Evogene Ltd.
Q2 2023 Earnings Call Transcript

Published: 18 Aug 2023

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to Evogene's Second Quarter 2023 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded on August 17, 2023. Before we begin, I would like to caution that certain statements made during this earnings conference call by Evogene's management will constitute forward-looking statements that relate to future events, risks and uncertainties regarding business strategy, operations and future performance and results of Evogene. I encourage you to review Evogene's filings with the U.S. Securities and Exchange Commission and read the note regarding forward-looking statements in today's earnings release, which states the statements made in the earnings release and, in a similar way, on this earnings conference call that are not historical facts may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For example, Evogene is using forward-looking statements in this call when it discusses the establishment of collaboration agreements with leading companies and new domains of activity, TargetSelector ability to identify novel target proteins for innovative products, the BMC426 and BMC427 for IBS treatment effectiveness in reducing visceral pain and related studies and trials, future milestone payments and royalties from Corteva's sales of Lavie Bio's products, the resources needed to execute the company's plans effectively and in a timely fashion, return on investment for farmers who use Thrivus, and the enhancement of AgPlenus' ability to identify new pesticide mechanisms due to the use of Evogene's TargetSelector applications. All forward-looking statements made herein speak only as of the date of the announcement of results. Many of the factors that impact whether forward-looking statements will come true are beyond the control of Evogene and may cause actual results to differ materially from anticipated results. Evogene is under no obligation to update publicly or alter our forward-looking statements, whether as a result of new information, future events or otherwise. Except as otherwise required by law, we expressly disclaim any obligation to do so. More detailed information about the risk factors potentially adversely impacting our performance can be found in our reports filed with the U.S. Securities and Exchange Commission. Starting the call today is the President and CEO of Evogene, Ofer Haviv, joined by Evogene's CFO, Yaron Eldad; CEO of Casterra, Eyal Ronen; CEO of Lavie Bio, Amit Noam. That said, I would now like to turn the call over to Ofer Haviv, President and CEO of Evogene. Mr. Haviv, please go ahead.

[Ofer Haviv:]

Thank you, and good day, everyone. Today, I will review Evogene's activities and recent achievements and provide you with an update on Evogene's potential catalysts expected in the near future. I will also discuss some of our subsidiaries' recent accomplishments, which leverage Evogene's AI-driven tech engines as the main competitive advantage and demonstrate the power of our technology, underlying their product development process. I would end my part reviewing Evogene's recent fundraising and how it improves our financial stability. I would like to state that the second quarter of 2023 has been a remarkable one. We made significant achievements on all fronts, and I hope that you will share this view at the end of our call. As we have many new listeners on today's call, I would like to briefly review Evogene's core technology. Evogene has been using its Computational Predictive Biology platform, the CPB, to direct and accelerate the discovery and development of life science-based products. The CPB is the foundation of our three tech engines

[Amit Noam:]

Hello, everyone. I'm delighted to be joining Evogene's earnings call for the first time. It has been an incredible journey over the past four months since I joined Lavie Bio as the company's CEO. I've had the pleasure of meeting a remarkable group of people and talent, and I'm confident that together, we will drive Lavie Bio to new heights in our business endeavors. I want to express my gratitude to Evogene's CEO, Ofer, his management team and the entire Lavie Bio Board of Directors for their warm welcome and unwavering professionalism. Thank you all for your support. I would like to update you on three of Lavie Bio's main achievements in the last quarter and provide some insights into our future plans

[Eyal Ronen:]

