Origin Agritech Limited (NASDAQ:SEED) Q4 2024 Earnings Call Transcript

Origin Agritech Limited (NASDAQ:SEED) Q4 2024 Earnings Call Transcript February 11, 2025

Operator: Thank you for standing by, and welcome to the Origin Agritech Fiscal Year 2024 Conference Call. Please note that, today’s call is being recorded. It is now my pleasure to introduce Matthew Abenante of Strategic Investor Relations.

Matthew Abenante: Thank you, operator, and thanks to all of you for joining us today on the Origin Agritech Fiscal Year 2024 Earnings Conference Call. Joining us on the call today are Mr. Weibin Yan, Chief Executive Officer; and Mr. Patrick Cheng, Chief Financial Officer. The format of our call will consist of a company update provided by Mr. Yan and Mr. Cheng, followed by a question-and-answer session addressing the questions submitted by investors. We thank everyone for submitting these questions. Before we begin, I would like to remind our listeners that any statements on this call that are not historical facts are forward-looking statements. Today’s call includes forward-looking statements that address expected future business and financial performance and financial conditions, and contain words like expect, anticipate, intend, plan, believe, seek, will, would, target and similar expressions and variations.

Forward-looking statements address matters that are uncertain. Forward-looking statements are not guarantees of future performance and are based on assumptions and expectations which may not be realized. They are based on management’s current expectations, assumptions, estimates and projections about the company and the industry in which the company operates, but involve a number of risks and uncertainties, many of which are beyond the company’s control. Some of the important factors that could cause the company’s actual results to differ materially from those discussed in forward-looking statements are failure to develop and market new products and optimally manage product life cycles, ability to respond to market acceptance, rules, regulations and policies affecting our products, failure to appropriately manage process safety and product stewardship issues, changes in laws and regulations or political conditions; global economic and capital markets conditions such as inflation, interest and currency exchange rates, business or supply disruptions, natural disasters and weather events and patterns, ability to protect and enforce the company’s intellectual property rights and separation of underperforming or non-strategic assets or businesses.

The company undertakes no duty or obligation to publicly revise or update any forward-looking statements as a result of future developments or new information or otherwise, should circumstances change, except as otherwise required by securities and other applicable laws. Although, the company believes that the expectations expressed in these forward-looking statements are reasonable, it cannot assure you that such expectations will turn out to be correct, and actual results may differ materially from the anticipated results. You are urged to consider these factors carefully in evaluating the forward-looking statements contained herein and are cautioned not to place undue reliance on such forward-looking statements, which are qualified in their entirety by these cautionary statements.

And with that, I would like to turn over the call to our first speaker, Mr. Weibin Yan, Chief Executive Officer of Origin Agritech. Hello, Mr. Yan.

Q&A Session

Weibin Yan: So thank you, Matthew, and thank you all for joining us. As the new CEO of Origin Agritech, I’m excited to share our vision and strategic direction. Let me start by acknowledging where we are today. Origin Agritech has achieved several significant milestones in 2024 with our revenue growing 24.6% to US$16.2 million. This growth was primarily driven by the higher volume of the corn seed sales as a result of improving corn market. In May 2024, we received a GMO safety certificate for our BBL2-2 transgenic maize, which contains advanced insect resistance and herbicide-tolerance traits. This technology stack provides robust protection against major pets like corn borer and lice beetles, which offer four times full stack tolerance.

We already have [indiscernible] successfully might cross with this trait. Another major achievement was our publication letter, which described our breakthrough in induction line gene editing technology. Maybe you already know that, we’ve established the world’s first efficient genetic transformation system for maize introduction line Hi3. This isn’t just an academic achievement. It has a real commercial implication, allowing us to develop improved traits like leaf angle, enhanced drought resistance and strong lodging resistance in a fraction of the time compared to traditional breeding. To accelerate the commercialization of these technologies, we established the Origin Marker Biological Breeding Service Consortium in October 2024. We are already working with thousands of breeding companies across China to improve our corn yield.

