Operator
Good morning, and welcome to the BioHarvest Sciences Second Quarter 2026 Financial Results Conference Call. As a reminder, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If you would like to ask a question, please press star 1 on your phone. To withdraw your question, please press star 1 again. As a reminder, this conference is being recorded. I will now hand the call over to Dori Kurowski of LifeSci Advisors. Please go ahead.
Greetings and welcome to the BioHarvest Sciences second quarter 2026 Financial Results Conference With us on the call this morning is Dr. Zaki Rakib, Turman and Chief Executive Officer. Before we begin, I'd like to remind you that management will be making projections and forward-looking statements on the call today regarding future events. Any statements that are not historical facts are forward-looking statements. These statements are made pursuant to and within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. We encourage you to review BioHarvest Sciences SEC filings, including the company's most recent Form 6K, which identify risks and uncertainties that may cause future actual results or events to differ materially. These filings can be found on the company website as well as the SEC at www.sec.gov. Please note that the forward-looking statements made during today's call speak only to the date they are made, and BioHarvest Sciences undertakes no obligation to update them. And with that, I would like to turn the call over to Dr. Zaki Rakib, Chief Executive Officer of BioHarvest. Please go ahead.
Thank you, Dori, and thank you all for joining us this morning. This morning, we proudly announced our first ever CDMO Manufacturing and Supply Agreement, another validating deal that shows the value of our programmable plant cell biology, which yields highly consistent, bioavailable, and patent-protected precision botanics. These are non-GMO compounds possessing enhanced potency and purity compared to the original plant. Our AI-driven development and industrial-scale bioreactors are a revolution in plant cell culture production at mass scale. This morning's announcement relates to a program that we have with an UAE-based customer for a global luxury rare fragrance. I'll talk more about this exciting announcement and what it means to BioHarvest after you hear the pre-recorded review of the financials that includes a more detailed summary of our numbers for this quarter. Please note that our CFO, Bar Dixter, has pre-recorded the financial summary, but for happy family-related circumstances, will not be joining the call today. Our company's controller, Rui Yatsaroff, will be on the call, and if necessary, he'll follow up with any unaddressed financial questions on the call. Operator?
Thank you, Zaki. Good morning, everyone. I will provide you with a summary of our financial results. A full breakdown is available in our SEC filings and in the press release that crossed the wire before market opened today. Please note that all figures are in U.S. dollars unless stated otherwise. Revenues for the second quarter of 2026 were $8.8 million, an increase of 3.8% year over year from $8.5 million for the same period last year. Cost of revenue was $3.7 million compared to $3.4 million for the same period last year. Gross profit for the second quarter of 2026 was $5.1 million, or 58% of total revenue, compared to $5.1 million, or 59% of total revenue for the same period last year. Sales and marketing expenses totaled $4.4 million for the second quarter of 2026, compared to $4 million for the same period last year. R&D expenses totaled $1.7 million for the second quarter of 2026, compared to $1.4 million for the same period last year. G&A expenses totaled $1.5 million for the second quarter of 2026, compared to $1.6 million for the same period last year, or 17% of revenues as compared to 19% for the same period last year. Total operating expenses for the second quarter of 2026 were 7.6 million compared to 6.9 million for the same period last year. The increase is driven by technology development expenditures within the CDMO services business unit as well as investing in new marketing strategies for the product business unit. Net losses for the second quarter of 2026 totaled 3.7 million or 17 cents per basic and diluted share as compared to a net loss of 4.1 million or 24 cents per basic and diluted share for the same period last year. Adjusted EBITDA loss and non-IFRS measure for the second quarter of 2026 totaled 1.6 million compared to 1.2 million for the same period last year. Cash and cash equivalents together with bank deposit as of June 30, 2026 totaled 16.2 million compared to 3.7 million as of June 30, 2025. I would now like to pass the call back to Zaki.
