Cibus Inc (CBUS) 2018 Q4 法說會逐字稿

Greetings, and welcome to the Calyxt Fourth Quarter 2018 Earnings Conference Call. (Operator Instructions).

As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, Simon Harnest, Vice President of Strategy and Finance. Thank you. You may begin.

Thanks, Ned. Welcome, and thank you everyone for joining us at Calyxt Fourth Quarter 2018 Financial Results Conference Call.

Joining me on the call today with prepared remarks are Jim Blome, our Chief Executive Officer; Manoj Sahoo, our Chief Commercial Officer; and Bill Koschak, our Chief Financial Officer.

Yesterday evening, Calyxt issued a press release reporting our financial results for the 3 months ended December 31, 2018. This press release is also available on our website at www.calyxt.com.

As a reminder, we will make forward-looking statements regarding financial outlook in addition to regulatory and 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 on last year's Form 10-K and Form 10-Qs on file with the SEC.

And with that, I would like to turn the call over to Jim.

Thank you very much, Simon. We're extremely proud of the Calyxt team's 28 achievements, which have demonstrated and solidified our leadership position.

Today, we announce the successful construction and execution of a fully-integrated commercial ag biotech company, which is our headline for Calyxt's 2019 plans.

The excitement continued to grow over the last 6 months as we prepared Calyxt to become the first company to market the first ever gene-edited food product. This first product, Calyno, is our premium high-oleic soybean oil with approximately 80% oleic oil content that has 0 trans fat per serving. We're pleased to announce that we have successfully completed the regulatory processes with the FDA and USDA for Calyxt high-oleic soybean.

Another significant milestone has been achieved by our team of agronomists with the contracting of over 48,000 high-oleic soybean acres with more than 130 farmers for the 2019 growing season, far more than doubling the 17,000 acres we planted in 2018.

Getting to this point has been no small feat. Within just a few years, our team has enabled our fully-integrated business model based on our revolutionary technology with the vision to make the food you love a healthier choice.

Our significant head start in the gene-editing space, the rich pipeline of consumer-focused crops as well as our footprint on U.S. farms are the drivers behind our early success.

Today, with the launch of Calyno oil, we are proving our integrated business model. Starting with the farmer as our partner, who shares our vision of higher quality food ingredients, and joining with our food service customers and livestock caretakers who purchase our end products of premium soybean oil and meal.

One important aspect of our business model is our identity-preserved supply chain, which allows our customers to be confident in the quality of our product.

In 2018, we established this identity-preserved supply chain with a dedicated crushing agreement with American Natural Processors, and a processing agreement with our refinery partner KemX.

These agreements allow us ample room in our volumes of soybean oil process to enable growth for the coming years.

In order to scale up and derisk our supply chain for growing volumes of crop and food ingredients produced, we have established a series of strategic alliances.

I would like to highlight our recently announced alliance with Agtegra as an excellent model for our space. Agtegra is the eighth largest ag retailer in the United States, and this alliance enables us to win on multiple fronts simultaneously. It immediately expands our seed distribution capabilities with access to over 6,300 farmer members across North and South Dakota.

These relationships will allow us to scale up our identity-preserved supply chain through Agtegra's network of elevators and to optimize our supply chain through better logistics and rail transport.

Agtegra was -- will distribute Calyxt high-oleic soybean seeds to the cooperative farmer members in South Dakota and will provide logistics and transportation services for grain shipments.

Calyxt and Agtegra will work together to provide field services for proper placement and agronomic advice during the growing season.

The storage and handling of Calyxt high-oleic soybean grain at Agtegra will be under the Calyxt soybean identity-preserved program.

Finally, this framework will help lay the foundation for our high-fiber wheat identity-preserved supply chain in the same region as our high-oleic soybean.

I would like to make a quick comment about our work with regulators. Calyxt completed the consultation with the Food and Drug Administration for high-oleic soybean. After review, the FDA informed us it has no further questions concerning human food ingredients or animal food derived from Calyxt high-oleic soybean.

Calyno oil is the first gene-edited food product to undergo such review and be marketing commercialized in the United States.

With this, I'd like to hand the call over to Manoj Sahoo, our Chief Commercial Officer, who will give you a detailed update on our food customer engagement and grower base. Manoj?

Thank you, Jim. It is indeed a very exciting time for innovation in the ag and food industry. The successful marketing of our high-oleic soybean, our first product to market, demonstrates that.

