Burcon NutraScience Q1 2025 Earnings Call Transcript

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Provided by Quartr
August 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 2025 First Quarter Results ended June 30, 2024. Joining us today are Keith Underwood, Birkon's Chief Executive Officer and Robert Pitts, the company's Chief Financial Officer. Following their remarks, we will open up the call for your questions. 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. I will now turn the call over to the CEO of Ocad, Mr.

Operator

Kief Underwood. Please go ahead.

Speaker 1

Thank you, operator, and thank you everyone for joining us today. Fiscal 2025 Q1 marks the beginning of This was a significant achievement as it marks the 1st direct commercial protein sale for Virkon and the world's first sale of hemp protein isolate. In addition, during the quarter, we officially launched our canola protein, expanding our protein offerings to meet the market demand for better for you and better for the planet specialty ingredients. With production capabilities established, we believe we are on the cusp of moving beyond a company that creates technology to one that derives profit from our innovation. We will review these milestones and update our commercial progress on today's call.

Speaker 1

In regard to market demand, we are encouraged by the growing customer interest for our protein ingredients. Direct customer feedback for our proteins continue to be positive with over 50 prospective customers in various stages of product evaluation and trials. Our sales strategy targets innovative new consumer brands that are on the cutting edge of food trends. These brands size and scale align perfectly with Birkon's current capabilities, enabling us to achieve speed to revenue, a key component to Birkon's success. We have a sound strategy in place and continue to build out a robust customer sales funnel.

Speaker 1

We look forward to discussing in more detail our strategy to capture a part of the multibillion dollar total addressable market for BRCON's high purity protein ingredients. We are off to a fantastic start to our fiscal year. Our top priority is to ramp commercial production to meet the growing customer demand for our proteins. As of July 1, Robert Peetz joined Virkon as its new Chief Financial Officer. As a seasoned financial and strategy executive, Rob has brought his extensive experience in capital markets to BERCON.

Speaker 1

We are excited to have him on board as BERCON transitions to a revenue generating company. With that, I'd like to turn the call over to our Chief Financial Officer, Rob Peetz, to provide an overview of the financial results for Q1. After which, I will return to provide an outlook for our current fiscal year. We will open the call to questions following our remarks. Rob, whenever you're ready, please go ahead.

Speaker 2

Thanks, Kipp. Earlier today, our financial results for the quarter ended June 30, 2024 were issued in a news release and filed with SEDAR as well as posted to our Investor Relations section of our website. In the 3 months ended June 30, 2024, we recorded revenues of $237,000 as compared to mills recorded in the year ago comparable quarter. Ercom reported a net loss of just under $1,900,000 or $0.01 per basic share and diluted share for the Q1 of fiscal 2025 as compared to just over $1,900,000 or $0.02 per basic and diluted share in the Q1 of the prior year. Research and development expenditures in the Q1 of fiscal 2025 decreased by $253,000 over the Q1 of fiscal 2024.

Speaker 2

The decrease is driven by the receipt of $140,000 of government assistance from Protein Industries Canada received in the current period as well as the intellectual property expenses, which decreased by $71,000 Following a strategic patent portfolio review undertaken during the prior fiscal year, ERCON focused its intellectual property spend on patents that are essential to these strategic objectives and ceased maintenance payments on the non core patents, resulting in a decrease in IP expenses. G and A expenditures in the Q1 of fiscal 2025 increased by $267,000 over the previous year's comparable quarter. The increase is driven by a combination of increased stock based compensation issued to an external consultant and an increase in Investor Relations costs as the company resumed its investor outreach activities. These increases were partially offset by lower salaries and benefits expenditures at the same period, driven by lower stock based compensation and staff changes. During the Q1 of fiscal 2025, ERCON recorded funding from Protein Industries Canada for about $400,000 which has been applied to reduce R and D expenses, G and A expenses, inventory and property equipment.

Speaker 2

As of June 30, 2024, the company had $2,200,000 of cash plus access to up to $4,000,000 of undrawn capacity on TROTCH 2 of the secured loan. In the prior year, ERCON received funding approval from PIK for the scale up and commercialization of hemp seed and sunflower seed proteins. The $6,900,000 project led by VIRCON includes funding of $3,000,000 from PICC. If I may have a personal note, from my own point of view, I'm very excited about the opportunities which FERCON has currently underway and in development. The upcoming quarters hold incredible potential and I'm really happy to be part of all of it.

Speaker 2

With that, I'd like to

Speaker 1

turn it back to you, Kipp. Thanks, Rob. There's definitely excitement among the team. We have made significant progress on our journey from an R and D company to a food technology company that is scaling and monetizing its innovations. We strongly believe we are at an inflection point after clearing a number of key milestones.

