Greetings and welcome to the BioHarvest Sciences Third 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 the 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 Investor tab. On our call today is Chief Executive Officer Ilan Sobel, Chief Financial Officer Bar Dichter, and Chairman and CDMO Business Unit Head Zaki Rakib. I would now like to turn the call over to CEO Ilan Sobel. Ilan, the floor is yours.
Thank you, Operator, and good afternoon, everyone. I'm pleased to welcome you to today's Third Quarter 2024 Corporate Update Conference call and our first formal earnings call as a public company. A very exciting milestone marking our new normal following our uplisting to the NASDAQ Global Market earlier this month under the ticker BHST. This reflects years of relentless innovation, commitment, and operational momentum, as well as the 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 synthesis, a proprietary process to synthesize plant-based molecules.
Botanical synthesis provides consistent, reliable, economically viable, and patentable potent molecules for the next generation of nutraceutical, cosmetic, pharma, and nutrition solutions. We have invested over $100 million in 15 years developing our patented botanical synthesis technology platform, providing a compelling alternative to chemical synthesis or biologics by enabling the production of non-GMO phytomedicinal molecules, both small and complex, turning thousands of plants into predictable, reliable sources of new therapeutic molecules without growing the underlying plant itself. 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, giving us the ability to address unmet market needs both with our own BioHarvest products and by developing molecules for industry partners.
This is ultimately our North Star, developing molecules with the highest lifetime value and the largest global impact for the good of both our shareholders and the world. Utilizing this technology, our product division commercialized VINIA, a red grape-derived nutraceutical product that we currently sell direct to consumer by subscription, which comprises the majority of our $22 plus million in revenues over the trailing 12 months. VINIA is a proprietary nutraceutical containing the entire matrix of red grape polyphenols, including Piceid Resveratrol. The botanical synthesis process increases Piceid Resveratrol concentration by at least 100 times versus regular grapes, a principal health-benefiting compound in red grapes. Our breakthrough red grape cell powder significantly increases dilation of arteries and increases blood flow, which enhances delivery of oxygen and nutrients to cells, tissues, and organs, and the removal of toxins from the body.
The growth of our VINIA subscriber base is largely due to high customer satisfaction rates and low churn rates, as evidenced by our 4.8 out of 5 average rating from nearly 7,000 verified online reviews. VINIA is patent-protected with three peer-reviewed studies and eight scientific studies, and the product is available in the U.S. and Israel, as we now look at expansion into the Canadian market following recent regulatory approval. We also have additional regulatory efforts underway in other key strategic markets. VINIA has served as a proof of concept and market acceptance of our botanical synthesis process, validating the demand for products created using the inherent advantages of botanical synthesis.
As part of our VINIA Inside strategy, we are now scaling our red grape molecule across multiple new high-margin verticals in the next 24 months in products including hot beverages, where we've already successfully launched our VINIA Superfood Coffee, and as of earlier today, our VINIA Superfood Teas. As well, we will be moving into hydration powders and skincare products in 2025. And we will repeat the VINIA playbook with our olive and pomegranate cells over the coming years, addressing consumer needs through amplifying the active ingredients created by the cells and then expanding across additional beverages and other products. Taking our technology and what we have learned with Botanical Synthesis and VINIA, we have added a services division and now offer industry partners access to botanically synthesized molecules via a contract development and manufacturing organization, or CDMO model.
As a CDMO, we can leverage our expertise in botanical synthesis to develop patentable plant-based molecules for third parties to solve some of the most pressing problems facing the industry today. In addition to generating revenue with our research initiatives for CDMO customers, this business unit provides another incredible avenue towards monetization in the form of royalties on future commercial sales for any molecule we develop, providing significant long-term upside for the business. Our CDMO business unit allows pharmaceutical, cosmeceutical, nutraceutical, and nutrition industry leaders the opportunities to partner with us to utilize our botanical synthesis process technology through a typical CDMO contracting model. This enables the development and manufacturing of both patentable plant-based small molecules and complex molecules.
Our botanical synthesis process can develop both simple and more complex molecules, otherwise known as biologics, which have a number of unique advantages for the industry, including lower cost of development and manufacturing, a much faster speed of development, and non-immunogenic properties that enhance safety. Perhaps most importantly, we can produce molecules that others are scientifically incapable of producing, particularly at scale and in an economically viable manner. This allows us to seize opportunities nobody else can, addressing unmet needs in the health industry across pharmaceutical, nutraceutical, cosmeceutical, and nutrition verticals.
