Calyxt, Inc.
Q4 2019 Earnings Call Transcript

Published: 5 Mar 2020

[Operator:]

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Calyxt Fourth Quarter and Full Year 2019 Financial Results Conference Call. [Operator Instructions] This conference is being recorded today, March 5, 2020.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.

[Chris Tyson:]

Thank you, and good morning. I’d like to thank you all for taking time to join us for Calyxt fourth quarter and full year 2019 business update and financial results conference call. Your host today are Jim Blome, Chief Executive Officer; Bill Koschak, Chief Financial Officer; and Dan Voytas, Chief Science Officer.A press release detailing these results crossed the wires this morning at 07

[Jim Blome:]

Thank you, Chris, and thank you for joining us today for Calyxt fourth quarter and full year 2019 results conference call. Calyxt is a technology company focused on delivering plant based solutions that are healthy and sustainable.We are focused on health and wellness benefits for consumers, including better tasting plant proteins, gluten free alternatives, heart health, higher fiber, and reduced allergens. Our product development efforts are also focused on sustainability benefits, including projects in alfalfa, hemp, potatoes and soybeans.TALEN technology which powers our innovation platform enables us to produce plants with desired characteristics that can benefit people and planet. Our gene editing and plant breeding techniques mimic how plants could develop in nature.We can access we the viability of a trade in less than two years, with another three to four years required for commercialization all at a significantly reduced cost compared to traditional development methods. To protect our market position, we have built a broad IP portfolio with over 70 patent families across multiple gene editing platforms.We currently have 14% products in development and expect to launch as many as six product candidates over the next four years. A major highlight for Calyxt in 2019 was the completion of our voluntary consultation with the FDA for our high oleic soybean.We were the first in the world to undertake this process and we believe this validates our leadership position in the industry. But the commercial launch of our high oleic soybean products underway, we have proven the commercial viability of our technology for use in plants. As we continue to innovate, we expect to bring future products to market with options for more diversified and higher margin revenue streams that are also less capital intensive.Outside of soybeans and wheat, we expect to bring products to market using a collaboration business model, enabling us to capture cash flows from access to Calyxt's TALEN technology, milestone payments as we achieve development success, and ongoing payments from royalties or other streams tied to the value of the product development.Bill Koschak our CFO will talk during his prepared remarks about how we expect to both expand on our margins on soybean products and how these new revenue streams will dramatically improve our gross margin profile in 2020 and beyond. Before proceeding to Calyxt 2019 accomplishments, I want to touch on our ESG initiatives here at Calyxt.Sustainability is central to Calyxt stemming from our commitment to innovation. And our belief is that by further by furthering environmental, social and corporate guidance government's initiatives, we will create a stronger company capable of improving the world and the lives of those living in it. To that end, we are working diligently to create and report ESG metrics to improve our transparency with our stakeholders. Our ESG commitments will be based on three core Calyxt principles.The first principle is to successfully execute our core business while maintaining strong corporate governance practices as our business success naturally improves and revolutionizes agriculture. The second principle revolves around environmental stewardship, where Calyxt seeks to make an impact by first establishing and then meeting Calyxt emissions reduction targets, and as importantly, by helping our customers and collaborators meet their targets.The third principle is social responsibility, where we support sustainable agriculture and fair labor practices and strive to improve the sustainability of our supply chain, foster our diverse work environment and give back to the communities where we live and work as we did with our Harvest Fest in South Dakota last fall. We look forward to reporting on our progress on various ESG initiatives as appropriate, and would encourage our shareholders to watch developments on this front.Now, turning to our operational accomplishments, 2019 was a transformational year for Calyxt. Having launched our first commercial products and setting the stage for robust growth in 2020 and beyond, we have proven to the world that TALEN technology which powers our innovation platform is capable of improving plants, enabling us to develop products with health and sustainability benefits. We transformed our leadership science and sales teams in 2019, bringing on several experienced talented individuals to operate the business.The impact they have had is reflected in both the scientific and commercial progress we made. I look forward to working to achieve even greater successes with this group in 2020 and beyond. We're a technology company and 2019 saw us make multiple advances in our scope of activity and work processes.We more than doubled the number of projects we have in development to 14 up from six at this time a year ago, we expanded the number of crops we are working in to nine, up from five a year ago. And we expect to launch at least six product candidates by 2024. And I'm excited to announce today that we expect to launch our first product in hemp later this spring.In our work processes, we made a 50% improvement in the assembly time to make a TALEN construct. And we've cut plant growth cycles in half. Under the leadership of Dan, Travis and Bobby, we expect this meaningful progress to continue.I'm also pleased to report that we met our financial metrics for the year. We sold all of the HO soybean meal we produced and at year and we had a small quantity of oil on hand. We have a robust crush plan in place for 2020 that we expect will enable us to meet customer demand as 2020 unfolds.Our high oleic soybean products have a robust sales funnel. As being tested [ph] by multiple customers the oil orders we received in early 2020 are a validation of our HO soybean oils capability and performance. To meet the expected demand for our oil in 2020, we have already nearly tripled our contracted soybean acreage, compared to 2019 planning and expect to have a 25% market share of all HO soybean acres planted in the United States in 2020.We've also built the supply chain to support the scaling of our business, working with 3 leading agricultural cooperatives on seed distribution, grain handling and grain processing aspects of the operation. All these activities give us confidence in our ability to meet the expectations of our customers, both current and potential.With this, I'd like to hand the call over to our Chief Science Officer, Dan Voytas for an update on innovation and our product pipeline.

