BioHarvest Sciences Inc.

Greetings, and welcome to the BioHarvest Sciences fourth quarter 2024 corporate update conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. Before we begin the formal presentation, I'd like to remind everyone that statements made on today's call and webcast, including those regarding future financial results and industry prospects, are forward-looking. and may be subject to a number of risks and uncertainties that could cause actual results to differ materially from those described on the call. Please refer to the company's regulatory filings for a list of associated risks, and we would also refer you to the company's website for more supporting industry information. In addition, throughout today's call, the company may refer to adjusted EBITDA, a non-IFRS financial measure, which it believes provides helpful information to investors about the performance of the business on an ongoing basis. A reconciliation of adjusted EBITDA to its most directly comparable IFRS financial measure is included in today's earnings release, which is available on the BioHarvest website under the Investors tab. On our call today are Chief Executive Officer Elan Sobel and Chief Financial Officer Bar Dister. I would now like to hand the call over to CEO Elan Sobel. Ilan, the floor is yours.

Thank you, Operator, and good afternoon, everyone. I'm pleased to welcome you to today's fourth quarter 2024 Corporate Update Conference Call, and only our second formal earnings call as a public company. An exciting milestone marking our new normal following our uplisting to the NASDAQ global markets late last year under the ticker BHSTs. Our NASDAQ listing and our continued strong revenue growth of 99% and achievement of $25.2 million for the full year of 2024 was not an overnight success and really reflects years of relentless innovation, commitment, focus, and operational momentum, as well as a trust and confidence of my fellow shareholders. This NASDAQ listing represents a pivotal step in broadening our reach, building credibility and securing our position as an industry thought leader. For those new to our story or joining us for the first time, I would like to introduce our company and background. BioHarvest Sciences is a biotech innovator and the inventor of botanical cellular synthesis, a proprietary process to synthesize plant-based compounds. Rooted in plant cell biology, botanical synthesis provides consistent, reliable, economically viable, and patent potent non-GMO biological compounds for use in the nutraceutical, cosmetics, pharmaceutical, and nutrition industries. We have spent over 15 years perfecting our patented botanical synthesis technology platform providing an alternative for non-GMO production of plant-based biological compounds without the need to grow the entire plant. Botanical synthesis allows for the perpetual creation of consistent botanical molecules, mirroring, magnifying, and multiplying the active ingredients and uniquely requiring a physical plant only one time to develop our optimal cell banks. giving us the ability to address unmet market needs both with our own bioharvest products and by developing molecules for industry partners via our CDMO. Our product division is currently led by Vinia, our flagship red grape cell-derived nutraceutical sold direct to consumers via subscription and accounting for the majority of our $25.2 million revenue in 2024. Veneer delivers a full matrix of red grape polyphenols, including pricyedrosveratrol, at concentrations 100 times higher than what is found in a grape, and veneer has been clinically shown to significantly increase dilation of arteries when consuming one 400-milligram capsule of veneer every day for 90 days. This dilation increases blood flow, which enhances the oxygen and nutrients to the body, tissue, cells, and organs, increasing one's physical energy as well as mental alertness. Vineyard is now a consistent top 10 performer in its category on Amazon, despite its premium pricing. It has over 50,000 plus active subscribers with an impressive more than 90% of Vineyard.com revenue derived from subscriptions. We have now surpassed well over $50 million in lifetime revenue, maintain a 4.8 out of 5 rating from more than 8,500 verified reviews. We own or have an exclusive license to use 26 patents and patent applications protecting our botanical synthesis platform technology as well as different VINIA applications. VINIA is backed by three peer-reviewed and a total of eight scientific studies and is currently sold in the U.S. and Israel with regulatory approval secured in Canada and efforts underway in other key markets. The success of Vinya has been an important validation point for our botanical synthesis technology in the marketplace. This success has laid the foundation for our Vinya-inspired strategy, scaling the red grape cell compound by disrupting new high-margin, billion-dollar categories where consumers are yearning for better health and wellness products and are willing to pay a premium for products with superior science, efficacy, and taste. These categories include functional coffee and tea, hydration powders, and cosmetics, where in particular a natural product origin is critical for consumers. As we introduce future plant-based compounds to market in our direct-to-consumer business, we plan to repeat this playbook. leveraging a direct path to a large community of loyal subscribers who already understand the benefits of our technology and have a deep relationship with our harvest and our mission. For example, in March 2025, we announced in vitro test results showing that our olive cell compound caused a reduction in fat accumulation in human liver cells. When we released our other product in 2026, We expect it to be backed by additional clinical testing, and we believe the product will launch with a strong consumer proposition with immediate demand from our growing follower