From a financial perspective, the CDMO business can deliver sufficient biomass of a targeted molecule to facilitate clinical trials or other tests in as little as nine to 15 months, with full-scale commercial production able to begin in as little as 20 to 24 months for an incredibly cost-effective non-recurring engineering expense, which we do make a healthy margin on of between $1.8 million-$2.5 million for the end-to-end process. Should the customer decide to proceed with producing the developed molecule at industrial scale following successful completion of the aforementioned development process, we would enter a royalty-based payment model for industrial manufacturing of the molecule in our facilities. We already have announced two signed CDMO customers and are actively developing game-changing molecules for them. As it stands today, we have a highly focused pipeline of impactful prospective customers, some of which we expect to announce in the very near term.
I'd like to stress that who we decide to partner with on the CDMO front is very critical, and our deals all reflect our thoughtful and measured approach to only allocating our research bandwidth to impactful CDMO customers with the highest probability to deploy world-changing molecules. This is particularly important as the bulk of our monetization potential comes on the back end in the form of royalties on future commercial sales on any molecule we develop, which could provide a recurring revenue base over the long term. Now, let's talk about our performance in the third quarter. We made continued progress in the third quarter in both our product and CDMO service divisions. Third quarter 2024 revenues grew 101% year-o ver- year to $6.5 million, driven by continued strong VINIA sales.
We have seen significant growth on our core nutraceutical capsule business combined with additional VINIA Inside products, such as our hot beverage lineup, which are expected to continue to drive consistent revenue growth in 2025 as our VINIA Superfood Coffee begins to scale and with the exciting launch of our VINIA Superfood functional tea lineup today. Our focus on margin optimization and driving efficiencies across the organization drove a substantial 1,200 basis point increase in gross margins, which grew to 57% in the third quarter of 2024 as compared to 45% a year ago. In the quarter, we put significant efforts on the digitization of all of our critical biological manufacturing metrics.
The result of these efforts is we today have a state-of-the-art biological manufacturing facility, which is fully digitized and has allowed us to see a step change in efficiency and optimization of our production, which we believe will be reflected in our go-forward gross margin profile, which we believe is likely to move into the 60% range in the coming quarters. While we drove 1,200 basis points improvements of margins in the third quarter versus a year ago, our aggressive margin growth was impacted somewhat due to high air freight expenses and the delaying of other cost-saving measures.
As we move into the first half of 2025, we are well positioned to see notable improvements as we implement ongoing margin optimization initiatives and reap the benefits of our investment in growth with incremental new VINIA Insight products, such as functional coffees and teas, all of which address an incremental consumer base at an attractive margin profile. In addition, we have locked in much of our downstream distribution costs for next year, such as packing and handling, while concurrently realizing greater economies of scale from shipping, which when taken together provide a clear line of sight into future costs and ultimately profitability. 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 million-$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, increasing scale and conversion in our funnels, and ultimately driving further reduction of acquisition costs per new customer. Two, investing in R&D to drive critical process improvements, which we call Botanical Synthesis 2.0, to improve manufacturing gross margins. And three, developing AI capabilities for our CDMO customers.
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 in the future for the CDMO business over time. I'd like to elaborate a little more on how we plan to accelerate growth on our core capsule business and prioritize new direct-to-consumer product launches over the next few quarters. In addition to the VINIA Superfood tea portfolio launched today in tea sachets, in Q1 2025, we will launch VINIA Superfood English Breakfast and Matcha Green Tea in K-Cups to complete our VINIA Superfood tea portfolio. In the first quarter, we will also launch the first VINIA Superfood Espresso Coffee in an espresso-compatible pod to complete our play to bring disruptive functionality to the coffee category.
The first half of 2025 will also see the launching of our VINIA Pro lineup targeting active consumers 20- 45 years of age who are looking for all the benefits of improved blood flow to increase their physical performance and body recovery during sporting and exercise activities. In Q2, we will launch our VINIA Pro Chews, which will contain a double dose of VINIA in each chew in our new athlete formula, where we have developed with our partner a unique chew which can hold 800 milligrams of our VINIA red grape cell molecule. Lastly, we plan to launch our VINIA Pro Super Blood Flow Hydration Solution at the end of Q2, early Q3, to disrupt the $13 billion hydration category to complement our unique strategy of disrupting major categories with superior science, superior clinical trial-backed efficacy, and superior taste.
These activities really demonstrate the significant lifetime value of our molecules 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 while allowing our business to drive accretive margins. Before I provide my closing remarks, I'd like to turn the call over to our CFO, Bar Dichter, to review our financial results for the quarter ended September 30th 2024. Bar, over to you.
