Earnings Transcript for EVGN - Q2 Fiscal Year 2024

Operator: Welcome to Evogene's Second Quarter Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded August 22, 2024. Before we begin, I would like to caution that this presentation contains forward-looking statements relating to future events and Evogene Ltd., the company may, from time to time, make other statements regarding our outlook or expectations for future financial or operating results and/or other matters regarding or affecting us that are considered forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act of 1995 and other securities laws, as amended. Statements that are not statements of historical fact may be deemed to be forward-looking statements. Such forward-looking statements may be identified by the use of such words as believe, expect, anticipate, should, plan, estimated, intend and potential or words of similar meaning. We are using forward-looking statements in this presentation when we discuss our value drivers

Ofer Haviv: Hello, and good day, everyone. In today's conference call, I would like to start with a review of financial and business highlights for the second quarter, continue with an overview of Evogene's activity and conclude with the achievements of our subsidiaries that took place from the last analyst call. Following my part, I am pleased to have Casterra's CEO, Yoash Zohar, present the Casterra's activity, recent achievement and his view on future company growth. After that, Evogene's CFO, Yaron Eldad, will provide a financial update of the second quarter activities. Then we will open the Q&A session. Let's start with the financial and business highlights. In the first six months of 2024, total revenues reached approximately $5.1 million compared to $1.3 million in the first half of 2023. We anticipate continued revenue growth in the rest of the year compared to the previous year. This is based on our expectation for Casterra to initiate the supply of seeds that fulfill existing orders, totaling over $8 million starting this month. In Q2 of 2024, total revenues reached approximately $914,000 compared to $654,000 in Q2 2023. In the first six months of 2024, loss was approximately $9.8 million compared to $14.8 million in the first half of 2023. The decline in the company's loss continues. In Q2 2024, the loss was approximately $6 million compared to $7.8 million in Q2 2023. The projected cash usage for 2024 without Biomica and Lavie Bio did not change from our last call, and it is approximately $8 million compared to $12.5 million in 2023 and notable 36% decrease year-over-year. We recently undertook a reverse split of our shares in the ratio of 10

Yoash Zohar: Hello and good day. I'm pleased to participate in Evogene's quarterly analyst call and share with you my perspective on Casterra, which I joined at the beginning of this year. Casterra's vision is to establish itself as a leading provider of sustainable veg oil feedstock for the global bio-based industries. We are particularly focused on contributing to the biofuel sector where the demand for renewable and sustainable resources is rapidly increasing. Our mission aligns with this vision by offering an integrated ag solution to grow commercial scale castor efficiently and sustainability combining our elite castor seed varieties with advanced cultivation techniques. It's important to emphasize that castor oil is used for a variety of bio-based products and in the last years, there is a growing interest in castor oil as a potential major feedstock for biofuels. Next slide. The castor oil value chain begins with the development of elite castor seed varieties, targeting high yield, high oil content and resistant to abiotic stresses to allow cultivation in marginal and/or semi-arid soils. Next step is the seed production targeting replication of the elite seed varieties performance with high germination rates and other important rates. Now we move to commercial scale cultivation of the castor seeds, to produce high-quality grains. In this phase, professional growing protocols are crucial to capture maximum value from the castor plant. Using mechanized harvesting and other agricultural machinery such as dehulling machines can ensure maximum yield and efficiency with minimum cost and losses. The grain is then shipped to the oil extraction facility with two main products