and subscription base. One year ago, we launched our CDMO, Contract Development and Manufacturing Organization, Services Division, to give major industrial partners access to botanically synthesized non-GMO compounds via proprietary botanical synthesis technology. Critically, this decision to open our technology allowed us to deliver on the company's North Star that I want to reiterate for the audience, as it drives every decision we make at BioHarvest. That North Star is to discover, develop, manufacture, and democratize 5 to 10 life-changing compounds from plants that positively impact the health and wellness of hundreds of millions of consumers globally. whilst doing this in a way that preserves the planet for generations to come. This enables us to develop patentable plant-based compounds for third-party partners across pharmaceutical, nutraceutical, cosmeceutical and nutrition industries. These complex molecules offer key advantages, faster development, lower cost, improved safety and the ability to produce what others cannot, especially at scale. We have now built an incredible infrastructure with the equipment and scientific manpower to address multiple projects simultaneously, whilst concurrently ensuring we source key plants ethically or with the help of custom AI tools to help optimize R&D processes and discover new beneficial plant compounds. This paired with a new partnership with a reputable regulatory advisory firm to assist our pharmaceutical customers but navigating their new compounds throughout the regulatory landscape further eases the process for our customers. We can deliver trial-ready biomass in 9 to 15 months with full-scale production possible in 20 to 24 months for a non-recurring engineering fee of $2.5 to $4.5 million, which we earn a strong margin on. Successful products then transition to royalty-based commercial manufacturing agreements providing long-term recurring revenue and potential equity stakes. We've already signed multiple CDMO customers, including a marquee partnership finalized in Q4 last year with Tate & Lyle to develop next-generation plant-based zero-calorie sweeteners. We have taken a selective strategic approach, ensuring our R&D is focused on the highest impact opportunities with strong commercialization potential. We have made significant progress on these CDMO contracts And I look forward to reporting CDMO research milestones in the near term, as well as discussing potential new CDMO customers, several of which are in the pipeline for announcement in the near term. The CDMO division is also taking the lead on the discovery of new plant-based biological compounds using internally developed state-of-the-art AI tools that enable us to bring compounds to market faster with greater efficiencies. We expect to detail progress and a roadmap on these activities in the Q1 earnings call. In the fourth quarter, we made continued progress in both our product and CDMO services divisions. Fourth quarter 2024 revenue grew 62% year-over-year to $7.3 million, exceeding our prior guidance of $7.2 million, driven by continued strong veneer sales, further reflected in our robust 99% full-year growth, with total 2024 revenues of $25.2 million. We continue to see significant growth in our core nutraceutical capsule business, augmented by our Vineyard Insight products, such as our hot beverage lineup of superfood coffees, which are expected to continue to drive consistent revenue growth in 2025 as our Vineyard K-Cup compatible coffee business continues to scale. having already driven $2.3 million in revenue since its launch in December 2023. This new product momentum is poised to accelerate with the recent launch of our Vineyard Superfoods functional tea lineup in tea sachets and the upcoming extension of our English breakfast tea and matcha green tea into a K-cup compatible format, a major growth segment for our hot beverage business taking place in April 2025. Our focus on margin optimization and driving efficiencies across the organization has driven a substantial 600 basis point increase in gross margins, which grew to 57% in the fourth quarter of 2024 as compared to 51% a year ago. Year over year, gross margins improved by 1,000 basis points from 45% in 2023 to 55% in 2024. Our production line has now been fully digitized, and in Q1 2025, we completed the implementation of new bioreactors with 22% increased capacity. The result of these efforts is that we truly have a state-of-the-art, fully digitized biological manufacturing facility that will enable us to see a step change in efficiency and optimization of our production, which we believe will be reflected in improved go-forward gross margin profile in the coming quarters. We are also seeing significant operating leverage in operations with full year general and administrative expenses decreasing 1.8% year over year in absolute terms despite a doubling of our revenue base and decreasing to 17% of revenue as compared to 35% in the prior year. This is a testament to the efficiencies that are possible as we scale with further operating expense growth largely constrained to only higher sales and marketing spend that is required to accompany our planned high double digit revenue growth, which is also expected to continue to shrink significantly on a percentage of revenue basis as we saw in 2024 versus 2023. The business today has strong growth momentum, and I want to specifically stop and talk about our growth model for 2025. Our growth model is guided by the principle of balancing growth with profitability while achieving scale. We have elected to achieve adjusted EBITDA profitability at around 11 to 12 million in revenue per quarter, which we feel, based on the momentum we have, will be realized in the second half of 2025. This balancing approach allows us to continue to make important investments in three critical areas, which will act as major catalysts to our business in the near