[Dan Voytas:]

Thank you, Jim. As a Founder of the company, I'm amazed by the progress we make each year and especially with what we accomplished in 2019. I'd like to provide a brief overview of how our TALEN technology and plant breeding techniques work. The first steps in our development process are focused on identifying the target site in the plant genome for the selected crop.Then we develop the TALEN, make the edit or edits and confirm the outcomes are what we expected. After we have confirmed the results, the plants progress through our development process, moving from the lab to a growth chamber to a greenhouse and ultimately to a test plot. We check for accuracy every step of the way. After the test plot, we grow and collect seeds from those plants to validate them, and then begin the commercialization process.As Jim mentioned, we had many scientific highlights in 2019, culminating with our updated R&D pipeline. We increased the number of crops we're working on to nine up from five a year ago. We added hemp, oats, peas, and peanuts in 2019. We increased the number of products under development to 14 up from 6 a year ago.Our pipeline projects address significant challenges in their respective markets and create new opportunities. One great example is our high fiber wheat product, in which we've been able to deliver three times more dietary fiber than traditional white wheat flower. We expect to launch this product as early as 2022. Outstanding achievements such as these give me confidence in Calyxt's ability to revolutionize agriculture.We expect to continue making advances on projects and our development process in 2020. We expect to launch at least six product candidates from now through 2024, including our hemp product candidate in the second quarter of 2020. Our high fiber wheat product candidate as early as 2022, and three additional product candidates either via our integrated business model or in collaboration with third parties.This is particularly exciting as we continue to accelerate our efforts to develop rewarding collaboration agreements with industry leading firms to bring our products to market in a high margin capital light manner. We continue the commercialization progress of our alfalfa product and improve digestibility alfalfa expected to launch in 2021 through a collaboration with S&W Seed.We expect to collect a royalty on the sales of the seed monetizing our technology platform in a capital light manner. This alfalfa product is an exciting example of what we're able to achieve as more easily digestible alfalfa could mean a reduction in the water intake and methane output of dairy cows to produce the same quantity of milk.With this product Calyxt will provide benefits to farmers, consumers and the world to economical logistical and environmental efficiencies. We look forward to sharing more about this and other sustainability products in our development process.I'm excited about our R&D pipeline, and working to expand it along with others inside and outside our organization, advancing our technology and expanding our IP portfolio, enabling us to continually push the boundaries of what we have previously thought was possible through TALEN. Through this we'll explore new target crops, traits, pathways, and transformation methods.In addition to our already disclosed products, we will continue to expand our pipeline to bring what could be blockbuster products to the marketplace. Some examples of products we are aggressively pursuing are in sustainable oil replacement, where we'd replace one oil with another, more sustainable or healthier alternative.We are working on non-gluten alternatives in the areas of protein flavor, where we're exploring project ideas like improved tasting plant proteins. We also have multiple projects underway in hemp, including several that enable us to leverage our plant breeding expertise to accelerate market introductions, as no gene editing is required. In summary, we accomplished much in 2019, setting the stage for an exciting 2020.I'll now hand off to our CFO Bill Koschak, who will give an update on our high oleic soybean sales and marketing efforts as well as our financial results.

