have tractor [ph] tiered incentive structure for farmers contracting in 2018. And there is multiple tiers that include identity preservation as well as other incentives. Manoj, maybe you can add a little bit more numeric to that.

[Manoj Sahoo:]

The total incentives actually range between $0.55 to $0.99 per bushel, over CBOT depending upon the size and the terms of the contract, so it's a portfolio of contracts which we executed farmers.

[Federico Tripodi:]

And the difference between those everybody is, there is a basic identity preserved component, there is an early adopter to motivate growers to try new technology and there is a storage premium and some volume based discount. So depending on that combination of those factors, a particular farmer could be in the $0.55 or in the $0.90 range.

[Akshay Jagdale:]

Got it. And is that generally sort of -- how has that trended for you in terms of your expectations, generally speaking?

[Manoj Sahoo:]

I think this is in line with the market conditions, non-GMO varieties command between around $1 premium over CBOT in the market, so we expect to be in that range.

[Federico Tripodi:]

And we have not changed this program since we started the program in December, so this is the same terms that we started with and we've been able to accomplish the numbers that we showed today without changing these basic structure of the program.

[Akshay Jagdale:]

That's excellent. I mean it's well below than what we were assuming; so you're heading all your targets there. I wanted to ask Manoj about the conversations with the potential customers; there is a lot there but again, can you give us a little bit more color on -- is there any conversations right now on pricing, is it too early? It looks like the scope of your conversations is much broader than just high oleic which is pretty exciting but can you just help us get into those sort of board rooms and give us some color on what's going on there? I mean, it sounds great but what are their concerns? What should we be concerned about? I mean, I guess if I was them, I'd be concerned about can you deliver X amount of product, right. So maybe you can address that. Anything you can say about pricing, just generally would be great too.

[Manoj Sahoo:]

As Federico said that we are in active discussion with around a dozen, half of them are those larger consumer packaged companies, the other half is small to mid-sized customers. And Akshay, you know the industry pretty well, the larger companies take a little more time than the smaller ones; so we expect the small/mid-sized companies to be the early adopters. Too early to comment on the magnitude of the premiums but there is an underlying assumption with the discussions that there will be a premium and because this is a unique oil, it will not be linked to any commodity price privately negotiated between Calyxt and the food company with regards to. What's more exciting is the specific applications we are talking about because each of these customers can actually become an early adopter in that market segment which becomes pretty good; I call it the beach-head strategy whereby -- we call it use by company XX, it becomes pretty easy to be used by others in that sector. Yes, this is a fair question about the supply chain reliability but the fact that we have over 60 growers and over 11,500 acres is actually reassuring to food companies because they now see the buildout of the supply chain which actually helps them get their heads around it and be more excited about the product. And I agree, I'm pretty excited about more than high oleic [ph].

[Akshay Jagdale:]

Last one for Bryan; can you give us -- I mean, is there some rule of thumb that maybe you can help us with in terms of the working capital investment that's needed or if you can give us some guidance on that now that you have obviously decent amount of clarity on acres, etcetera? Or maybe I'm misunderstanding, maybe there is a little more clarity that you need to provide that; so can you give us some help on that?

[Bryan Corkal:]

The real thumb I would suggest is $500 to $600 per acre and generally that would be paid out immediately upon delivery of grain at harvest.

[Akshay Jagdale:]

So you just take that in 11,500 acres, that's what you would need initially but obviously that gets turned over pretty quickly as you sell the product, right?

[Bryan Corkal:]

Yes, we would convert it -- the meal fairly quickly within a month or two and then the oil gets titrated to the market a little slower, so initially, probably 4-6 months or so for the oil. And the meal is a big piece of the revenue or the volume, so 50-50 meal-oil split is probably fair.

[Federico Tripodi:]

And if you look at the timelines Akshay, spring we will be planting the grain production and seed; over the summer we would be engaged in in-season support to growers; and then fall-winter, it's the harvest of the soybeans. We anticipate the first commercial crush to be in the winter like Q4 '18 or early Q1 '19; meal is sold in 2-4 weeks as Bryan said and then the soybean oil is sold over that quarter and then this whole cycle repeats itself every quarter till we planned for 2019 and harvest; so there is a seasonality to it. So just to give you a perspective about timeline with regards to what to expect in the coming months about the commercial launch of the high oleic soybean oil.

[Operator:]

Our next question is from the line of Daniel Jester with Citi. Please proceed with your questions.

[Daniel Jester:]

I just wanted to follow-up on the premium comment that you guys just made. Is that $0.55 to $0.90 per bushel, is that entirety of what you're offering to growers or do you have to compensate for yield drag separately?

