Below is transcript of the Ceres Inc (NASDAQ:CERE) Fiscal Year 2015 First Quarter Earnings conference call, which is held on Tuesday, January 13, 2015 at 4:30 p.m. EST.
Ceres Inc (NASDAQ:CERE) is an agricultural biotechnology company that develops and markets seeds to produce crops for bioenergy and other purposes. They use a combination of advanced plant breeding and biotechnology to develop their products.
Company Executives:
Richard William Hamilton, PhD, President, Chief Executive Officer and Director, Ceres, Inc.
Paul M. Kuc, Chief Financial Officer, Ceres, Inc.
Gary Koppenjan, Director of Investor Relations and Communications, Ceres, Inc.
Analyst:
Caleb Dorfman, Research Analyst, Simmons & Company
Operator
Good afternoon and welcome to the Ceres, Inc. (NASDAQ:CERE) First Quarter Conference Call. As a reminder, this call is being recorded and webcast over the internet. You can access the webcast in Investor Event Section of ceres.net. The replay will be available for the next 30 days at this address as well. At this time, I would like to turn the call over to Gary Koppenjan, Director of Investor Relations. Please go ahead, sir.
Gary Koppenjan, Director of Investor Relations and Communications
Thanks Candice and good afternoon to everyone. I am joined by Richard Hamilton, our President and CEO, and by Paul Kuc, our Chief Financial Officer. Today, after market close, we announce the results for the quarter ended November 30, 2014. The press release we issued is available on our website.
Before we get started, please be reminded that this presentation contains forward-looking statements. You should not place undue reliance on these forward-looking statements because they involve known and unknown risks and uncertainties and other factors that are in some cases beyond our control. Factors that can materially affect actual results can be found in our reports filed with the SEC. Ceres undertakes no obligations to update any forward-looking statements and transform these statements to actual results would have changes in the company’s expectations.
I will now turn the call over to Richard.
Richard Hamilton, President and CEO
Thank you Gary. Good afternoon. Thanks for joining us. I hope everybody had an enjoyable holiday season. For update today, our focus first, on our sorghum seed business, including how our plantings are progressing this season in Brazil. We also have more good news coming from our biotech field trials in corn. This continues to increase our excitement on other opportunities in food and feed crops, including corn, sugarcane and forage sorghum.
In our trait area, we are also deploying new trait development system called iCODE that I will explain more about and why we believe it may be an interesting technology out-licensing opportunity as well. Finally, I will provide a brief update on the roll-out of the subscription service for our bioinformatics software called Persephone and then wrap-up with an overview of our upcoming milestones.
As we reported today, our plantings in Brazil are largely completed and cover more than 4,000 hectares compared to approximately 1,000 hectares planted the previous season. The increase in planted hectarage over last season is primarily due to increase demand for high-biomass sorghum for power generation. This is a reflection in part of the current macroeconomic environment in Brazil where electricity prices are at historical highs compared with ethanol prices.
Following a dry start to the growth season, conditions have been generally favorable to date across most evaluation regions including adequate rainfall. Plus we still have several months of growing time ahead of us. Overall targets were slightly lower than our original forecast due to some weather delays at the beginning of the season which provided less time to plant and our subsequent decision not to plant outside our recommended time frame. Over the next few weeks, our are going to take measurements on how the crops are performing. We expect to have an update on the season for our April earnings call with final yield results following harvests in July.
As we forecasted last quarter, we are working with more than 50 customers this season. This includes ethanol mills and group that are collectively responsible for more than 30% of the sugarcane crushed in Brazil. So, an important customer base to be working with and an indication of the ongoing interest in our sorghum products. At the end of the day, we are finding an energy production can be a tough business and products like our sorghum hybrid that can boost the bottom line and make greater use of installed capacity, provide an attractive opportunity to the industry.
Outside of Brazil, we’d been ramping up our sales and marketing activities in the United States for our forage sorghum hybrids. This is a new opportunity that leverages our position and our biotech platform and it expands our commercial activities well beyond bio-energy into the growing markets for feeds and forage crops. Last season, we demonstrated some impressive yields and pilot commercial evaluations of our forage sorghum in the United States and we believe we have some compelling commercial hybrids for sale. Seed sales for our forage sorghum are under way now in the United States that will conclude in July when most of the plantings are completed in the Northern Hemisphere.