[Bill Koschak:]

Thank you, Dan. Our high oleic soybean has several characteristics that make it as good or better than any other premium oil in the market today, including its fat content and polymerization levels. This includes other HO soybean oils.When we started out with our idea, we were fortunate to get an acre planted. We have demonstrated that there is demand for our HO soybean products in the market today. As we scale our business, we have brought on several leading agricultural cooperatives to run our supply chain at scale, and we have expanded both our acreage and state footprints overtime.With the new soybean varieties we are launching in 2020, we will be able to access acres across six states. Those six states also represent 45% of the total soybean acres in the United States and a significant portion of the wheat acres as well.This creates room for us to grow both the market and our share. Our estimates of the high oleic soybean market in 2020 indicate we will have 25% of the planted acres, which we will expect give us a seat at the table with major vegetable oil users as they evaluate their purchasing needs.We break the U.S. vegetable oil market down into commodity and premium oils to assess the target addressable market for our products. We compete in the premium oil segment, which in 2018 was nearly 15 billion pounds according to USDA estimates; a variety of oils, many of which are imported, comprise this portion of the market.Within the premium oil market, we intend to focus on four segments based on the quality of our oil and our ability to scale with large customers while working with others in the market. Foodservice, food ingredients, industrial and animal nutrition are our prioritized market segments. We estimate these four represent an 11 billion pound addressable market.Our oil as a value proposition in each of these four market segments, in addition to several overarching points of distinguishment. For example, our oil has superior stability, a clean, neutral flavor and low polymerization. These benefits make our oil very competitive and versatile across our target market segments, particularly in food ingredients and foodservice.We've developed a robust sales funnel and are sampling testing and going through supplier approval processes with multiple customers. Through today, we have demonstrated customer success in the foodservice and industrial market segments and are in late stage testing with multiple customers in the food ingredients segment, with supplier approval processes underway in multiple instances with large, widely known brands and companies.We also recently received a series of purchase orders for future deliveries of our HO soybean oil as a plant based alternative to synthetic fluids. These orders are from a new world class customer that operates in all four premium oil target market segments; foodservice, food ingredients industrial and animal nutrition.To enable the best probability of success we segment further these prioritize market segments by customer type in foodservice and by product category in food ingredients, focusing our efforts to maximize results.Within foodservice, we've achieved success with distributors who sell our products to their account. We also directly are pursuing large operators with a focus on those who [indiscernible] extensively. Within food ingredients we’ve prioritized four market categories; salty and grain snacks, plant based proteins, industrial frying, and non-dairy creamers.These categories are also where we have significant users of oil to provide benefits to their customers. Two other categories, where we see near term opportunity, are bait snacks and roasting applications.The inclusion of a brand in this presentation does not indicate we have any existing contracts with the brand are meant simply to show where we have opportunities. In summary, we represent a significant share of the HO soybean acres and with our focused approach to customer acquisition, we believe our oil is poised for growth.I'll now give an update on our fourth quarter and full year 2019 financial results. Our press release contains a full discussion of the fourth quarter and annual results. We also filed our form 10-K this morning.The fourth quarter was a continuation of a rapid pace of operational execution. Revenue in the fourth quarter of 2019 was $3.8 million driven entirely by sales volumes of our HO soybean products. Our HO soybean oil was 32% of revenue in the fourth quarter.Cash used in the fourth quarter was $7.9 million, better than our annual rate projection for 2019, as the operational savings we projected earlier in the year began to impact our spending. For 2019, we reported revenue of $7.3 million. HO soybean oil revenue represented 22% of the total. We sold out of our HO soybean meal production in the year.Cost of goods sold in 2019 increased by $9.3 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 have experienced at this early stage of commercialization.Gross margin as reported for 2019 was negative $2.0 million or 27%. We also report gross margin as adjusted which for 2019 was a negative $4.5 million or 61%. We are providing gross margin as adjusted at this time because we believe that this non-GAAP financial metric provides investors with useful supplemental information at this early stage of commercialization as the amount being adjusted affect the period of period comparability of our gross margins and financial performance.Net loss for 2019 was $39.6 million, or a loss of $1.21 per basic and diluted share, as compared to a net loss of $27.9 million, or negative $0.91 per basic and diluted share in 2018. Driven by higher personnel costs, higher stock compensation expenses, and negative margins associated with the launch of our HO Soybean products.Adjusted EBITDA for 2019 increased to a loss of $29.8 million as compared to a loss of $18.9 million in 2018. Driven by increased personnel costs, as the costs of commercialization in 2019 were largely offset by reductions in grain cost expenses R&D in 2018.Net cash used in 2019, was $35.3 million as compared to $18.4 million in 2018. The commercialization of our HO soybean products, including investments in personnel and purchases of grain, drove the increase in cash used during the year. Cash and cash equivalents totaled $58.6 million as of December 31, 2019, compared to $93.8 million as of December 31, 2018.In summary, I'm pleased with our financial progress. We achieved more than $7 million of revenue and used less than $36 million of cash. Our investments in the team are expected to enable us to rapidly advance our pipeline and expand both our customer and collaborator relationships and bring future products to market.Looking forward into 2020, we expect to nearly double revenue year-over-year and use approximately $34 million to $38 million in cash. We are managing our cash position and spending, such that I expect our cash position will be sufficient to fund our operations in the mid-2021.We also expect to expand our gross margin as adjusted in 2020. To accomplish the margin expansion, we expect to sell our products at higher prices than we did in 2019, and we also expect to begin the optimization of costs in our supply chain as we scale production.We do not provide a reconciliation of gross margin as adjusted on a forward looking basis as we are not able to determine without an unreasonable effort, the 2020 adjusted gross margins because we are not able to determine the amount of potential net realizable value adjustments to our inventories at year-end 2020.With that, I turn the call back to Jim.