This consortium approach allows us to maximize the impact of our innovations, while creating new revenue streams. Looking ahead, we have a clear three phase strategy. For fiscal years 2024 to 2026, our immediate focus is on stabilization, achieving cash flow breakeven from operations, improving our industrial systems and resolving historical challenges, while maintaining strong operations. From 2027, we aim to establish ourselves as one of China’s six leading corn companies with leading research capabilities and as the highest seed quality and operational compliance reputations, compliance is becoming more and more important today. By 2030 to 2032, which is the third stage, our goal is to become one of China’s top five corn seed companies and a leading global biotech seed company with 20% of our revenue coming from overseas markets.

We are strengthening our core infrastructure, expanding our technology platform capabilities and exploring new opportunities in nutritional food and related areas. With over 4,000 hectares fixed plantation and advanced processing equipment, our Xinjiang production facility gives us the scale to support our growth. I’m particularly excited about our new product pipeline. We have eight new varieties launching in 2025, targeting different regions and several more in advanced trials. This diverse portfolio addresses various market needs from high-density planting to specific regional adaptations. But perhaps most importantly, we will assist an outstanding leadership team. Dr. Gengchen Han remains to be the Chairman of the Board, and I’m personally taking the CEO role.

This bring continuity and the deep industrial expertise with new knowledges, we will add experienced Executive across Research & Development, Production, Quality Control, and Corporate Development. Already Agritech became as a pioneer in China’s corn seed industry today, we are transforming into a global agriculture technology leader, combining biotechnology innovation with conventional operating expertise. We are not just developing better seeds, but advancing sustainability, agriculture, and food security. Our vision is to become the most trusted high-tech seed and agriculture company for farmers and the society. With our strengthened team, advanced technology platform, and a clear strategic roadmap, I’m confident we can achieve this goal, while delivering substantial value to our shareholders.

Speaking of our strengthened team, I will pass the call over to our new Chief Financial Officer, Patrick Cheng, to give our financial results. Please, Patrick.

Patrick Cheng: Thank you, Mr. Yan. As the new CFO of Origin Agritech, I’m pleased to present our financial results for fiscal year 2024, which demonstrates both our progress and the investment we are making in our future growth. Let me start with our top line performance for fiscal year 2024. We achieved a revenue of $16.2 million, representing a 24.6% increase from $13 million in fiscal year 2023. This growth was primarily driven by the higher volume for corn seed sales as a result of improvement of market competitors of our sales. Our general and administrative expenses increased to $5.1 million from $1.99 million, primarily due to necessary investment in talent, systems and professional services to support our growth initiatives.

We have also increased our R&D investment to $1.5 million, up from $1 million as we continue to advance our biotechnology platforms and develop new seed varieties. In terms of bottom line performance, our net income from continuing operations was $2.7 million, while this is lower than the $8.7 million reported in fiscal year 2023. It’s important to note that the prior year figure included a greater contribution from the onetime gains from subsidiary disposals. We had a net income attributable to Origin of $3 million compared with $7.7 million in the prior year for the same reasons as I just mentioned. Turning to our liquidity position. We ended the year with cash and cash equivalents of $1.2 million compared to $3.3 million at the same period a year ago.

Our cash flow metrics reflect the investment we’re making in the business. Operating cash flow usage increased $2.1 million, primarily due to working capital investments to support our growth. And on our financing activities provided $0.6 million in cash flow compared to $3.2 million in the prior year. The company did not issue or sell ordinary shares during the fiscal year ended September 30, 2024. Looking ahead, we have a clear financial strategies aligned with our 3-phase business plan. In the near term, our focus is on achieving cash flow breakeven, while maintaining necessary investment in R&D and operational improvements. We are implementing enhanced cost control and working capital management practices, while ensuring we maintain investment in critical growth initiatives.

For the medium term, we are focused on driving profitable growth through commercialization of our biotechnology innovation and expansion of our seed business. We expect to see improving margin as we scale these operations. In long term, our goal is to build a sustainable, profitable business model that combines stable seed revenues with high-margin biotechnology licensing and service fees. We have also identified several operational efficiency opportunities, particularly in our Xinjiang facilities which should help improve our margin over time. Additionally, our new variety launching in 2025 are expected to contribute positively to our revenue growth and profitabilities. In conclusion, while we’re making necessary investment for future growth, we are doing so with financial discipline and a clear path to improve the profitability’s.