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Okay. Sorry. Can I repeat again or did you not hear me?

If you could start over, yes.

Thank you, Jim. It is indeed a very exciting time for innovation in the ag and food industry. The successful marketing of our high-oleic soybean, our first product to market, demonstrates that consumers and food brands are embracing innovation and are willing to pay a premium price for products which are healthy, sustainable and traceable.

I will start by giving you an update on our first food company customer, our customer pipeline and target segments for Calyno oil and meal. I'll then talk about the execution and scale-up of Calyxt identity-preserved supply chain for soybean and finish by describing our expansion of 2019 acres, and how we see our growth potential into the next few years.

Starting with our first customer credentials. Our first customer of Calyno oil is a food service operator with a chain of restaurants and private label brands. The network includes 14 locations and they're looking to expand into in-plant dining locations, often called in the industry as contract catering. This customer can potentially take up to 10% of Calyxt 2019 oil production volumes.

First order is at a price that is above the average premium oil price and against an annual fixed price contract. This customer will mainly use our Calyno oil for frying. Other uses are salad dressing and sauces. We are pleased that this customer confirmed the following benefits of Calyno oil.

First, our oil has 3x the amount of heart healthy oleic acid and 20% less saturated fat than commodity soybean oil. And more importantly, 0 trans fat per serving.

Second, Calyno oil has better fry performance and lower operating cost with up to 3x the fry life versus commodity soybean oil.

Third, Calyno is local, U.S.-sourced and refined in the upper Midwest with traceability from farm to the fork.

Now coming to food company update. The first customer I was just talking about is the beginning. We are currently in discussions with over 40 food companies, about half of these are food ingredient applications where oil is part of the label. For example, in cereals, granola bars, meatless burgers.

The other half are in food service segment. 15 food companies are actively testing Calyno oil samples. 5 of these potential customers have confirmed that Calyno oil has been qualified. For example, a large national broad line food service distributor with multibillion-dollar in sales recently qualified Calyno oil after conducting fry test in-house.

They compared Calyno with commercially available high-oleic canola and high-oleic sunflower oils. This potential customer confirmed that Calyno oil exceeded their expectations with equal or better performance in terms of fry life and flavor transfer then commercially available high-oleic oils.

Currently, we have ongoing commercial negotiations with 7 potential customers.

I would like to provide some more color on additional market segments where we have ongoing discussions with food companies and explain the value proposition of Calyno oil in this segment.

The first segment is food service. Calyxt value proposition to food service includes an extended fry life leading to potential for, first, cost and new savings; second, less [warning build up] in fryers; and third, reduced labor cost.

Calyno oil has a neutral and consistent taste making it easy to fry different kinds of foods. The market for vegetable oils sold into food service segment is forecasted at $3.9 billion by 2021, which translates to a little over 5 billion pounds of oil annually.

Within the food service space, we have identified in-plant dining, often called in the industry as contract catering segment, as a user of premium oils. This includes offices, hospitals, sport arenas and educational institutions. These make up about 26% of the total food service markets revenue.

Industry analysts estimate that the market for vegetable oils sold into this space is approximately USD 1 billion annually.

Another opportunity for us is the non-dairy creamers market. Globally, 2 million metric tons of non-dairy creamers were consumed in 2018.

Data from published patents indicates that the normal range of oil content in non-dairy creamers is between 20% to 40%.

Calyno oil could add significant value to this segment through its extended shelf life due to high-oleic content.

Lastly, we see opportunities in the breakfast cereal market with retail sales over $10 billion annually and 1.6 million tons of cold cereal produced in 2018. We see a significant opportunity to tap into cold cereal market that includes applications in granola and extruded cereal products.

It is estimated that approximately 180 million pounds of oil were used in these applications in 2018. Calyno oil could deliver extended shelf life to these products.

Finally, we have successfully commercialized high-oleic soybean meal, which represents a significant part of our potential revenue stream.

Having concluded initial sales, our soybean meal is currently sold as a premium feed ingredient to hog and poultry producers.

Now a few words about execution and scale up of our soybean supply chain. In the past month, we have successfully executed on Calyxt identity-preserved supply chain for soybeans, proving to our customers that Calyxt can be a reliable and trusted supplier.

Activities included successful harvest, segregated storage, testing of grain for quality, followed by confirming high-oleic status at both elevators and crushers, the actual crossing of the high-oleic soybean followed by refining of crude oil, testing to meet quality requirements of our Calyno oil and meal, transportation and logistics, invoicing, customer setup and last but not the least, collecting payments.