Yaron Eldad: As of June 30, 2024, Evogene held consolidated cash, cash equivalents and short-term bank deposits of approximately $20.9 million. This amount does not include $8.4 million of expected payments for the open purchase orders of Casterra. The consolidated cash usage during the second quarter of 2024 was approximately $5.7 million. Excluding Lavie Bio and Biomica, Evogene and its other subsidiaries used approximately $2.7 million in cash. Projected cash usage for 2024, excluding Lavie Bio and Biomica is expected to be around $8 million, marking a notable 36% decrease from approximately $12.5 million in 2023. Revenues for the first half of 2024 were approximately $5.1 million, a significant increase from $1.3 million in the same period the previous year. This growth was primarily driven by revenues recognized from Lavie Bio's licensing agreement with Corteva and AgPlenus new collaboration with Bayer. Revenues for the second quarter of 2024 were approximately $900,000 compared to $700,000 in the same period the previous year. The increase was mainly attributable to increased revenues in Lavie Bio. Evogene anticipates continued revenue growth in the second half of 2024 compared to the previous year, mainly based on Casterra's forecast for seed order supply. R&D expenses, net of nonrefundable grants for the first half of 2024, were approximately $8.8 million, a decrease from $10.2 million in the first half of 2023. The decrease in expenses is mainly due to the cease of economic activities and a decrease in certain development expenses in Biomica as compared to the same period in the previous year. Research and development expenses net of nonrefundable grants for the second quarter of 2023 -- sorry 2024, were approximately $4 million and decreased significantly as compared to approximately $5.4 million in the same period in the previous year. The decrease is mainly attributable to decreased expenses in Canonic and Biomica, as mentioned above. Sales and marketing expenses for the first half of 2024, were approximately $1.9 million, a slight increase from approximately $1.7 million in the same period in the previous year. The increase is mainly attributable to increased sales and marketing activities in Casterra during the first half of 2024 as compared to the same period in 2023. Sales and marketing expenses for the second quarter of 2024 were approximately $0.9 million and remained stable as compared to approximately $0.9 million in the same period in the previous year. General and administrative expenses for the first half of 2024 decreased slightly to approximately $3.2 million from approximately $3.3 million in the same period last year. General and administrative expenses for the second quarter of 2024, decreased to approximately $1.5 million compared to approximately $1.8 million in the same period of the previous year, mainly due to decreased noncash compensation and salary-related expenses in Lavie Bio and Biomica, respectively, in the second quarter of 2024. Other expenses, the decision to cease Canonic's operations in the first half of 2024, resulted in other expenses of approximately $0.5 million, mainly due to impairment of fixed assets in the first quarter of 2024. The operating loss for the first half of 2024 was approximately $10.2 million, a significant decrease from approximately $14.7 million in the same period of the previous year, mainly due to increased revenues, as mentioned above. The operating loss for the second quarter of 2024 was approximately $6.1 million, a decrease from $7.9 million in the same period of the previous year, mainly due to decreased operating expenses as mentioned above. Financing income net for the first half of 2024 was $379,000 compared to financing expenses net of $86,000 in the same period of the previous year. This increase was primarily due to increased interest income and a revaluation of the convertible SAFE. Financing income net for the second quarter of 2024 was $138,000 compared to financing income net of $144,000 in the same period of the previous year. The net loss for the first half of 2024 was approximately $9.8 million compared to approximately $14.8 million in the same period last year. The $5 million decrease in net loss was primarily due to increased revenues, decreased operating expenses, partially offset by the onetime $0.5 million of the other expenses related to ceasing Canonic's operation and an increase in financial income. The net loss for the second quarter of 2024 was approximately $6 million compared to approximately $7.8 million in the same period last year. The $1.8 million decrease in net loss was primarily due to decreased operating expenses as mentioned above. Operator?

Operator: [Operator Instructions] The first question is from Ben. In your prepared remarks, you noted Casterra is positioning to fulfill its growing backlog for 2025. What is the current 2025 backlog. And if Casterra evolves from seed production to oil production, would this be based in Africa or Brazil. If in Brazil, can soy crush facilities be used for grain processing?

Ofer Haviv: Hi Ben, this is Ofer. It's great to have you with us. I will address the first question, and Yoash sitting next to me, will address the second one. So as Yoash mentioned, yes, we -- Casterra started to work on its backlog for 2025. But as he also mentioned, we believe that we will be able to disclose numbers only at the next analyst call. And probably we will do so. So I feel -- and we feel that currently, it's a little bit too early. But yes, we feel quite positive about next year production and sales. With respect to second question, I would like -- I will ask Yoash, to take the lead on. I just want to emphasize that we don't have any attention to leave the seed business even if we decided in the future. Again, it's still under evaluation, even if we decided to move to the oil production. So the seed production will always be the basic activity for the company and the oil production could be in addition. Yoash?

Yoash Zohar: Yes, Ben, regarding your question, we are currently evaluating both locations in Africa and in Brazil. I can't say yet -- can't say, which one will be chosen. In regarding to using soy crushing facilities to do castor, technically, it's possible. I mean you're talking about the same machinery. There are other issues. I'm not sure whether soy crushers will be incentivized enough of the castor. But currently, there is overcapacity of castor crushing in Brazil. We've talked to a couple of crushers, at least for the initial stages of such operation, there's no problem where to crush the oil. The operation will grow somewhat then we'd love to find other solutions.

Operator: The next question from [Steven Goldman]. Can you provide an update on AgPlenus?

Ofer Haviv: Hi Steven, this is Ofer. Next to me, Dan Gelvan, the CEO of AgPlenus is sitting, and he will address this question. But in high level, the reason we put specific information about AgPlenus is mainly because there was no press releases coming from AgPlenus this quarter, and we prefer to focus only on significant milestones in my report. But then, yes, we can give some update on the AgPlenus activity. Dan, can you take it?

Dan Jacob Gelvan: Yes. Thank you very much, and thank you for the question. We are very busy at AgPlenus since we announced that we had entered collaborative agreement with Bayer. Essentially, our entire pipeline has been partnered. We have a couple of projects going with Corteva and one with Bayer. We are very limited in giving updates about these unless we hit a milestone, which we did with Corteva and one of them where we declared inactive, which was also in the first quarter. So right now, we have not been able to release any data. We are happy with the progress of these programs, and we believe our partners are also happy. In parallel, we are now starting to build a new pipeline. Again, they'd be partners when we can. Our focus is right now on fungicides. We are very, very excited about what we are doing. We thought we'll be able to have some press releases and something more to share about these programs. We're going after some of the biggest fungi diseases whether it's the rusts or the blotches or the blasts or the smuts, we are working on these. So I would say the work on this are focused on generating new candidates and finding new partners for these candidates. So I hope that next quarter, we'll be able to give something more detail whether about the collaborations or our own pipeline.

