Bioharvest Sciences Inc. (BHST) Q3 2026 Earnings Call Transcript

Good morning, and welcome to the BioHarvest Sciences 3rd Quarter 2026 Financial Results Conference Call. As a reminder, all participants are in listen-only mode. If you would like to ask a question, please press star 1 on your phone. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I will now hand the call over to Justin Mechlem, Head of Investor Relations. Please go ahead.

Greetings, and welcome to the BioHarvest Sciences Third Quarter 2026 Financial Results Conference Call. With us on the call this morning are Dr. Zaki Rakib, Chief Executive Officer, and Bard Dichter, Chief Financial 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's website 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 now turn the call over to Dr. Zaki Rakib, Chief Executive Officer of BioHarvest.

Thank you, Justin, and thank you all for joining us. Our third quarter results reflect a period of deliberate transition. We took a more selective approach to customer acquisition for Vinia. Scaling back lower return activities. We also concentrated our CDMO resources on advanced programs with near term manufacturing potential. Those decisions affected revenue in the quarter, while lower CDMO development revenue also weighed on consolidated gross margin. We are aligning our capital allocation and operating expenses with our commercial priorities. Preserving cash liquidity is our foremost near-term priority. We intend to grow VINIA with better economics and focus our CDMO development capabilities on programs that we believe can reach manufacturing sooner. Bioharvest botanical synthesis platform technology enables us to produce plant-based ingredients without growing the plant itself. We apply that technology to our VINIA products business and our CDMO development and manufacturing business. Our task now is to translate the capabilities we built into better operating results and stronger cash economics. Today, we'll explain the quarter's results and the priorities shaping our plans for 2027. Cash preservation is central to those plans, alongside the investments required to advance our most important commercial opportunities. Barr will begin with the financial results, and I will then discuss our business priorities.

Thank you, Zaki, and 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 third quarter of 2026 were 7.9 million, compared to 9.1 million in the same year-ago quarter. The decrease reflects our plan shift to profitable growth in the product business unit and the timing of CDMO development revenue. Cost of revenue was 3.6 million, compared to 3.5 million for the same period last year. Gross profit in the third quarter of 2026 was $4.2 million, or 54% of total revenue, as compared to $5.6 million, or 61% of total revenue, in the same year-ago quarter. The change reflects the mix of revenue in the quarter, which was weighted towards the product business unit revenue, with a lower contribution from higher margin CDMO development revenue. R&D expenses totaled 1.8 million for the third quarter of 2026, compared to 1.4 million for the same period last year. The increase was primarily driven by higher technology development expenditures within the CDMO service business unit due to the need to accelerate the development of the rare fragrance composition in light of the supply agreement that was signed. Sales and marketing expenses totaled 4 million for the third quarter of 2026, compared to 4.1 million for the same period last year. G&A expenses totaled 1.5 million for the third quarter of 2026, compared to 900,000 for the same period last year. The increase is primarily driven by a one-time income of $400,000 recognized during the third quarter of 2025, which offset expenses in the comparative period. Net losses for the third quarter of 2026 totaled $3.3 million, or $0.15 cents per basic and diluted share, compared to a net loss of $2.5 million, or $0.14 cents per basic and diluted share, for the same period last year. Adjusted EBITDA loss, a non-IFRS measure, totaled 2 million, compared to 400,000 for the same quarter last year. Under the two-lands approach, the adjusted EBITDA loss of the CDMO service division is 1.4 million and 600,000 for the product division for the third quarter of 2026, compared to a loss of 200,000 and 200,000 in the same year-ago quarter, respectively. Cash and cash equivalents, together with bank deposit, as of September 30, 2026, totaled $12.5 billion, compared to $11 million as of September 30, 2025. I would like now to pass the call back to Zaki.