As mentioned at the start of this call, I'm extremely pleased to share that BioHarvest has secured our first supply and manufacturing contract with our fragrance customer for a rare premium scent that is widely regarded as one of the most valuable fragrance raw materials in the world. It is significantly ahead of the schedule we had previously outlined. This agreement reflects our partners' high prioritizations of this program, as well as their awareness that BioHarvest has multiple competing development programs. The partner, through the agreement, expresses his desire to secure the earliest possible product availability for commercialization purposes. Today's announcement is an important strategic milestone in our quest to be the largest producers of cell culture-based rare fragrances. The 20-ton commitment with the delivery of the final product for our partner specifications has the potential to translate to 20 to 30 million dollars in revenue for BioHarvest in the 2027-2028 timeframe. spray. We will start limited production the first half of 2027 in a dedicated section of our facility. Our botanical synthesis technology is a horizontal platform covering multiple industries and it carries a very large opportunity for bioharvest. The fragrance project and supply agreement we are discussing today is just one example of that vast potential. Let me now emphasize the key strategic goals of the company for the next 12 to 18 months. As demonstrated by today's announced manufacturing agreement, we will accelerate the monetization of molecules we have already developed or that are in advanced stages of development. We will shift our focus from proving the breadth of botanical synthesis application to selectively converting our highest value opportunities into recurring manufacturing revenue royalties and sustainable profitability at the same time we will continue building our direct-to-consumer business for healthy profitable growth taking together these priorities support our growth plans and our path to EBITDA breakeven in 2027 on a consolidated base and throughout we will manage our cash carefully with the intent to avoid raising equity-based funding. Now, I will review details of our other CDMO programs that are making important progress. As reported last quarter, BioHarvest's CDMO division completed stage one of its multi-stage saffron development agreement, successfully establishing a saffron cell bank for potential nutraceutical as well as culinary applications. Saffron is one of the world's most valuable and health-promoting botanicals, and this program, along with our fragrance program, is highly valuable to us. Completion of stage one for the saffron program triggered advancement to stage two, a development agreement valued at $1.125 million, which will focus on scaling saffron biomass in bioreactors to support pre-commercial testing and formulation work under the terms of the agreement bioharvest retains a 25 ownership position in the saffron composition being developed in addition to future manufacturing guarantees in may we also announced an update with our strategic partner tate and lyle which was an expansion of our original collaboration that broadened the scope of our joint sweetener development program. The extended agreement broadens the scope of the partnership, moving from a single compound to development of several plant-based sweetener molecules. Based on our optimized strategy, we believe there is opportunity to secure additional selected contracts with strategic partners over the next year. We also expect additional development revenue from existing projects before the end of this year. In July, we announced that the Israel Innovation Authority approved a grant of approximately $1.4 million to bioharvest. This non-diluted funding will support a new research initiative integrating advanced data science, machine learning, computer vision, and high-throughput digital sensing directly into BioHarvest biological development workflows with the goal of accelerating its plant cell culture progress. The initiative aims to move plant cell culture from traditional empirical trial and error methods toward a data-driven optimization framework. This is the second IIA grant BioHarvest has received this year. The first supported scaling the company's manufacturing facility through industrial automation and machine learning. The grant takes the form of a zero-interest loan with repayment contingent on the company reaching predefined commercial milestones and expected to come solely from future revenues generated by the funded project. This technology investment, among other goals, aims to enable BioHarvest to own the largest cell bank for valuable and endangered plant species in the world. The CDMO side of our business remains strong with high growth potential. Today we announced that the CDMO business is tightening its expected revenue range from four to six million dollars to four to five million dollars and is anticipating a significant reduction in full-year EBITDA loss from $4 to $5 million to $1.5 to $2.5 million. Now, an update on our product division. We are revising full-year guidance for the Vinia D2C business from $38 to $42 million to $33 to $35 million, reflecting a reallocation of spend towards its manufacturing capacity build-out and investments in the CDMO business. Accordingly, the direct-to-consumer business is now forecasting an expected EBITDA loss of $1.5 to $2.5 million compared