[Jim Blome:]

Thank you, Bill. We're proud to offer products to our customers and collaborators focused on health and wellness benefits for consumers and sustainability benefits for all. Our pipeline advancements and commercial success set the stage for a breakthrough 2020 where we expect to power our R&D pipeline with new projects, processes and tools.We expect to initiate voluntary consultations with regulatory authorities and continue to advance products through our development process. We also have multiple projects in hemp, including several that enable us to leverage our plant breeding expertise to accelerate market introductions, as no gene editing is required in this project.Our new hemp breeding program is set for commercial launch in the second quarter of 2020. What excites me most about this launch is that our scientific team was presented with a challenge in hemp and was able to develop a solution, including a strategy tools and work processes, in just a few short months demonstrating the power of our technology platform and our team.We expect to expand our soybean product, customer base across our prioritized market segments, realize synergies in our supply chain and improve our adjusted gross margin profile. We also expect to develop and report on our ESG commitments and accomplishments. We are an innovation platform and leader in our industry.We continue to drive execution of key operational milestones across R&D and our commercial activities and are regularly exceeding our internal goals. We have a first mover advantage we intend to defend and rapidly capitalize on. We will share more on our developing story at our upcoming 32nd Annual ROTH Conference in Orange County, California and are soon to be announced Analyst Day in May 2020.With that, I'd like to open it up the call for any questions.

[Operator:]

Thank you, sir. We will now begin the question and answer session [Operator instructions].The first question is from John Baumgartner of Wells Fargo. Please go ahead.

[John Baumgartner:]

Good morning. Thanks for the question. Bill, just to come back to the 2020 guidance a bit more, I guess I'm trying to understand, the revenue the outlook. The acreage is tripling year on year, you've announced more customers for the product.We can see the underlying commodity prices as well. So I guess, are more sales shifting into 2021? I mean, doesn't seem to be a pricing issue. I'm just trying to bridge the uptick in raw materials and NHL versus what you're going to actually book on revenue for this year.

[Bill Koschak:]

Sure, John. To start of your question, we've got a one year lag between acres planted and harvested and when we convert those to revenues. So the tripling actually will be a revenue for 2021 not 2020 right. So we'll be doing - a lot of revenue for 2020 will be geared off of 18,000 acres, sorry, the 36,000 acres we had planted in 2019.

[John Baumgartner:]

Okay. And then on the [multiple speakers] Okay. So there's nothing unusual in terms of customers or anything like that. It's just a simple timing of [indiscernible].

[Bill Koschak:]

Hey John. We did a $7 million to $8.3 million this year off of the acres we did in 2018 and prior. And our pricing and all number of other factors weighed in; changes in soybean prices and things like that, what drive the range of numbers for next year. But it's all driven off the 36,000 acres.

[John Baumgartner:]

Okay. And then secondly, in terms of the thinking to the middle of the P&L, can you just walk through your expectations for the split between, R&D and SG&A in 2020? And it looks like the underlying R&D run rate's closer to, I guess, $9 million adjusting for the grain adjustments there.So how do you think about R&D, SG&A? And then also any thoughts on working capital as well to kind of get to that cash burn number?

[Bill Koschak:]

Yeah. So our - sorry, our R&D numbers for 2019 was closer to $12 million. Right? And there's no noise in that number. Their comparability is affected by what went through the R&D expense a year ago. So I'd expect a runway to be at that level.And as we gear up on some of these projects, that would be our focal point for investment in 2020 from an SG&A perspective. From a working capital standpoint, we learned a lot through the 2019 harvest in terms of how much grain might be delivered, what expectations were, how quickly we're able to convert it to cash.And we have a crush plan, as we mentioned in the remarks that will allow us to burn through our current grain inventory with high level of certainty in 2020. And that it will all be about how much of those acres we are harvesting in the fall of 2020 that will drive the working capital need at the end of the calendar year.

[John Baumgartner:]

Okay, okay, thanks for your time.