[Federico Tripodi:]

That's the entirety of the premium offered to growers. We have done things like testing their fields for soybean seeds nematode presence, to help make sure that we have the right agronomics and that we're placing in the right field, so we're providing agronomic support, we're providing testing to make sure we're placing the product in the right field but that's the entirety of the premium we offer to growers.

[Daniel Jester:]

And then on your acreage numbers, so few weeks ago you were 10,000 acres with 50 farmers, now 11,500 on 60 farmers, it seems like these later farmers are growing -- are going to grow smaller portions of the soybeans. So can you just kind of talk us through sort of how these late season conversations are going? And at what point do you close the books and say -- is that going to be the end of March because it's tipping to April, so if you can just walk us through the next couple of weeks and how much would you be thinking about that?

[Manoj Sahoo:]

I think our idea is to enroll high quality growers, that's number one, and I think we'll continue till spring planting; goal is to be around 70 growers in total and somewhere in between 12,000 to 15,000. The main impact here is to see the market to create the supply chain for 2019, so it's a means to an end. And once we reach 70 or 15,000 acres we'll re-evaluate our capacity for our team to provide in-season support because what is primary importance is that experience with us and ultimately to have a very high retention rate because we operate around that circle. So very excited about the growers.

[Daniel Jester:]

And then, I think Manoj from your prepared comments it does seem like there is a lot of high touch going on to seal the deal with these farmers. As you go, maybe it's a little bit too early to kind of think about learning's for 2019, but do you think that you need to have more sales folks on the ground coordinating with these farmers or the new breed previously thought? And just maybe thinking about sort of the selling process in the different avenues that you're going about it?

[Manoj Sahoo:]

We would be actually using the in-season support with the farmers to continue with that high touch strategy. We already have hired a couple of agronomists who have decades of industry experience and have worked in that region, so to bring that relationship and personal touch with farmers. We continue that approach because we are young brand, we have to tell why we are relevant and what's in it for them, have that conversation and that's better done in a personal one-to-one small group setting rather than in an electronic way, that's what we have found [ph].

[Federico Tripodi:]

So maybe just to add a little bit more color to that; when we started in December farmer business network was important for us to know which growers were growing non-GMO in the region and to know who to approach. More often than not when we approached those growers they had never heard of Calyxt; so we had a whole educational component we had to do in a short 2 to 3 months. What's going to be different for us in 2019 is now we have the full season and an agronomic team and a relationship with farmer business network and some of the growers that are going to be growing our material in the region. So this is going to be a yearlong conversation, first to establish who Calyxt is and then again around harvest, then talking about the 2019 grower premium program. So we think this is going to be a key growth point for us as we get growers more familiar with our story and our brand.

[Daniel Jester:]

Bryan, I think you talked about a $6 million to $7 million per quarter cash burn; if I recall correctly, last time you gave guidance of about $6 million, so I'm wondering are you seeing any inflation or sort of any items that we should be thinking about in terms of your cash use? Thanks.

[Bryan Corkal:]

For the full year the cash burn is $2 million to $2.2 million per month, so for that full year you can just multiply that by 12 and then for the quarter, I said $6 million to $7 million and so you've kind of got two trends happening in the quarter, you have the building up of our R&D capabilities and commercial capabilities, so that's ramping up from a fairly modest number. But then layered over top of that, we are preparing to get seed ready for this 2018 campaign, so it's a bit of a seasonal bump of where we're seeing some seed production costs come in, so that's why Q1 is maybe a little higher at $6 million to $7 million.

[Operator:]

Our next question comes from the line of John [ph] with Wells Fargo. Please proceed with your questions.

[Unidentified Analyst:]

I just wanted to be clear on the customer side of things with the trans-fat guidelines changing in June, to the extent that a food manufacturer is not choosing to go with Calyxt right now, do you sense as to what the popular alternative is for them at this point? I guess what have you learned or what are you learning about the range of alternatives as you begun this client prospecting?

[Manoj Sahoo:]

As you know, FDA has been talking about trans-fat ban leading upto the ban in 2015 and as per Grocery Manufacturers Association, in 2015 still 15% of the trans-fat remain to be eliminated from human food consumption. Companies had to switch over to premiums oils and some of them had more complicated supply chain and needed to be imported, some of them are tree-based oils which are -- availability is limited. If you look at trends, some of the things have been high oleic sunflower oil which is a pretty good oil but has unique challenge of the flavor profile. Industry also developed high oleic canola oil which again needs to be imported and it's a different crop altogether, it can be grown in very limited quantities in United States. And there is also palm oil which can be now transferred but then it leads to issues around very high saturated fat and FDA has some guidelines regarding lowering high saturated fat in human food. So it's kind of -- the industry has been looking out for alternative which has a good fat profile while having the same flavor, and this is an opportunity and that's why we're seeing some strong interest.