Hello, everyone. Thank you, Amit. I'm delighted to join the call today and provide a brief overview of Casterra's recent activities and our plans for the future. Our mission is clear, to transform the castor oil industry by providing an integrated holistic solution for industrialized cultivation, ensuring a consistent supply of high-quality grains for the industry's value chain. Through our profound knowledge of genetics and innovative agro and technical solutions, we are committed to creating a continuous single-season industrial solution for the best castor crop performance. Let's review last quarter's activities. In the second quarter of 2023, Casterra achieved significant milestones with purchase orders totaling to $11.3 million for the supply of our high-yield, high-oil proprietary castor seeds for the cultivation of castor plants to produce oil for sustainable biofuel. I would like to elaborate on this achievement. In June, we announced the signing of a framework agreement with a prominent oil and gas company, securing initial purchase orders worth $9.1 million for the supply of our castor seeds to be cultivated in specific African territories. Additionally, in July, we engaged one more purchase order valued at $2.2 million for additional territories in Africa. Now, I'd like to give a short review of the biodiesel market and its value to Casterra. The biodiesel market, at Precedence Research site, was valued at $92 billion in 2021, which is 9% of the global diesel market, and is expected to reach $190 billion by 2030. Biodiesel currently consist of 93% to 95% fossil oil and 5% to 7% non-fossil oils from plants or other sources. The demand for non-fossil oil in biodiesel could rise due to the biodiesel segment's growth or an increase in non-fossil components. Castor oil is a standout non-fossil oil candidate with carbon-neutral properties, thriving in marginal lands without competing with edible crops. Spearheading this development is Casterra using advanced computational biology technologies to develop high-yield castor varieties. I would like to note that we are thrilled to receive these significant purchase orders, which confirm our value proposition for the sustainable biodiesel industry. As we eagerly hope to secure more orders in the future, these accomplishments reinforce our ongoing commitment to delivering exceptional eco-friendly solutions to meet the ever-growing global demand for renewable energy. Casterra plans to increase its global spend and invest more companies in the oil and gas space, additionally, in its R&D targets to expand its activity to sustainable aviation fuel, SAF market and develop virtually [indiscernible] varieties for animal feed. After more than a decade of hard work and investment of millions of dollars in developing our unique varieties and underlying technology, we are proud that Casterra is now a trusted and reliable supplier in this growing market. Thank you for your attention, and I look forward to addressing any questions you may have. And now I want to pass the mic to my colleague, Yaron Eldad, Evogene's CFO. Yaron?

[Yaron Eldad:]

Thank you, Eyal. As previously mentioned by Ofer, in July, we successfully completed a fundraising round, securing total gross proceeds of $8.5 million. I must emphasize that the securities issued in this round were common stock only and it did not include any warrant coverage. As of June 30, 2023, Evogene had consolidated cash, cash equivalents and short-term bank deposits of approximately $33.9 million. Of this sum, Biomica accounted for $16.8 million and Lavie Bio holds $7.1 million. Evogene, together with Casterra, Canonic and AgPlenus, possessed an aggregate of $10 million in cash. The injection of funds from this last round in July strengthens Evogene's financial position and provides us with the resources needed to execute our future plans effectively and in a timely fashion. An example of such financial need is the significant increase in the required working capital of our wholly-owned subsidiary, Casterra, in order to produce the castor seeds needed to fulfill the purchase orders received in the last months, totaling $11.3 million. It is important to note that the $10 million reflected in the cash balance of Evogene, together with Casterra, Canonic and AgPlenus, do not include funds raised by Evogene in July and any amount due to the purchase orders received by Casterra in the last few months, which are expected to be supplied during the second half of the year and at the beginning of next year. Further note that the $7.1 million reflected in the cash balance of Lavie Bio does not include the $5 million expected to be received as an upfront payment from the licensing agreement with Corteva that was announced in July. During the second quarter, the consolidated cash usage was approximately $5.6 million, or approximately $2.8 million excluding Lavie Bio and Biomica. I will now review the P&L main items. Revenues for the second quarter of 2023 were approximately $654,000 compared to approximately $312,000 in the same period the previous year. The revenue increase was primarily due to revenues recognized by the collaboration agreement of Evogene's subsidiary AgPlenus with Corteva and from sales of Lavie Bio's Thrivus product. R&D expenses for the second quarter of 2023, which are reported net of non-refundable grants received, were approximately $5.4 million and remained stable as compared to approximately $5.4 million in the same period in the previous year. Sales and marketing expenses were approximately $928,000 for the second quarter of 2023 and slightly decreased as compared to approximately $962,000 in the same period in the previous year. The main contributor to this decrease in expense was a reduction in personnel expenses at Canonic. General and administrative expenses were approximately $1.8 million in the second quarter of 2023 compared to approximately $1.7 million in the same period in the previous year. The increase is mainly due to expenses related to share-based compensation. Operating loss for the second quarter of 2023 was approximately $7.9 million, compared to an operating loss of approximately $8 million in the same period in the previous year. Financing income for the second quarter of 2023 was $0.1 million in comparison to financing expenses of $1.7 million in the same period in the previous year. This difference was mainly due to the U.S. dollar and Shekel exchange rate differences between periods, a decrease in marketable securities value in the second quarter of 2022 and an increase in interest income during the second quarter of 2023. Net loss for the second quarter of 2023 was approximately $7.8 million compared to a net loss of approximately $9.8 million in the same period in the previous year, mainly due to the financing expenses differences as mentioned above. With that, Ofer and I would like to open the call for any questions. Operator?