We are also on track to new high-oleic soybean varieties to expand our geographical reach. These new varieties have been planted in North and South America to take advantage of 2 growing seasons per year. We remain on track to add 2 or more additional high-oleic varieties by 2021.

With our new soybean varieties, we are targeting to expand the geographic agronomic fit for our products to include 6 states, South and North Dakota, Minnesota, Iowa, Nebraska and Wisconsin. Over 40% of the total soybean acres planted in U.S. is in these target states.

I would like to highlight our 2019 acre acquisition as an important measure for you to monitor the real-world growth of our footprint and scale.

We are impressed with the expansion of our high-oleic soybean acres for 2019 meeting or exceeding the metrics we have set ourselves for our 2019 acre goal. We're extremely proud to announce that we have signed up over 48,000 acres with more than 130 growers. This is a significant ramp up compared to our 17,000 acres planted in the 2018 growing season.

The average acres for farmer has increased from last year's 220 to over 350 representing a 59% increase. The average size of the farm has also increased from 2,500 acres to 4,400 acres. Calyxt growers in total farm over 600,000 acres and our high-oleic soybean variety represented an impressive 18% of their total planted acres. We'll continue to grow -- sign-up growers for the 2019 planting season.

The momentum and support from our growers has been really incredible. Just to give you an example, recently, 50 of our growers drove an average 6 hours to come to our headquarters for a town hall event to experience first-hand who is Calyxt, our mission to develop healthier foods and impact on gene editing in the ag and food industry.

Our farmer partners are excited by our mission and being able to share this new value-focused trend. They are the best brand ambassadors for Calyxt telling their story about working with Calyxt in their own local community.

To wrap up my talking points, I would like to mention a few highlights of our upcoming product pipeline. We're excited to move forward with our high-fiber wheat product, which is in the middle of scale-up after having successfully completed real-world field testing last year. One exciting fact is that farmer members of Agtegra are planting both wheat and soybean, therefore creating an ideal target partner for us.

We're also moving forward with our improved quality alfalfa product. Our partner S&W Seed has successfully completed field trials in U.S. to progress the development and characterization of new varieties with this enhanced digestibility trait.

Our alfalfa product has the potential to improve economics and sustainability in dairy businesses, a large user of alfalfa. The alfalfa product is being commercialized under a licensing business model and is likely to be in the market by 2021 or 2022.

With this, I would like to hand over the call to Bill Koschak, our CFO. Bill?

Thank you, Manoj. I'd first like to take a moment to introduce myself. I joined Calyxt in early January, and am excited to be in a leadership role at such an innovative company in the food and agriculture industry. I've held several roles at other organizations in my nearly 30-year career that will serve me well here at Calyxt, including having been a corporate CFO in a private equity environment, and leadership roles at both General Mills and KPMG.

I joined Calyxt to help us drive focus and delivery in our product pipeline and to ensure we fully capitalize on the commercial opportunity in front of us.

I was also attracted to Calyxt because of the leadership team that we've assembled. Our board and the technological capabilities we can bring to bear to food -- using food to address health issues such as obesity, heart health and diabetes.

I'd like to turn our attention to the year-end financial position and results of operations. We ended the year with cash, cash equivalents and restricted cash of $95.3 million.

During 2018, we used $20.3 million of cash to fund our operating activities. During the fourth quarter, we completed a lease facility for capital equipment purchases. The total facility is for just over $2.5 million of borrowings on a secured basis and $1.1 million is still available to us in 2019. The proceeds from the facility are considered restricted cash and totaled $1.4 million at December 31, 2018.

Our headquarters facility is also now fully operational, and we expect the focus of our capital expenditures in 2019 to be for R&D equipment acquisitions and tactical purchases to enable crush yield increases and margin expansion in our commercial operation.

We expect to have up to $5 million of working capital at the end of the year, primarily, inventory and accounts receivable. Now that we have our first sales, we will be exploring options for financing this working capital. We will also take into consideration the impact of the acreage increase in 2019 on our financing needs. And that increase will impact our working capital in 2020.

Considering the items I've discussed and our projected operating cash burn rate of approximately $3 million per month in 2019, our cash runway provides funding through early 2021.