[Operator:]

The next question is from Ben Klieve of National Securities Corporation. Please go ahead.

[Ben Klieve:]

All right, thanks. A couple questions here. First to follow-up on the 2020 revenue outlook, to clarify the 18,000 acres that were harvested last fall, to what degree are 100% of those acres expected to be revenued in 2020 or was there some that was that was realized in late 2019?You know, if there's some percentage of acreage that is going to be harvested, but utilized for R&D purposes or for demo purposes. How one for one is your harvest from the '19 going to convert into revenue in '20?

[Bill Koschak:]

Thanks, Ben. Appreciate the question. I need to clarify the acres we have planted in 2019 were 36,000.

[Ben Klieve:]

I apologize. No. Yeah, I just misspoke there. I'm sorry.

[Bill Koschak:]

No worries. So the 36,000 will be converted to revenue in 2020. The impact of samples and other things like that on the total quantity of product we have available for sale is not meaningful. If somebody wants to do a large sample, we would likely - not likely we would sell them the oil. We would just give them a tanker for example.

[Ben Klieve:]

Okay, got it. And then I guess just to be clear. No, no meaningful revenue from the harvest in the fall was realized before the end of the calendar year, is that correct?

[Bill Koschak:]

That is correct.

[Ben Klieve:]

Okay. And then turning to 2020 acreage I guess first it's a clarifying question, you said that that acreage was nearly tripling, throughout that press release a few weeks ago that acreage hit 100,000 is contracted acreage at this point still $100,000 or in north of there?

[Bill Koschak:]

We announced that number about a month ago. And obviously there's still time to contract acres. So it's continued to increase. We're more focused on our share of the HO acres in the U.S., which is a number that we're really excited about having a quarter of the share based on our estimate.

[Jim Blome:]

But your point is a good one Ben. We sold all the way up through past April 1st last year to reach our goal. And so just reaching our goal earlier told you a little bit about the demand but we'll continue to look and support growers.

[Ben Klieve:]

Got it. Okay. Thanks, Jim. And then last question for me, and I'll get back in line here. How are you looking - how are you setting the company up in advance of planting this spring to provide you with seed inventory going into 2021?Are you increasing that planted acreage, more than your double, your goal of doubling? How can you help us kind of understand what your outlook is for 2021 from a seed inventory perspective?

[Jim Blome:]

Yes. We are introducing, thanks for the opening Ben. We're introducing five new soybean varieties in 2020, which allows us to expand geographically and reduce our risk of weather, which was real risk in 2019.But it also then allows us to multiply those seeds during the growing season in 2020 to expand further in our chosen geographies to improve the optimization of our margins. So, we have always said in our original business plan that we were focused on a plan that would double acreage every year. And that's our public guidance so far.

[Ben Klieve:]

All right. Thanks for the time. I will jump back in the queue here.

[Operator:]

The next question is from Adam Samuelson of Goldman Sachs. Please go ahead.

[Adam Samuelson:]

Yes, thanks. Good morning, everyone.

[Jim Blome:]

Hi, Adam.

[Adam Samuelson:]

Hi. So a clarifying question just on the 2019 revenue number. In the K this morning, you disclosed the revenue from meal of $5.7 million and oil of $1.6 million. And I guess I'm trying to think about the mix of that in the premium kind of oil value that you generate. That revenue split would, I think be below what you'd expect to generate, if you're just crushing commodity meal and oil.And I'm sensitive that you still have to carry over oil to be sold in 2020. And you're probably, there were some trialing and sampling kind of volumes out there. But just help me think about the revenue mix there. If you're kind of crushing a commodity of value added oil, I would have presumed the revenue mix would be more skewed towards the oil versus the meal.

[Bill Koschak:]

Thanks, Adam. The way, we think about it in 2019 that and this is one of our margin optimization levers as we look forward. We sold our oil in 2019 into different parts of the market, but not at the premiums we expect on a go forward basis because we're more focused on making sure we didn't incur more costs. As we're working to manage our crush plans and demand.So we believed, we had to move the crop out so that our farmer could put new crop in the bends. And all of that conversion to we weren't sitting out a large amount of inventory resulted in the prices that we saw reflected in the reported numbers.

[Adam Samuelson:]

Okay.

[Jim Blome:]

I would add to that that's one of the excitements around the 100,000 acres. We're finally Adam - have an acreage in the oil supply contract that allows us to talk about bigger volumes with bigger customers on a reliable stable process. And I would talk 2019 experience up to start up.