[Operator:]

[Operator Instructions] The first question is from Ben Klieve of Lake Street Capital Markets. Please go ahead.

[Ben Klieve:]

I have a few. I'd like to start with a couple on Casterra. For this initial $11 million order that is underway, can you clarify how much of that order is going to be filled by seed inventory that you already had on hand versus contract production that is out now to satisfy that order?

[Ofer Haviv:]

Hi, Ben, this is Ofer. I will ask Eyal to address this question.

[Eyal Ronen:]

Hi, Ben, basically, the amounts that we received in order are substantial amounts. So, we are producing and continue producing the extra capacity, which is required to submit for this order. It's not something that we had in inventory. The inventory was mainly used to supply the common demand that exists in the market. The additional orders were requiring us to add more in our production, which is exactly what we are doing now and will continue in the coming months to accomplish all the quantity required for that deal.

[Ben Klieve:]

Okay. Great. Thanks. And so, this is -- I think, clearly in excess of what I certainly was expecting would be possible here in year one. And so -- which is fantastic to see. I'm wondering if you can help us understand kind of your outlook for next year. And specifically, do you know what kind of the limiting factor will be for Casterra revenue next year? Is it going to be capacity for your biofuel partners? Is it going to be access to farmers to actually plant the seed? Is it going to be available inventory? I mean, what do you think the limiting factor is going to be for Casterra in the second year?

[Ofer Haviv:]

Eyal, can you continue?

[Eyal Ronen:]

Yes. Based on the estimations that we received from the clients and based on the preparations required in terms of land, I do not see at the moment any limitation that will be restricting us from producing the substantial amounts that are required. The main challenge, I believe, in having those capacities shifted to the client is a logistic one. So, we are improving and preparing all kinds of adjustment over there to attend the supply itself. From a production perspective, we don't see any imitation. Land is quite available. Whether you produce this amount or that amount, the additions that are required are not something which is beyond our reach. I see it mainly as a challenge in the logistics that we need to shift substantial amount from one place to another. Production-wise, we are setting down, and whether they will be increasing dramatically, we are able to supply the quantities.

[Ofer Haviv:]

I would prefer to be a little bit more conservative. And I will say that based on what we know could be the orders for next year, so we believe that we are in a good position to support it. Still, it will need to strengthen our infrastructure, as an example. So, we will need to have additional dehulling machine, additional harvester, and we need to prepare more land. But I think that it is a thing that we can handle. Of course, if it will be a dramatic increase in the demand, which is something that we currently -- not expected, something that's [10 times] (ph) more, I think then probably it can be difficult to address it separately. So what we know now, yes, we're expecting to see increase in demand, and we believe that we would be able to address this increase, and we are working very, very hard, in some cases even day and night in order to be able to address this challenge.

[Ben Klieve:]

Great. Thank you. One last one on Casterra, and then I have a quick one on Lavie. So, for Casterra, I heard your comment about ambitions in the world of sustainable aviation fuel. I'm curious if your unnamed partner in this space is [going to be] (ph) your expected partner in this -- for this end market, or if you're looking to strike additional collaborations with other energy players in the world with sustainable aviation fuel?