For the 2015 season, we expect to increase 4:24 number and size for field evaluations. In addition to our direct sales efforts, we have completed a distribution agreement with Helena which is a well-known agricultural input supplier in the United States to extend our sales and marketing reach in certain geographies. This company approached us last season after seeing how well our hybrids performed and we believe their local staff and resources will be a helpful complement to our own activities.
We are also advancing our biotech trait in forage sorghum. As we reported in November, we will have our leading biotech traits provided a greater than 20% biomass field advantage. We are back-crossing this trait into parental lines of commercial, forage sorghum hybrids and we will scale them up for larger scale production. In addition to increased yield. we have a number of biotech trait that we believe can improve the nutritional quality and digestibility of forage sorghum leaves and stalks. Our goal is to combine the national drought tolerance and productivity of sorghum with these biotech traits. This will be particularly attractive for livestock producers and water-deficit geographies as well as producers faced in high input costs for feeds.
In addition to a technology advantage, one of the reasons we are enthusiastic about our US forage sorghum hybrids and traits is that we have received notice from the United States Department of Agriculture that our high biomass trait is not considered a regulated item under Article 340 of the USDA’s mandate to regulation agricultural products. The first such ruling for sorghum. We see this as positive news. This determination is likely to make it more cost-effective and timely for us to develop the strain in sorghum and as a result, we believe we have a clear and near-term path forward to commercialization of this trait.
In addition to forage sorghum, we are also evaluating our biotech traits and technologies in major food crops including corn and sugarcane. Last week, we reported exciting results from our trait evaluations in hybrid corn. Field evaluations represent a critical stage in the development of biotech crop traits since they provide greater insights into how traits will perform in an agricultural setting.
As you may recall, we have taken a different approach that many other crop biotechnology companies in developing these traits. First, we’ve optimized the expression of our genes differently by using promoters in a more precise, sophisticated manner. Promoters are the on off switches for genes that determine where, when and under what conditions a gene is turned on or expressed. We also believe that by combining our transgenes together, provides the best approach to generate a high-impact advantage such as increase grain yield or better drought tolerance. We describe it as multi-gene traits to distinguish them from first generation biotech crop trait which usually consist of a single transgene per trait.
As we reported, our multi-gene combination demonstrated a yield advantage of approximately 25% over controls in many of our research-scale field evaluations. These are significant yield gains in a mature crop like corn, or a difference of just a few percentage points are considered positive. We’ve done two years of data, we have now selected our best multi-gene combinations for field evaluations at more locations and at a broader range of corn hybrids in 2015.
I will add my usual caution that results from a research setting are not a guarantee of future conversional performance and further evaluations are going to be necessary to confirm results. We expect to have more conclusive data on the performance of these traits in approximately 10 months following the next set of evaluations. Based on these results and others, we have made a number of observations that impact our development approach and we believe, the broader crop biotech industry.
First, we believe that single plant trans-genes constitutively expressed generally do not work well for agronomic trait in elite hybrid corn germplasm. Multi-gene combinations are key, but not all combinations work. Just as important that promoters, which determine where and when a gene is expressed, are critical. However, testing the thousands of possible combinations for even a handful of genes and promoters can easily overwhelm the most robust trait development pipelines of major crop biotechnology companies and institutes. Therefore, I high throughput system is needed for testing so many combinations.
At Ceres, we believe we have overcome this hurdle. We have developed what we believe is a revolutionary approach for rapidly and empirically evaluating large numbers of promoter gene and gene-gene combinations. We refer to this proprietary multi-gene trait development system as Intelligent Combinatorial Optimization and Directed Evolution or iCODE for short and we are deploying it internally.
We also believe there may be opportunities to out-license iCODE to other crop biotechnology companies. Due to the efficiency of this system, we believe that it can enable them new kinds of discoveries, stock function innovations and performance and allow even smaller research programs to compete effectively against larger companies. But there is another exciting area for both value creation and intellectual property creation. We have filed a patent application for iCODE and are exploring ways to monetize this technology.
In addition to hybrid corn, we are looking forward to collecting results from the first sugarcane trials with our biotech traits in South America. We expect to collect sugar yields and other performance data from the first half of this calendar year as the first growing cycle is completed. These pilot-scale field evaluations include a number of our leading traits for high sugar and drought tolerance. We will be measuring the performance of our traits in leading commercial varieties with a goal of adapting the best plants for broader evaluation. Higher sugar yields and greater resilience to drought and other stress conditions will not only increase output, but also lower production cost for producers.