[Unidentified Analyst:]

Just one follow-up on the technology side, maybe this is better posed to Dan [ph], but I think just in terms of some of the industry research being done on CRISPR and the inclusion of the cytidine deaminase and the adenine deaminase which I guess addresses some of the issues of mutations in the CRISPR approach; how are you still think about the relative efficiency advantages of TALEN over CRISPR at this point? I mean, do you still see that performance gap being sustained?

[Federico Tripodi:]

I mean, I can share maybe a little bit from the scientific side. We actually just published very sophisticated study, a couple of weeks ago as it relates to knock-ins against knockouts, so there is technicality is here but that depend on knocking in certain genes versus knocking out certain genes, and we have shown in -- for example, I mean just as a relation in T-cells in humans double knock-in efficiencies with double knock-out efficiencies of 68% and that's almost twice as high as on the CRISPR side. However, there are certain things that relate to the plant sciences where you have to do more or less knock-out so that the efficiencies can vary but so far we have never seen an inferior efficiency with TALENs as it relates to CRISPR, it's more the opposite that is true.

[Operator:]

Our next question is from the line of John Hickman with Lederberg [ph]. Please proceed with your question.

[Unidentified Analyst:]

Can you repeat how many varieties do you expect by 2021; was it 2 to 4 new varieties?

[Federico Tripodi:]

Yes, it will be 2 to 4 new varieties.

[Unidentified Analyst:]

Okay. And you said that you were bringing up 800 lines from South America to test here in the United States and that will lead to 2 to 4 new varieties? That's what I got.

[Federico Tripodi:]

Yes, John. I think that's how it works, it's a funnel, so you will start with a very high number and then narrow it down to the best 2 to 4 for the conditions.

[Unidentified Analyst:]

Federico, if we were talking a year ago at this time, how many acres were you planning to have in production? I mean it's the 15,000 target, is that what you were looking at last year or have things gone well enough that you've expanded your horizons?

[Federico Tripodi:]

I think what if we were talking a year ago, what we were thinking is, how we're going to approach these large number of farmers. From my experience in the seed industry, traditionally you have to talk with about 4 farmers to get 1 to buy your seeds and that is not in an identity preserved type contract in a non-GMO, that's just in commodity soybeans. So I think a year ago Manoj was not around, we didn't have a commercial organization and we were -- I was thinking how we're going to have all these conversations with farmers, how we're going to have the seed available and how are we going to even know which farmers to talk to. So I think the big progress for us for this year was to lay all those -- that yellow brick road that has led to this tremendous success. And I always said and I continue to say acres are the consequence, what matters is getting the farmers and retaining them, and I'm very pleased with the work we've done in the last year in this front.

[Unidentified Analyst:]

And my last question is, if you get to 15,000 acres, is that the total or is that just production? And the seed is different -- growing the seed for next year, is it different?

[Federico Tripodi:]

No, that's different. The seed would be in addition to those. What we are talking about 70 growers and 15,000 is for grain production which will be used to produce oil.

[Unidentified Analyst:]

And the seed production will be on top of that?

[Federico Tripodi:]

On top of that which will be used to plant for next year.

[Operator:]

Our next question is from the line of Kenneth Sasol [ph] with BMO Capital Markets. Please proceed with your question.

[Unidentified Analyst:]

It's Vishal on for Ken. I wanted to follow-up on an earlier question on FBN. Now that you've been in the partnership for a few months, do you think your inclusion in it can be incremental to your initial long-term forecast of farmer adoption or do you think that's too early to tell?

[Manoj Sahoo:]

I just wanted to clarify the question. The question was that, the FBN relationship, is it incremental to our existing or what do you think it's too early to tell, is that the question?

[Unidentified Analyst:]

Yes. Like, the initial forecast are you sort of outline, you know, like where you had thought that you would be able to adopt maybe 2,000 to 3,000 farmers by 2022? Do you think your inclusion in this network can be incremental to that number?

[Manoj Sahoo:]

I think here in now I would say that I think we are very pleased with the capabilities and synergies that have been bring. And I think the incremental thing would be more the quality of the network, thus Federico said this, the acres are a consequence, so it's a means to an end; and what it does is that it helps us get to additional regions very quickly and build out our supply chain. The ramp up will probably be more dependent upon working capital and our capacity to launch additional high oleic varieties. Obviously, the FBN network provides us that as a launchpad for future growth.

