Burcon NutraScience Q3 2024 Earnings Call Transcript

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Provided by Quartr
February 14, 2024

There are 6 speakers on the call.

Operator

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Birkon Nutascience Corporation's Fiscal Year 2024 Third Quarter Results Ended December 31, 2023. Joining us today are Kip Underwood, Bercon's Chief Executive Officer and Jade Cheng, the company's Chief Financial Officer. Call, I'll provide the company's safe harbor statement with important cautions regarding the forward looking statements made during this call. Now, I would like to turn the conference over to the CEO of BurCon, Mr. Kipp Underwood.

Operator

Sir, please go ahead.

Speaker 1

Thank you, operator, and thank you everyone for joining us today. We are excited to report that during fiscal 20 Q4 and year to date, we showcased robust execution and value creation for VirTrakom, marked by the achievement of 3 key milestones. 1st, we entered into a production agreement with our partner manufacturer, establishing commercial capability by integrating Bercon's proprietary process into their production facility. 2nd, we were able to validate the hemp protein process through water trials. 3rd, we have validated customer interest in both our hemp seed isolate product as well as our pea and canola offerings.

Speaker 1

We will review these milestones in more detail on the call today. We continue to see opportunities for Bergcon's proteins in the market today. The growth of the plant based beverage segment is strong with consumers demanding plant based foods that they both enjoy and are planet friendly. Consumers are seeking better plant based products that we believe will drive the need for new improved plant based protein offerings. We expect Berg Con's new to the world hemp seed and sunflower proteins to meet this demand and support the next generation of innovative Food and beverage products.

Speaker 1

We have made significant strides in the execution of our BRCAN 2.0 business plan. We have validated potential customer demand with both former Merit customers and new prospects. We have established a supply chain capable of bringing our products to market and we have reaffirmed the differentiation of our products compared to competitive alternatives. BRCON is in an excellent position to accelerate our plan to bring our best in class protein ingredients to market. We firmly believe that 2024 will be a transformative year for Bercon and I look forward to sharing Bercon's plan with you on the call today.

Speaker 1

Before that, I'd first like to turn the call over to our Chief Financial Officer, Jay Ching, 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 Q3 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. We reported a net loss of $2,000,000 or $0.02 per basic and diluted share for the current quarter as compared to $16,300,000 or $0.15 per basic and diluted share in the same year ago quarter. The decrease is due almost entirely to the impairment losses and share of loss in merit recorded in the Q3 of last year. Gross R and D expenditures went down by $200,000 from $1,200,000 in the Q3 of last year to $1,000,000 in the current quarter.

Speaker 2

The decrease is due to a reduction of intellectual property expenses as a result of Virkon's patent portfolio optimization efforts as well as to lower stock based compensation expense. G and A expenses this quarter did not change significantly from the same year ago quarter. While there were reductions in expenses due to our cash conservation efforts such as Investor Relations And costs related to the former U. S. Listing, professional fees increased due to consulting costs incurred for our strategic plan that have contributed to uncovering additional value and identifying further opportunities for our technology.

Speaker 2

At December 31, 2023, our cash resources were $675,000 compared to $1,500,000 at March 31, 2023. During this quarter, VIRCON met the conditions for the 2nd tranche of the large scale loan facility. After December 31, Vercon drew down $1,000,000 from the loan facility. We expect our current cash resources to fund our operations to April 2024 and further to January 2025, if the loan facility is fully drawn. These days may potentially be extended If the company receives funding or generates revenues from other sources, including but not limited to hemp protein sales, government funding, pilot plant processing and scale up validation services.

Speaker 2

With that, I'd like to turn the call back over to our CEO, Kipp Underwood. Kipp?

Speaker 1

Thanks, Jay. We have made significant progress along all three of our strategic imperatives, identifying alternative revenue streams, getting closer to customers and gaining influence over the manufacture of our products. We are focused on the execution of our strategic plan. Relative to the production of our ingredients, we cleared 2 important milestones during the quarter. As a result of strong customer demand for our hemp seed protein isolate, HPS Food and Ingredients and Bercon expedited our commercialization plans for hemp.

Speaker 1

ERCOT entered into a production agreement with its partner manufacturer to produce its hemp seed protein. As part of our capital light business model, we are leveraging the existing infrastructure of our contract manufacturer and integrating Birkon's proprietary processing equipment to build out the capability to produce Birkon's portfolio of high purity protein ingredients. Developing this supply chain capability was a key priority for us this quarter. Our team worked closely with our partner manufacturer to validate our hemp seed protein process through water test runs. We are encouraged by the commercial progress made to date.

