Yield10 Bioscience, Inc. (NASDAQ:YTEN) Q4 2022 Earnings Call Transcript

Yield10 Bioscience, Inc. (NASDAQ:YTEN) Q4 2022 Earnings Call Transcript March 14, 2023

Operator: Greeting and welcome to the Fourth Quarter 2022 Financial Results and Business Update Conference Call for Yield10 Bioscience. During the call, participants will be in a listen-only mode. The presenters will address questions from the analysts today. As a reminder, this conference call is being recorded. I would now like to turn the conference call over to your host, Yield10 Vice President of Planning and Corporate Communications, Lynne Brum.

Lynne Brum: Thank you, Doug, and good afternoon, everyone. Welcome to the Yield10 Bioscience fourth quarter and full year 2022 conference call. Joining me on the call today are President and CEO, Dr. Oliver Peoples; Vice President of Research and Chief Science Officer, Dr. Kristi Snell; and Chief Accounting Officer, Chuck Haaser. Earlier this afternoon, Yield10 issued our fourth quarter 2022 financial results. This press release as well as slides that accompany today’s presentation are available on the Investor Relations Events section of our website at yield10bio.com. Let’s turn to Slide 2. Please note that as part of our discussion today management will be making forward-looking statements. These statements are not guarantees of future performance, and therefore, you should not place undue reliance on them.

Investors are also cautioned that statements are not strictly historical constitute forward-looking statements. Such forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. These risks include risks and uncertainties detailed in Yield10’s filings with the SEC including today’s 10-K. The company undertakes no obligation to update any forward-looking statements in order to reflect events or circumstances that may arise after the date of this conference call. I’ll now turn the call over to Oli.

Oliver Peoples: Thanks, Lynne. Good afternoon everyone and thanks for joining our call. In 2022, we made solid progress on our commercial plan for lunch Camelina as a platform crop with a near-term focus on the biofuel feedstock market. Today, we’ll provide an update on our business, including recent accomplishments, the market opportunity in the biofuel market, our progress towards developing herbicide tolerant Camelina varieties, our plan to begin scale of omega-3 Camelina, present 2022 financials and summarize key milestones. We will then open the call to questions. Let’s turn to Slide three. Our business model is to develop lead Cameline varieties, contract production of Cameline green with farmers and supply customers in the renewable to expect renewable and food space under offtake agreements.

With our current elite varieties and early commercialization and our two proprietary value added, Cameline seed products in development, we are positioned to establish and grow our large seed products business. Our lead product is low carbon feedstock oil to meet the increased demand from the biofuel sector. We are expanding the Camelina seed available for growers working to execute additional production contracts and continue to progress partner outreach to secure partnerships and offtake agreements to carve out a commercial footprint in this market. We believe this will be followed by the launch of omega-3 Camelina to produce high value omega-3 oils for the pharmaceutical nutrition feed markets and longer term, we are developing PHA bioplastic Camelina to supply the growing demand for biodegradable zero waste plastic packaging.

Together, these products represent a significant revenue opportunity for Yield10. Let’s now turn to Slide four. We’re making solid progress achieving your plan to establish our Camelina seed products business charging biofuels. On the business development side, our team has been engaged in the potential supply chain partners, the particular vision for a capital-light business model. In January, we announced the signing of MOU with Mitsubishi to establish a partnership with supply, off take and marketing of Camelina oil as a feedstock oil for biofuels for their interest is focused on new feedstock supply for sustainable aviation fuel or SAF. In February, we announced the signing of an MOU with American Airlines to collaborate to develop the value chain for Camelina for SAF.

American Airlines represents a potential off take customer that is committed to sustainability and we’re looking forward to working with Mitsubishi and American in the months ahead. In addition, we are announcing today that we have signed an agreement with a privately-owned, integrated crusher by refining our customer to uptake of Camelina Green in the key target growing region. This new relationship is important for both parties to establish a regional Camelina supply chain from YTEN seed due to sell biofuel. Another benefit is that, that this business is located in a key growing region and has helped us to expand relationships with growers and will allow us to have a location to crush Camelina Green at a small scale. We view this is important to ensure grain is moved from farms and growers are paid in a timely manner.

