Calyxt, Inc. (CLXT) CEO Jim Blome on Q4 2018 Results - Earnings Call Transcript

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About: Calyxt, Inc. (CLXT)
by: SA Transcripts
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Earning Call Audio

Calyxt, Inc. (NASDAQ:CLXT) Q4 2018 Earnings Conference Call March 12, 2019 8:30 AM ET

Company Participants

Simon Harnest - VP, Strategy and Finance

Jim Blome - CEO

Manoj Sahoo - Chief Commercial Officer

Bill Koschak - CFO

Conference Call Participants

Adam Samuelson - Goldman Sachs

Ken Zaslow - Bank of Montreal

John Baumgartner - Wells Fargo

Akshay Jagdale - Jefferies

Ben Klieve - National Securities

Jon Hickman - Ladenburg Thalmann

Operator

Greetings and welcome to the Calyxt Fourth Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I'd now like to turn the conference over to your host, Simon Harnest, Vice President of Strategy and Finance. Thank you. You may begin.

Simon Harnest

Thanks, Matt. Welcome and thank you everyone for joining at Calyxt's fourth quarter 2018 financial results conference call. Joining me on the call today with prepared remarks are Jim Blome, our Chief Executive Officer; Manoj Sahoo, our Chief Commercial Officer; and Bill Koschak, our Chief Financial Officer.

Yesterday evening, Calyxt issued a press release reporting our financial results for the three months ended December 31, 2018. This press release is also available on our Web site at www.calyxt.com.

As a reminder, we will make forward-looking statements regarding financial outlook in addition to regulatory and product development plans. These statements are subject to risks and uncertainties that may cause the actual results to differ from those forecasted. A description of these risks can be found in last year's Form 10-K and Form 10-Q on file with the SEC.

And with that, I would like to turn the call over to Jim.

Jim Blome

Thank you very much, Simon. We're extremely proud of the Calyxt team's 28 [ph] achievements, which have demonstrated and solidified our leadership position. Today, we announced the successful construction and execution of a fully integrated commercial Ag biotech company, which is our headline for Calyxt's 2019 plans. The excitement continued to grow over the last six months as we prepared Calyxt to become the first company to market the first ever gene-edited food product.

This first product, Calyno, is our premium high-oleic soybean oil with approximately 80% oleic oil content that has zero trans fat per serving. We are pleased to announce that we have successfully completed the regulatory processes with the FDA and USDA for Calyxt high-oleic soybean. Another significant milestone has been achieved by our team of agronomists with the contracting of over 48,000 high-oleic soybean acres with more than 130 farmers for the 2019 growing season, far more than doubling the 17,000 acres we planted in 2018. Getting to this point has been no small fete. Within just a few years, our team has enabled our fully integrated business model based on our revolutionary technology, with the vision to make the food you love a healthier choice.

Our significant head start in the gene editing space, the rich pipeline of consumer-focused crops, as well as our footprint on U.S. farms are the drivers behind our early success. Today, with the launch of Calyno Oil we are proving our integrated business model. Starting with the farmer as our partner, who shares our vision of higher quality food ingredients and joining with our food service customers and livestock caretakers who purchase our end products of premium soybean oil and meal. One important aspect of our business model is our identity-preserved supply chain, which allows our customers to be confident in the quality of our product.

In 2018, we established this identity-preserved supply chain with a dedicated crushing agreement with American Natural Processors, and a processing agreement with our refinery partner, KemX. These agreements allow us ample room in our volumes of soybean oil process to enable growth for the coming years. In order to scale up and de-risk our supply chain for growing volumes of crop and food ingredients produced, we have established a series of strategic alliances. I would like to highlight our recently announced alliance with Agtegra as an excellent model for our space. Agtegra is the eights largest Ag retailer in the United States, and this alliance enables us to win on multiple fronts simultaneously.

It immediately expands our seed distribution capabilities with access to over 6,300 farmer members across North and South Dakota. These relationships will allow us to scale up our identity-preserved supply chain through Agtegra's network of elevators and to optimize our supply chain through better logistics and rail transport. Agtegra will distribute Calyxt high-oleic soybean seeds to the cooperatives' farmer members in South Dakota, and will provide logistics and transportation services for grain shipment. Calyxt and Agtegra will work together to provide field services for proper placement and agronomic advice during the growing season.

The storage and handling of Calyxt high-oleic soybean grain at Agtegra would be under the Calyxt Soybean Identity Preserve Program. Finally, this framework will help lay the foundation for our high-fiber identity-preserved supply chain in the same region as our high-oleic soybean. I would like to make a quick comment about our work with regulators. Calyxt completed a consultation with the Food and Drug Administration for high-oleic soybean. After review, the FDA informed us it has no further questions concerning human food ingredients or animal food derived from Calyxt high-oleic soybean. Calyno Oil is the first gene-edited food product to undergo such review and be marketing commercialized in the United States.

