Burcon NutraScience Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 14, 2023

There are 5 speakers on the call.

Operator

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Birkon NutraScience Corporation's Fiscal Year 2024 2nd quarter results ended September 30, 2023. Joining us today are Kip Underwood, Bercon's Chief Executive Officer and Jade Cheng, the Company's Chief Financial Officer. Following their remarks, we will open up the call for questions. After the presentation, there will be an opportunity to ask questions. Then before we conclude today's call, I'll provide the company's Safe Harbor statement with important cautions regarding the forward looking statements made during this call.

Operator

Now I would like to turn the conference over to CEO of BRCON, Mr. Kip Underwood. Sir, please go ahead.

Speaker 1

Thank you, operator, and thank you everyone for joining us this afternoon. Fiscal 2024 Q2 marks a number of new beginnings for Virkon 2.0. Our team set out to execute a revised BERCON 2.0 strategy and we delivered the first of many proof points with a direct line of sight to revenue in 2024. We are excited to share with you our progress to date along with opportunities we are pursuing to rapidly bring our innovative proteins to market. We continue to see market opportunity driven by the growth of plant based dairy and beverage segments, where Bercon's best in class high purity proteins can offer consumers a better sensory experience.

Speaker 1

Consumers are maintaining or increasing their consumption of plant based foods and beverages driven by their desire for a healthier lifestyle and for a healthier planet. We firmly believe the value proposition of our protein ingredients will allow us to capture a meaningful portion of the global multibillion dollar protein ingredients market. We are encouraged by the progress of our commercialization efforts this quarter and expect to continue at a breakneck pace to reach commercial revenue in 2024. Speed to market for all of Birkon's protein technologies remains a top priority for us. There are a number of opportunities we are actively pursuing and we are excited to discuss our progress during the call today.

Speaker 1

Before I get into it, I'd like to turn the call over to our Chief Financial Officer, Jade Chang, to provide a brief overview of the financial results for the quarter. After which, I will return to provide my remarks and discuss our bullish business outlook for the fiscal year. We will open the call to questions following our remarks. Jade, please go ahead.

Speaker 2

Thanks, Kipp. Earlier today, our financial results for the Q2 of fiscal 2024 were issued in the news release and filed with SEDAR as well as posted to the Investor Relations section of our website. During this quarter, we recorded $184,000 of royalty revenue from the receiver sale of Merit's pea and canola products as compared to $112,000 of royalty revenue from Merit's sale of pea and canola products in the same year ago quarter. For the Q2 of fiscal 2024, we reported a net loss of $1,400,000 or $0.01 per basic and diluted share as compared to $3,200,000 or $0.03 per basic and diluted share in the same year ago quarter. The lower loss this quarter as compared to the Q1 of last year is due mainly to the share of loss in merit recorded during the Q2 of last year and to lower operating expenses.

Speaker 2

Research and development expenses totaled $909,000 down from $1,100,000 in the same year ago quarter. The decrease is due mainly to lower intellectual property expenditures and stock based compensation expense. General and administrative expenses totaled $803,000 as compared to $987,000 in the same year ago quarter. The decrease is a result of cash conservation measures we have undertaken to reduce expenses, which have resulted in reductions in Investor Relations expenses as well as expenses that related to the U. S.

Speaker 2

Listing. Overall cash operating expenditures have decreased 16% this quarter over the same year ago quarter. With G and A and IP cash expenses down by 24% this quarter over the same period last year. The company continues to implement cost cutting measures where appropriate. Our cash balances totaled $2,200,000 as of September 30, as compared to $1,500,000 at March 31, 2023.

Speaker 2

During the quarter, our largest shareholder, Large Scale Investments, agreed to extend the maturity date of the first tranche of our secured loan for 1 year to July 1, 2025. Ferkon expects its current cash resources to fund its operations to February 2024 and further to February 2025 if conditions for advance under the 2nd tranche are satisfied. These dates may potentially be extended if the company receives funding or generates revenues from other sources, including government assistance and pilot plant processing and scale up validation services. With that, I'd like to turn the call back over to our CEO, Kipp Underwood. Kipp?

Speaker 1

Thanks, Jade. This quarter marked a number of new beginnings for BERCON 2.0. The first of many proof points is our partnership with HPS Food and Ingredients. Through a renewed approach to commercialization, we executed a plan that rapidly launched our hemp seed protein to market. This was our first deliverable under BRCON 2.0, a capital light partnership that can quickly develop the market and commercialize Birkon's hemp seed protein, allowing us the opportunity to achieve revenue in under 18 months.