to previous guidance of a gain of half to $2 million. This reflects a deliberate reallocation of spend, not a deterioration in the underlying business, which remains stable at approximately 95,000 active customers with growth of 2% versus the prior year and 2% versus Q1. Our decision reflects where we see the best return on every dollar of customer acquisition spent. The category has seen meaningful media inflation. Meta media costs increased double digits over the period with more advertiser dollars chasing the same audiences. Our view is that the right response is not to spend more into that environment, but to change what we put in front of the consumer. We have directed capital toward our manufacturing capacity build-out, building the channels we control directly and requirements of the growing CDMO business. We are pairing that discipline with three offensive moves entering the second half. First, in June, we implemented the first pricing change since May 2021, an increase of up to 20% for new subscription customers from their second order onward. Execution was clean, and we have so far not seen material impact. Second, we're executing a substantial shift in brand messaging that we believe will improve conversion rates and lower our cost of acquisition in the current environment. Third, in September, we will launch single-dose Vineyard Daily Chews, a format we expect to drive further improved conversion rates amongst our younger audience as well as deepen consumption and retention across customers. Alongside these, our health professional affiliates channel continues to build momentum and we have completed a comprehensive strategy to address games and running, hiking and swimming clubs which we are putting into action these are contributors to future growth at structurally lower acquisition cost this is a deliberate sequencing decision stronger offer stronger creative and broader product range with our chosen market first with paid investments scaling behind them positioning us to grow more efficiently and more profitably than spending into the current environment would have allowed. In summary, and as I have emphasized in today's call, we are optimizing our revenue targets to achieve our two critical goals, EBITDA break-even on a consolidated basis in 2027 and preservation of cash. Accordingly, total revenue guidance for 2026 is $37 to $40 million compared to previous guidance of $42 to $48 million. Despite the revenue reduction and as a result of the strong momentum on the CDMO, the consolidated EBITDA losses are expected to be in the range of three to five million dollars as compared to the previous expected loss of three to four million dollars. In closing, I'm currently here in Boston at the Canaccord Growth Conference which gives me a great opportunity to share today's news and bioharvest growth strategy directly with institutional investors i'm looking forward to several engagements with conference attendees and with our bioharvest investment community to update them on the exciting prospects of our business with that i'd like to open the floor to questions operator thank you we will now begin the question and answer session Please limit yourself to one question and one follow-up.
Operator
If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, please press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Matt Hewitt with Craig Hallam. Matt, your line is open. Please go ahead.
Good morning, Zaki. Congratulations on the CDMO contract. That is big news. On that topic, so you're still working on the stage two of development that's supposed to take basically through the end of the year. will you be able to start the actual production while that stage two is in process or do you need to wait for that to complete first and then start the the larger production program and with that larger production program are you able to generate revenues as that's ramping up or is it once the project is completed which sounds like it'll be later in 27 so actually let me let me
explain. Thanks for the question and good morning. So as you know, once we have crossed stage one, which is considered the riskiest part of the project, we were able to understand and basically check the mark on the initial success of the project. Stage two is important and we expect to complete it by the end of the year what we would be doing is that instead of having stage three in which we are actually increasing the size of the bioreactors we will start manufacture with a smaller scale bioreactor that would provide a commercial availability for the customer to be able to bring to the market and hence we will be able to recognize revenue from product sales in the first half of 2027. We will not have to wait until the end of 2027 for that purpose. In fact, we expect to move into larger bioreactors throughout in the middle of the year. And then in 2028, because of the size of the contract, it's a 2027-2028 contract for 20 It will be now, it will be then in 2028 part of the larger facility that we are currently building.
Got it. That's super helpful. And then shifting gears to the Vinia opportunity. I know you're launching the Daily Choose here in September, but I think there's previously been talk about potentially getting into a retailer or more. I'm just curious how those discussions are going. Is that an opportunity still out there or with the kind of the refocus on the CDMO business? Should we just kind of focus on that? Thank you.