With this, I'd like to hand the call over to Manoj Sahoo, our Chief Commercial Officer, who will give you a detailed update on our food customer engagement and grower base. Manoj?

Manoj Sahoo

Thank you, Jim. It is indeed a very exciting time for innovation in the Ag and food industry. The successful marketing of our high-oleic soybean, our first product to market, demonstrates that [technical difficulty].

Operator

We apologize for any technical difficulties. The conference will continue momentarily.

Once again, the conference will continue momentarily.

Manoj Sahoo

Sorry, can I repeat again, or did you not hear me?

Operator

If you could start over, yes.

Manoj Sahoo

Yes. Thank you, Jim. It is indeed a very exciting time for innovation in the Ag and food industry. The successfully marketing of our high-oleic soybean, our first product to market, demonstrates that consumers and food brands are embracing innovation, and are willing to pay a premium price for products which are healthy, sustainable, and traceable. I will start by giving you an update on our first food company customer, our customer pipeline, and target segments for Calyno Oil and Meal. I'll then talk about the execution and scale-up of Calyxt identity-preserved supply chain for soybean, and finish by describing our expansion of 2019 acres, and how we see our growth potential into the next few years.

Starting with our first customer credentials, our first customer of Calyno Oil is a food service operator with a chain of restaurants and private label brands. The network includes 14 locations, and they are looking to expand into in-plant dining locations, often called in the industry as Contract Catering. This customer can potentially take up to 10% of Calyxt 2019 oil production volumes. First order is at a price that is above the average premium oil price and against an annual fixed price contract. This customer will mainly use our Calyno Oil for frying. Other uses are salad dressing and sauces. We are pleased that this customer confirmed the following benefits of Calyno Oil.

First, our oil had 3x the amount of heart-healthy oleic acid, and 20% less saturated fat than commodity soybean oil, and more importantly, zero trans fat per serving. Second, Calyno Oil has better fry performance and lower operating cost with up to three times the fry life versus commodity soybean oil. Third, Calyno is local, U.S. sourced and refined in the upper Midwest with traceability from farm to the fork.

Now coming to food company update, the first customer I was just talking about is the beginning. We are currently in discussions with over 40 food companies. About half of this are food ingredient applications where oil is part of the label, for example in cereals, granola bars, meatless burgers. Other half are in food service segment. Fifteen food companies are actively testing Calyno Oil samples. Five of these potential customers have confirmed that Calyno Oil has been qualified.

For example, a large national broad line food service distributor with multi-billion dollar in sales recently qualified Calyno Oil after conducting fry test in-house. They compared Calyno with commercially available high-oleic canola and high-oleic sunflower oil. This potential customer confirmed that Calyno Oil exceeded the expectations with equal or better performance in terms of fry life and flavor transfer than commercially available high-oleic oils.

Currently, we have ongoing commercial negotiations with seven potential customers. I would like to provide some more color on additional market segments where we have ongoing discussions with food companies and explain the value proposition of Calyno Oil in this segment. The first segment is food service. Calyxt value proposition to food service includes an extended fry life leading to potential for, first, cost in use savings, second, less [indiscernible] build up in fryers, and third, reduced labor cost.

Calyno Oil has a neutral and consistent taste making it easy to fry different kinds of foods. The market for vegetable oil sold into food service segment is forecasted at $3.9 billion by 2021 which translates to a little over 5 billion pounds of oil annually. Within the food service space, we have identified in-plant dinning, often called in the industry as contract catering segment as a user of premium oils. This includes offices, hospitals, sport arenas, and educational institutions.

These make up about 26% of the total food service markets revenue. Industry analyst estimate that the market for vegetable oil sold into this space is approximately U.S.$1 billion annually. Another opportunity for us is the non-dairy creamers market. Globally, 2 million metric tons of non-dairy creamers were consumed in 2018. Data from published patents indicates that the normal range of oil content in non-dairy creamers is between 20% to 40%.

Calyno Oil could add significant value to this segment through its extended shelf life due to high-oleic content. Lastly, we see opportunities in the breakfast cereal market with retail sales over $10 billion annually. And 1.6 tons of cold cereals produced in 2018, we see a significant opportunity to tap into cold cereal market that includes applications in granola and excluded cereal products.

It is estimated that approximately 180 pounds of oil were used in this applications in 2018. Calyno Oil could deliver extended shelf life to these products. Finally, we have successfully commercialized high-oleic soybean meal which represents a significant part of our potential revenue stream. Having concluded initial sales, our soybean meal is currently sold as a premium feed ingredient to hog and poultry producers.

