Ceres' (CERE) CEO Richard Hamilton on Q1 2016 Results - Earnings Call Transcript

| About: Ceres, Inc. (CERE)

Ceres Incorporated (NASDAQ:CERE)

Q1 2016 Earnings Conference Call

January 14, 2016 04:30 PM ET

Executives

Gary Koppenjan - Director, IR

Richard Hamilton - President and CEO

Paul Kuc - CFO

Operator

Good afternoon, and welcome to the Ceres, Inc. First Quarter Conference Call. As a reminder, this call is being recorded and webcast over the Internet. You can access the webcast in the Investor Events 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

Thanks, Vince, and good afternoon everyone. I am joined by Richard Hamilton, our President and CEO, and by Paul Kuc, our Chief Financial Officer. Today, after market closed we announced our results for the quarter ended November 30, 2015. The press release we issued is available on our Web site.

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, uncertainties and other factors that are in some cases beyond our control. Factors that could materially affect actual results can be found in our reports filed with the SEC. Ceres undertakes no obligation to update any forward-looking statements to conform these statements to actual results or to changes in the Company’s expectations.

I will now turn the call over to Richard.

Richard Hamilton

Thank you, Gary. Good afternoon. Thanks for joining us. Hope everybody had an enjoyable holiday season. 2016 promises to be a productive year for us. So I’d like to use today's call to highlight our near-term goals and milestones and update you on the progress we've made in reshaping our organization and the opportunities we have in forage and feed crops and traits.

Overall, the first quarter marked a significant improvement for the Company. Revenues were up, expenses were down and we executed according to plan. We have substantially completed our shift away from bio-energy in Brazil, where the economic news around oil prices and the Brazilian economy continues to deteriorate and our decision to refocus the Company on forage and feed applications appears better and better each day.

Unlike bio-energy in Brazil the forage business today has a number of macroeconomic tailwinds behind it, fueled by fundamental changes in the diet of more than a billion people who are [indiscernible] middle-class. Quite simply, as populations become wealthier, they tend to increase their consumption of meat and dairy products. China's recent announcement that it has rescinded its one time policy further supports this trend. In the not too distant future, this decision is likely to have a fundamental impact on dairy and beef consumption and the feed and forage crops that support it.

Moreover, we believe that water scarcity which is being driven by an increased urban and agricultural consumption will lead diaries and live stock producers to increase their use of crops like forage sorghum that require less water than their current crops. Back in our November call we outlined our plan to build our forage business and establish ourselves as a supplier of high value premium hybrids season traits beginning in the United States. While we are here still in the early days of executing on this plan, we have already achieved a number of important milestones that we believe are validating both our technology and our business plan.

In forage sorghum, we successfully launched high performing conventional seed products in 2015 and we are in the process of building our customer base and acreage. We’ve also put in place multiple distribution agreements with the well known agricultural input suppliers like Helena and Wilbur-Ellis. At the same time, we’re developing proprietary traits that can further enhance the performance of our seed products. We believe that our traits provide us the opportunity to significantly increase the value of our seeds, differentiate ourselves from our competitors and expand the market potential of our products beyond the historical acreage of forage sorghum. In addition to forage sorghum, our portfolio of biotech traits has potential application in other crops by like alfalfa, silage corn, sugar cane and grain crops. Most recently, we completed a trait collaboration agreement with Forage Genetics International, a leading alfalfa company.

Looking at our upcoming calendar, we have a number of important near-term milestones related to our forage business. In the next few weeks, we expect to announce the results from our 2015 commercial plantings. As a reminder, we sold more than 4,000 acres of our branded forage sorghum hybrids to dairies, feed lots and forage producers. This represented a 6x increases over the previous season, where we conducted premarket testing and limited sales. In certain regions, where crops can be planted year around we had strong repeat sales and hope to expand on this success as customers in other regions review the results and prepare for upcoming spring and summer plantings.

In addition to our commercial sales, our 2015 plantings included pre-commercial hybrids that are in advance testing ahead of commercial introduction. These trials included head-to-head comparisons against leading incumbent products from competitors. Distributors and growers use the results from these trials to select the products that they will sell or grow in the coming season, and we expect high performance here to translate into additional distribution agreements and ultimately increase seed sales. We’re currently awaiting a few more datapoints and preparing our analysis for publication and we look forward to sharing our results in the next few weeks.

We recently met with distributors who share our visions that the performance and value of forage sorghum can be increased through technology and remain optimistic that we can expand our network into new regions of the country. Distributors provide us with an immediate channel to market, as well as local market information, agronomy support, and access to their customer base. It also allow us to cost effectively extend our product development efforts. We are proud of the endorsement we have received via our current distributors and look forward to concluding new agreements in the near future.

In addition to our conventional forage sorghum hybrids, we’re also using biotechnology to further improve our seed products. In forage sorghum, we’re taking advantage of the natural drought tolerance of sorghum and combining it with biotech traits for enhanced biomass yield and quality. We currently have a number of yield and quality traits under development. Our lead trait, which increases biomass, has previously recorded more than 20% increase in yield in both greenhouse and field tests.

Results from a research study are not a guarantee of future commercial performance and further evaluations are going to be necessary to confirm performance. In the coming weeks, we plan to announce the results for our latest trait field trials, which are the largest we’ve conducted to-date in sorghum. From a competitive standpoint, we’re not aware of any companies at this time that has announced plans to bring traits to the market, so we believe we have a significant technology advantage.