future. One, increasing our product portfolio in the direct-to-consumer business. This means broadening the footprint of our red grape cell molecule to new customers and channels, increasing scale and conversion in our funnels, and ultimately driving further reduction of acquisition costs per new customer. In addition, this includes bringing to market new compounds backed by clinical trials, such as our olive cell products, which will be targeting liver health. Two, Investing in R&D to drive critical process improvement, utilizing touching-edge technology, which we call Botanical Synthesis 2.0, to improve gross margins in our manufacturing organization and the speed of compound development in our CDMO. Three, developing new technologies. AI-empowered capabilities for CDMO customers to increase speed to market of compounds we develop and improve efficiency levels, translating to lower R&D costs required for the development of each compound. In the longer run, our growth model is targeting a 20% adjusted EBITDA margin for our products business, and we believe we can target higher levels for the CDMO business over time. I'd like to elaborate on a little more on how we plan to accelerate growth in our core capsule business and prioritize new direct-to-consumer product launches over the next few quarters. Our core capsule business grew by more than 90% in full year 2024 versus 2023, and we expect continued high double-digit growth on our capsules business via new initiatives to improve even further our high rate of funnel conversions. including our newly launched Vineyard Double Packs initiative, where we provide additional value for two consumers purchasing Vineyard capsule subscriptions in each single household. To build on our great momentum with Vineyard Superfood Coffee and further penetrate into U.S. households, in June this year, we will launch the first Superfood Espresso Coffee initiative in Nespresso-compatible pods to complete our play to bring disruptive functionality to the coffee category. Similarly, in addition to the Vineyard Superfood tea portfolio already launched in tea sachets, in the month of April, we will launch Vineyard Superfood English breakfast tea and matcha green tea in K-cup-compatible format to penetrate the 40 million-plus K-cup and K-cup-compatible machines in households and offices in the USA. The summer of 2025 will also see the launch of our Vineyard Daily 2X Formula 2 lineup, targeting super active consumers. People 22 to 45 who are looking for all the benefits of improved blood flow to increase their physical energy and mental alertness during sporting and exercise activities, as well as in high stress demanding jobs. This veneer daily 2X formula chew will be double dosed at 800 milligrams of veneer in a great tasting chew for these super active consumers and athletes. And in fact, will also be informed sport certified, a global third party certification that provides assurances to athletes that products carrying the informed sport mark have been tested for prohibited substances and manufactured to the highest quality standards. These activities really demonstrate the significant lifetime value of our compounds based on their efficacy and ability to play across multiple delivery systems and categories, giving consumers superior health and wellness benefits that they are craving across multi-billion dollar categories whilst allowing our business to drive accretive margins. Before I provide my closing remarks, I'd like to call upon our CFO, Bart Dichter, to review our financial results for the quarter ended December 31st, 2024. Bar, over to you.

Thank you, Ilan, and good afternoon, everyone. I will provide you with a succinct review of our financial results. A full breakdown is available in our SEC filings and in the press release that crossed the wire after market closed today. Please note that all figures are in U.S. dollars unless stated otherwise. Revenue for the fourth quarter of 2024 increased 62% to $7.3 million, which exceeded management's prior revenue guidance as compared to $4.5 million in the fourth quarter of 2023. The increase was largely driven by the growth in VINIA, which exceeded 50,000 active subscribers as of February 2025. Gross profit increased 80% to $4.1 million, or 56.7% of total revenue in the fourth quarter of 2024, as compared to $2.3 million, or 50.7% of total revenue in the same year-ago quarter. The increase in gross margin was primarily due to benefits of increased manufacturing scale, improved manufacturing yields, and cost reduction in downstream packaging and delivery costs. Total operating expenses for the fourth quarter totaled $5.8 million, as compared to $4.8 million in the same year-ago quarter. The increase in operating expenses was primarily due to increased marketing spend and the higher expenses from the CDMO service division. Total operating expenses shrank on a percentage of revenue basis to 80% of revenue as compared to 107% in the same year-ago quarter. General and administration expenses in the fourth quarter of 2024 decreased to 20% of revenue as compared to 34% in the same year-ago quarter, reflecting an increase in operating leverage as the company continued to scale. Net losses for the fourth quarter of 2024 totaled $3 million, or 17 cents per basic and diluted share, as compared to a net loss of $7.2 million, for 53 cents per basic and diluted share in the same year-ago quarter. Adjusted EBITDA, a non-IFRS measure, totaled $1.8 million as compared to adjusted EBITDA loss of $2.4 million in the same year-ago quarter. Cash and cash equivalents as of December 31, 2024, totaled $2.4 million as compared to $5.4 million as of December 31, 2023. Subsequent to the quarter end, the company raised $3.9 million in attractive debt financing, primarily from existing investors. I would like now to pass the call back to Ilan to offer some closing remarks, after which we will begin our Q&A session.