Now a few words about execution and scale up of our soybean supply chain. In the past month, we have successfully executed on Calyxt identity preserved supply chain for soybeans proving to our customers that Calyxt can be reliable and trusted supplier. Activities included successful harvest, segregated storage, testing of grain for quality followed by confirming high-oleic status at both elevators and crushers, actual crushing of the high oleic soybean followed by refining of crude oil, testing to meet quality requirements of our Calyno Oil and meal, transportation and logistics, invoicing, customer set-up, and last but not the least, collecting payments.

We are also on track to new high-oleic soybean varieties to expand our geographical reach. These new varieties have been planted in North and South America to take advantage of two growing seasons per year. We remain on track to add two or more additional high-oleic varieties by 2021. With our new soybean varieties, we are targeting to expand the geographic agronomic fit for products to include six states: South and North Dakota, Minnesota, Iowa, Nebraska, and Wisconsin.

Over 40% of the total soybean acres planted in U.S. is in this target states. I would like to highlight our 2019 acre acquisition as an important measure for you to monitor the real-world growth of our footprint and scale. We are impressed with the expansion of our high-oleic soybean acres for 2019 meeting or exceeding the metrics we had set ourselves for our 2019 acre goal.

We are extremely proud to announce that we have signed up over 48,000 acres with more than 130 growers. This is a significant ramp up compared to our 17,000 acres planted in the 2018 growing season. The average acre for farmers has increased from last year's 220 to over 350, representing a 59% increase. The average size of the farm has also increased from 2500 acres to 4400 acres. Calyxt growers in total farm over 600,000 acres and our high-oleic variety represents an impressive 18% of their total planted acres.

We'll continue to grow, sign up growers for the 2019 planting season. The momentum and support from our growers has been really incredible. Just to give you an example recently 50 of our growers drove an average six hours to come to our headquarters for a town hall event to experience firsthand who is Calyxt, our mission to develop healthier food and impact on gene editing in the ag and food industry.

Our farmer partners are excited by our mission and being able to share this new value-focus trend. They are best brand ambassadors for Calyxt, telling their story about working with Calyxt in their own local community. To wrap up my talking point, I would like to mention a few highlights of our upcoming product pipeline.

We are excited to move forward with our high fiber wheat product which is in the middle of scale-up after having successfully completed real-world field testing last year. One exciting fact is that farmer members of Agtegra are planting both wheat and soybean; therefore, creating an ideal target partner for us. We are also moving forward with our improved quality alfalfa product.

Our partner S&W Seeds has successfully completed field trials in U.S. to progress the development and characterization of new varieties with enhanced digestibility trait. Our alfalfa product has the potential to improve economics and sustainability in dairy businesses, a larger user of alfalfa. The alfalfa product is being commercialized under our licensing business model and is likely to be in the market by 2021 or 2022.

With this, I would like to handover the call to Bill Koschak, our CFO. Bill?

Bill Koschak

Thank you, Manoj. I would first like to take a moment to introduce myself. I joined Calyxt in early January. And I am excited to be in a leadership role at such an innovative company in the food and agriculture industry. I have held several roles in other organizations in my nearly 30-year career that will serve me well here at Calyxt including having being a corporate CFO in a private equity environment and leadership roles at both General Mills and KPMG.

I joined Calyxt to help us drive focus and delivery in our product pipeline and to ensure we fully capitalize on the commercial opportunity in front of us. I was also attracted to Calyxt because of the leadership team that we have assembled, our board, and the technological capabilities we can bring to bear to fruit using address health issues such obesity, heart health, and diabetes.

I would like to turn our attention to the year-end finance position and results of operations. We ended the year with cash, cash equivalent, and restricted cash of $95.3 million. During 2018, we used $20.3 million of cash to fund our operating activities. During the fourth quarter, we completed a lease facility for capital equipment purchases. The total facility is for just over 2.5 million of borrowings on a secured basis, and 1.1 million is still available to us in 2019. The proceeds in the facility are considered restricted cash, and totaled 1.4 million at December 31, 2018.

Our headquarters facility is also now fully operational, and we expect the focus of our capital expenditures in 2019 to be for R&D equipment acquisitions and tactical purchases to enable crush yield increases and margin expansion in our commercial operation.

We expect to have up to 5 million of working capital at the end of the year, primarily inventory and accounts receivable. Now that we have our first sales, we will be exploring our options for financing this working capital. We will also take into consideration the impact of the acreage increase in 2019 on our financing needs, and that increase will impact our working capital in 2020.

Considering the items I've discussed and our projected operating cash burn rate of approximately 3 million per month in 2019, our cash runway provides funding through early 2021. Our cash burn rate has accelerated, driven by a projected increase in headcount to support the commercial launch of our high-oleic soybean oil and meal, and to continue to ramp up our product development activities.