Speaker 1

The demand for high purity, clean tasting hemp seed protein isolate is growing. Our 95% hemp seed protein is poised to create a new category of premium plant proteins from hemp. According to Research and Markets, the global hemp based food market is set to more than double in the next 5 years, growing at a rate of over 15% to reach US3.1 billion dollars Based on Burkhon's internal estimates, we see a potential opportunity of over $100,000,000 for us. Since the launch of our 95% hemp seed protein at IFT First back in July, Vercon and HPS prioritize customer engagement by providing product samples, sharing product data and collaborating with prospective customers to develop in food applications. Customer interest from IFT First far exceeded our expectations with over 60 CPG companies requesting samples of our 9% hemp seed protein isolate.

Speaker 1

I can tell you that based upon my experience, this level of interest and reception to a new ingredient launch would impress even the major ingredient companies. We then carried that momentum through traditional trade shows, showcasing our Hemp Protein at Natural Products Expo East in September and again at SupplySide West in October. Customer reception has been nothing short of enthusiastic, prompting BRCAN and HPS to expedite our plans to commercialize hemp seed protein. We are happy to report that key pieces of equipment are en route to our partner manufacturer for installation. Our team will be working closely with our partner to install the key pieces of equipment and begin test runs of our hemp process with commercial production expected to start early 2024.

Speaker 1

As for our sales funnel, numerous prospective customers are undergoing product evaluation and formulation trials in various consumer applications, including beverages, sport nutrition, snacks, bars baked goods and plant based dairy. We have a handful of customers who are in late stages of product development and we anticipate that a number of them may commit to purchase orders once Virkon can demonstrate consistent production on a commercial scale. It is worth noting that scaling up a novel ingredient from pilot to commercial through traditional methods could range anywhere from 24 to 36 months or even longer. For perspective, Bergcon and HPS are on track to achieve 1st commercial sale within 18 months of our product launch back in July. As we've mentioned before, speed to market is a top priority for us.

Speaker 1

We are optimistic about our hemp opportunity and now we believe we have a direct line of sight to revenue and 2024. Another new beginning for Bercon is our strategic outlook for the company. During the quarter, we brought in industry experts to pressure test our BERCON 2.0 strategy by assessing our operational framework, value propositions, market and competitive landscape. Our team was fully engaged and bought into the strategic planning process. Coming out of the strategy session, we gained clarity on our path forward and are excited about our future.

Speaker 1

We completed a deep dive on all of our protein technologies, validated our key differentiated benefits and quantified the potential opportunities. With a deeper understanding of our target markets, our internal estimates confirm we are participating in a growing multibillion dollar market with Bergcon's potential opportunity at well over $600,000,000 for all of our value propositions. The overarching goal is for Bergcon to become a market leading plant protein solutions a company it has always aspired to be.

Speaker 3

Another highlight coming out

Speaker 1

of our strategy session was unlocking additional value in our sunflower protein technology. For traditional ingredient processing yields a lead product and byproducts or waste streams. Virkon's sunflower process yields 2 valuable protein ingredients, a sunflower protein isolate and a protein concentrate, each with its own unique functionality and target applications. In addition to attributes such as high purity, exceptional taste and color, Vercon sunflower proteins are also non GMO, gluten free and clean label, exhibiting a health halo that consumers want. Our Sunflower process is truly one of a kind.

Speaker 1

We expect our sunflower proteins to compete and have the right to win in a number of categories such as forced nutrition, lifestyle products, dairy alternatives, snacks, meat extensions and baked goods to name a few. This translates to a potential market size over $400,000,000 for Vercon's SenThrive proteins. Needless to say, we are extremely excited about bringing our sunflower proteins to market so that we can capitalize on this sizable opportunity. Moreover, unlocking the additional value proposition further strengthens the economics of our sunflower value proposition, adding to an expected healthy operational margin. We believe BRCAN's Sunflower process has many advantages from an operational standpoint.