One of the reasons we’re enthusiastic about our forage sorghum hybrids and traits is that we received confirmation from the United States Department of Agriculture that our high biomass traits we have implemented in sorghum is not considered a regulated article under the USDA’s mandate to regulate genetically engineered plants. This determination is likely to make it more cost effective and timely for us to develop this trait and sorghum and as a result we believe we can initiate commercial sales as early as 2018.

In addition to our trait work in sorghum, we also continue to work with our current licensees, as well as pursue additional collaborations to bring traits to market. In November, we announced a new multiyear collaboration with Forage Genetics International to develop and commercialize improved alfalfa. Forage Genetics is one of the largest alfalfa seed developers in the world. We’re pleased with this validation of our technology from such a well established partner. While the key benefits of working with Forage Genetics is their ability to stack our technology with first generation biotech traits like herbicide tolerance. For other forage crops like silage corn we continue to have business development discussions to license our trait technologies, but we look forward to making additional trait licensing deals.

Outside of forages we’re moving our trait pipeline forward in a number of crops. In particular, we will reach a key trial stage shortly in our sugarcane program. Our lead genes are in the field now for a second season in Latin America. We expect to have yield and other performance results from these larger scale research trials in the next 150 days. Positive results here would provide us a launch point from which to initiate business development discussions related to the licensing and commercialization of our traits in sugarcane in Latin America.

In addition to biotech traits, we’re expanding our activities for our bioinformatics software called Persephone. Persephone is now the primary genome browser in a number of multinational plant science companies including Syngenta and Bayer. We continue to receive positive feedback from our customers and recently introduced new features and capabilities. For instance, despite the rapidly growing size of genomics data files, we have increased the speed of the system making the interface easier to use and automated most aspects of importing data into Persephone. We’re focused on the plant sciences now and have a number of product demonstration and licensing discussions in progress.

In closing, we’re excited to see the momentum building in our business and the progress we’re making across our seed and traits pipeline. We’ve a clear set of goals ahead of us in 2016 and we look forward to continuing to deliver on our milestones.

I’ll now turn the call over to Paul Kuc, our CFO for an update on our financials.

Paul Kuc

Thank you, Richard. Today, I would like to discuss the steps we have taken to finance our growth plans and then review our financial results for the quarter. Last month, we completed a key step in funding our forage and traits business with a completion of a public offering. The net proceeds of the offering were approximately $6.4 million after deducting underwriting discounts and commissions and offering expenses. Concurrently, we have completed our shift away from bio-energy in Brazil and into higher value forages. During this process, we have identified significant opportunities to reduce operating expenses, while redirecting the resources we need to rapidly build and support our forage business.

We are targeting an $8 million to $10 million reduction in our operating expenses in fiscal year 2016, as we realize the savings from our realignment. We had some training expenses in Q1 and Q2 related to the restructuring in Brazil and we expect to reduce cash requirements of our forage and trait business model to be fully reflected in our operating expenses beginning in February.

Turning now to our financial results, I am pleased to report that we have demonstrated significant progress during the first quarter towards redirecting our resources and reaching profitability. This included more than 125% increase in revenue and more than 25% reduction in operating expenses over the corresponding period last year. For the quarter ended November 30, 2015, our total revenues increased by $0.5 million to $0.9 million compared to the same period last year primarily due to increased revenue recognized under our software services agreements. Our total cost in operating expenses decreased by $1.6 million to 4.8 million.

Looking at our spending categories cost of product sales increased by $0.5 million to $0.9 million primarily due to increased seed production costs. Research and development expenses decreased by $0.8 million to $1.7 million, primarily due to reduced personnel and related expenses in Brazil and the U.S. Selling, general and administrative expenses decreased by $1.3 million to $2.1 million. In the U.S. expenses decreased by $0.8 million, primarily due to reduced personnel related expenses and reduced professional fees.

In Brazil, expenses decreased by 0.5 million, primarily due to reduced personnel and related expenses as a result of the restructuring of our Brazilian operation. For the first quarter of fiscal year 2016, we reduced our net loss from operations by approximately $2.2 million to $3.8 million as we benefitted from lower cost and expenses and increase in total revenues. We ended the quarter with $3.4 million in cash and cash equivalents. This was of course prior to the capital raise we completed in December.

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 in the call back over to Richard.

Richard Hamilton

Thanks Paul. Thanks everybody for your time today. Our shift away from bio-energy in Brazil into forage and feed crops is going well, and has exceeded our expectations to-date. We're in an exciting inflexion point in our pipeline of forage sorghum hybrid and we've a lot of news to look forward to in 2016. To summarize our calendar, in the next few weeks we plan to announce how our commercial forage sorghum seed products performed in 2015, as well as results from our pre-commercial trait trails. We should start seeing the impact of our seed product results in the form of new distribution agreements which we will announce as they are initiated, as well as an increase in the amount of seed we can sell this season.

In the next five months we expect to have results from our sugarcane evaluations. These trials will provide more definitive results as we explore discussions so license this technology. We also expect to sign additional licensing agreements for our traits and genetic technology this fiscal year. These are business development discussions so it could be difficult to predict timing, we remain confident of successfully concluding additional deals. These are our priorities and our team is working diligently to deliver on them. We look forward to sharing our progress with you. Have a good afternoon and evening.

Operator

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes your program. You may now disconnect. Everyone, have a great day.

Question-and-Answer Session

Q -

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