[Adam Samuelson:]

Okay. So I mean, maybe - so I could circle up with this offline. But I wanted to - I mean if I was going to go back and think about some statements you guys have made on earnings calls over the past year as you started to commercialize the high oleic soybean oil, kind of the messaging has been pretty consistent that you were getting the premium values that you had been targeting and some - what's the dissonance there?

[Bill Koschak:]

It's a combination to 2 things. When we were selling the oil to customers that we expect to on a long-term basis, we were getting premiums. When we were selling it to make sure we didn't incur additional costs and wanting to convert it to cash, we didn't get the premium that we talked about.

[Jim Blome:]

Just like the customer mix. And now the establishment and reliable supply will be able to move to the top segment rather than the bottom.

[Adam Samuelson:]

Okay, that's helpful color, and then just more on a long-term basis thinking about how you're laying out the product pipeline. And I think it's notable, though the word collaboration features considerably more prominently in that for review today than it might have 6-12 or 24 months ago.And I guess, Jim, I'd be interested in your thoughts and how maybe the learnings of having the value that the fully integrated kind of product chain on the high oleic soybean I mean, has maybe changed your thinking in terms of collaboration versus integrated in the model? And how that has impacted your forward thinking on the business?

[Jim Blome:]

Great question, Adam. I think we've been consistent in saying that in the soybean market, we had to go farm to fork to prove of concept and control the supply chain. And we built a wonderful supply chain around soybeans that can also be utilized for wheat.So you'll see over the past year, we've always talked about doing soybeans and wheat because they're diluting the fixed cost that we had or the system that we built that we would consider doing those on our own. But would always consider collaborations with people in other crops and markets that had a go-to market brand and/or strategy and/or resources.So I think it's consistent. What you're saying talking today is the fact that all the hard work of 2019 to build that soybean system will be useful for wheat. But now we're turning and pivoting to use the science to go into other crops, which, as we've said, will take us into collaborations with other companies that already have established distribution networks in these crops and markets.And we're excited to do it. But that's the difference between the last earnings calls and today. You're seeing us finally say yes, we've successfully built that soybean/wheat distribution system, and we're moving on into other crops and other collaborations.

[Adam Samuelson:]

Okay. Well, [indiscernible] this maybe point of emphasis there. If - why wouldn't you leverage the existing infrastructure and relationships you're building on the soy and wheat side to further develop additional trades and capabilities in those crops to sustain that franchise into the future? Why is the incremental investment not continuing in that direction versus not saying that the investments in the other crops - it's a bad idea, I'm just trying to make sure I understand why? Doesn't seem like the future R&D is actually on soybean at all. In some early - you have the fiber wheat, but after that there's something else.

[Jim Blome:]

Yeah, that's a good point. In this call, we really talked about what we are introducing before 2024 and that's the difference. We continue to invest in soybean. The easiest thing we could do is stack trades for more value with the same cost in soybeans and wheat. And you can rest assure those are ideas that are kicking around for us.

[Adam Samuelson:]

Okay, that's all super helpful. I'll pass it on. Thanks.

[Operator:]

The next question is from Ken Zaslow of Bank of Montreal. Please go ahead.

[Ken Zaslow:]

Hey, good morning, everyone.

[Jim Blome:]

Good morning, Ken.

[Ken Zaslow:]

So a couple questions. One is, can you frame the potential opportunities of the products outside of high oleic soybean oil? And can you put in relative terms to high oleic soybean oil, so we just get a concept of that? That's my first question.

[Jim Blome:]

Sure, and so when we talk about that we'll talk about the near term as mentioned on this call which is hemp and alfalfa and high fiber wheat in that 2024 period. So Bill, you want to talk about the relativity?

[Bill Koschak:]

Sure. So from I think what you see, Ken of what we expect, certainly is that as we move into crop like hemp, and we’re able to bring a product to market on the revenue in 2020, from that project won't be significant relevant to the soybeans. But it proves to people we can quickly get into that crop, as we talked about, we’ll launch a number of other projects between now and 2024.Those revenue streams will be - because we're going at it all of them from those projects will be through collaboration. There'll be lower because there'll be likely the recurring revenues but there'll also be very high margin.We haven't provided a quantification but from an alfalfa perspective we did layout size of the market and our expectations for what we think S&W, our partner, their market share would look like. And applying a royalty rate gets us to a royalty stream that's in greater than $1 million a year but less than $15 million a year based on the size of the market and the pace at which they expand geographically beyond just the U.S.

[Jim Blome:]

No, I was just going to add, we're planning on our very first year of high fiber wheat in 2022. So just in that '24 horizon we will be scaling up. So as we continue to grow soybeans, relativity of it's a great point. And I think you can see the relativity of it in that shorter window for an R&D company.