In 2019, we will be recognizing revenue from the sales of our high-oleic soybean oil and meal. Our plans for 2019 project our revenue between 7 million and 8 million, based on acres harvested to-date. We do not currently recognize revenue from seed sales. Those amounts are netted against grain costs. Our margins on these initial revenues will be low as we scale up our supply chain and start to leverage our fixed costs. We did purchase 2.8 million of grain in 2018, and recorded those costs R&D expense, because we have not achieved commercialization. Effective with our commercialization, we began to capitalize grain purchase costs into inventory.

Last, with our expansion of activity, comes the need to manage risk effectively. Beginning in April 2019, we expect to begin to hedge our commodity risk from grower contracts, customer agreements, and our inventory positions. We will expand other areas of risk as our business scales up.

With that, I would like to pass it back to Jim for his closing remarks.

Jim Blome

Many thanks, Bill, for that detailed summary. I would like to conclude our call by drawing your attention to the main value driver for Calyxt this year. We will scale up our logistics in grain distribution capabilities through strategic alliances, while maintaining an asset-light business model. We will introduce new soybean varieties to expand into new maturity groups. The resulting geographical growth expands our farmer reach and relationships, and strengthens our identity preserved asset-light supply chain model.

Our ex-potential acre growth year-over-year is a good indicator for you to measure our success. We will focus our efforts on the commercial launch of our high-oleic soybean oil, Calyno, where we will pursue a cautious approach in customer acquisition that will properly position us for growth. The branded food business is built upon trust, stability, and reliable quality, and we are positioning Calyno with key food customers via our significant head start.

We are impressed by the demand for our product, and we would like to meet this demand through strong relationships. We have refined our strategic focus on soybeans and weed to harvest the significant benefits derived from overlapping growers, geography, agronomy partners, identity-preserved supply chains, and food customers to achieve rapid scale and optimize margins. We see great future value in stacking additional healthy food benefits into our current and future soybean and weed offerings.

It's important to point out that we will not focus on soybeans and weed to the exclusion of all other crops, but rather we'll take a valued partner approach. In crops, other than soybeans and weed, we will increase success, and avoid dilution by utilizing our gene-editing leadership expertise and freedom to operate to attract leading crop-specific partners to bring health benefits to consumers.

To sum it up, we just became the first company ever to commercially launch a gene-edited food product. We would like to capitalize on our head start in terms of product development and intellectual property to drive the expansion of our soybean and weed franchises.

Okay, we'll then move forward with focus and with careful consideration into either value-added crop products. Our mission is to make the food you love a healthier choice. This expresses that any product we are pursuing has a clear health and sustainability characteristic built in. We are proud that our farmer and food customers share this vision and attach a premium to our products.

With that, I would like to open up the call for any questions. Operator, please go ahead.

Question-and-Answer Session

Operator

Great, thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question is from Adam Samuelson from Goldman Sachs. Please go ahead.

Adam Samuelson

Yes, thank you. Good morning everyone.

Jim Blome

Morning, Adam.

Manoj Sahoo

Morning, Adam.

Adam Samuelson

I guess, first, I'd love to dig in a little bit on the first commercial sale of Calyno, and just understand how you plan on going about the rest of the year? I mean in the $7 million to $8 million of revenue that you just outlined, does that assume that you sold out your full soybean oil production from the 17,000 acres produced last year? And just help me think about the timing, if you've one customer that can take 10% of your production and how quickly you're going to have agreements in place to lock up the rest of the volume?

Manoj Sahoo

And thanks, Adam. It's a really good question. As you know, big things start small. Every big thing started small, so this is the first ever time a gene-edited food product is being sold in the U.S., and we proud to be commercializing it. As you know, we have a very rich pipeline in which 15 customers are already testing the product and five have already qualified. And we are in negotiation with seven of them, who we believe would be coming in with a strong demand for these customers following the lead which was sown by our first customer. We anticipate that this product, high oleic soybean oil, would be sold in the coming months, and very soon we would like to be telling the markets that we are sold out of our 2019 production, which come mostly from our 2018 planting season.

Adam Samuelson

Okay, that's helpful. And then just as you think about the acreage that you're planting for 2019, the 48,000-plus acres, do the -- I mean the volume opportunities with the customers you're signed up or in negotiations with, do you think that you need to have significantly more customers signed up to sell out into next year or do you think that there's opportunities to grow with the customers that you're working with today?

Manoj Sahoo

And some of these customers are very large customers. Obviously we want to start at a point where we are catering to percents [ph] of their needs. As you may recollect from our earnings call that our oil actually met or exceeded some of the competitive offerings in the market. So, I am pretty sure that as the customers use the product they would be incorporating more into their portfolio, thereby having the potential to take additional percentage of our 2019 road. So, I call it increasing the market share within their portfolio. So, some of these customers, because of their large size, would have a significant upside in terms of volumes in 2019 as well.