Speaker 1

Strategy and in doing so in the last 12 months we have established commercial production capabilities, successfully scaled up our proprietary hemp and canola proteins, achieved the 1st commercial sale of our hemp protein, and most importantly validated customer demand for our proteins that has exceeded our business plan expectations. These are all foundational milestones that are expected to propel BERKON into the next phase of growth, technology scale up and sales. Achieving commercial sales for hemp protein was a major milestone this quarter and it's only the beginning of our sales ramp. We need to stack individual customer or brand wins into ongoing recurring sales, which we expect to do in the coming quarters. There is significant demand for our 95% hemp protein isolate.

Speaker 1

Our initial production campaign successfully validated our hemp process and provided sufficient quantities to fill initial customer orders. Our goal is to ramp production to meet the growing customer demand and convert into recurring sales. Additional production campaigns are underway and we expect to have sufficient commercial volumes to supply new purchase orders. Similarly, we were successful in scaling up our canola protein technology. We pulled forward our launch and production timeline for canola protein by 6 months due to strong demand from former and new prospective customers.

Speaker 1

We have received written expressions of interest from customers indicating they would evaluate and or purchase our canola protein again. We believe that by accelerating our canola launch plans, we can bring our unique canola protein to market and quickly reach sales revenue. We recently completed our first commercial run, validating our end to end process and producing commercial quantities of colic protein. Salos for colic protein are expected to begin late this year and increase in volume starting early in 2025. Our proprietary technologies enable the production of high quality best in class protein products suitable for the global food and beverage market.

Speaker 1

In terms of our sales strategy, our customer approach targets innovative new brands that are on the cutting edge of food trends. These brands size and scale align perfectly with Bercon's current capabilities, enabling us to achieve speed to revenue. A key advantage of working with innovative brands is that they are able to act fast, thereby shortening the 18 month product development cycle typically required from larger brands. These innovative new brands could include Rate to Mix and Rate to Drink Beverages, dairy alternatives, protein bars and lifestyle food applications. For perspective, major multinational ingredient companies that have streamlined their production and sales often retain a sales team that is dedicated to selling to entrepreneurial and fast moving customers.

Speaker 1

These types of customers are attractive to any business for the following reasons. They have the highest growth potential. They are fast movers with the shortest product development cycles. They are on the cutting edge of consumer products. They are generally early adopters and they are the most profitable for supplier willing to pay a premium.

Speaker 1

We expect to have customer wins targeting this category of food endeavors manufacturers. With over 50 prospective customers in various stages of product evaluation trials, we believe we can convert a number of them into customers. We expect to drive sales of our hemp and kelp proteins late 2024 and into 2025. During the quarter, we also announced the completion of a contract research project for a food processing client. We are leveraging our processing expertise to engage the market, stay on top of the latest trends and build our partnership funnel.

Speaker 1

We are seeing strong interest from the industry for further collaboration, while we ensure the effort remains complementary to our base business. Switching over to Capital Markets. During the quarter, our shares began trading on the OTCQB Venture Market under the symbol BRCMF. We are pleased to trade our shares on the OTCQB, which improves access and liquidity for our investors. In addition, BRCON has engaged external firms, which support our institutional and retail investor outreach.

Speaker 1

We expect to continue our efforts to raise awareness so that more investors have the opportunity to be part of Birkon's success. Building on our achievements in the past year, Bercon is in an excellent position to capitalize on the market opportunities ahead of us. We have best in class protein products. We have customer demand and we have production capabilities. Those are all ingredients for success.

Speaker 1

Our team is committed to ramping up production, building a strong customer funnel and selling our proteins into the global food and beverage market. With that, I would like to now open the call up to questions. Operator, can you please provide the appropriate instructions?

Operator

Thank you, sir. Ladies and gentlemen, we will now be conducting a question and answer session. Our first question comes from Dave Storms of Stonegate. Please go ahead.

Speaker 3

Hey, good evening.

Speaker 1

Hi, Doug.

Speaker 4

Hello. Just hoping to start with the profitability. I know last quarter it was mentioned that profitability was targeted for an early 'twenty six timeframe. With canola getting online about 6 months ahead of schedule, would it be reasonable to move that profitability timeline up as well? Or are there other factors here that we should consider?

Speaker 1

Thanks, Dave. I'm going to turn this question over to Rob Petes, our CFO. Rob?

Speaker 2

Thanks. Yes. So Dave, I will agree that there's certainly some items in flux as a result of that change in priority, but we are still forecasting middle to late 2025 like calendar 2025, fiscal 2020 6 in terms of achieving profitability that does remain our target to date.