When the process of gathering preliminary data from these sugarcane trials this week, we’ve done visual inspections, trends with our biotech traits are already demonstrating differences to the control plants similar to what we have previously recorded in the greenhouse. Further there are still a number of much of growing time ahead and sugar yields will of course be the key milestone in this program.
In addition to our trait development, we continue to market our bioinformatic software product named Persephone. Bioinformatics is a large market and it is expected to grow several fold in coming years driven by low cost DNA sequencing. We believe that our direct experience using Persephone internally and our ability to continually develop and launch new versions will enable us to further establish our market position in life sciences and expand it to new markets such as bio-medical research and diagnostics.
We have installed our software with both Syngenta and Bayer and this past week, we debuted our Software as a Service or SAS version at a major genomics conference for plant and animal research. This edition targets a large market of individual users in the life sciences through a subscription based service. We have also become an Oracle Gold Partner which extends the reach of our sales and marketing efforts and validates that our Persephone software complies with Oracle database standards. In addition to our direct-to-market channel, we are also exploring packaging our software with other bioinformatic software providers.
Finally today, I’d like to provide you with a brief update on our calendar and upcoming milestones. In April, we will have an update on our plantings in Brazil. By July, we will have our seed sales results for our forage sorghum in the US as well as yield results from Brazil. We will also have a good indication of how the launch of our subscription service for our Persephone software is going. Along the way, we hope to make additional announcements regarding our business and product development progress. I will now turn the call over to our CFO Paul Kuc for an update on our financials.
Paul Kuc, Chief Financial Officer
Thank you Richard. Today, I’d like to provide you with a summary of our Fiscal First Quarter Results as well as our perspective on our working capital going forward, including funding available to us under Brazil’s PAISS Agricola program.
Our total revenues were $0.4 million compared to $0.8 million in the same period last year. This change was primarily due to the completion of work scheduled under various grants and collaborations and the resulting decrease in collaborative research in government grant revenue. As we noted in our press release today, we expect to recognize the majority of product revenues for the 2014 – 2015 season in Brazil during our fiscal third and fourth quarters.
In the first quarter, we also continued to see the benefit of our cost reduction initiatives. Our total cost and operating expenses decreased by $2.6 million to $6.4 million for the quarter ended November 30, 2014 compared to the same period last year, with reported decreased spending occurs in most categories.
Cost of product sales decreased by $0.9 million to $0.4 million. The decrease was primarily due to reduced operating expenses of $0.5 million and reduced personnel and related expenses in the US of $0.4 million. Research and development expenses decreased by $1.9 million to $2.5 million. In the US, research and development expenses decreased by $1.4 million primarily due to reduced personnel and related expenses as well as reduced external research and development expenses. In Brazil, R&D expenses decreased by $0.5 million primarily due to reduced personnel and related expenses and from reduction in the total number of research trials being conducted.
Selling, general and administrative expenses increased by $0.2 to $3.4 million. The increase was primarily due to increased personnel and related expenses in Brazil.
Our net loss for the first quarter of fiscal year 2015 was $6 million compared to a net loss of $8.2 million for the same period last fiscal year. We ended the quarter with $21.6 million in cash and cash equivalents and marketable securities.
I’d like to provide you now with a brief update on the PAISS Agricola program in Brazil. As you may recall, PAISS provides funding for transformational technologies in agriculture with a combination of low interest loans as well as competitive grants. Since our announcement in July, we have completed the application process and have received approval in principle for the grant and the credit facility. Subject to the completion of the final project plan review and customer documentation, we expect to draw the first tranche of the grant during our current fiscal quarter.
For the credit facility, we are currently evaluating the terms and requirements of the loan and expect to make a decision on the size and timing of the first tranche of the loan by our third fiscal quarter. The credit facility of course is subject to customer documentation and previous approval and financial guarantees to be provided by Ceres. This is a government subsidized credit facility at attractive terms but the a loan nonetheless, so we want to make sure the financing our of PAISS project fits well with our priorities in Brazil.
To summarize, our expenses were inline with expectations. We continue to have a great deal of flexibility in directing our working capital including new sources of funding under the PAISS program and finally, as Rich have noted, we have a number of upcoming milestones which we believe can further validate the potential value of our technology, platforms and the market opportunities we are pursuing. The extent to which we achieve each of these milestones should indicate which areas have a greatest momentum and where we will prioritize our working capital. We will of course continue to monitor and evaluate our capital needs and financing options as the year progresses in light of these milestones.
That concludes my prepared comments. For a more detailed presentation of our financial results, please refer to today’s press release or our forthcoming report on Form-10 Q. I will now turn the call back over to Richard.