Adam Samuelson

Okay. And then, I guess this is probably for Bill. Just wanted to get a little bit more color on the risk management activities that you were talking about, beginning in April, just to hedge the meal and soybean pricing, and just the working capital, kind of financing opportunities you're pursuing and likelihood you have resolution on that in this year?

Bill Koschak

Sure. And we'll certainly start simple with how we go about managing our commodity risk. We've engaged a reputable firm to work with us. We will actually hold the contracts and execute the trades, but we'll do back-to-back contracts to hedge our grower exposure, for example. And then we'll do the same on customer contracts. In terms of the financing, now that we've got our first sales, I believe that we're bankable, and we will continue to engage in conversations with people who have been very interested in lending us money up to this point, and letting us know that we needed our first orders to -- and completing our first sales to go about executing those transactions. So that's what we'll look at. We'll do it in a very manageable and in a simple-to-understand way from our investor base; we don't need to get too creative.

Adam Samuelson

Okay. And then just on the risk management, are you going to be subject to hedge accounting where there could be mark-to-market kind of volatility in the reported GAAP results from movement across spreads?

Bill Koschak

We are working through with that. Looks like there are a couple of alternative, one would be to follow a traditional mark-to-market accounting model for our inventories, and obviously then all derivatives have to be that way. The other would be to lower cost of market with hedge accounting as best we can. It will be difficult with the hedge accounting, as I've looked at this. We may end up in a spot that would look like the accounting model that General Mills has for its derivatives for example, where we would non-GAAP from mark-to-market. But we will have an answer for that question, Adam, by the time we get to the end of the first quarter.

Adam Samuelson

Okay, great. Really appreciate the color. I'll pass it on.

Operator

Our next question is from Ken Zaslow from Bank of Montreal. Please go ahead.

Ken Zaslow

Hey, good morning everyone.

Jim Blome

Good morning.

Manoj Sahoo

Morning, Ken.

Ken Zaslow

Just follow-up on Adam's question, I didn't understand the answer. The $7 million to $8 million is that just the 10% or is that the sellout of the entire oils?

Bill Koschak

That number reflects selling just the acres that we've harvested to this point. So it's not -- it's a full sellout of the 2018 and prior crop. We have smaller number of acres in 2017. It does not reflect selling any of 2019's harvest late in the year.

Ken Zaslow

Okay. And then your relationship with Agtegra, how does that imply for the acreage in 2020 and beyond. How quickly can you ramp up the acreage from this year? Will we see another doubling, is that the speed? Does this accelerate the pace to which you can get acres out there? And is working capital the only hindrance to expanding?

Jim Blome

Yes, we're very proud of the strategic alliance with Agtegra. And it's a large distribution company involved in 60 different communities throughout the Dakotas. So, the ability to expand is there, the support for grain handling and distribution of seeds, the warehousing, the placement, and the agronomists' support for growing the beans is there. So, as we start our commercial activities with food companies and see the demand, we can grow more soybean seeds with the year advance, and expand into this agronomy seed warehousing crushing and refining business that we've set up fairly easily. So our limiting factors with 12 months advance would be, you hit it, would be producing the seed for planting and the working capital requirements.

Ken Zaslow

Okay. And then can you also talk about how the relationship speeds up the introduction of your wheat product, and then what has changed on that with this? Is this in line with initial expectations or does this accelerate that process as well?

Jim Blome

It does accelerate it because we've learned a lot regardless of the head start that Agtegra gives us. We've learned a lot in this process of commercialling the first. But specifically to Agtegra and where they're located, they're right on top of our current soybean acres, so almost every one of our customers also grows wheat. So our database of growers immediately expands into this wheat area, and the agro-geographic are for handling grain and doing other things in our logistics are already with this same partner. So, it really is the -- the true benefit is the soybean grower being also a wheat grower in that head start in that relationship.

Ken Zaslow

So, it both accelerates and increases the probably of success or which one do you think it actually does more of, I guess, is what I'm trying to figure out?

Jim Blome

No, it should accelerate our penetration, but it also allows us to optimize margins quicker through scale, right. So, we'll have the experience, we'll have the base, and we'll understand where we're going prior to launching wheat, versus the learning experience a brand new company had in our first product with high oleic soybeans.

Ken Zaslow

Okay. And then my last question is I think you mentioned that there was a pricing premium relative to soybean oil. Can you talk about that?