Speaker 1

Establishing commercial capability is critical to the execution of our Birkon 2.0 plan. It is a go to market plan that offers us both speed and optionality. 2 things we must have in order to succeed. With the flexibility to produce various protein ingredients Through our contract manufacturer, we have an opportunity to accelerate our BERCON 2.0 plant. In regard to customer interest in sales, feedback for BRCON's hemp seed protein isolate continues to be positive.

Speaker 1

Following the successful launch of our hemp seed protein isolate last summer, we have prioritized customer engagement, working closely with customers to provide technical support and now have developed a robust sales funnel. A handful of customers who have completed their evaluation of our hemp seed protein isolate are interested in moving forward with purchasing commercial quantities. Our 95% hemp seed protein isolate is neutral in flavor, off white in color and has the nutrition and functional profile that makes it an ideal protein ingredient in various food and beverage applications. We expect our hemp seed protein to be an ideal fit in lifestyle and nutrition products such as ready to mix protein powders and protein nutrition According to Research and Markets, the global hemp foods market is expected to double in the next 5 years. We anticipate our 95% hemp protein to be the main ingredient in a number of food applications, including dairy alternatives, ready to drink beverages, baked goods and many others.

Speaker 1

According to the research firm Mentel, hemp is a hero ingredient that consumers seek out for its nutritional and sustainability value. 32% of U. S. Consumers are interested in hemp as an alternative to dairy protein. We expect our 95% hemp seed protein to potentially capture a sizable market share of this growing hemp foods market.

Speaker 1

Commercial production for hemp protein is expected to start this quarter. We intend on fulfilling customer demand for our hemp protein as well as bringing to market our other commercially proven protein ingredients such as pea and canola. The 3rd key milestone achieved in the quarter was the validation of demand for our pea and canola products from former Merit customers. We have conducted conversations with many former Merit customers as well as new prospective buyers. The overall interest in our pea and canola products has surpassed all our expectations with nearly 100% expressing interest in evaluating and or purchasing products produced with Birkin's P and Canola Technologies.

Speaker 1

In fact, Many companies are having difficulty identifying replacement ingredients with equal performance in their end consumer food products. We are excited to receive this level of direct customer feedback and are actively exploring how to meet a portion of this demand. To support our balance sheet, we were pleased to announce that we have entered into an agreement with Birkon's largest shareholder to access the second $5,000,000 tranche of a $10,000,000 loan. Subsequent to the quarter end, we drew down the first $1,000,000 of the second $5,000,000 tranche. For seeking additional non dilutive funding, Birkon and its consortium partners have been working closely with Protein Industries Canada to secure Co investment on a $7,000,000 project aimed to commercialize work on hemp and sunflower proteins.

Speaker 1

We are working through the final stage of the funding process and expect to get approval for this co investment from Protein Industries Canada in the coming weeks. Collectively, the 2nd tranche loan, non dilutive government funding and anticipated hemp sales revenue this year are expected to extend Birkon's cash runway well into 2025. We firmly believe that 2024 will be a transformative year for BRCON. Looking ahead, we have a real opportunity to accelerate our BRCON 2.0 business plan to launch and sell multiple protein products in parallel. Our focus this year is to commercially produce and sell our hemp seed protein isolate to fulfill the growing customer demand.

Speaker 1

HPS and Birkon continue to work with customers to incorporate our 95% hemp seed protein isolate into product formulations. We expect hemp sales to begin in the coming months as we scale up commercial production. As well, we expect to launch additional proteins later this year, which could include Birkon's sunflower MP proteins through our partner manufacturer. With an established supply chain, we believe we can bring to market our next generation of high purity premium protein ingredients. The milestones we cleared this quarter all point back to our 3 strategic imperatives for BRCON 2.0, which are to identify additional sources of revenue, get closer to customers and have more influence over the manufacturer of Birkon's protein.

Speaker 1

We continue to adhere to our overarching strategic goals execute against them with the vision of becoming a market leading protein ingredient company. We took significant steps this quarter solidify our commercial production capabilities. Building out our supply chain via a capital light approach is the cornerstone of our BRCON 2.0 strategy. The market feedback has been nothing short of encouraging. There is real demand for BRCON's proteins and now we have the capabilities to fulfill that demand.