Our balance sheet is improved. Our cost structure is become more efficient, and we have the financial flexibility to execute our financial plans. Thank you for your attention. Matthew, we can start the question-and-answer session, please.

A – Matthew Abenante: Thank you. Our first question from — that were submitted by investors. And again, thank you to investors for submitting your questions. Why has the gross margin in the past two years been significantly lower than in the early 2000s, in particular, between 2004 and 2005?

Weibin Yan: Thank you for the insightful questions about our historical margin trends. The difference in gross margins between this period, reflects both industry evolution and our strategic positioning for future growth. You see in the early 2000, the Chinese seed industry was in a different phase with fewer competitors and lower market saturation. Today’s environment is more competitive, but we are executing a deliberate courage that we believe will return us to and potentially exceed the historical margins through three key initiatives. First, our BBL2-2 GMO corn varieties, which received safety certificate in May 2024, commenced premium pricing with 35 varieties already incorporating this traits and more in development, we expect to see margin expansion as these products enter the market.

Second, our gene-editing breakthrough published in NATURE enables to develop improved varieties much faster and at a lower cost than traditional breeding. This technology advantage, combined with our original marker biologic operating service consortium is creating high-margin revenue streams through licensing and services that were not available in the 2000s. Third, we invested significantly in modernizing our Xinjiang facility, which can process 75,000 tons annually, while this investment impacted growth in the margins that give us economic of scale that will improve profitability as the volume increase. Looking ahead, we expect our margins to improve substantially as these initiatives more NATURE become more mature. Unlike the 2000s, when margins were purely from seed sales, our future margin profile will benefit from a mix of permanent seeds products and high-margin biotechnology services and licensing fees.

This will diversify our revenue stream, which not only help us recover historical margin levels, but establish a more sustainable and profitable business model for the long-term.

Matthew Abenante: Thank you. Our next question, is the company on track to meet revenue forecast that were shared back in June 2024?

Weibin Yan: Thank you for your question. Under our new management team, we have developed a comprehensive eight-year strategy road map that surpasses previous guidance. We believe this strategy provides a clear and more actionable framework for investors to understand our path forward. In Phase 1 covering 2024 to 2026, we are focused on fundamental strengthening of our business, achieving cash flow breakeven and optimize our operations. The 24.6% revenue growth we achieved in fiscal year 2024 demonstrates early progress, but we are more focused on building a sustainable foundation than meeting short-term targets. Looking further ahead, Phase 2 and 3 augment our path to becoming first top six and ultimately a top five corn seed companies in China.

This ambitious, but achievable goals are supported by concrete assets and capabilities, our newly upgraded Xinjiang facility, our breakthrough gene editing technology published in nature, our BBL2-2 GMO corn varieties and other varieties and GMOs on pipeline. Rather than focusing on past projections, we invite investors to evaluate us on our execution of the strategic road map. We believe this provides a more meaningful framework for measuring our progress and potential. Each quarter, we will update you on our advancement through this phase and the specific milestones we are achieving along the way.

Matthew Abenante: Thank you. Our next question, will you please consider changing the fiscal year to a calendar year to show annual results to investors better. The planting and harvesting season and when results are reported do not make much sense currently.

Patrick Cheng: Thank you, Matthew. You raised a valid point about better matching our reporting to natural agriculture sectors. We agree that this could provide more clarity to investors about our seasonal business patterns. As part of our broader corporate governance improvements under the new management team, we are continually evaluating several reporting optimizations, including this potential change. Our transition requires careful planning to ensure a smooth financial reporting and compliance with both U.S. and Chinese regulations. We will update investors if we decide to move forward with this change. Thank you.

Matthew Abenante: Thank you. What plans do you have to scale up NEC to a level where you can meet the demand of purchasers like Muyuan in the past?