Manoj Sahoo

Sure. Ken, you know the commodity markets. Soybean oil has been selling at between $0.29 to $0.35, and USDA regularly publishes on an annual basis what the basket of oils, including premium oils sell for. I think we're very pleased that some of our early customers, including the first customer are willing to pay premium oil prices or higher, which is great from an adoption standpoint, that there is a market potential or an unmet need in the market which Calyxt Calyno is fulfilling. So, we are very thrilled by that premium potential. And it comes from a, the health benefits of a high oleic, and second is the high performance which has been validated by multiple customers through the in-house testing, and last but not the least is the sustainability and traceability. Being local is the trend, especially amongst restaurants as well as brands which find themselves into the grocery stores, like Whole Foods or Trader Joe's.

Ken Zaslow

Great, I appreciate it. Thank you very much.

Operator

[Operator Instructions] Our next question here is from John Baumgartner from Wells Fargo. Please go ahead.

John Baumgartner

Good morning. Thanks for the question. Why do you -- just stick with soybean for a moment. The identity preserve premiums for the 2019 crop, how are you seeing those kind of shakeout year-on-year versus what was there for 2018?

Manoj Sahoo

So, John, thanks for the joining the call, and the question. As you know that we have given that last year our premiums ranged between $0.55 and $0.90, on an average were somewhere around that $0.70 to $0.80, in that median range, with we got 17,000 acres. This year, because of the pull we are getting, especially amongst larger growers, some of them have been growing 1,000 acres or more. We have to create a new slab. So it's the same $0.55, instead of $0.90, it's not the upper limit is $1.00. And the averages are in the similar range, around that $0.80 to $0.90 range, so not materially different from what we had given last year in spite of the fact that we are more than 250% versus last year.

John Baumgartner

Okay. And on the wheat side, so it looks like the commercialization of the high-fiber wheat, you're looking at it now more of a 2022 timeframe versus I guess 2020 or 2021 earlier. Can you maybe walk through the steps of commercialization and maybe what was delayed relative to your initial expectations and how it kind of progresses from here?

Manoj Sahoo

Sure. First is that we are not delaying any launch. It can still happen in 2021, so we're not discounting that. But to count what comes next, let me give you high-level what has happened so far. We are in the Phase 2 of the product, which means that first company ever to do the gene editing of a wheat product. Wheat is incredibly complex because it's a hexaploid; each copy of the genes appears six times. Remember, we have always told the markets that TALEN is a highly precise gene editing tool versus any of the competitors. We had a laser gun versus a shotgun. And you need a laser gene editing technology to do six copies exactly the same way. And that's what we did, we proved out that the gene editing can be done, and we produced the first product.

We proved in our greenhouse that our product met the concept, which is three times as much fiber, which means that food companies can label themselves as a high source of fiber with all the claims around cancer reduction -- potential cancer reduction or even reducing obesity and coronary heart diseases. That has been done. We went to USDA and confirmed that product is a non-regulated article, i.e., not a GMO, which is important. The third thing we did was that we said, okay if we can do it in the greenhouse, does it really translate into in the field conditions. And we have already done that. What comes next within 2019 and the coming years is, a, scaling up our seed production so that we can launch at a commercial scale in coming years. Second, is making sure that the trait is passed on to different classes of wheat.

U.S. grows different classes of wheat. So we would be actually incorporating our high-fiber into multiple classes of wheat with the launch being in the spring varieties and then followed up by the winter varieties. Third, would be we'll be completing very detailed food application studies about identifying specific market segments where we are solving a pain point because of the, a, the increasing demand for fiber amongst consumers, and b, there have been changes in the guidelines by FDA, in June of last year, which makes the problems for food brands even more acute because the daily dietary value, required value has gone up by 12% from 25 to 28. All these things will be happening. We believe we have a very strong product, and solving a real pain point for food brands with this high-fiber wheat product.

Sorry, it was a detailed, very long answer, but I thought I'll give you -- put things in perspective about what has happened in the past which makes this another game-changing product in the marketplace.

John Baumgartner

Yes. No, very helpful. Thanks Manoj.

Operator

Our next question is from Akshay Jagdale from Jefferies. Please go ahead.

Akshay Jagdale

Hi, good morning.

Jim Blome

Good morning.

Manoj Sahoo

Morning, Akshay.

Akshay Jagdale

Good morning. So, Manoj, just to follow-up on Calyno, so, congrats on this first sale, really exciting news there. Just to understand sort of the ramp, right. Obviously you guys are trailblazers, right. This is the first new-to-the-world product. But when it comes to modeling we're always thinking of how things are going relative to plan. It does seem like it's taken a little bit longer than you would have hoped. Can you give us a little more color on the ramp? And on my map you have the ability to sell like close to 11 million-12 million pounds, and I'm guessing the 7 million-8 million is materially lower than that. So, again, I'm going back to one of the questions that was asked earlier about how much you're selling, but maybe you can help us, in pounds, what you have and what's assumed to be sold? Thanks.