Speaker 1

It produces 3 high value products, sunflower oil, isolate and concentrate with little to no waste streams in the process. We are ecstatic about the potential of our Sunflower proteins creating significant value for BERTON and as such we are actively pushing forward on various paths to market, including discussions with potential partners as well as bringing it to market ourselves. On the financial side, we are pleased to report that our cost cutting efforts in the past year have resulted in 16% reduction in costs across the board, while maintaining efforts required to execute our Bercon 2.0 strategy. During the quarter, we worked closely with Protein Industry Standard, a government funding cluster that specifically supports and fosters growth of Canada's plant based sector on a project to accelerate Birkon's hemp and sunflower protein technologies valued at $7,000,000 we are in the final stages of securing a co investment from FICC for a portion of the total project cost and expect that this co investment will help offset some of our protein commercialization costs. This is one of a number of non dilutive funding programs that can help support our cash runway, we will continue to capitalize on non diluted funding sources wherever possible.

Speaker 1

As previously stated last quarter, our second tranche of $5,000,000 of the total $10,000,000 loan from Birkon's largest shareholder is still available to us should we need the funds in the future. If we meet the conditions for drawing down the second tranche, our cash runway would extend further to February of 2025. We achieved strategic clarity this quarter, something we needed during these challenging times. We are aligned around our business plan and are confident moving forward on our Bercon 2.0 strategy, with the goal of transforming Bercon into a revenue generating ingredient company. With a direct line of sight to revenue in 2024, we can achieve our first of many wins to come.

Speaker 1

We believe that winning is contagious. As we stack wins, we are building momentum. 2024 could become a transformative year for Bercon and we look forward to bringing that to fruition to propel Bercon into its next stage of growth. With that, I'd like to now open the call up to questions. Operator, can you please provide the appropriate instructions?

Operator

Thank you. We will now begin the question and answer session. You will hear a tone acknowledging your request. I'd like to hand the question and answer session over to Paul Lamb, Director of Investor Relations for questions from the webcast.

Speaker 4

Thanks, Sarah. We have a few questions from the webcast. First question is from a private investor. Could you provide an update on the company's efforts towards potentially acquiring Merit Functional Foods out of receivership?

Speaker 3

Thanks, Paul. So as we've always believed, that there's a role for us to play with Merit. In the end, the assets at Merit were purpose built for our technology. That participation may come out in a variety of ways. One is we are still actively pursuing the purchase of the assets with partners.

Speaker 3

2, if someone else were to successfully purchase the assets, we could speak to them about licensing or work with them possibly to contract manufacture our products and launch them themselves. Anyway this works out again, we believe there's a role for us to play and we look forward to the day when the receivership process is concluded and we can move forward.

Speaker 4

Okay. Thank you, Kipp. Next question also comes from a private investor. Are there still partnership discussions ongoing for sunflower technology? If so, how are those coming along?

Speaker 3

As we mentioned in our address, we are extremely excited about Sunflower. Again, it's very unique and the work we did over the We uncovered a whole new value angle with what we call product B or the sunflower concentrate. It's very rare in a new ingredient offering that you get really 2 value added ingredients servicing different markets to drive both customer benefit and financial performance. Because of that work, we took a step back with specific partners and are going are now going through the process of relaunching our sunflower technology

Speaker 1

to the broader market.

Speaker 3

And as we get results from that effort, we will update where needed again. But tremendously excited and really believe that Sunflower is poised for long term fantastic success in the plant based protein world.

Speaker 4

Thanks, Kipp. Next question also comes from a private investor. I would remind shareholders, investors To please put down your name so that we can credit the questions. Question is, what is the level of customer interest in the hemp protein so

Speaker 3

As we have stated, the market and customer excitement for hemp protein has far exceeded any expectation I had, right? So to the point that us and our partner HPS have accelerated our commercialization efforts and have signed on to run our 1st commercial production in early 2024. What's driving that primarily is A handful of customers right now already providing direct purchase intent, once we prove full scale commercial capabilities. I could not be more excited at both our partner HPS and the market reception from the offering.

Speaker 4

Okay. And I think last question comes from Harry Hermas. Great opening, but years after years of promising return, but nothing has happened. When is leadership team planning to deliver solid results? Do you see BERCON going back up to around $4 to $5 in share price?

Speaker 3

Thank you for the question. And again, thank you for our shareholders' patience over the years. What I can say is what I hope we're doing with our shareholder base is building credibility. In May of this year, we laid out our Bergcon 2.0 strategy. 3 key pieces: identify alternative revenue sources, get closer to our customers and gain influence or control over the manufacturer

Speaker 1

of our

Speaker 3

ingredients. What the teams have done since then is we have done a deep dive across all of our value propositions. We have launched Bercon's first ever ingredient by itself with our partner HPS Food Ingredients, our hemp protein isolate. We have gained market feedback on that to the point we have secured production commercial production capability with our partner in early 2024. What I hope those these specific items do is add proof points to the words.