This partner prefers that we don’t mention them by name at this time, and we’ve agreed to respect that request. As 2023 progresses, we expect to continue discussions with multiple additional entities in the biofuel value chain, which will enable Yield10 to establish a network of alliances to supply Camelina feedstock oil to biofuels. In our goal as a green originator and performance trade developer, we’ll continue to scale up seed to enable contract growing in thousands of acres in the near term, with a ramp of acres accelerating with the introduction of herbicide tolerant for right Camelina varieties. We believe this will lead to hundreds of thousands in the first million acres of annual productions. In the fall of 2022, we secured multiple grower contracts or contract planting of richer Camelina for green and seed production, primarily in the areas of Southern Canada and Idaho and in the first quarter, we kicked off our campaign to retrieve growers in our target regions for Camelina spray and fall planting.

Our goal is to supply the most sought-after Camelina varieties in the industry based on our seed trades, bringing differentiation to those varieties. Ease of crop integration to crop rotations, yield and economic return are the primary drivers for grower adoption and our focus on herbicide and disease tolerance as well as novel performance of traits, is intended to deliver a robust, versatile, high yielding Camelina crop. On the top right side of the slide, you can see a photo taken a few weeks ago of sea scale of spring to E3902 herbicide tolerant Camelina. The progress we’re making the sea scale up as well as the steps we are taking to deregulate the trade with US office and to obtain legal amendments, will enable us to be able to participate a launch of this new verity.

Kristi will describe in more detail our advances in the Camelina project development. Let’s now turn to Slide five, and as you can see in this slide, Yield10 is a very strong focus on biofuel feedstock oil in the long term. There will be several tailwinds for increasing vegetable oil productions to produce the carbonizing biofuels. Let’s turn to slide six, the feedback demand. Investments to confer refineries from pyrylium to biofuels in the US alone, demand for additional six billion gallons of feedstock oil in the near term. Even before, we consider demand in other regions. This new demand will have to be mostly from increased use of vegetable oil. These investments are necessary to meet regulations as the California more carbon fuel standards in LCFS and similar standards extended to other states in Canada.

The feedstock oil created by these refineries has also resulted in investment and expanded oil seed crushing. Production of soybean canola alone cannot meet this growing demand for biofuel and still support food production and this in turn has created the market pool for the oilseed crops and particular oil seed cover crops. Based on this, we see the potential at least four to five million in acres of Camelina production. Turn to Slide seven. We believe Camelina represents an ideal option for the biofuel market. Camelina can utilize the same farming, storage and processing assets as other oil seed crops. It is a good combination of seed oil levels that produces a high quality protein meal. We have both spring and winter varieties to enable new crops rotations to use acres, which are less productive for soybean and canola and double crop to use land that would otherwise live follow.

Furthermore, the Camelina plant is amenable to biotech tools. Therefore, we can use it as a platform to crop to increase its productivity and for producing higher value products, all of which provides a good value for as a proposition for the farmer. Let’s turn to Slide eight. The to making Camelina a meaningful source of new feedstock oil for the biofuel market is largely driven by grower adoption of Camelina as an integral part of their crop rotations. As seen on this slide, we like others in the oil seed cover cropping space, placed a strong emphasis on building partnerships with the growers. Poorer adoption will be largely driven by the ease of integration into their existing crop control cycle. Adoption will also be driven by the revenue and here we have a strong emphasis on increasing the harvest value of the crop and growers also want to know there will be opportunities for further continuous improvement and sort of emphasis on the technology pipeline.

Finally, growers want to see that the value chain is in place to ensure that Camelina Green has a clear path to market. In a nutshell, we plan to make it straightforward and profitable for our growers to produce Camelina Green for Yield10. Let’s turn to Slide nine. There are three components in the biofuel value chain for Camelina. The first is high quality Camelina seed for contract farming and this is where Yield10 has capabilities to build unique differentiation. The second component is logistics and seed crushing and the third is refining to produce renewable diesel or SAF. Of course, fuel customers also play a role as they commit to the use of sustainable fuels, producing demand for the product. Our vision for the business is to contract with growers from large-scale production and build a network of alliances for contracted off take of the grain for biofuels and meal for animal feed and we’ll use with Mitsubishi and American Airlines, demonstrate the potential for establishing downstream alliances committed to accelerating the ramp up of Camelina acres to supply the biofuel market.