Manoj Sahoo

Sure, happy to give you a perspective. You know, it all depends upon how much acres you plant and how much bushels you get, because the yields vary on year to year. So, we planted 17,000 acres, and our average yield in the region were somewhere between 40 and 45 bushels an acres, which was right in line. But there is a 10% between 40 and 45, and depends upon the year and the farmers. So -- and our yields were very competitive in the region. Now, some farmers got much higher yields. One of them was actually in the yield contest in South Dakota Soybean Association, with 57 bushels an acre, which is more on the right-hand-side of the normal curve.

On the initial crushing and refining, we have taken very conservative approach because it's important for us when we are launching the first product to be on spec and really good quality of oil to earn the customer's trust, and that's why we have put a lot of effort in ensuring all the quality parameters are met. So, our volumes from the 2018 crop, we expect something around seven million pounds, plus-minus 10%, depending upon how processing conditions work. With regards to ramp up, I think we have been extremely pleased that this is the first time ever such a product is hitting grocery stores. The last time a new trait of this kind hit the market was probably close to 20 years back. So you want to ensure that we get it right because we are building an industry. And being the leader and having the head start we have that responsibility to be transparent and communicate with food brands and consumers as well.

As you can see, Akshay, our pipeline is ramping up very significantly, especially amongst the food service segment, which is welcoming such premium, local, and sustainable alternatives. And that is actually a recent addition to our portfolio and is driving -- has the potential to drive significant volumes in the near-term, given the quantity of oil. One-fourth of oil is consumed in the food service, and our oil is really solving a pain point, which just means that there is not such oil available in the market currently today. That gives us that comfort that we will be able to scale up significantly.

And our intention is to -- we sold out of our 2018 volumes in the near-future, and then start supplying our customers with 2019 volume. Just to steal Jim's words, we are 12 months away if a large user of food company signs up for it, you can give them comfort tens of millions of pounds. And that's why it becomes really exciting in terms of being not only being able to scale up but having the strategic relationships like Agtegra, to ensure optimization of our scale up efforts.

Sorry, that was a long answer, but I thought I'll give you little more perspective about how we intend to get there.

Akshay Jagdale

Got it. So, there is some, I guess, leakage is not the right word, but you are being conservative in conversion math a little bit from you know, whatever soybeans are getting to the oil that you are actually producing.

Manoj Sahoo

I -- actually we tested the same thing thrice just to make sure that we met all quality standards. And it's -- that's the right thing to do when you are launching the product. As we do it multiple times, those improvements will come in very quickly.

Akshay Jagdale

Got it. And then, just one on the financials a little bit and in combination with this ramp question. So, how should we think about the $3 million burn rate which I mean you are saying obviously the ramp to launch these products and -- but then -- but the revenues are little bit pushed down the roads. So how should we match the two?

Jim Blome

Yes. We have always commented on our burn rate at around $3 million. And we are going to continue to add to our commercial team. We have always been an R&D platform until we commercialize. In the last six months, you have been seeing us at headcount which is the main reason for an increase burn, but we had to add a commercial sales team on the grower side in the field.

We added a sales team in food applications, in food companies. And then we had to add people that were oriented around customer service and meal sales and other things that go with commercialization. You also see Bill adding one or two headcount in finance just because we have different things going on in creating systems to alleviate inventory and track and bill and collect. So those are good summary of where we are going in 2019. And that burn rate that we calculated will handle that.

Akshay Jagdale

Got it. And just one last one for you, Jim, on the funnel, the R&D pipeline or the new product pipeline, obviously, you are narrowing your focus which I think a good idea. What -- can you give us like some of sense of the stage gate process that you are using now? That got you to that conclusion, and maybe what the sort of financial thresholds were, right, to give us some confidence that narrowing your focus is the right idea? Thank you.

Jim Blome

Great question. As a small company starting up and trying to optimize and take advantage of our head start, we thought it would prudent to narrow our commercial focus in a standalone business to soybeans and wheat and take advantage of the fix cost in some of the systems that we setup by deluding it with more revenue and improving scale and doing that before someone comes behind us. So making sure that successful backbone of our company was set and that we are taking advantage of all of the synergies through, we talked about growing soybeans and wheat in the same area with these two. But also where while Manoj's team is calling on food companies almost everyone who uses high-oleic soybean oil also does some baking and has a need for wheat products as well.

So there's some real synergies there. We didn't -- in my comments, I wanted to make sure that because talent is far reaching. And quite frankly these talented scientist can do almost anything, right? If you can dream it, they can do it. So, for commercialization and as a public company, we had to focus on making sure that we had our focus on something that we could optimize. But the reality is our ideation team comes up with many, many opportunities. And we will pursue those. If they have a commercial appeal, we will find a commercial partner that already has a market and understands that market and can invest with us to build those as well. And that will be additive in a way that's not dilutive. So that was the reason for talking about two big crops that we can't hit our heads on. There is more than almost 60 million acres of wheat in the U.S. There is 88 million acres of soybeans.