Our cash burn rate is accelerated driven by a projected increase in headcount to support the commercial launch of our high-oleic soybean oil and meal and to continue to ramp up our product development activities.

In 2019, we will be recognizing revenue from the sales of our high-oleic soybean oil and meal. Our plans for 2019 project our revenue between $7 million and $8 million based on the acres harvested to date. We do not currently recognize revenue from seed sales. Those amounts are netted against grain costs.

Our margins on these initial revenues will be low as we scale-up our supply chain and start to leverage our fixed costs. We did purchase $2.8 million of grain in 2018 and recorded those costs as R&D expense because we had not achieved commercialization. Effective with our commercialization, we began to capitalize grain purchase cost into inventory.

Last, with our expansion of activity comes the need to manage risk effectively. Beginning in April 2019, we expect to begin to hedge our commodity risk from grower contracts, customer agreements and our inventory positions. We will expand to other areas of risk as our business scales up.

With that, I'd like to pass it back to Jim for his closing remarks.

Many thanks, Bill, for that detailed summary. I would like to conclude our call by drawing your attention to the main value drivers for Calyxt this year.

We will scale up our logistics and grain distribution capabilities through strategic alliances while maintaining an asset-light business model. We will introduce new soybean varieties to expand into new maturity groups. The resulting geographical growth expands our farmer reach and relationships and strengthens our identity-preserved, asset-light supply chain model.

Our exponential acre growth year-over-year is a good indicator for you to measure our success. We'll focus our efforts on the commercial launch of our high-oleic soybean oil, Calyno, where we will pursue a cautious approach in customer acquisition that will properly position us for growth. The branded food business is built upon trust, stability and reliable quality, and we are positioning Calyxt with key food customers via significant head start.

We are impressed by the demand for our product, and we would like to meet this demand through strong relationships. We have refined our strategic focus on soybeans and wheat to harvest the significant benefits derived from overlapping growers, geography, agronomy partners, identity-preserved supply chains and food customers to achieve rapid scale and optimize margins.

We see great future value in stacking additional healthy food benefits into our current and future soybean and wheat offerings.

It's important to point out that we will not focus on soybeans and wheat to the exclusion of all other crops, but rather we'll take a valued partner approach.

In crops other than soybeans and wheat, we will increase success and avoid dilution by utilizing our gene-editing leadership expertise and freedom to operate to attract leading crop-specific partners to bring health benefits to consumers.

To sum it up, we just became the first company ever to commercially launch a gene-edited food product. We would like to capitalize on our head start in terms of product development and intellectual property to drive the expansion of our soybean and wheat franchises. We will then move forward with focus and with careful consideration into other value-added crop products.

Our mission is to make the food you love a healthier choice. This expresses that any product we are pursuing has a clear health and sustainability characteristic built in. We are proud that our farmer and food customers share this vision and attach a premium to our products.

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

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

I guess, first, I'd love to dig in a little bit more on the sale, first commercial sale of Calyno. And just understand how you plan on going about the rest of the year? Meaning is the -- in the $7 million to $8 million of revenue that you just outlined, does that assume that you sold out your full soybean oil production from the 17,000 acres produced last year? And just help me think about the timing, if you've got one customer that can take 10% of your production, how quickly do you think you're going to have agreements in place to lock up the rest of the volume?

Thanks, Adam. It's really good question. As you know, big things start small. Every big thing started small. So this is a first ever time a gene-edited food product is being sold in the U.S., and we are proud to be commercializing it. As you know, we have a very rich pipeline in which 15 customers are already testing the product and 5 have already qualified, and we are in negotiation with 7 of them. We believe would be coming in with a strong demand for these customers following the lead, which was sown by our first customer. We anticipate that this product, high-oleic soybean oil, would be sold in the coming months and very soon we would like to be telling the market that we are sold out of our 2019 production, which comes mostly from our 2018 planting season.

Okay, that's helpful. And then just as you think about the acres that you're planting for 2019, the 48,000-plus acres. I mean the volume opportunities with the customers you're signed up or are in negotiations with, do you think that you need to have significantly more customers signed up to sell out into next year? Or do you think that there's opportunities to grow with the customers that you are working with today?

Some of these customers are very large customers. Obviously, we want to start at a point where we are catering to percentage of their needs. As you [may recollect] from our earnings call that our oil actually met or exceeded some of the competitive offerings in the market. So I'm pretty sure that as the customers use the product, they would be incorporating more into their portfolio, thereby having the potential to take additional percentage of our 2019 grower. So I call it increasing the market share within their portfolio. So some of these customers, because of their large size, would have a significant upside in terms of volumes in 2019 as well.