[Ofer Haviv:]

So, maybe I will take this question. Very interesting because I think maybe 10 years ago, Casterra had an ongoing relationship directly with NASA from the U.S. and with an aviation company where we evaluated the probability of converting biofuel into -- converting castor oil into jet fuel, and we succeeded to demonstrate that it's really working. The project didn't move forward because, again, there was a decline in the oil price during 2014 and on, so it put some -- and it a little bit reduced the motivation of the company to move into this direction. So, we already have -- we already in the past had a collaboration with one of the big airplane manufacturing and NASA, and we demonstrated that it can really work. Now, we are talking with new companies, new partners. We can't, of course, disclose the names, but I think that hopefully next year, we will advance -- maybe even before, but we will advance a little bit faster and maybe there's something that we can disclose. But we already have a nice experience in this field. In the way we are -- we are now continuing what we did in the past and what we stopped. And now, I think we are really in a good position to see nice results pretty soon.

[Ben Klieve:]

Okay, great. Thanks, Ofer. One more on Lavie, and then I'll get back in queue. I'm wondering if you can comment about the Thrivus' performance so far this year. Kind of what your expectations were for this product when you entered the year versus how it's shaking out? And then, kind of what you're doing to really accelerate Thrivus' revenues in 2024?

[Ofer Haviv:]

Thank you for this question. I will ask Amit, the CEO of Lavie Bio, to address this question.

[Amit Noam:]

Hi. So, Thrivus' sales in 2023, again, we're just in the beginning of entering the market, but we saw this year two main things. One is, we've continued the growth compared to last year, but we've encountered some production challenges that limited the amount of the product that we were able to produce this year. We fixed it for next year. Next year, we're supposed to be able to produce a lot more than we did this year to be able to grow the sales. Second thing we're doing is that we got regulatory approval from Canada. So, next year, we will sell also in Canada, which triples the land area that is addressable for us to sell. Canada is twice the size as the U.S. in our relevant crops. And the second thing that we're doing is that we're advancing to additional crops. We're currently running field trials in different crops like durum and barley and oats and others. And hopefully, next year, we'll be able to, in addition to adding another country, add additional crops, and that will enable us to accelerate the sales.

[Ben Klieve:]

Great. Very helpful. Thank you, and congratulations on all the progress year-to-date. Thanks for taking the questions. I'll get back in queue.

[Ofer Haviv:]

Thank you.

[Operator:]

The next question is from Brett Reiss from Janney Montgomery Scott. Please go ahead.

[Brett Reiss:]

Good morning, gentlemen. Thanks for the opportunity to ask a question or two. First question, I just want to understand the flow of -- the cash management on the castor seed part of the business. If you get continued large orders, you have to lay out capital to the entities producing the seeds. And then once the seeds are delivered to the customer, we get paid and reimbursed. What is the timing on all of that?

[Ofer Haviv:]

Okay. Eyal, can you take this question?

[Eyal Ronen:]

Yes. Basically, there are many pathways to conduct those businesses or those deals. We normally take the responsibility to produce the seeds and bring them to the port. And from that port, whether it's used in Latin America or in Africa, the client is responsible for dispatching and taking the goods on his behalf. In terms of the recognition of the revenue and income, some of it is obviously paid in advance in order to support the production, especially if we talk about substantial production. And later on, once the goods arrive at the port of the client, we are receiving the final -- completion of the payment. So that's in terms of the support of the capital to provide the cultivation of seed -- of the castor.