These are not competing priorities. The work led actually by Elon on the retail side continues. We are continuing to seek those opportunities in the U.S. and outside of the U.S. as well for retail. Focusing on products, for example, like the hydration would be one of the great opportunities on the retail side. we will continue to update you once we have such a retail arrangement, but they're not competing priorities.
Operator
Your next question comes from the line of Sean McGowan with Roth Capital Partners. Sean, your line is open. Please go ahead.
Good morning. Thank you. Following up on a couple of those questions, So in CDMO, why would the fact that you've got this contract result in a tightening of the revenue forecast? Is it a question of reallocating some resources or is something else going on?
It's more on what I said earlier in the call, which is instead of chasing a significant number of opportunities, which would have brought us to $6 million in terms of tightening 4 to 5 instead of 4 to 6 is actually focusing on the opportunities that will bring more value. So it's value more than number which would allow me to focus my resources into the projects including especially the fragrance project which requires more focus to get it to manufacturing earlier in 2027.
Okay, I get that. So it's a resource allocation issue. And then on similarly in products, can you talk about what the status is of work that was being done on other plants, you know, pomegranates, olives, other things that you guys have talked about in the past, you know, given this kind of dial back on the marketing in wine, in red grapes rather.
So there is indeed a change in strategy and any other products that we develop and part of the CDMO assets are the products that we have already developed and these will be made available to customers of the CDMO. In fact, that will accelerate the process so that we don't have to wait. If a customer is interested, let's say, in the olive product or the pomegranate product or the blueberry product or others that we have already as assets, it will be faster. So there's less time for development and we can move much faster into the manufacturing and supply arrangements. We don't plan to bring into the market by ourselves any product besides the vineyard this time.
Okay. Thank you. And if I can follow up on this contract, can you give a little bit more detail on some of the parameters of the contract? Are there guarantees? What would be the timing of the revenue recognition? Are there upfront payments related to that, et cetera?
There are no upfront payments. We will deliver the products. There is a schedule of delivery in 2027 and 2028, obviously more in 2028 than it is in 2027. The first half is when we start delivering products and we expect to generate revenue, and that's built into the strategy and the numbers that we're projecting internally for purpose of achieving our goal of being breakeven next year on a consolidated basis. So we're timing our delivery, we're focusing our resources with that purpose, and then we align them with the contract and the schedule for delivering products. from a customer perspective the earlier the better the opportunity is is vast and it's a very disruptive supply of a very important ingredient in the fragrance industry so it's not for the lack of demand it's just that our ability to manufacture the customer is very happy with the speed at which we were able to advance the project and is looking forward to start with sampling and start getting products in the market.
Okay, thank you very much. Appreciate that.
Operator
Thank you. Your next question comes from the line of Samir Joshi with HC Wainwright. Samir, your line is open. Please go ahead.
Hey, good morning Dr. Zaki. Thanks for taking my questions. I would just like to understand a little bit more on the new contract announced. is there a possibility of disclosing the name of the customer and what product exact product it is and more importantly once they start selling it do you get a sort of recognition like buy harvest inside kind of ingredient disclosure that they might want to talk about um so i'll start with the latter part of the question.
We haven't really contemplated yet in that part. And remember, we do have 20% ownership in the profit that this business will be generating. So this agreement is part of this partnership that we have with that customer. At this time, we've agreed with the customer that we do not want to disclose the particular details on which product it is and we can. It's a significant fragrance raw material that covers a multi-billion dollars sector of the fragrance business and a growing one. I mean, it's not hard for some people to dig deep and try to find out but uh we're reminded right now but by non-disclosure arrangement both for the name of the of the customer as well as the uh name of the product but it's a multi-billion dollars industry and and uh this raw material is very important in several parts of the world and it's growing also in the western world and used by serious high-end fragrance manufacturers and brands. As I said earlier, it's not for the lack of demand, but still, we want to keep it in a stealth mode so that when it comes to the market, we're ready to penetrate the market faster and more efficiently.
Understood. And I suppose that because this is a big significant 20 ton contract over two years, it is likely that this can get renewed for several years following the 2027-2028 timeframe. Could you repeat the question, Samir? I missed one piece of it. Sorry if I was muffled.