Thank you, Ilan. I share your excitement of the NASDAQ listing milestone that we just crossed. Good afternoon, everyone. I will provide with a succinct review of our financial results. A full breakdown is available on our SEC filings and in the press release that crossed the wire after market close today. Please note that all figures are in US dollars unless stated otherwise.
Revenue for the third quarter, which exceeded our revenue guidance, has increased 101% to $6.5 million as compared to $3.2 million in the third quarter of 2023. The increase was largely driven by growth in VINIA subscribers, which grew 128% year- over- year. Gross profit increased 157% to $3.7 million, or 57% of total revenues in the third quarter of 2024, as compared to $1.4 million, or 45% of total revenues in the same year-ago quarter. The increase in gross margin was primarily a result of the benefits of increased manufacturing scale, improved manufacturing yields, and cost reduction in downstream packaging costs. Total operating expenses for the third quarter totaled $5.8 million, an increase of 67% versus the year-ago quarter.
The increase in operating expenses was primarily due to increases in marketing expense of our VINIA product line, expenses related to our new VINIA product initiatives, and higher expenses from our CDMO services division. Net losses for the third quarter of 2024 totaled $2.7 million, or $0.16 per basic and diluted share, as compared to a net loss of $1.7 million, or $0.13 per basic and diluted share in the same year-ago quarter. Adjusted EBITDA loss, a non-IFRS measure, totaled $2 million in the third quarter of 2024, as compared to an adjusted EBITDA loss of $1.7 million in the same year-ago quarter. Cash and cash equivalents as of September 30, 2024, totaled $2.8 million, as compared to $5.4 million as of December 31, 2023. Looking ahead to the fourth quarter of 2024, we expect to realize revenues of at least $7.2 million.
We believe that we are well positioned for a high level of operational execution in the fourth quarter and beyond. I would like now to pass the call back to Ilan to offer some closing remarks, after which we will begin our Q&A sessions.
Thank you, Bar, and for all our shareholders listening on the call. I hope that's given you some really strong perspective to the performance of the business in the third quarter. We, as a management team, have significant confidence in the ongoing momentum continuing into the fourth quarter and in our strategies to take our momentum to the next level in 2025, and I'm now going to hand the call back to the operator to begin our question and answer session. Operator, over to you.
Thank you. We will now begin the question and answer session.
To ask a question, you may press star, then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause for just a moment to assemble our roster. And our first question today will come from Hunter Diamond of Diamond Equity Research. Please go ahead.
Hi, everyone. Congratulations on the results. My first question: with VINIA.com revenue growing quickly from subscriptions and retention rates pretty high and new product launches, what's the strategy to continue increasing the retention rates going forward?
Thank you, Hunter, and good afternoon to you. Look, we're very fortunate that we have two forces of growth, both being VINIA.com as well as Amazon.
Amazon business continues to grow at significant double-digit growth rates in addition to our VINIA.com business, and it's always good to have a healthy balance, and in our case, it's like 80% of our revenue is coming through VINIA.com and roughly 20% through Amazon, and that's a really healthy balance to have. In the VINIA.com business, we've really accelerated our growth of subscribers. This is a major focus for us. You'll see the way we design the website and our pricing structure incentivizes people to move towards subscription because we understand that once people move on to subscription, given the efficacy and the performance of our VINIA red grape cell molecule, we're able to really drive continuity and a long, what we would call in the industry, lifetime value of these consumers.
What we've also done now, and I encourage you to go to the website VINIA.com today. You start to see us building this out, that in addition, with our new delivery mechanisms anchored in our superfood coffee, that's performing extremely well for the business. And as I speak to you today, we've sold roughly $1.5 million direct to consumer on our VINIA superfood coffee. And remember, right now, at this stage, we haven't leaned in with any intensive advertising behind our superfood coffee. It's kind of like tailing on the back of our core capsule business. And what you'll see now is with the launch of our VINIA superfood functional tea business, you start to see a website that really has multiple choices for consumers that allows us to trade consumers up, that allows us to increase the overall size and dollar check rate of each bundle.
Ultimately, this is going to help us ensure that we're providing multiple different entry points and continuation points for consumers to stay with VINIA, making sure that VINIA really matches with their lifestyle needs and their preference for different delivery mechanisms. This is going to really help us continue to improve retention rates. Our retention rates today are industry-leading already. In addition, what we've really focused on in the last six months is around education, continuing to educate consumers on the mechanism of action, on how VINIA works, on understanding more about our technology and how our technology works, the Botanical Synthesis manufacturing process, and really educating the consumer. These factors, combined with the additional choices, we believe will continue allowing us to drive the double-digit growth in subscription base and ensure that we're maximizing our retention levels. Great note. Makes perfect sense.