[Ken Zaslow:]

Okay, let me just get this other. Addressing the first question is, if I think about how, I think your revenues. Can I use the proportion of 36,000 acres to this year? And then if I triple it, do I kind of put a relative - can I do almost like a this than that kind of analysis? Okay, what's going to be in 2021 based on 100,000 acres, given the relationship between the 36,000 and the $15 million of revenue?And then do we add on top of that some of these incremental opportunities? How do I think about that? Does that make sense?

[Bill Koschak:]

It does Ken. And that is a great way to think about it is to take the revenue from this year, they said acres and projected forward using what we've talked about for just soybeans. And then these other revenue streams would be incremental to the soybeans. Our goal is to get as many of those incremental revenue streams into our P&L over the next 12 to 36 months.

[Ken Zaslow:]

Okay. And then within that, does the profitability would go greater than that percentage just because as you're going into higher margin products and becoming more efficient. So the relative improvement in operating profit will accelerate at a greater rate than the sales growth. Is that fair? Is that how we think about it?

[Bill Koschak:]

Yes.

[Ken Zaslow:]

Okay. And then my last question.

[Bill Koschak:]

We will get margin leverage from things we will do in soybeans. And we will add higher margin revenue streams to it.

[Ken Zaslow:]

Okay. Lot of changes to management for the last call it year or so. If it is done is there more to go? And how do you think about that? And do you have your team set now? And is this - can we assume that this is the team? Can you talk about that? And I'll leave it there please.

[Jim Blome:]

Sure, a lot of 2019 and taking the first commercial product to the marketplace in this farm to fork model meant bringing in significant talent to build out whole department. So you've seen us add several and we believe and listed them here in the release.But several key talents in to lead these departments and create the systems and all of the things that have to go with being a food and R&D and an ag company all in one. And I think we have a base group here that can take us to the next level. So the answer to your question is pretty much yes.

[Ken Zaslow:]

Great, greatly appreciated. Thank you.

[Jim Blome:]

Thank Ken.

[Operator:]

The next question is from Lawrence Alexander of Jeffries. Please go ahead.

[Adam Bubes:]

Hi, this is Adam Bubes on for Lawrence today. I just have one question. I was wondering if you guys are seeing any delays in R&D, collaboration discussions with peers, given the economic and coronavirus concerns or do you think the ag R&D community is fairly insulated?

[Jim Blome:]

I could not answer your question up front. We haven't seen any delays. We have business going on and have had and don't see any change from week to week so far.

[Adam Bubes:]

Okay, thank you.

[Operator:]

The next question is from Robert Leboyer of Ladenburg Thalmann. Please go ahead.

[Robert Leboyer:]

Good morning.

[Jim Blome:]

Hi, Robert.

[Robert Leboyer:]

Hi. Congratulations on the nice quarter.

[Jim Blome:]

Thank you.

[Robert Leboyer:]

My question has to do with the hemp market and introduction here. Are you going for the entire market in a particular segments with a recreational medical industrial or you also discussed some of the changes that you made in gene editing to the plant?

[Jim Blome:]

Yeah, two questions. We're focused solely on hemp in the ag uses and the wellness use of hemp versus the other product in that family. And our first product is been done without gene editing. Our other projects on the board and what we're working on in the lab likely will. And so that's where we're at today.

[Robert Leboyer:]

Okay, and could you also discuss some of the changes to the votes [ph] canola and I think ease those plants?

[Jim Blome:]

Yes, we haven't talked about the targets or what we're doing there specifically on those publicly. But with those crops, you probably can get an ideation of what we're working on around in those areas and looking at.

[Robert Leboyer:]

Okay. And any revenue guidance on the hemp rollout or any acreage or the type of things that you have laid out for soybeans?

[Bill Koschak:]

Not at this time, Robert. Our expectations for that hemp product are included in that overall guidance for the company for 2020.

[Robert Leboyer:]

Okay, great. Thank you very much.

[Jim Blome:]

Thank you.

[Bill Koschak:]

Thank you.

[Operator:]

The next question is from Steve Byrne of Bank of America Merrill Lynch. Please go ahead.

[Steve Byrne:]

Yes, just wanted to continue on the hemp products you're developing. It would seem that gene editing would be the key to adjusting all these various cannabinoids in that product. And so it seems well suited to you.Are you developing relationships with pharmaceutical companies to develop these products that would then go through clinical trials or is it more likely going down the path of over the counter food products?

[Jim Blome:]

Look actually we're focused on the wellness aspect of it. But what we're learning and what we've learned quickly, which leads to this first product being in the market is that as we better understand how to cultivate and how to look at this thing on a genome basis. We have several opportunities, and we're keeping all of those open going forward.