Richard Hamilton
Thanks Paul! At this time, we’d like to take your questions.
Operator
Ladies and gentlemen, if you would like to ask a question at this time, please press Star followed by the Number One key on your touch tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the Pound key.
And our first question comes from the line of Caleb Dorfman of Simmons & Company. Your line is now open.
Caleb Dorfman, Research Analyst, Simmons & Company
Good afternoon.
Richard Hamilton
Hi Caleb!
Caleb Dorfman
First off, can you help walk through the trajectory, if possible, for the trends into the high biomass sorghum if the plantings and the yield go well this season. How quickly could high biomass sorghum be adapted in the infrastructure in Brazil really in placed with the power for that?
Richard Hamilton
I think the infrastructure is there in terms of the mills that are necessary to take the crop, burn it and generate electricity. Certainly the harvesting equipment etc, etc. So, I think if yields are positive, I don’t think it would be unreasonable to see tens of thousands of hectares of high biomass sorghum being planted in Brazil next year.
Caleb Dorfman
And beyond next year, how would you see the trajectory of planting? Because I know the value of proposition that you see right now is that the power prices are high now but reservoir level of say three years down the road could be more normalized and power prices could normalize. Do you still think that in the normalized power prices environment, there would be the value proposition for high biomass sorghum?
Richard Hamilton
I do because I think high biomass yields go up every year. Our breeding program and our biotech program don’t sit still and so I am not going to sit here to try and predict the weather but even if electricity prices come down, I think our yield can go up and maintain the attractiveness of the economic proposition. I think in addition to what reservoir levels might be, there’s simply an on going increase in electrical demand in Brazil. They have a difficult time meeting it from other sources. I mean hydro does not scale up dramatically quickly by any means and so biomass is something that can scale up relatively quickly and certainly relative to other sources.
Caleb Dorfman
DuPont and you continue to burn cash, can you discuss any additional expense cut that could be implemented if any of the PAISS grant revenue possibly go into offset any of your current expenses or how we should think about your cash flow and cash burn going at forward?
Paul Kuc
Sure Caleb. We have as you noticed already cut our expenses significantly and our burn is continuing down comparing to last year and comparing to previous years so we have implemented these measures successfully. We have currently around $20 million in cash. Can we cut more cost? Certainly. We are flexible and we are looking at all the opportunities which are mentioned, opportunities in various areas where we expect some exciting milestones, so we will be monitoring how much resources we need to dedicate to each of those areas and react appropriately. But at this moment, yes, I think we can deliver on the milestones with the resources we have without any drastic additional cuts beyond those that we have already implemented.
Caleb Dorfman
Finally, do you think you could give us any guidance on potentially where revenue from Brazil could come in this year jarring no planting hectares in and as a total it might be tied to the yield? Or maybe if you could quantify it at yield where there is just certain level revenue can be X.
Paul Kuc
Right. As you heard, we have sowed our seeds have planted our over is 4,000 hectares and our prices range from 240 – 260 per hectare. Obviously this is still far from covering all our expenses and that is not how we are looking at it. We want to make sure that our customers adopt the product in order to ramp up in the future. So it is definitely expected that we will cover those programs as you mentioned biomass programs and we also sold seeds directly but it is not going to cover our costs.
Caleb Dorfman
Thank you.
Operator
Thank you. Once again ladies and gentlemen, if you do have a question at this time, please press Star followed by the Number One key. And I am sorry, no further questions at this time. I’d like to turn the conference back over to Mr. Richard Hamilton for any further remarks.
Richard Hamilton
Thanks operator. Thanks everyone for your time today. Just to summarize our announcements: in Brazil, sorghum plantings are up for a good start. We are in more hectares and working with more customers that we have some of our efforts there. We’ve also identified and are executing on several opportunities outside of bio-energy. We have positive results in hand from our trade pipeline and are moving ahead in sorghum, sugarcane and corn amongst other crops. We are also implementing our iCODE, multi-gene trait development system and exploring ways to monetize what we believe is a revolutionary technology. In the United States we have competitive forage sorghum hybrids already for commercial sale this season. And finally, in bioinformatics, we are in the midst of commercializing our new edition of our Persephone software and pursuing additional custom installations as well.
We look forward to sharing our progress with you at our next call in April. Until then, have a good afternoon and evening.
Operator
Ladies and gentlemen, thank you for participating in today’s conference thus concluding the program. You may all disconnect. Have a great day, everyone.