Speaker 1

Our team is focused on bringing our proteins to global market where we believe our products will thrive and capture part of the growing multibillion dollar market. We are more optimistic than ever and look forward to updating everyone on our commercial progress on the next call. With that, I would like to now open the call up to questions. Operator, can you please provide the appropriate instructions?

Operator

The first question comes from Daniel Cherubani with Saad Investments. Please go ahead.

Speaker 3

Yes, good afternoon from Montreal and thank you, Kipp. It seems that you really developed the mechanism to show real progress going forward. And I'd like to ask you 2 quick questions. When do you believe it to be realistic that We can monetize on all these great successes that you're having now to see in your opinion when you feel there'll be a nice cash flow coming from operations. You think it's going to be end of 2024 sooner?

Speaker 3

And also the second question is any updates on the sale of Merit like it was such an exciting period where We were going to make a bid for the plant and this is supposed to be last March and so far we haven't heard very much. Do you have any updates and what would be the best scenario for Birkon? Thank you very much.

Speaker 1

Thank you, Daniel, for both questions. So let me tackle the first of, I think, top of mind for everyone, when does Burtcon begin to see revenue and when can we achieve cash flow positive. So we can say is we are laying the groundwork. Key to us coming cash flow positive really is the establishing of supply team we spoke to, the understanding of downstream demand from our customers, which we have validated and now it's up to us to produce, launch and sell those products to the market. So with those efforts, we should see revenue inside 2024 for our hemp protein product.

Speaker 1

Okay. Relative to Merit, The first thing I want to say about Merit is anything that happens with the Merit assets is additive to our Bercon 2.0 Our capital light model does not need, does not include any financial benefit from the merit assets. What is also true is the Merit assets are still for sale. And we believe there's a variety of ways that Bercon can play a role with those because in the end, We know there's market demand, we know the product differentiated and we know the facility was purpose built for Birkon's technology. Given that, we believe there's a range of ways that we could participate and have a financial benefit from that arrangement.

Speaker 1

On one end of the spectrum would be to run, buy or own in some form or fashion. We could partially own. We could license the technology to somebody else and they could run and pull a royalty stream out or we could actually somebody else bought the facility to repurpose, We could actually contract manufacture inside the facility that's purpose built for our products. So we see a continuum of opportunity with the Merit facility. We see it is all additive to our current plan and our Cap Light plan is truly independent of that, right?

Speaker 1

So we execute our plan And with the receiver drive the merit timeline and then when that situation resolves itself, we will be ready regardless of the outcome.

Speaker 3

Thank you. Good luck

Speaker 4

and we're rooting for you.

Speaker 1

Thank you. We appreciate that.

Operator

The next question comes from Bruce Lazenby, Private Investor. Please go ahead.

Speaker 5

Yes. Kipp, I'd like the two points you just covered, but maybe a little bit more directly. Can you give us some ballpark? I know forward looking is always a challenge, But everybody does it. Are we talking in 2024 possible tens of thousands of revenue, 100 of 1000, 1,000,000?

Speaker 5

And the second question goes back to the merit thing. It's been a while. I mean, I'm familiar with receiverships. They take a while. But is this about to be resolved?

Speaker 5

Or is this to be in limbo for another several quarters?

Speaker 1

Well, I'll tackle the second one first. We're not in position to predict what the receiver is going to do or not do, right? It's certainly you're right. It will be a year as of early March when the assets went into receivership. So what we can do is what we can control, which is Stay close to the receiver and dialogue, understand the process and then have and be ready, have plans ready to act regardless of how it turns out.

Speaker 1

And that's the part we can control and that's our focus, right? Relative to cash flow and revenue, I think we can say is We're very excited about our hemp seed protein launch. We're excited to move into production and sales. And those sales I think inside of 2024 will be significant relative to Burkhart's annual spend.

Operator

I will now hand the Q and A session over to Paul Lam, Director of Investor Relations for questions from the webcast. Please go ahead, Paul.

Speaker 4

Thank you, operator. We have a few questions from the webcast. I'd like to start with Joe Sawyer, a Private Investor. Where will Bercon produce the pea and canola to meet your stated demand? Kit mentioned that the current level of demand for pea and canola has far exceeded expectations, is the demand equal to that of the former Merrick facility?