[Steve Byrne:]

And then on your high oleic soybean you indicated is 70 - or 25% of the acres. Is it fair to assume that the other 75% are the old transgenic products this doesn't replenish? And just wanted to hear how you how you incentivize the grower to go down your path where you essentially give them a benefit on top of basis and buy the crop back from them, as opposed the other route where I don't really know how the farmer captures value on those products since they're basically on their own to sell the soybeans. How do you compare those two paths?

[Jim Blome:]

Great question. Just to answer your first one. Yes, the bulk of the other market share is held by those older products. How we're penetrating and what we're doing is we're bringing different values. So our growth rate is much higher than theirs.And one of it is due to the fact that we pay a premium to the grower that we're sharing from the food ingredient companies. But one of the other ones is agronomic. Where there is GMO and still using some of the herbicide tolerance trust. Ours is not. So for a farmer who's add experienced roundup 30 crops in rotations for maybe 20 to 30 years.He's experiencing some weed resistance issues on his farm. One of the benefits to rotate to our non-GMO product is that you're using a different weed control system that takes out the resistant weeds and improves the value of your land.So, many people are really excited about doing this and getting that benefit, their landlords are happy. And secondly, because ours is not GMO, our seed is a lot less costly to buy. So, when you think about financing a grower and one of the first things he finances or buys is seed. Ours is significantly lower costs, see because we don't have the GMO trade in it.And therefore the bankers and other people supporting the farmer are much happier because their financing costs for that crop are lower because of that specific thing for specific reason, or should be as he analyzes how he - what crop he puts in the ground.

[Steve Byrne:]

And then maybe just one, one more on that, so you've 25% of the acres, but if I understood you correctly, you're capturing 70% of the high value oil in markets in these four key end markets. Do I have that right?And why are you able to capture so much more share of that? Is it the non-GMO oil having a benefit or an access to end market that only your product can achieve as opposed to the transgenic root products don't have access to them?

[Bill Koschak:]

Steve, it is Bill, I'll take that one. The market penetration for premium oils is the 70% of the - 11 billion pounds of the 15 billion pound market size for all premium oils. Our share of that 11 billion pounds is obviously very, very small as is HO soybean in total.And so what we're excited about is as people look at what oils they could use in their products, the expectation is that HO soybean oil will become a greater share of the total market. And that's how we and others will all benefit, if you will, as we look forward.So that's the tailwind that we're riding. As customers evaluate oil options, they're trading off those transgenic HO soybean oils, perhaps. But they're also trading off high oleic canola or sunflower or one of those other premium oils mentioned on our slides to look at soybeans.

[Jim Blome:]

And some of the reasons for the conversions are, people are looking at sustainability. So a local soybean grown here, soybean may a great crop anywhere and crushed and used here locally, is a lot different than some of these imported oils coming from Canada or the Ukraine or from Argentina. So that's also a reason for people switching and moving among the premium oils that are available now that we have the health profile to compete.

[Steve Byrne:]

That's helpful. Thank you.

[Bill Koschak:]

Thank you, Steve.

[Operator:]

The next question is from Adam Samuelson of Goldman Sachs. Please go ahead.

[Adam Samuelson:]

Yeah, just one quick follow up. And again kind of goes back to Ken's question a little bit. So you're '19 versus '18 acreage was basically, double year-on-year. And you're talking about revenue doubling year-on-year. But you also said that in ‘19, you had not fully captured the kind of premium high oleic soybean oil price.So just wouldn't your revenue be up more if you're actually getting the full premiums in ‘20 versus ‘19 or was the yield loss in your key growing regions significant enough that you just have notably lower production to our soybeans to process this year?

[Bill Koschak:]

Great question, Adam. There are a number of factors that drive the year-over-year revenue expectations. And yields are one prices are another. Both prices that we pay for the grain as well as prices we expect to receive in the market based wherever meal prices float to or oil prices for that matter.And we'll recap we're capturing premiums over the cash price of the board price depends upon customer and product. So with all of those factors considered, that's how we arrived at our guidance for 2020.

[Adam Samuelson:]

Okay, all right, thank you.

[Operator:]

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.

[Jim Blome:]

Yeah, I want to thank everyone for joining us on the call today. Just a reminder, we have a really dedicated and hardworking team here at Calyxt, who really pushed themselves to further our mission each day. And I just want to give them a sincere thanks from all of the management to all of them. We certainly couldn't do this without them.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 which is MZ Group who would be happy to answer them. So we look forward to providing more updates on the next call. And thank you very much for your time today. Operator?

[Operator:]

This concludes today's conference. Thank you for your participation.