Okay. And then, I guess, this is probably for Bill. Just wanted to get a little bit more color on the risk management activities that you're talking about beginning in April to hedge the meal and soybean pricing, and just the working capital kind of financing opportunities you're pursuing and likelihood you have resolution on that in this year.

Sure. We'll start -- certainly start simple with how we go about managing our commodity risk. We've engaged a reputable firm to work with us. We will actually hold the contracts and execute the trades, but we'll essentially do back-to-back contracts to hedge our grower exposure for example, and then we'll do the same on customer contracts. In terms of the financing, now that we've got our first sales, I believe that we're bankable. And we will -- and continue to engage in conversations with people who've been very interested in lending us money up to this point and letting us know that we needed our first orders to -- and completing our first sales to go about executing those transactions. So that's what we'll look at. We'll do it in a very manageable and a simple-to-understand way from our investor base. We don't need to get too creative.

Okay. And then just on the risk management, are you going to be subject to hedge accounting where there could be mark-to-market kind of volatility in the reported GAAP results from moving crush spreads?

We are working through what that looks like. There are a couple of alternatives. One would be to follow a traditional mark-to-market accounting model for our inventories, and obviously, all derivatives have to be that way. The other would be due to lower cost to market with hedge accounting as best we can. It will be difficult to get hedge accounting, as I've looked at this. And so we may end up in a spot that would look like the accounting model that General Mills has for its derivatives, for example, where we would non-GAAP the mark-to-market. But we will have an answer for that question, Adam, by the time we get to the end of the first quarter.

Our next question is from Ken Zaslow from Bank of Montreal

Just following up on Adam's question. I didn't understand the answer, the $7 million to $8 million. Is that just the 10%? Or is that the sellout of the entire oils?

That number reflects selling just the acres that we've harvested to this point. So it's not -- it's a full sellout of the 2018 and prior crop. We had a small number of acres in 2017. It does not reflect selling any of 2019 harvest late in the year.

Okay. And then your relationship with Agtegra. What is that -- how does that imply for the acreage in 2020 and beyond? How quickly can you ramp up the acreage from this year? Will we see another doubling? Is that the speed? Does this accelerate the pace to which you can get acres out there? Is working capital the only hindrance to expanding?

Yes. We're very proud of the strategic alliance with Agtegra, and it's a large distribution company involved in 60 different communities throughout the Dakotas. So the ability to expand is there. The support for grain handling and distribution of seeds, the warehousing, the placement and the agronomist support for growing the beans is there. So as we start our commercial activities with food companies and see the demand, we can grow more soybean seeds with a year advance and expand into this agronomy, seed warehousing, crushing and refining business that we've set up fairly easily. So our limiting factors with 12 months advance would be -- you hit it, would be producing the seed for planting and the working capital requirements.

Okay. And then can you also talk about how the relationship speeds up the introduction of your wheat product? And what has changed on that with this? Is it in line with initial expectations? Or does this accelerate that process as well?

It does accelerate it, because we've learned a lot, regardless of the head start that Agtegra gives us. We've learned a lot in this process of commercialing the first. But specifically to Agtegra and where they're located, they're right on top of our current soybean acres. So almost every one of our customers also grows wheat, so our database of growers immediately expands into this wheat area and the area -- geographic area for handling grain and doing other things in our logistics are already with this same partner. So it really is -- the true benefit is the soybean grower being also a wheat grower and that head start in that relationship.

So it both accelerates and increases the probability of success? Or do you -- which one do you think it actually does more of? I guess is trying to -- what I'm trying to figure out.

No, it should accelerate our penetration, but it also allows us to optimize margins quicker through scale, right? So we'll have the experience, we'll have the base, and we'll understand where we're going prior to launching wheat versus the learning experience a brand-new company had in our first product with high-oleic soybeans.

Great. And then my last question is, I think you mentioned that there was a pricing premium relative to soybean oil. Can you talk about that?