Speaker 4

Understood. That's very helpful. And then Kipp, just maybe turn into some of the logistics. As you're thinking of ramping commercial production, what are some major milestones or major lifts that we should keep in mind as the year continues?

Speaker 1

Sure. Thanks, David. Certainly, we speak to building the foundation, right? And that's really where our focus has been. So I think moving forward, some of the key items or milestones we should look for is, 1st, continual successful commercial production runs, right?

Speaker 1

Before we can sell the product, we have to make high quality product, right? And that's where our focus is. And then subsequent to that, in the back half of calendar 'twenty four, hoping we can see a recurring sale. So I think it's important for people to recognize in this business, once we achieve a sale, once you have a sale into a product that really moves to a recurring sale. Because once you're inside a food product and any of us buy at the grocery store, for example, you're there on an ongoing basis.

Speaker 1

So successful commercial production campaigns 1 and then recurring sales 2.

Speaker 4

Understood. Thank you. And then just with the launch of hemp and canola seems to be going really well. Can you just give us a little more color on what the uptake is like between those two product lines? And maybe just what the different end markets that those two product lines touch and what demand looks like there?

Speaker 1

Well, sure. So I think the first piece around uptake is around speed to market and we had 2 pretty innovative approaches at this for the industry. We actually went to market with hemp roughly 9, 10 months ago now with our partner on pilot scale material. That's pretty innovative for our market and that allows us to move from commercial production to commercial sales quicker than you typically would. The same can be said for canola.

Speaker 1

Since we had former customers of canola from our the Merit business, we had people who'd already approved the product, right? They'll still have to go through an approval process again, but it's much shorter. So both in our selection of products and our approach, we're shortening the customer decision timeline, which enables more speed to revenue. That being said, we move forward. I would say we see these as roughly fifty-fifty in terms of their impact to our business.

Speaker 1

And the most important thing though is this optionality. We're prepared to move that fifty-fifty, sixty-forty, forty-sixty depending upon what the market needs, right? So I think we're prepared to go fifty-fifty on these and then moving forward if the market says, hey, we want canola sooner or more then we will move that way and vice versa for hemp.

Speaker 4

Understood. And then just one more for me if I could. Looking forward, does getting canola up on its feet early give you the ability or desire to maybe move up some of the timelines for future projects? Or as you mentioned in the call, is the focus still just going to be really on getting hemp and canola ramped up? And thank you for taking my questions.

Speaker 4

Okay.

Speaker 1

That's good. Thanks, Dave. I think it gives us the opportunity to accelerate our plans. And it's really 2 things. 1 is optionality, right?

Speaker 1

We have 2 products out there that can do different things in custom applications. This is optionality. With that optionality, it gives you opportunity to go faster and also gives you a higher probability of success. So I think on both avenues, we see this just as both a greater assuring that we hit our plans and then also greater potential to exceed.

Operator

Thank you. Our next question comes from Daniel Schiavrani of FARD Investments. Please go ahead.

Speaker 3

Hi, Kipp. It's Dan Charboni from Montreal again. Thank you so much for your update. It's always great to hear from you guys. I just want to ask you 2 questions.

Speaker 3

One question is looking back and one question is going forward. In terms of what's happening with merits, I remember the time we were processing P and getting some revenue from that. Is that I mean, obviously, it didn't reflect on this year's income. And I'm wondering is that operation completely stopped or is it still ongoing? And then the question looking forward, do you think that the cash drain that the liquidity that you have right now, will that sustain you until 2026 as we were hoping originally?

Speaker 3

And if not, like what steps do you think we should take to improve the liquidity in order to continue operations?

Speaker 1

Thanks, Dan. So first, I'll take the Merit question. So the Merit business, as it stands, ceased to operate in March of 2023, right, and has not operated since. Now that being said, the assets of the Merit business are still for sale. We are still in I stay in contact with the receiver who's managing the process.

Speaker 1

And what we believe for the Merit assets, resolution to that situation is good for us and it can be good for us in 3 different ways. First is, if there's an opportunity for us to buy them at the right price that is better than our current model, we can take advantage of that. 2nd, if somebody if another entity bought the assets, if they are still purpose built for our process, we could further leverage our capitalized business model and contract manufacturer in that facility. Or 3rd, if somebody purchased the facility, did not want to run our product, maybe there's an opportunity for us to go in and buy some of the equipment we could use elsewhere. So regardless of how the Marriott situation turns out, we see that as accretive to our overall plan.

Speaker 1

The key piece is we're not in control of the timeline of the process though. That's why we have our capitalized business model that we execute independently.

Speaker 3

Okay. So whatever happened, it's a bit of an upside, like any of those three options that you just said, either we get cash out or we can buy the equipment, whatever happens from Airtanel will just be an upside to the balance sheet and to operations?