A lower key, it is significant, in fact, very significant that we have signed an Camelina agreement with a privately owned crusher bio refiner in a key target region, as this provides us with a customer for Camelina green off take. With this agreement in place, we can avoid some of the challenges of scale in the green origination business and line contract production with the off take. When we contract with growers, they want to be assured that the grain can be moved off their farms quickly after harvest. Please turn to Slide 10. Not surprising, given the global demand from new sources of feedstock oils over the past several years, this has been meaningful, this has been meaningful investment in the development of new oilseed crops targeted in the biofuel market.

The new crops in commercialization for this market are Pennycress, . As the development of these crops is progressed, we have attracted the attention of investment and investment of seed companies, oil crushers and energy companies. For the most part, we view these in oil seed crops and players as fellow travelers to address this very high and growing demand for free stock oils, but uniquely among them, however, Yield10 elected early on to use all of the tools in the crop development toolbox to enhance the value of Camelina as a preferred crop for farmers and to our knowledge, we are further ahead with the advanced wheat control technology. Among the players, commercializing Camelina, we believe we are well positioned due to our technology platform, which enable us to make significant improvements to the integration of Camelina into crop rotations, increase yield, grain value and grower revenue over time.

I will now pass the call over to Kristi.

Vlad Teodor/Shutterstock.com

Kristi Snell: Thanks Oli and good afternoon everyone. Please turn to Slide 11. We are executing our early commercial activities to close cooperation with our growers with a focus on three Camelina varieties. These include the genome editing Spring E3902 Camelina variety, as well as two winter Camelina varieties, WDH2 and WDH3, which were produced by our team using a plant breeding procedure. We are also using these three core Camelina varieties as a chassis for deploying herbicide tolerance rate for lead control into spring and winter Camelina. Please turn to Slide 12. Our winter variety field testing program includes well over 20 sites denoted with the blue pins on the map of the US and Canada. Winter Camelina plants are planted in the fall and established themselves prior to going dormant in the winter.

In the Spring when temperatures rise consistently above freezing and the snow melts, the plants will resume growth, flower and are expected to be ready for harvest in early to mid-summer, depending on planting latitude and local climate conditions. Our work over the winter is designed to collect agronomy data on winter Camelina to help guide growing dust practices. We have also planted several demonstrations yields, which will be suitable for building visibility for the crop in hosting grower events in 2023. The yellow pins on the map show the winter contra season locations of our spring Camelina herbicide tolerance field studies for over the top weed control. We reported in February that we have confirmed herbicide tolerance in the second planting of our lead spring Camelina lines in these studies and are scaling up seed for more extensive planting and trialing in Spring 2023.

Let’s turn to Slide 13. Growers want broad leaf and grassy weed control for Camelina. The photo on the top right hand corner of the slide shows our lead commercial quality Camelina event a few weeks after challenging with commercial level sprays of our broad leaf herbicide. This herbicide tolerant event is in our elite proprietary E3902 background. In 2022, we made significant progress testing for herbicide tolerance in Spring Camelina. We executed two field tests showing tolerance to over the top herbicide sprays for broad leaf weed control and we confirmed that our Camelina varieties are tolerance to spray application of , a product used for grassy weed control. This spring we plan to conduct larger scale field work for product development purposes for our herbicide tolerance Spring Camelina.

We have also developed winter lines that have demonstrated broadleaf herbicide tolerance and greenhouse tests. In Winter 2023 2024, we plan to conduct our first field test of these lines. On the regulatory front in 2022 we submitted a request for Regulatory Status Review or RSR to USCA under the Secure Rule and their response is pending. In 2023, we also anticipate the filing of herbicide label amendments for Camelina. Later this year, we look forward to being able to provide a timeframe for the US launch of herbicide tolerant Camelina, which is primarily dependent on completing the regulatory requirements of USDA APHIS and EPA. In the meantime, we will continue generating field data and scaling up seed inventory. Let’s turn to Slide 14. To tap into the large acreage potential of Camelina, the crop needs to have tolerance to herbicide residues that may persist in the soil from previous applications on other crops.

We continue to make solid progress on this goal. In February, we reported that we have developed multiple E3902 Spring Camelina lines with stacked herbicide tolerance traits and that these plants showed tolerance not only to spray application of broad leaf herbicide, but also the group two herbicides. Two herbicides such as , which is persistent soil for months following applications are commonly used to control weeds and cereal and other crops. The photo on the top right hand corner of the slide shows an example greenhouse test in which a stacked herbicide tolerance event was healthy when treated with group two herbicides, where the control line died with a similar treatment. Based on our proof of concept we resolved, we plan to conduct our first research field test of stacked herbicide tolerant E3902 Spring Camelina in our Spring 2023 field test program.