Sure. Ken, you know the commodity markets. Soybean meal -- soybean oil has been selling at between $0.29 to $0.35 and the USDA regularly publishes on an annual basis what the basket of oils including premium oil sell for. I think we are very pleased that some of our early customers including the first customer are willing to pay premium oil prices or higher, which is great from an adoption standpoint that there is a market potential or unmet need in the market, which Calyxt Calyno oil is fulfilling. So we are very thrilled by that premium potential. And it comes from, a, the health benefits of the high oleic and second is the high-performance, which has been validated by multiple customers through the in-house testing. And not -- last but not the least is the sustainability and traceability. Being local is the trend, especially amongst restaurants as well as brands, which find themselves into the grocery stores like Whole Foods or Trader Joe's.

(Operator Instructions) Our next question here is from John Baumgartner from Wells Fargo.

Wanted to just stick with soybeans for a moment. The identity-preserved premiums for the 2019 crop, how are you seeing those kind of shake out year-on-year versus what was there for 2018?

So, John, thanks for joining the call and the question. As you know that we have given that last year our premiums ranged between $0.55 and $0.90 on an average. We're somewhere around that $0.70 to $0.80 in that median range with we got 17,000 acres. This year, because of the pull we are getting, especially amongst larger growers, some of them have been growing 1,000 acres or more, we had to create a new slab. So it's the same $0.55, instead of $0.90, it's now -- the upper limit is $1 and the averages are in the similar range around that $0.80 and $0.90 range. So not materially different from what we had given last year in spite of the fact that we are more than 250% versus last year.

Okay. And on the wheat side. So it looks like the commercialization of the high-fiber wheat, you're looking at it now more of a 2022 timeframe versus, I guess, 2020 to 2021 earlier. Can you just maybe walk through the steps of commercialization and maybe what was delayed relative to your initial expectations, and how that kind of progresses from here?

Sure. First is that we are not delaying any launch. It can still happen in 2021. So we're not discounting that. But to count what comes next, let me give you high level what has happened so far. We are in the Phase II of the product, which means that first company ever to do the gene editing of a wheat product. Wheat is incredibly complex because it's an hexaploid, each copy of the gene appears 6 times. Remember, we have always told the markets that TALEN is a highly precise gene-editing tool versus any of the competitors. We had a laser gun versus a shotgun. And you need a laser gene-editing technology to do 6 copies exactly the same way. And that's what we did. We proved out that the gene editing can be done, and we produced the first product. We proved in our greenhouse that our product met the concept, which is 3x as much fiber, which means that food companies can label themselves as a high source of fiber with all the claims around cancer reduction -- potential cancer reduction or even reducing obesity and coronary heart diseases. That has being done. We went to USDA and confirmed that the product is a nonregulated article, i.e. not a GMO, which is important. Third thing we did was that we said, okay, if we can do it in the greenhouse, does it really translate into -- in the field conditions, and we have already done that. What comes next within 2019 and the coming years is, a, scaling up our seed production so that we can launch at a commercial scale in coming years. Second is making sure that the trait is passed on to different classes of wheat. U.S. grows different classes of wheat. So we would be actually incorporating our high-fiber into multiple classes of wheat with the launch being in the spring varieties and then followed up by the winter varieties. Third would be, we'll be competing very detailed food application studies about identifying specific market segments where we are solving a pain point because of the, a, increasing demand for fiber amongst consumers; and, b, there have been changes in the guideline by FDA in June of last year, which makes the problems for food brands even more acute, because the daily dietary value, required value has gone up by 12% from 25% to 28%. All these things will be happening. We believe we have a very strong product and solving a real pain point for food brands with this high-fiber wheat product. Sorry, it was a detailed very long answer, but I thought I'll give you -- put things in perspective on what has happened in the past, which makes this another game-changing product in the marketplace.

Our next question is from Akshay Jagdale from Jefferies.

So, Manoj, just to follow up on Calyno. So congrats on the first sale, really exciting news there. Just to understand sort of the ramp, right? Obviously, you guys are trailblazers, right? This is of course, new-to-the-world product. But when it comes to modeling, we're always thinking of how things are going relative to plan. It does seem like it's taking a little bit longer than you would've hoped. Can you give us a little more color on the ramp? And on my math, you had the ability to sell like close to 11 million, 12 million pounds, and I'm guessing -- the 7 million, 8 million is materially lower than that. So again, I'm going back to one of the questions that was asked earlier about how much you're selling. But maybe you can help us in pounds what you have, and what's assumed to be sold?