They are wonderful places to focus on and not hit your head. But in no way are we limiting our technological or advancements or any of our projects to just those although you will see our pipeline give stage gating, in our score carding, you do get higher ratings for projects that take advantage of our current systems already in place.

Akshay Jagdale

All right. Thank you. I'll pass it on.

Jim Blome

Thanks, Akshay.

Operator

Our next question is from Ben Klieve from National Securities. Please go ahead.

Ben Klieve

All right. Thanks guys. A couple of questions from me, first, I am curious if you can elaborate a bit on the 30% of growers that did not recommit for 2019 for Calyno. Do you know how their yields compared to the growers that did recommit? Do you know of those growers that are not coming back for having alternative soybeans or if they're rotating in the corn and just didn't have acreage for you? And color is appreciated there.

Jim Blome

I'll start with a general answer. And then Manoj can give you some specific color. But, on year-on-year as you know, farmers base their planting decisions based on rotational needs on their farm for disease control and other rotational benefits of crops, and in economics. So it is not unusual for farmers to step out of a crop for a year. So if they are not planting soybeans, we certainly can't capture any of this market share. So that can happen. And then there are other things going on with this where it may be -- it may not be on the right acre or you may have had a yield issue, but you may have had these already committed to storage to somewhere else. There is a lot of decisions that go into this decision. And so, we are very very proud of the 70% year-on-year retention. And we think it's extremely high.

But there are reasons, rotations and other things and handling on your facilities and farmers changing, right? The economics of farmer is actually changing who is doing what pretty rapidly year-on-year as well. So with that background on the general, I will hand it over to Manoj to add a little more color on our year-on-year retentions and what are the factors that go behind it.

Manoj Sahoo

Thanks Jim. I think you summarized it. Rotation, number one; number two, the trade situation. Soybean price has been low. Some people decide to do. Some just don't plant any soybean acres this year. One point I would like to so that we intentionally decided to let go some farmers because we had concerns about them following our identity preservation protocol which we are very committed to. That's core of our business model. And if we don't think it's a good fit, we probably will not renew it. So, couple of them were similar and that always happens. Not everybody is designed to earn the premiums from an identity preservation.

Ben Klieve

Got it. That's helpful. Thank you. And kind of quickly backing off and ask one other questions regarding the launch of high fiber wheat. It sounded like you said that really one of the limiting factors here is going to be in your ability to -- well, illuminating factors in terms of getting a commercialization sooner rather than later is the ability to bulk up the seed. And I am curious as to if you can just kind of dig into your strategy here of how you are going to build that seed inventory both in terms of kind of where you are going grow and timing of when you are going to grow? And if there is any potential to really accelerate that process?

Jim Blome

Yes, our first focus on wheat -- of all the wheat options is spring wheat. So we are focused in those geographies for our first launch product and growing up the seed to bulk up and also to do food application testings with this. So, those are two of the things we will be very busy doing in '19 and '20. And I think geographically you probably understand where spring wheat is grown and how many generations you will get in that period of time.

Manoj Sahoo

No, I think that's the bulk of it. Obviously, once we launch, we intend to launch it in a different classes of wheat. Just Ben, give you a perspective wheat industry is often blends different classes of wheat to get to the functionality they want. So that's important for us to do, hence, we are making thoughtful choices with regards to multiple classes of wheat which we would be. So in net-net I think it's a positive in actually going through that scale up so that we can be in multiple classes of wheat in 2022.

Ben Klieve

Got it. Well again that was it from me. Thanks. I'll jump back in queue.

Jim Blome

Thank you.

Operator

Our next question is from Jon Hickman from Ladenburg Thalmann.

Jon Hickman

Hi. Just a question, little clarity on the revenue projections, does that projections include anything from meal time [ph] share?

Jim Blome

Or just the oil.

Bill Koschak

Hey, Jon, it's Bill. Yes, it does include both.

Jon Hickman

Okay. Oh, okay, thank you. All my other questions were answered. I appreciate it.

Jim Blome

Thank you.

Operator

Great, thank you. This does conclude the question-and-answer session. I would like to turn the floor back to management for any closing comments.

Jim Blome

Thank you everyone. We really appreciate you coming in to our call today. It's a very exciting time at Calyxt as you can understand spending time with signing up new growers, bringing more people in, and hearing the message of healthier foods, and making the foods you eat a healthier choice. It's caught some fire. We've entertained a lot of food companies, and spreading that message and setting the basis after celebrating, moving from an R&D platform-only company to a full-scale commercial company has been no small feat, and we did take time to celebrate that among ourselves. So, thank you for tuning in today in hearing our story, and we appreciate your support.

Bill Koschak

Thank you, gentlemen.

Operator

Okay. Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.