Speaker 1

Joe, thanks for the question. What we can say about our supply chain is We've built out a supply chain that allows us to produce to meet our Ford financial plan, right, and establish those in the marketplace. That's the piece we can speak to beyond getting into confidential overall capacity pieces. But we the supply chain we see and the demand we see both enable the full execution of our current financial plan.

Speaker 4

Next, we have several questions from David Gaetje, but I will summarize. I believe some of them have been answered already, but there is one. David is interested in understanding if there has been any discussions along the licensing of Percon's technology.

Speaker 1

Thank you for the question. And I think those are always ongoing conversations, right? So For us, if we go back to our Bercon 2.0 plan, the key one of the keys is the optionality and with any and how do we monetize our intellectual property and provide a return to our shareholders. In any of our technologies, we always have do we Build, do we partner, do we license, do we sell? And we are always in discussions and evaluation for all 4 of those.

Speaker 1

One of the keys to a Bercon 2.0 plan is to get our products into market under our control to establish their value, to establish the market and establish the financial opportunity. In doing so, not only do we get a place where we have our own revenue and profit, but we also put ourselves in a much better position to license or sell the technology potentially in the future. Thank you for the question.

Speaker 4

Okay. And next question we have from a private investor. Do you need additional capital to build out your partner manufacturer's facility in order to produce pea into canola protein? If so, how much additional capital is needed?

Speaker 1

We do not need any additional capital to execute our capital light business model based on the current plan. So we are we have the capability, the capital, the capacity in line to produce. Certainly, if there was opportunity to accelerate or move faster or sell more or generate higher overall revenue and profit, we would evaluate that. But this time, no additional capital to execute our plan.

Speaker 4

Okay. Joel Sawyer actually came back with a follow-up question. He didn't he wasn't too clear on how Bercon would meet demand to actually produce pea and canola, where would there be a facility to meet that demand?

Speaker 1

Thanks, Jill. Let me clarify then. So, the supply chain we have put together through our partner manufacturer has the capability to produce our portfolios that will include pea, canola, hemp and sunflower. In addition, it has the capacity to meet our 4 business plan. So we have capability and capacity to meet our 4 business plan as it is today.

Speaker 4

Thanks, Joe. Joe, I think that answered your question. I am not seeing any additional questions. I think Maybe I'll give it a few seconds to see if any other questions come up. I think we're good.

Speaker 4

Operator, can you

Operator

Thank you, everyone. At this time, this concludes the question and answer session. Would like to turn the conference back over to Mr. Underwood for any closing remarks. Please go ahead.

Speaker 1

Thanks, operator. At first, I would like to thank our team for their efforts over the past quarter and their commitment to BERCON and BERCON's vision. I would also like to personally thank all of our shareholders for their patience and understanding As we execute our BRCON 2.0 plan, which in the end will allow us to capitalize on the next wave of plant based food growth. Thanks again for your time today. Goodbye all.

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 involve risks, uncertainties and other factors that could cause actual results, performances, prospects and opportunities to differ materially from those expressed are 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 statements of historical fact 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 Bergcon'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 Barkon with securities regulators and stock exchanges, including in the section entitled Risk Factors in Birkon'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 and expect as may be required by applicable securities law, Bercon disclaims any intent or obligation to update any forward looking statement whether as a result of new information, future events or otherwise.

Operator

Although Vercon 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

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Key Takeaways

  • During Q3 FY2024, Burcon achieved three strategic milestones: a production agreement with its manufacturing partner, validation of the hemp protein process through water trials, and confirmed customer interest in its hemp seed isolate, pea, and canola offerings.
  • The company reported a significantly reduced net loss of $2 million versus $16.3 million a year ago, with R&D expenses down to $1 million and cash resources at $675 000, bolstered by a $1 million drawdown on its loan facility.
  • Burcon is executing a capital-light supply chain strategy by integrating its proprietary processing equipment into a partner’s facility to accelerate commercial production of hemp, pea, canola, and sunflower proteins.
  • Customer feedback on the 95% hemp seed protein isolate has been positive, with a robust sales funnel in place and commercial production and sales expected to begin in the coming months.
  • The company secured access to a second $5 million loan tranche and is pursuing a $7 million co-investment from Protein Industries Canada, extending its cash runway into 2025.
A.I. generated. May contain errors.
Earnings Conference Call
Burcon NutraScience Q3 2024
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