And then, just thank you for answering that. And then back to the CDMO, maybe you discussed it a little bit, but maybe discuss what you see as the long-term goals, the kind of growth you're expecting, and then maybe if there are industries or segments that are kind of the low-hanging fruit you're seeing right now for initial customers.
So we are very lucky that we have with us tonight, sitting next to me, Dr. Zaki Rakib, our chairman and vice president of the CDMO, president of the CDMO, I should say. So I'm going to ask, I'm going to hand that question over to Zaki to answer that question.
Thanks, Ilan, and thanks, Hunter, for asking the question. So I mean, just a statement that I wanted to make to start with, we're really happy.
I mean, we're really happy with the progress that was made in the CDMO since really its launch. It was earlier this year, and maybe I wanted to emphasize three particular fronts in which we felt that significant progress was performed, so despite actually the late arrival of the source plants and the two projects that we started in 2024, we are actually proceeding very well and the very good and strong prospect of moving from stage one to stage two on the CDMO. As you know, stage one is the first stage with a higher risk where we develop the fundamental bank of cells or cell bank, and then moving to the liquid media stage in stage two, which is also higher in terms of revenue and with less risk compared to the first one.
So we're happy with what we've achieved so far in stage one, and we look forward to the move to stage two. That has been quite critical and further demonstrates the success of the botanical synthesis that has been achieved so far. So we haven't had any failure as of yet with any plant that we tried to perform botanical synthesis on. So that was further assurance of the capabilities of the technology. But what we've also done in this year is expecting many more projects to come in subsequently in the subsequent year. We have been building an infrastructure, tools that we need. Many of them are software tools for the CDMO development, but also some hardware in the form of robotics. So people who are familiar with our technology would know that we use Petri dishes in large quantities to experiment.
So the ability to fill them, handle them automatically using robotics is now being included in the mix of tools that we've been developing. And third was, which I'm sure is quite the most important part of your question, was the pipeline. And so what's the prospect? So the pipeline is very strong. I mean, this type of CDMO contracts, especially with top-tier companies across all three industries, and the three industries are pharma, cosmetics, and nutrition. Across all three industries, there's a very strong pipeline, very encouraging.
I mean, if I have to quantify it, I would say, and I will be speaking in terms of bookings and the size of the bookings, I would say from the current already in 2024 pipeline and the type of prospects we see to come to fruition and agreements, I look at those contract sealed deals of north of $10 million in bookings in 2025. The reason why we're talking more bookings now is because of the time when the project starts depends on the arrival of, given the experience that we have this year on the arrival of the source plant. Some of the plants that we need that need to be sourced, as we know, come from certain countries, which we need the whole process of the importation, and we always do ethical sourcing. So that's the reason. So all in all, very good progress.
We're very happy, and significant deals in the horizon. And like Ilan said earlier, there will be some announcements in the short term. Thanks.
Great. No, I appreciate you taking my questions. And again, congratulations on the results. Thank you.
Again, if you have a question, please press star and then one. And our next question today will come from Howard Halpern with Taglich Brothers. Please go ahead.
Congratulations, guys. Great progress is being made. In terms of somewhat towards the second half of next year and especially the hydration project, what kind of initial uplifts do you see in revenue? And will the distribution of that product expand, I guess, into other areas? Will you target different types of end users for that product?
Thank you, Howard, for the question.
The hydration proposition is a proposition that's very close to my heart, just given the fact that I spent 18 years as a senior executive of the Coca-Cola Company. And in a previous role running the Glacéau business unit, I ran the second largest hydration product in the U.S. called Powerade. So I'm very, very familiar with this category. You've seen the category now in the last, I would say, 36 months expand significantly with the launch of Liquid I.V. This is a Unilever brand. It's a billion-dollar brand already at retail. Very high general main formula is very high levels of sugar and really no science, no efficacy, and a real opportunity for us to be able to bring disruption with our technology. You also have LMNT, also a very large brand in the market. So the category itself is, it's called a $13 billion plus category out there.
For us, this is very much a great opportunity to be able to employ our VINIA Inside strategy, which is all about bringing to the marketplace superior science, superior efficacy through clinical trials, and of course, superior taste, making sure the overall consumer experience is a superior experience, allowing us to premiumize in the marketplace, provide greater benefits because consumers are looking for these critical better-for-you credentials, and obviously drive greater margins to the bottom line for our business. What the hydration proposition allows us to do is it's going to be branded under what we call the VINIA Pro trademark together with our Chews product, which I talked about a little bit earlier.