Sure. Happy to give you a perspective. It all depends upon how much acres you plant, and how much bushels you get because the yields vary on year to year. So we planted 17,000 acre and our average yield in the region were somewhere between 40 and 45 bushels an acre, which was right in line. But they were 10% between 40 and 45, and it depends upon the year and the farmers. So and our yields were very competitive in the region. Now some farmers got much higher yields. One of them actually was in the yield contest in South Dakota Soybean Association with 57 bushels an acre, which is more on the right-hand side of the normal curve. On the initial crushing and the refining, we have taken very conservative approach because it's important for us when we are launching the first product to be on spec and a really good quality of oil to earn the customers' trust. And that's why we have put a lot of effort in ensuring all the quality parameters are met. So our volumes from the 2018 crop, we expect something around 7 million pounds plus/minus 10% depending upon how processing conditions work. With regards to ramp up, I think we have been extremely pleased that this is the first time ever such a product is hitting grocery stores. The last time a new trait of this kind hit the market was probably close to 20 years back. So we want to ensure that we get it right because we are building an industry. And being the leader and having a head start, we have that responsibility to be transparent and communicate with food brands and consumers as well. As you can see, Akshay, our pipeline is ramping up very significantly, especially amongst the food service segment, which is welcoming such premium, local and sustainable alternatives. And that is actually a recent addition to our portfolio and is driving -- has the potential to drive significant volumes in the near term, given the quantity of oil. 1/4 of oil is consumed in the food service, and our oil is really solving a pain point, which just means that there is no such oil available in the market currently today. That gives us that comfort that we will be able to scale-up significantly. And our intention is to be sold out of our 2018 volumes in the near future and then start supplying our customers with 2019 volume. Just to steal Jim's words, we are 12 months away, if a large user of a food company signs up for it, to give them comfort of tens of millions of pounds. And that's where it becomes really exciting in terms of being -- not only being able to scale-up, but having the strategic relationships like Agtegra to ensure optimization for our scale-up efforts. Sorry, that was a long answer, but I thought I'll give you a little more perspective about how we intend to get there.

Got it. So there's some, I guess, leakage is not the right word. But you're being conservative in the conversion math a little bit from whatever soybeans you're getting to the oil that you're actually producing.

I actually -- we tested the same thing thrice just to make sure that we met all quality standards, and that's the right thing to do when you're launching the product. As we do it multiple times, those improvements will come in very quickly.

Got it. And then just one on the (inaudible) a little bit in combination with this ramp question. So how should we think about the $3 million burn rate, which I mean, you're saying, obviously (inaudible) to launch these products. And -- but then with the revenues a little bit pushed down the road, so how do we match the 2?

Yes, we've always commented on our burn rate at around $3 million, and we are going to continue to add to our commercial team. We've always been an R&D platform until we commercialize. So the last 6 months, you've been seeing us add headcount, which is the main reason for our increased burn. But we had to add a commercial sales team for on the grower side, in the field. We added a sales team in food applications and food companies. And then we had to add people that were oriented around customer service and meal sales and other things that go with commercialization. You'll also see Bill adding 1 or 2 headcount in finance just because we have different things going on in creating systems to alleviate inventory and track and bill and collect. So those are a good summary of where we are going in 2019, and that burn rate that we've calculated will handle that.

Got it. And just one last one for you, Jim, on the funnel, the R&D pipeline or the new product pipeline. Obviously, you're narrowing your focus, which is I think a good idea. What -- can you give us a sort of sense of the stage-gate process that you are using now that got you to that conclusion? And maybe what the sort of financial thresholds were, right, to give us some confidence that narrowing your focus is the right idea.

No. Great question. As a small company starting up and trying to optimize and take advantage of our head start, we thought it would be prudent to narrow our commercial focus in the stand-alone business to soybeans and wheat and take advantage of the fixed cost in some of the systems that we set up by diluting it with more revenue and improving scale, and doing that before someone comes behind us. So making sure that, that successful backbone of our company was set and that we're taking advantage of all of the synergies through. We talked about growing soybeans and wheat in the same area with these 2, but also when Manoj's team is calling on food companies, almost everyone who uses high-oleic soybean oil also does some baking and has a need for wheat products as well. So there is some real synergies there. We didn't -- in my comments I wanted to make sure that because TALEN is far-reaching, and quite frankly these talented scientists can do almost anything, right? If you can dream it, they can do it. So for commercialization and as a public company, we had to focus on making sure that we had a focus on something that we could optimize. But the reality is, our ideation team comes up with many, many opportunities and we'll pursue those. If they have a commercial appeal, we will find a commercial partner that already has a market and understands that market and can invest with us to build those as well. And that will be additive in a way that's not dilutive. So that was the reason for talking about 2 big crops that we can't hit our heads on. There's more than almost 60 million acres of wheat in the U.S., there's 88 million acres of soybeans, they're wonderful places to focus on and not hit your head. But in no way are we limiting our technological, or our advancements or any of our projects to just those, although, you will see our pipeline give higher ratings in our stage gating, in our score carding. You do get higher ratings for projects that take advantage of our current systems already in place.