Our team is also making progress deploying stacked herbicide tolerance straights in our other winter varieties. We anticipate our first research field tests of stacked herbicide tolerant winter lines will begin in Winter 2023. With our product development efforts moving ahead at a good pace, we also plan to initiate the regulatory process for stacked herbicide tolerance Camelina this year to pave the wave for commercial introductions of these stacked herbicide tolerant varieties. Please turn to Slide 15, with our work in broad leaf and group two herbicide tolerance well underway, we’ve assessed additional herbicide tolerance traits through deployment in Camelina. As an outcome of this, we recently signed an exclusive option to a novel HPPD trade for producing tolerance to HPPD residues and soil.

HPPD is widely used for weed control and corn and soy rotations. Deployment of this trait in Camelina would open additional winter acreage to Camelina in the Midwest. We anticipate incorporating this trait into our herbicide tolerance program in 2023. We also have more than 10 yield traits in development as highlighted in light green on the table. We have reported encouraging yield data on many of these traits over the last three years. We anticipate deploying combinations of these yield traits in our HT Camelina as a strategy to create a pipeline of elite high yielding commercial Camelina varieties. Let’s turn to Slide 16. We continue to make progress on our two future seed product traits In 2022, our collaborators at Rothamsted Research conducted seed scale up and field trials of Omega-3 Camelina in the UK.

Their field test is shown in a drone photo on the slide. As noted in our third quarter call, we have prioritized development of EPA Omega-3. The seed generated in the 2022 field work is being transferred to us and we expect to plant an acre scale to further ramp up seed production in 2023. We continue to believe that a land-based source of Omega-3 will be a high value Camelina product. In the PHA bioplastic area, our efforts are focused on optimizing the PHA trait to enable PHA bioplastic production in Camelina seed, which can be processed to produce three products, PHA bioplastic, biofuel feedstock oil and protein meal. Our R&D team is conducting activities related to treat optimization. As I wrap up, I’d like to acknowledge the effort of the Yield10 R&D team to positioning Yield10 on the forefront of technology develop deployment in Camelina.

In the year ahead, we look forward to field testing of our best commercial quality herbicide tolerance Camelina alliance, advancing Omega-3 and securing regulatory clearances for our lead Camelina products. I’ll now hand the call over to Chuck.

Chuck Haaser: Thanks Kristi, and good afternoon, everyone. Let’s turn to Slide 17. We ended 2022 with $4.3 million in cash and cash equivalent and investments, and we expect that our cash on hand together with the expected remaining revenue from our current government grant will support our operations into the second quarter of 2023. We continue to have no debt on our balance sheet. Our net operating cash used for operating activities was $3.1 million for the fourth quarter of 2022 as compared to $2.5 million in the fourth quarter of 2021 and for the full year 2022, total net cash used in operating activities was $11.4 million. For 2023, we expect total net cash usage will be in the range of $13 million to $14 million to fund our operations, including our product development activities related to developing herbicide tolerance and Omega-3 Camelina, as well as our early commercial activity related to supporting the adoption of Camelina for the biofuel space.

Further, in 2023, we expect to report our first Camelina product revenue from Camelina grain sales to our offtake customer. Now let’s turn to the fourth quarter of 2022 operating results. For the fourth quarter of 2022, the company reported a net loss after taxes of $3.3 million as compared to a net loss after taxes of $3 million for the fourth quarter of 2021. Total research grant revenues in the fourth quarter of 2022 were $0.1 million in comparison to $0.2 million in the fourth quarter of last year. In the fourth quarter of 2022 R&D expenses were $1.9 million as compared to $1.6 million in the fourth quarter of 2021, and G&A expenses were $1.4 million in the fourth quarter of this year as compared to $1.5 million in the fourth quarter of last year.

For the full year ending December 31, 2022, grant revenue was $0.5 million. Our R&D expenses totaled $7.8 million and G&A expenses totaled $6.2 million. Our net loss after taxes was $13.6 million or $2.76 per share. For more details on our financial results, please refer to the earnings release and our 10-K Oli, back to you.