Speaker 3

It demonstrates that we have a strategy, we have a plan and we are executing that plan. We are excited about our future. We're excited about our strategy and believe firmly that there is a path forward for Birkon to be a cash flow positive market leading plant based protein company and hope that all of our shareholders will come along for that ride.

Speaker 4

Thank you, Kipp. Next question comes from Joe Sawyer. Is pea and canola protein viable only if Bercon is successful rejoining partners in the Merit facility Or does management have an alternative plan?

Speaker 3

So I think first pea and canola proteins are clear will be part of the plant protein market future, right. And I think there's a place that unique capability and among those, BRCOT Technology is uniquely differentiated to help companies produce plant based food offerings that meet consumers' needs. Relative to supply, yes, the Merit assets were purpose built for these are certainly a clear route to market and they are not the only route to market. As stated, we continue to evaluate our capital light model, our contract manufacturer model as a way to get our plant proteins to market. Hemp is a proof point and we will continue to evaluate both a contract manufacturer capital light route to market as well as seek a way to work with the merit assets be it purchase with a partner, contract manufacturer or leverage those assets in another way?

Speaker 3

Thank you.

Speaker 4

Okay. Thanks for your question, Joe. I I think that's all the questions we have. Operator, passing it back to you.

Operator

Thank you, everyone. That's all the questions we have for today. At this time, this concludes the question and answer session. I would like to turn the conference back over to Mr. Underwood for any closing remarks.

Speaker 3

Thank you, operator. I would like to thank our team for their efforts over the past quarter. They are passionate about our future and it shows in their work.

Speaker 1

I would also like to

Speaker 3

thank our shareholders for their patience as we execute our BRCAN 2.0 strategy and position BRCAN Nutrascience for the next wave of plant based food growth. Again, thank you all for your time.

Operator

Before we conclude today's call, I would like to take a moment to read the company's Safe Harbor statement. This call contains forward looking statements or forward looking information within the meaning of the U. S. Private Securities Litigation Reform Act of 1995 and applicable Canadian securities legislation. Forward looking statements or forward looking information involves risks, uncertainties and other factors that could cause actual results, performance, prospects and opportunities to differ materially from those expressed or implied by such forward looking statements.

Operator

Forward looking statements or forward looking information can be identified by words such as anticipate, intend, plan, goal, project, estimate, expect, believe, future, likely, can, may, should, could, will, potentially and similar references to future periods. All statements other than statement of historical facts included during this call are forward looking statements. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements or information. Important factors that could cause actual results to differ materially from Bercon's plans and expectations include the actual results of business negotiations, marketing activities, adverse general economic, market or business conditions, regulatory changes and other risks and factors detailed herein and from time to time in the filings made by Bercon with securities regulators and stock exchanges, including in the section entitled Risk Factors and Vercont's annual information form filed with the Canadian Securities Administrators on www.sedar.com. Any forward looking statement or information only speaks as of the date on which it was made.

Operator

And except as may be required by applicable securities laws, Bercon disclaims any intent or obligation to update any forward looking statement, whether as a result of new information, future events or otherwise. Although, Bercon believes that the assumptions inherent in the forward looking statements are reasonable, forward looking statements are not guarantees of future performance and accordingly investors should not rely on such statements. Finally, I would like to remind everyone that this call is being recorded and the webcast will be available for replay on the company's website starting later this evening. Thank you, ladies and gentlemen, for joining us today for our presentation. You may now disconnect.

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Key Takeaways

  • Bercon 2.0 strategy: launched 95% hemp seed protein isolate with HPS Foods, targeting first commercial sales in early 2024 and a clear path to revenue next year.
  • Strong market demand: over 60 CPG companies requested hemp protein samples after the IFT First launch, underpinning a potential $100 million opportunity.
  • Cost control and improved financials: Q2 net loss narrowed to $1.4 million from $3.2 million, operating expenses fell 16%, and cash runway now extends to February 2024 (or 2025 with the second loan tranche).
  • Sunflower protein expansion: proprietary process yields both isolate and concentrate, opening a $400 million market in dairy alternatives, snacks and nutrition, with partnership talks underway.
  • Non-dilutive funding secured: collaborating on a $7 million government-backed project for hemp and sunflower scale-up to offset commercialization costs and preserve equity.
A.I. generated. May contain errors.
Earnings Conference Call
Burcon NutraScience Q2 2024
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