Is there a possibility or is there a provision in the contract to extend it beyond the 2028 time frame it's uh we're the exclusive manufacturer i mean i can't see anyone else uh uh being able to do to deliver such a product so it's the exclusivity is currently uh for 27 28 we uh it's uh the most likely scenario that we would be continuing to be the the manufacturer beyond that time frame and for multi-years, we have actually signaled the last few months to the market and to investors that we expected this fragrance to generate $180 million in revenue for bioharvest for the first five years from beginning of manufacturing. And we stand by such projection, especially now after we have secured the first agreement.
Understood. Thanks for that. And then just on CDMO, the guidance for revenue is only slightly tightened, but the losses are significantly less. should we understand, as you mentioned, that you are focused on converting highest value prospects rather than just keeping on working on a broad range. So, most of the savings are coming from your discontinuation of these other projects.
Am I reading it right, or are there other costs no we're not we're not actually discontinuing um samir and we're not discontinuing any any project that is currently in place it's just we're not taking uh new projects that are not going to yield uh value it will require much more efforts in the beginning so we are actually leveraging what we've already developed between the work we're doing with customers and molecules that we already have that are likely to be licensed in that time frame. So we're leveraging already a development that was done over the years and licensing those molecules to CDMO customers, generating faster revenue and accelerating the time to market, meaning the time to start manufacturing those molecules.
Understood. That was very helpful to understand. Thanks a lot and good luck.
Operator
Thank you. Your next question comes from the line of Nicholas Hurwood with Maxim Group. Nicholas, your line is open. Please go ahead.
Hi, thank you for taking my question. So when thinking about this fragrance contract, what specific types of payments should we be expecting in 2027 and the timing, should we be expecting any royalty payments? Will it mainly just be offtake payments and are there any sort of milestone payments that starting to be associated with the production in 2027?
The model, so we expect to start recording revenue in the first half of 2027. It would be modest because just at the early beginning of manufacturing with a relatively limited capacity within the confinement of the space that we currently have. But as we grow the size of the bioreactors, we'll be able in the second half to record an even higher revenue to start with. But in terms of what the amount, I mean, the question was, how is it modeled and how could you look at it for 2027? Was that the question, if you may repeat it?
Yeah, the question is around, you know, are we expecting royalty payments or is it mainly just going to be off-take and some...
Okay, I missed that part.
Thanks for reminding me. So the model includes royalty, which are to be negotiated. That part has not been negotiated. But you have to remember that we also have 20% ownership. So the overall part, the overall amount of royalties that we will receive will be also connected to our ownership. That is, in negotiations, that piece on the royalties would be negotiated. But there's enough margins one can count on, even if without the royalties, there's enough margins to be made. The beauty of that business, and that's part of the strategy, picking those molecules with high margins, is that there's enough when you apply above our cost of manufacturing. Even if you don't add any royalties, it's very healthy in terms of revenue and gross margins that we can record in 2027 and beyond. Yeah. Thank you for that detail.
And then kind of shifting to the Tate and Lyle, expanding that agreement, what is the potential scope for expansion of the collaboration with Tate and Lyle, where now you're working on multiple plant-based molecules for sweeteners you know is there the potential because you know compared to fragrance I would think that you know and Lyle will want just the volume of production will be much higher in order to meet the needs of these sweeteners is there any potential for them to help fund you know the building out of your current facility or you know helping provide cash for building out a facility in the U.S. down the line but kind of how should we think about the scope of where this Tate and Lyle partnership can kind of grow over the next year or two?