[Ofer Haviv:]

Maybe I will add a little bit more. We have three different sites where we are producing the seed, which is the product that Casterra is selling to its partners. One is -- the smallest one is in Israel. Then we have one in Africa, and the other one is in South America. When we collect the purchase order from our partners, then we instruct our subcontractors how much we would like them to grow and produce for us seeds to support the purchase orders. In some cases, yes, we have already some seed in the inventory, but especially when there is such a significant increase in demand like that we have been exposed this year, so of course, we can't support such a quantity based on existing inventory. So, we ask our subcontractors in all of these locations to start to grow the seeds that we are going to distribute to our partners. And of course, they are using our genomics, they are using our protocol, and we are networking our subcontractors during the growing season. And after four months, we have the seeds and then our subcontractor doing the harvesting, the dehulling, coating the seeds, packaging them, and then they're ready to shipped to our partners. And when the seeds are on the way, so then, of course, we -- there is a certain portion of the money that we receive when we transfer the goods at the harbor. And the rest, we receive it when the seed arrives to our customers. So, there is a gap between the amount of money that we pay to our subcontractors to produce the seeds, and then we get our rewards with all the margins from our partner after we supply the needs. So, this is how it [depends] (ph). And the purchase order that we receive, they are -- it's not something that our partners can cancel. So, in a way, it's like, again, there is a guarantee that we're going to receive the money based on the supply of the seeds in a certain period of time. So, this is why we feel comfortable to invest in growing the seed. And sometimes, we will support our subcontractors to strengthen the infrastructure in order to support the high-quality seed to our partners. And then, in a way, we have like a guaranteed that we receive the money from our partners when they will receive the seeds.

[Brett Reiss:]

That was helpful. But in the future, we're all looking and hopeful that seed orders are really going to explode. Do you have enough existing working capital since there's a lag between the time you get the order and you get paid to support this robust sales growth that we're all hopeful is going to come?

[Ofer Haviv:]

So, for this year, one of the reasons that we raised money, it was also to support this growing demand in working capital. According to our estimation, after we will go through this round with the $11 million seed supply and with current financial position of Evogene, I don't think that we will need additional capital. And maybe if we'll do so, based on purchase order that we might even -- if needed, we can take a loan from the bank's credit in order to support the seed production. I think that this year, we felt that maybe the right thing is to raise money in order to do so. In the future, I intend to believe that -- or that we will have enough from our internal resources or that if we need to use some credit from the bank, I believe that this is another option in order to fund the working capital needed.

[Brett Reiss:]

Great. Thank you for that answer. A different question. The collaborations you're working on with companies in areas not covered by your subsidiaries, do you have -- could you share with us? Do you have a kind of template of what the structure of these potential deals and collaborations will look like?

[Ofer Haviv:]

Yes. I can give you two examples. One ongoing discussion that we have advancing nicely is actually in the area of food tech. And here, we are talking about producing a protein in plant, protein that today, we all consume through eating meat. So, we would like to use -- there's specific investors and companies that are interested in this field of protein production in plant to replace a mammalian protein that we are all consuming. So, this is one field. And here, you can imagine that we can use our GeneRator AI technology and also maybe in a certain way also ChemPass AI in order to identify the genes, the genomic mechanism that you would like to improve in order to produce those proteins. Another example is related to MicroBoost. Animals such as chicken and maybe others, they also suffer from different types of problems that you can treat them using microbes, and we might enter to some relationships in the field that we are using our MicroBoost AI tech engine also in identify microbes that can improve animal cells. So this is another example. But there are many other opportunities. This is just a few that currently under discussion, but there is much more that we are now pushing forward.

[Brett Reiss:]

Great. Thank you very much for the opportunity to ask questions. And carry on, sir.

[Ofer Haviv:]

Thank you very much. I appreciate it.

[Operator:]

[Operator Instructions] There are no further questions at this time. Before I ask Mr. Ofer Haviv to go ahead with his closing statement, I would like to remind participants that a replay of this call is scheduled to begin 2 hours after the conference. In the U.S., please call 1-888-326-9310. In Israel, please call 03-9255-901. Internationally, please call 9723-9255-901. Mr. Haviv, would you like to make your concluding statement?

[Ofer Haviv:]

Yes. Thank you. So, thank you all for joining the call today. It was a really tremendous quarter. We all look forward to updating you on our progress in our next call. Thank you.

[Operator:]

Thank you. This concludes Evogene's second quarter 2023 results conference call. Thank you for your participation. You may go ahead and disconnect.