[Federico Tripodi:]

So maybe just to clarify and add more color to what Manoj said, we believe FBN is an enabler to our commercial path that we have laid out. We're happy with how we're working together and how we could help us in the future as well. But, however we believe the ramp up will be more dependent on other factors as well. Like Manoj said, working capital and our capacity to launch additional varieties are probably the main factors that will define our capacity to ramp up in the next 3 to 4 years.

[Operator:]

Our next question is from the line of Edwin Gordon with Foresee Advisors [ph]. Please proceed with your question.

[Unidentified Analyst:]

Just one quick question relating to the working capital build; how should we look at that on a quarterly basis? I assume that one should see a cyclical buildup and then a decline, your thoughts on that?

[Bryan Corkal:]

You're thinking about it right. You would see the buildup happened at harvest, so more towards Q4, it would peak and then it would come down over about a 6 month period in the initial years.

[Operator:]

Our next question is a follow-up from the line of Akshay Jagdale with Jefferies. Please proceed with your question.

[Akshay Jagdale:]

Federico, I just wanted to ask you a question more broadly about the pipeline. There is a lot going on as always and that's great, can you highlight for us since we last spoke in this type of forum, what are the top 2 or 3 most exciting things that have happened in your opinion for the future of your Company?

[Federico Tripodi:]

I think from a pipeline perspective, if we look back in 2017, we made significant progress. I think maybe 2 to 3 things that I would highlight, we mentioned the number of products that we have put through the USDA regulated process; 6 products across 4 crops that are declared non-regulated using gene editing is unprecedented for any company of any size, so we are very, very proud of that accomplishment. Furthermore, as we think of developing products, that's the first step. We have been able to advance more products in the field, we have been able to do things such as create flour of our high fiber wheat flour product which we are now testing in-house. And we have been able to advance our work in products such as improved oil composition canola; so that's kind of the crop product perspective. The other pillar that I'd seen a lot of progress we've made is in our capacity to accelerate our gene editing capabilities through rapid prototyping, transformation and acquisition of different germplasm so that we can bring additional products to the market. And in the third pillar, that I'm very pleased with is looking at the macro context of the regulatory framework and specifically, not only in the U.S. but globally. We are seeing things moving really fast and that creates tailwinds and a favorable environment for us to operate. As we look forward to 2018, I think we'll continue to see progress in those pillars, we'll continue to see products that we could advance to our pipeline, that we tested the field that we get more amine regulated ladders [ph] and that we start testing the functionality of our food ingredients. We'll see -- as Bryan mentioned, we have a new facility coming up with kitchen facilities for food development, as well as state-of-the-art gene editing facilities and automation; so we'll continue to make progress on our facilities and people hiring plans. And we anticipate that we'll continue to hear favorable news from both, regulatory and an intellectual property perspective as we continue to make progress on our position on both fronts.

[Akshay Jagdale:]

Just as a follow-up to the conversation that you're having with customers on high oleic; what's stuck with me is the larger companies wanting to have sort of broader conversations. I mean, how is that shaping if at all -- how you're thinking about your pipeline -- am I sort of reading into that differently like, are they thinking more off partnering with you? Have they given you some ideas that you weren't thinking about before? Or how -- does it help prioritize your pipeline? I'm trying to get a better sense of what that truly means, those conversations with these larger food companies.

[Federico Tripodi:]

We've told all of you we want to be a specialty food ingredient company that is focused on health and wellness and consumers. In order to do that, the 19 products we have in our pipeline are just the beginning. And these relationships with food companies are other players in the health and wellness space will help us make sure that we are pursuing the right products with the right frameworks around the right products, so I see the potential here is not only a run of our existing pipeline but what other things could we and should we be doing that are aligned with our vision and our strategy on how we deploy food -- gene editing in the food system. So this is something that we hopefully be hearing more about over the course of the next year.

[Bryan Corkal:]

And just to give you a perspective, Akshay I come from that industry, the incumbents are challenged because they do not have access to technology and use traditional methods which take decades if not years. The food industry is realizing that gene editing or new plant breeding techniques is a paradigm shift and recall Federico's comments that the ability to ramp up certain components which are healthier and ramp down certain components which may not be as earlier provides a lot of opportunities for the larger food companies which are playing catch up with the smaller, more nimble footed counterparts. And that's where we get a lot of interest, early stages of discussion but things can happen very quickly on that front.

[Simon Harnest:]

Thank you so much everyone, we really appreciate your time and all the great questions. I'll pass it back on to Federico for closing remarks.

[Federico Tripodi:]

2017 was truly a transformational year for us at Calyxt, thank you for sharing it with us. We look forward to 2018 marked with a commercial and a supply chain successes while we will continue to grow our capability to mindfully disrupt the food system. Thank you again for your time today, and until Q1.

[Operator:]

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.