This is an excellent question. In fact, we've initiated discussions with Tate and Lyle and soon to be part of the greater combination with the ingredient, which is quite exciting because it gives us access to a larger opportunity above and beyond the sweetener. So currently, the focus with Tate and Lyle are the two sweetener molecules which are progressing nicely. We expect that this would translate into manufacturing agreement. I think the very early part of the manufacturing agreement may indeed occur in our facility in Israel, but the goal is to try to negotiate a deal with them in which they build their own facility, and we license them, and we provide them with the technology transfer, and we collect oil empties. That is an integrated part of our model. So for large volume, especially for nutrition purpose, we prefer the model where the customer builds his own facility and we just help him with technology transfer required. And, of course, limited to production of only the molecules we have developed, but it's a healthier model and doesn't consume cash from our end and CapEx and whatnot. And that would certainly be a facility in the United States. So it is part of the strategy of the company to engage in those types of discussions with Theta Lyle, Ingredient, or other entities that would be looking for components or compositions with high volume as opposed to the fragrance business, which is slightly lower volume with much higher margin. Yeah, definitely sounds like there's a lot of potential there.
And then my last question is, can you kind of just give us any insight into any of the advances you've been able to make in your production or just building out your facility when it comes to things like robotics and machine learning and maybe any plans that you have through the end of this year and next year that are going to be able to bring your production into that next level?
So we are in the process of the completion of the detailed design, which will have embedded computer vision and robotics. in beginning of 2028 when we started production, the new facility to take advantage of all the development that has taken place, part of which is financed or it's been held by the grants that we've received. In 2027, the goal is to continue to support the demand using the current facility with an aim to improve our gross margin by reducing our cost of production because we would have a little more scale. We're going to be implementing a few improvements, more than one supplier for some of the key elements. Overall, try to reduce modestly the cost of goods to achieve higher gross margin. But the big deal is the new facility is we expect to start seeing production in early 2028, we believe we have what it takes in 2027 with the existing facility and with the additional dedicated facility that we're creating for the fragrance is to combine, we have enough capacity to support the demand for vinya, the fragrance, I'm talking 2027, as well as potentially one or two additional products that would be ready for limited manufacturing as part of the CDMO in 2020, said.
Okay, yeah, thank you for that detail, and I will return to the queue. Thank you for answering all my questions.
Operator
If you would like to ask a question, please press star 1 to raise your hand. Your next question comes from the line of Sean McGowan with Roth Capital Partners. Sean, your line is open.
Please go ahead. yeah thank you uh you touched on uh this right at the end of your previous comment but i just wanted to get a little update on the capacity expansion um you know you talked about the timing and and strategy and everything behind that but can you talk a little bit about capital requirements over the next 12 months on that thank you So we, as I said that throughout my call today, is we are designing our cash spending to correspond to the cash that we have and not needing to go and raise more capital on an equity basis. There may be opportunities, leveraging agreements to try to help with some of the financing, but the goal is to live with the cash we have, cover our operation, as well as the building of the facility. It's going to be staggered. We don't need to build on day one a 100-ton facility, And for 2028, we expect to be able to support the 30 to 40 tons, give or take, and then subsequently to build it up using cash that we generate from the business. So we feel comfortable with the goals of not requiring any more equity-based cash and basically achieving the EBITDA break-even for 2027.
Right. I was actually asking about capital expenditures. So is there any change from your previous expectations of what the capital expenditures would be in 27? Kevin?
We have tightened it in that sense because of the strategy of not having to jump into a much, much higher capacity in 2028 and the ability to focus on projects that would yield the highest margins, the highest profits.
Thank you very much. thank you there are no further questions at this time i will now pass the call back to dr zaki rakib chief executive officer for closing remarks thanks everyone for attending this call i mean i i don't know how else can i express my excitement i'm elated with uh with the contract we have it's uh the culmination of years of uh unbelievable amount of work done by everyone in the company. I can't think of a better validation of our CDMO strategy and our technologies. This is the real first ever contract of this magnitude, 20 to 30 million dollars magnitude, and just the beginning. It's just the tip of the iceberg of what botanical synthesis can do covering so many industries and bringing in some amazing results. And once again, thanks for your attendance and I look forward to continue to update you. I'm sure that we will have news coming your way to further build your confidence in bioharvest and in the CDMO business and beyond that. Thanks everyone. Operator.
Operator
Thank you. This concludes today's call. Thank you for attending. You may now disconnect.