Operator: The next question is from Scott Henry of AGP. Could you talk about the trajectory of the Casterra castor seed launch in 2H '24, timing of revenue realization. And what is the current capacity of castor seed production in 2024? And how could that change in 2025. And what is the current gross margin profile of Casterra and where could it go with higher scale? And with regard to the Yalos launch, when should we expect a material revenue contribution. How should we think about the launch curve for the product?

Ofer Haviv: Hi Scott, this is Ofer. I will try to address maybe the first question. The other two questions I will ask Yoash to go. And we also have with me with us here, Amit, Lavie Bio, CEO, so he will help me with the last question. With respect to revenue recognition, so our target is to be able to transfer all the existing purchase order we had from 2023 and from 2024 hopefully until the end of this year. So I hope that we will be able to recognize most of the amount, meaning the $8.4 billion during the second half of 2024. I think that we already mentioned that we already are in the process to start to shift seeds from Brazil to our partners in Africa. And it will be even much easier when we start to finish the harvesting season in Africa, it will be in a few months because the sowing was in a different time slot. And because then shipping it from Kenya to other territory in Africa it will be much easier. So as I said, bottom line, we hope and target ourselves to be able to deliver all the seeds during the second half of 2024. There could be small delays, but at least this is our intention. With respect to the second question is what is the current capacity for castor seed production in 2024 and how could it change in 2025? I will ask Yoash to address this question.

Yoash Zohar: So the current capacity for 2024 is that we are actually growing a bit over 1,000 hectares together in Brazil and Africa. We expect at the bare minimum, at least 800 tons of seeds and possibly significantly more than that. For 2025, we can easily continue and do the same quantity, but we also poised to increase and even double if it will be required.

Ofer Haviv: I think the good news coming from Casterra in 2024 is that thanks to the activity of the company, I don't think that seed production is a limitation on the company. And I think that now we are more focusing on the quality, the pricing, et cetera, et cetera. So it's really a very, very step forward in the company's progress. With respect to the third question, what is the current gross margin profile for Casterra and where could it go with higher scale. So I can't get into the numbers, but at least to our calculation with respect to seed sales, probably, this is the area with the highest margin. Usually, this is the situation in the ag industry. With respect to -- but there is also a very, very nice gross margin according to our calculation in case of oil production. But this is still, as I mentioned, it's under evaluation. And of course, if we decided to move forward into this direction, we won't jump with a significant investment. We will do it step by step to assure that we -- our projection became reality. The margin in -- with respect to seed is quite high and the main reasons because please remember that we invest in the last 10, 15 years, lots of money in achieving the quality of variety -- castor variety we have today. And in a way, this gross margin compensates us on the long-time investment bring us to where we are today. Moving to the last question with regard to the Yalos launch, when should we expect a material revenue contribution? How should we think about the launch curve for the product? So I will ask Amit to take the lead on this question, Amit?

Amit Noam: Thanks for the question. So just a bit about where we are in the Yalos launch. So we launched Yalos in Canada this year. And we were able to line up a few significant retailers, and it's an adoption market. So we were able to have retailers start selling and start engaging farmers. Our plan is for this year, we did additional field trials for more significant crops. So our focus is to move from wheat to barley to soybean and canola. We see the biggest potential of Yalos in soybean and canola. And if we see the positive results we expect by the end of this year, next year, we will already be ready to launch these products -- the product for soybean and canola in North America. And the curve that we expect to see is next year will be the adoption of the early adopters in soybean and canola and by 2026, we're supposed to see a material growth in sales for Yalos.

Yaron Eldad: Thank you, Amit.

Operator: The next question from [Steven Goldman]. Assuming the $8.4 million in castor seeds are received by Q4 by Casterra. What do you expect Evogene's cash position will be by the end of 2024.

Yaron Eldad: Hi Steven, this is Yaron. Thanks for the question. Assuming the $8.4 million of cost of seeds are received by the end of the year, we expect our cash position to be somewhere around $18 million to $19 million. I assume that not all the cash will be received by the end of the year. So the cash position plus receivables from the Casterra sales together will be somewhere around $18 million to $19 million by the end of the year.

Operator: There are no further questions at this time. Mr. Haviv, would you like to make your concluding statement?

Ofer Haviv: Yes. Thank you all for your participating today. We look forward to our next meeting in the coming quarter. Wishing you all a great day ahead. Thank you.

Operator: Thank you. This concludes Evogene's second quarter 2024 results investor webinar. Thank you for your participation. You may go ahead and disconnect.