This product allows us to go after millennials or Generation Y, much more active, sporty consumers that are really looking for a proposition to hydrate them, but at the same time improve their physical performance and their overall body's recovery. And we are well down the path in moving into a clinical trial in this area. The clinical trial that we're going into progress with is a trial that we've designed so that it has the ability to stand the test of not just the U.S. regulatory bodies, but also EFSA in Europe and key regulators in Asian markets like Japan because we really believe in this proposition and our ability to be able to, with the right clinical evidence, to be able to make very strong structure function claims regarding physical performance and overall body recovery. So the overall distribution will be consistent in direct-to-consumer, leveraging our e-commerce machine.
But importantly as well, we will over time go into more strategic channels, which I like to call points of sweat, where you need to be where the athlete is sweating with the right hydration solution. And that will be very surgical, very strategic through key partners in specific gym-related channels, which are, again, high-margin channels for us. So that's basically the playbook that we're looking to employ. And between now and end of second quarter, early third quarter, we've got a lot of work to get in place to be able to get all of our marketing mix in place to be able to drive an additional disruptive launch to a category that's really lacking in science and overall consumer efficacy-driven product propositions.
Okay. And how important to your overall strategy is entering Canada and getting approvals in, I guess, Asian countries and maybe even Europe and South America?
How important is that going to be over the long term?
It's a great question. So firstly, we have already approval from Health Canada. We got approval from Health Canada in September last year. Look, the real opportunity at the end of the day is that the size of the prize in the United States of America is just so significant for us. And obviously, the benefits of being able to focus in one geographical market initially for us and drive scale in our model makes a lot of sense as we look to move the company to profitability over the next 12 months from an EBITDA perspective. So the opportunities in the U.S., right, can keep us going for a significant amount of time, specifically as we are continuing to build manufacturing capacity given what we believe will be the expected growth in the business.
We are, however, taking advantage of the brand that we're building from a global perspective. You'd be surprised when you look at the number of consumers that come to our website looking for our products from markets outside of the U.S. Today, those consumers cannot purchase VINIA. So we've been working very hard to be able to open up international shipping to markets which allow you to ship, in most cases, a 90-day supply at one time into a market where the actual consumer understands clearly the duties as well as the shipping charges, and we believe this can add very cost-effectively and efficiently an additional 5%-7% on overall revenue growth. These are some of the elements that we're driving.
We will continue to work on opening up the regulatory process so that when we do have enough capacity, we have the choices to make to decide whether we enter into specific markets on our own terms. But from a regulatory perspective, our clinical trials that we're designing, we're designing those trials to give us the ability to flex into those key priority markets, specifically Europe and Japan, which are very important for us.
Okay. And just one final one.
But the size of the prize is the U.S. Sorry, just to finish up. The size of the prize is in the USA, and that allows us to focus and scale very efficiently.
Okay. And then just one last one on the CDMO.
Is that $10million-$15 million, maybe $20 million in bookings going forward, the ideal level you want to at least maintain for the next 12-18 months to build out that capacity and what's going to come at the back end of it?
So on capacity, if you mean by capacity, this is Zaki again. If you mean by capacity manufacturing, you're absolutely right. That would be two years away. If you look at projects that we started, it's 18-24 months. And we intend to use some of the capacity that would be available in the second factory we're building in Israel. But we are targeting for 2027, we're targeting a factory in the United States with significantly higher capacity.
So from that end, and we believe that we have capacity from a development over the next 24 months that is higher than the number you mentioned that could yield bookings north of those $20 million. If you look at the period of time preceding the actual factory building, so that's kind of the plan.
Okay. Well, thanks, guys, and keep up the great work.
Thank you.
That concludes our question and answer session. I would like to turn the conference back over to Ilan Sobel for any closing remarks.
Thank you, Operator, and thank you to all those people that took the time to listen to the conference call and participated in the Q&A. All up, it was a very successful quarter. I'm really happy with the momentum in the business. The fourth quarter, we've given very clear guidance on the $7.2 million on the revenue side.
And as you can see, we're making significant efforts to improve gross profit margins. It's very important to highlight the 1,200 basis points improvement in gross profit margins. This was a very, very heavy lift from the team. We are maniacally focused on driving continued gross profit margin improvements into the foreseeable future. And together with the scaling of the business in fourth quarter and the actions that we've taken specifically around digitizing the critical biological metrics in our manufacturing facility, I'm confident that the fourth quarter will be another quarter of continued success for the business and really set up a very, very strong foundation for us to come into 2025, which will be another record year for the business from a top-line and bottom-line perspective. I'd like to wish everybody a happy Thanksgiving holiday, and we look forward to the next opportunity to engage with our shareholders.
Thank you. Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.