Weibin Yan: Thank you. Our Xinjiang facility actually gives us significant capacity to meet large-scale demand from our customers like Muyuan. Our facility has a seat plantation of 4,000 hectares and an annual processing capacity of over 75,000 tons. However, we are able to take a systematic approach to scaling up our NEC production while keeping our limited resources at the moment under the breakthroughs of GMO and gene editing, which made us more valuable and competitive in the seed industry. I have talked to the Board to suspend the NEC business of the company in order to focus on the biotechnology commercialization and seek sales expansion. I thought our new prioritization of the business will enable the company to gain a further position in the biotechnology and seed competition, which is more value added than NEC business and bring further value to the society and our shareholders. So this is the situation. Thank you, Matthew.

Matthew Abenante: Thank you. Our next question, your gene editing breakthrough published in nature seems significant. Can you explain how this translates to commercial value?

Weibin Yan: Good question. Thank you. Absolutely. Our gene editing system for corn in reduction line is a game-changing technology, while others typically need three to four years for trait improvement through traditional by crossing. We can now achieve precise genetic modifications in just one year. This means we can bring improved varieties to market much faster and at a lower cost. We already developed more than 10 mines with enhanced traits like better drought resistance and improvement plant architecture. This technology is so valuable that we are now partnering with dozens of operating companies across China to improve our one country, corn varieties. This is more effective. Thank you.

Matthew Abenante: And what differentiates Origin from other agricultural biotechnology companies in China?

Weibin Yan: Yes, another good question. We have unique big advantage. First, we are the only Chinese seed company with both GMO and gene editing capabilities at one level, demonstrated by our GMO safety certificate BBL2-2 and our later publication. Second, we have end-to-end capabilities from research through production, with our state-of-the-art Xinjiang facility of processing 75,000 tons annually capability. This will enable us to gain a stronger position than other seed biotechnology companies. Third, we have an extensive Germplasm Bank and rating programs that have been developed over — in the past 25 years. This compilation allows us to develop breakthrough technologies and quickly incorporate them into commercial production. Thank you.

Matthew Abenante: The next question, your eight-year strategy seems quite ambitious. What gives you confidence you can achieve these goals?

Weibin Yan: Okay. Thank you. You see we have four key advantages that make our goals achievable. First, GMO, we just received the GMO safety certificate for our BBL2-2 corn, which has already been incorporated into 35-hour orders. Second, gene editing. Our gene editing platform is providing transformation as validated by later. Third, service platform, we established the Origin marker biological operating service consortium, which is already generating revenue through partnership. Fourth, seed platform, Origin has a good reputation in Chinese corn seed market for its high quality and extensive network of distribution partners and research partners, modern seed processing facilities and genplatin resources is a full cycle seed company.

Of course, finally, we have a new management team with deep industry expertise. We added key executives across Research & Development, Production, and Sales. Most importantly, we already see the results, 25% revenue growth this year, reduced losses, and eight new varieties ready for launching in 2025. Thank you.

Matthew Abenante: And here’s our last question. How do you see the Chinese agricultural biotechnology market evolving?

Weibin Yan: Thank you. China is at an inflection point in the adoption of agricultural biotechnology. The government strongly supports GMO commercialization and innovative breaking technologies to ensure food security. We are perfectly positioned to capitalize on this shift. We have approved GMO trait, advanced gene editing capabilities, and the production facilities to scale quickly. So, our position as the first Chinese seed company to achieve many biotechnology milestones give us a first-mover advantage as the market develops. Thank you, Matthew.

Matthew Abenante: Thank you. And as I said, there’s no further questions. So, I’ll hand the floor back over to you, Mr. Yan.

Weibin Yan: Thank you. Thank you, Matthew. And thank you, everyone, for participating on today’s call. Before we end our call, I would like to thank you for your continued support and brief in Origin Agritech, we have made remarkable strides in the past year in advancing our groundbreaking agriculture technologies. In closing, I want to reiterate that we are committed to enhancing shareholder value and achieving a fair market valuation that reflects the true potential of our company. Thank you once again for joining us today and we look forward to sharing more of our journey with you in the coming months. Thank you.

Operator: Ladies and gentlemen, that concludes our conference for today. Thank you for your participation. You may now disconnect.