Our next question is from Ben Klieve from National Securities.

A couple questions for me. First, I'm curious if you can elaborate a bit on the 30% of growers that did not recommit for 2019 for Calyno? Do you know how their yields compared to the growers that did recommit? Do you know if those growers that are not coming back, if they have an alternative soybean or if they're rotating into corn and just didn't have acreage for you? Any color is appreciated there.

Yes. I'll start with a general answer, and then Manoj can give you some specific color. But on year-on-year, as you know, farmers base their planting decisions based on rotational needs on their farm for disease control and other rotational benefits of crops. And then economics. So it is not unusual for farmers to step out of a crop for a year. So if they're not planting soybeans, we certainly can't capture any of his market share. So that can happen. And then there are other things going on with this. Where it may be -- there may not be on the right acre or he may have had a yield issue, but he may have had -- he's already committed his storage to somewhere else. There's a lot of decisions that go into this decision. And so we're very, very proud of the 70% year-on-year retention, and we think it's extremely high. But there are reasons, rotation and other things and handling on your facilities and farmers changing, right? The economics of farmer is actually changing who's doing what pretty rapidly year-on-year as well. So with that background on the general, I'll hand it over to Manoj to add a little more color on our year-on-year retentions and the factors that go behind it.

Thanks, Jim. I think you summarized it, rotation number one. Number two, the trade situation, soybean price has been low, some people decide to do. Some just don't plant any soybean acres this year. One point I would like to, it's that, we intentionally decided to let go some farmers because we had concerns about them following our identity preservation protocols, which we are very committed to. That's core of our business model and if you don't think that's a good fit, we probably would not renew it. So couple of them were similar and that always happens, not everybody is designed to [own] the premiums from identity preservation.

Got it, that's helpful. And kind of piggybacking off of one of the questions regarding the launch of high-fiber wheat, it sounded like you said that really one of the limiting factors here is going to be in your ability to -- well, limiting factors in terms of getting to commercialization sooner rather than later, is the ability to bulk up the seed. And I'm curious if you can just kind of dig in to your strategy here of how you're going to build that seed inventory, both in terms of kind of where you're going to grow and timing of when you're going to grow? And if there's any potential to really accelerate that process?

Yes. Well, our first focus on wheat, of all the wheat options, is spring wheat. So we're focused in those geographies for our first launch product and growing up the seed to bulk up and also to do food application testings with this. So those are 2 of the things we'll be very busy doing in '19 and '20. And I think geographically, you probably understand where spring wheat is grown and how many generations you will get in that period of time.

Yes. No. I think that's the bulk of it. Obviously, once we launch, we intend to launch it in different classes of wheat. Just, Ben, give you a perspective, wheat industry is often -- blends within classes of wheat to get to the functionality they want. So that's important for us to do, hence we are making thoughtful choices with regards to multiple classes of wheat, which we would be sowing in. Net-net, I think it's a positive in actually going through that scale up, so that we can be in multiple classes of wheat in 2022.

Our next question is from Jon Hickman from Ladenburg Thalmann.

Just a question, a little clarity on the revenue projections. Does that projection include anything from yield sale share? Or just the oil?

Hey. Jon, it's Bill. Yes, it does include both.

This does conclude the question-and-answer session. I'd like to turn the floor back to management for any closing comments.

Thank you, everyone. We really appreciate you coming into our call today. It's a very exciting time at Calyxt as you can understand, spending time with -- signing up new growers, bringing more people in and hearing the message of healthier foods and making the foods you eat a healthier choice. It's caught some fire. We entertained a lot of food companies in spreading that message and setting the basis after celebrating moving from an R&D-platform-only company to a full-scale commercial company has been no small feat. And we did take time to celebrate that among ourselves. So thank you for tuning in today and hearing our story and we appreciate your support.

Thank you, gentleman.

Okay. Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.