Oliver Peoples: Thanks Chuck. Let’s turn to Slide 18. This is an exciting time for Yield10. Over the last few months, our team has made significant progress and we’ve established agreements across the biofuel value chain. We’re also excited by the discussions we have had with the growers and their interest — their interest — increasing interest in fitting Camelina production into the rotations. These factors together with the breadths of interest from additional value chain partner prospects are all good reasons to be excited about the future of our business. We’ve executed on the development scale of new Camelina varieties for commercial production, advanced discussions with companies committed to the biofuel space and are committed to our commercial path forward with Omega-3 Camelina.

We are approaching the scaling of our Camelina grain production business using our currently varieties tactically over the next one to two years, with a strong focus in building the relationships with growers and demonstrating the fuel value chain with our partners. We believe that this will position us to accelerate the adoption of Camelina to hundreds of thousands of acres as new varieties with robust weed control become available. Essentially, we plan to walk slow so we can run fast, based on building a solid foundation over the next couple of years. As 2023 unfolds, we will continue to focus on executing our key milestones and footing to expand our commercial activities, target R&D and sustainable aviation fuel markets, engage with growers to introduce the benefits of growing Camelina, and execute on seed production and building inventory for future grower contracts, progress the commercial launch plan for Camelina Omega-3 oils and advance the optimization of our PHA bioplastic trade.

We’re very busy in business development of all these to prospective partners across the entire value chain with our goal of executing strategic and district collaborations and we’ll continue to expand our influential property portfolio. In fact, I’d like to turn the call back over to Lynne for questions.

Lynne Brum: Thanks Oli. Hey, Doug, we’re ready for questions.

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Q&A Session

Operator: Our first question comes from the line of Ben Klieve with Lake Street. Please proceed with your question.

Ben Klieve: All right. Thanks for taking my questions and congratulations on signing up offtake agreement here. First couple questions pertaining to that Oli hoping you can clarify a little bit about some of the business of this entity. I know you can’t name names, but I’m a little confused at the description of it being a processor and bio-refiner. I believe how it was phrased in the presentation. Is this a grain processing company? Is this a — is this an energy company? Is this some combination of both and who is the — and of those options, who is your exact customer?

Oliver Peoples: Yeah, so basically this is a — so I think, if you look at this value chain of course at small scale, they’re all aware of the challenges of other players in this space who went out and contracted lots of acres without anywhere from the grain to go and there’s been — there’s been examples of that. So we’ve obviously elected to avoid that. So this customer basically happens to be a refinery who happens to have their own seed crushing assets, and so they’re sort of an integrated refining operation, which is pretty unique. It’s a very good location for us. They basically will be taking the grain, processing it, selling the mill, and obviously using the oil and the own refinery, which will then go into the biofuels market.

So it’s a very unique situation, very — a great party that we’re very happy to be working with. And what it really does is it allows us to take care of the scaling of this business from that 1,000 acres we did last year. So obviously that, I can’t tell you quite what the scale is, but obviously, to a scale it becomes much more meaningful and obviously we’re very excited about it.

Ben Klieve: Yeah, understandably so, that’s certainly an interesting model we have and congratulations on finding a partner of that calibre. The question of scale then been raising for — the other question I have for, as you’re working to scale your inventory with these MOUs in place now with an offtake agreement, how are you allocating harvested grains into — and the grain going for — going into revenue versus grain going into further seed development versus grain getting processed for kind of R&D purposes? There’s not much, yet, it’s going to scale dramatically, but in these early, early, early stages, how are you thinking about the math there?

Oliver Peoples: I think so first of all, I think what we did this year is I think as with the existing varieties, we’ve obviously, we believe we’ve produced enough seed to handle the next two to three years. So, we’ll have that kind of booted, if you like and the scales we’re anticipating scale progressing to with our harvest tolerance. So I think we’ve kind of — we literally have buying that inventory and we plan to bank that inventory, and so that’s really takes that piece of the puzzle off the table. I think the second of it, we basically plan to obviously dispose of as much of it as we can to the customers. We don’t want to be sitting in grain and we don’t want to be doing small scale crushing when we don’t really have to.

Camelina oil is a pretty known quantity at this point. There are some questions, but the analytical analysis you have to do on oil to determine whether it suits a particular biofuel end user is not that large. And so there’s no real reason to spend a lot of money and use up a lot of the grain that we’re producing in sort of pilot crushing operations. Our goal would be to sort of wait to that. It’s much more meaningful, where we have a party that’s wanted to sign offtake and pay for it in advance and have them also pay for the development of that. There’s no real reason for us to invest in that.