Speaker 1

It would be an upside to our potential plan, yes. Yes, okay. And then your second question about the balance sheet is, okay, so when we went through our last fundraise, at Torrance we have a fully funded business plan and it's funded really through 3 ways, right? So first, we have the cash on hand that came from our last raise. 2nd, we have the we call tranche to debt from into a debt from our one of our largest shareholders.

Speaker 1

And 3, we have ongoing sales, right? That sales revenue will have a piece. And 4th, we have non dilutive government funding from Protein Industries Canada. The combination of that, future revenue, cash on hand, debt and nondilutive government funding gives us a balance sheet to fully fund to cash flow positive.

Operator

Thank you. With no further questions from the telephone lines, I will now hand over to Paul Lam for questions from the webcast.

Speaker 5

Hi, everyone. We have one question from the webcast from Jason D'Silva, a private investor. I think there's 2 parts to his question here. He read an article on the CBSA and other countries regarding the dumping of Chinese P protein into the gun into North America. And even though companies in Canada offered a better product, The first part of this question is, are Birkon's isolates much more expensive to produce than competitors?

Speaker 5

And then second part is, does the functionality, taste and texture still set Ercan apart, it's isolates and even though they are more expensive than the Chinese beef coating?

Speaker 1

Okay. So, James, thanks for the question. So, yes, the United States did go through a ruling funded that was really driven by the P Protein Industry that impacted the import cost of companies from importing from China. That has occurred and that really has put players on a level playing field. From our perspective, it really has helped make the plant protein industry more dynamic, right?

Speaker 1

So when you're the newcomer like us, when there's dynamic action, when there's more formulation change, when there's more things happening in the marketplace, that helps us break into new products and new formulas. So that's good for us, right, across the plant protein industry. Relative to cost, that whole piece was not so much that there's a distinct cost advantage from 1 player to another. It was around the anti competitive situation, if you go back and look at it. Relative to our offerings, we still get nearly unanimous feedback across our plant proteins that they're best in class.

Speaker 1

And they're best in class really for three reasons, right? The 95% purity leads to better flavor and better color. The other piece of the puzzle, which we call functionality, how does it help a product feel in your mouth, how does it taste, what is the eating experience. We routinely get feedback from industry peers, potential prospective customers and other folks in the industry that our proteins truly are best in class in performance, which in the end matters because that helps our customers deliver the end consumer a better eating experience.

Speaker 5

There are no further questions from the webcast. I think that's all the time we have. Operator, could you please provide the closing remarks?

Operator

Thank you, sir. Ladies and gentlemen, I will now turn back over to Mr. Underwood for closing remarks. Please go ahead.

Speaker 1

Thanks, operator. I would like to sincerely thank our team for their dedication and commitment. I would also like to thank our shareholders for their patience in us as we execute our strategy and become a market leading plant protein innovation company. Also, we look forward to speaking to everyone again a month from now at BRCON's AGM, where we will review BRCON's strategy and provide a business update and outlook for the company. Our ATM will be held on September 18 through a virtual webcast.

Speaker 1

We will speak to everyone again then. Thank you for your time today.

Operator

Thank you. 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 Litigation.

Operator

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 or implied for such forward looking statements. 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 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 Birkon'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 derailed detailed herein and from time to time in the filings made by Bercon with security regulators and stock exchanges, including in the section entitled Risk Factors.

Operator

In DIRCON's actual information form filed with the Canadian Securities Administrators on www.sedar.com. Any information my apologies, any forward looking statement or information only speaks as of the date on which it was made and except as may be required by applicable security laws. Percon 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.

Operator

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

  • Fiscal 2025 Q1 saw Birkon record its first direct commercial sale of 95% hemp protein isolate and officially launch its canola protein, marking its transition to a revenue-generating phase.
  • Q1 revenue totaled $237,000 with a net loss of approximately $1.9 million, R&D costs decreased by $253,000 due to government grants and reduced IP spend, while G&A rose by $267,000 mainly from stock-based compensation and investor-relations activities.
  • Birkon has established commercial production capabilities for hemp and canola proteins, successfully scaling up processes and validating end-to-end production through initial commercial runs.
  • With over 50 prospective customers and a sales strategy targeting innovative consumer brands, the company expects to ramp recurring sales in late 2024 and early 2025 as production volumes increase.
  • Birkon ended the quarter with $2.2 million in cash, access to up to $4 million of undrawn loan capacity, and ongoing non-dilutive funding from Protein Industries Canada, positioning it to target profitability in mid-to-late 2025.
A.I. generated. May contain errors.
Earnings Conference Call
Burcon NutraScience Q1 2025
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