Thank you, Bar. I want to begin with Vinya. Our objective is to build a business that can grow while making a stronger contribution to the company's financial position. That requires us to be more selective about how we acquire customers, improve retention, and evaluate marketing investment against contribution margin. Toward the end of the second quarter, we began implementing changes to VINIA's marketing and sales strategy to improve profitability. We deliberately reduced customer acquisition activity where returns did not meet our objective. We anticipated a moderate decline in revenue as part of that transition, and we expect the benefits of these changes, together with revenue growth, to begin becoming evident in the first quarter of 2027. In September, we launched single-dose Vinia daily chews. This format complements our existing portfolio and broadens customer choice. It has so far shown all the hallmarks of a premium high-value winner. Turning to the CDMO, we are concentrating development resources on a smaller group of programs with a clearer path to manufacturing and commercialization. During the quarter, we prioritized the rare fragrance program for which a supply agreement has been signed over progress on other development projects. This allocation of resources reflected our assessment of the program's future profitability potential and contributed to the limited external development revenue recognized in the quarter. We recognize the near-term financial impact of that decision. The commercial rationale is to focus our technical resources where we believe they can generate the greatest long-term value. The outcome will depend on successful development, production readiness, and execution with our partners. In August, we signed our CDMO division's first manufacturing and supply agreement. This exclusive agreement extends an existing development program for a rare, high-value, plant-based fragrance ingredient. The source plant is endangered because of over-harvesting and habitat loss. The ingredient is among the world's most valuable fragrance raw materials, with premium grades commending prices above tens of thousands of dollars per kilogram. Our program seeks to provide a manufacturing pathway using botanical synthesis. We completed Stage 1 in March and initiated Stage 2 in May. Stage 2 is expected to be completed within six months to nine months of its initiation. The supply agreement provides for anticipated production of 20 tons of the fragrance composition, and we anticipate that limited production could begin in the first half of 2027, subject to successful completion of development. As described in our earnings release, we estimate that the agreement could generate $20 million to $30 million of revenue over 2027 and 2028. This is an estimate tied to the expected execution of the program, and the timing and amount of revenue remain subject to development and commercial execution. Our 2027 priorities include completing development of three advanced projects, the rare fragrance ingredient, the saffron compound, and the natural sweetener molecule for Tate and Live. We also aim to license our unique developed molecules assets. Turning to our manufacturing strategy, we intend to add manufacturing capacity gradually in phases aligned with demonstrated demand. This approach is designed to preserve cash while supporting commercial requirements. We also plan to reduce fixed operating costs, including through consolidation of development sites in 2027. Let me now address our updated outlook for 2026. The actions we began taking at the start of the third quarter have changed our expectations for this year as we position the business for 2027. We have revised full-year VINIA direct-to-consumer revenue guidance to $31 million to $32 million. As stated in the release, the direct-to-consumer adjusted EBITDA outlook remains unchanged. For external CDMO revenue, we now expect $1 million to $1.5 million for the full year, with an adjusted EBITDA loss of $4 million to $5 million. Accelerating the fragrance program has required a greater allocation of development resources, affecting the pace of other revenue-generating development activity. On a consolidated basis, we now expect full year 2026 revenue of $32 million to $33.5 million, and an adjusted EBITDA loss of $5.5 million to $7.5 million. Our immediate focus is to improve execution with the resources we have, advance the CDMO programs we have prioritized, and strengthen the economics of India. We understand that investors will assess our progress through results, and we look forward to reporting against those priorities. Thank you for your continued interest in bioharvest. Operator, please open the call for questions.

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. 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. And 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 from Craig Hallam Capital Group. Your line is open. Please go ahead. A reminder to please unmute yourself locally if you would like to speak. I will move on to the next analyst. Please rejoin the queue by selecting star one if you would like to speak. Your next question comes from the line of Sean McGowan from Roth Capital Partners. Your line is open. Please go ahead.

Hi, are you able to hear me?

Yes, we are.

Okay, just checking. Yeah, I guess my first question is, I'm a little puzzled on capital allocation. I saw in the filing that subsequent to the quarter, you repurchased some shares, and yet, you know, the discussion strategically seems to be about cash preservation. So, you know, how? Why is buying back stock the best thing to do with cash at this point, when it looks like we're deferring some opportunities because we're trying to preserve cash? Can you help me with that?

Questions well taken. At the time when the decision was made for a buyback of shares, we have felt that a certain limited allocation of financial resources for that purpose was adequate. Ultimately, what we have done so far in the market has been very, very moderate, and we don't intend to employ or deploy a lot of financial resources for that purpose in line with the strategy we have for cash preservation. So you're not going to see any depletion of cash at any accelerated rate whatsoever as a result of the buyback program.

Okay, and then a follow-up. Can you help us with what you expect to be the timing during next year of some of the cash flow related to the CDMO contracts? That seems to be an important thing. When do you start getting some of that cash in?

We expect to see a revenue next year on the CDMO side from three different sources. There will be some more development revenue coming from the existing programs that we have. And we've been clear about those programs, the sweetener program, the saffron program, and the continued development effort on the fragrance program. So there's still some more development revenue that are coming to bioharvest within that particular program. We also expect to be able to license at least one of our existing molecules that we've already developed, and that would generate an additional significant amount of revenue. As far as the revenue from manufacturing of the fragrance, which is the most likely scenario to take place in terms of non-Vinia manufacturing, we expect to generate revenue in the second half of next year. The amount of that revenue depends on the timing of the completion of the development program, so I'm not ready yet to guide with specifics for that program, but we do expect with very high likelihood to generate revenue from that program. Potentially, one of the molecules that we license, if that license takes place earlier and all work has been completed, for example, with one of the products that we announced, the completion of the regulatory part, it could lead to additional manufacturing revenue towards the last quarter. And we are adjusting our manufacturing capacity to be able to meet the demand. A bite, albeit limited, but to meet that demand in 2027, and obviously, additional capacity would be created in 2028 at a moderate pace compared to what we thought earlier, and that is also in line with our cash preservation program of not building too much capacity earlier than it is required, and that helps us managing our cash, and yet, Delivering on all commitments we have to customers and for the growth of Vinya.

Okay, thank you.

Your next question comes from the line of Matt Hewitt from Craig Hallam Capital Group. Your line is open. Please go ahead.

Good morning. Hopefully this works better. I'm not sure what was happening there. Regarding the guidance, and I apologize if you just answered this, your new guidance implies roughly $7 million in product revenues in Q4. It does sound like you expect some of the changes implemented on the sales and marketing side for DTC to take effect in Q1. So should we view Q4 as the low watermark with a return to growth starting in Q1?

I expect the revenue to be a little higher than what you've mentioned for the D2C side, but you're right. What we've done is truly gearing things towards back to growth on different principles that we have applied in the latter part of 2025 and the first half of 2026. So there's been a big shift in the allocation of the marketing resources by the different channels and different agencies. So that shift takes time. And that's why we needed Q3 and Q4 to be moderately lower than what we've done before and what we've guided in order to gear things up and get them ready for growth in Q1 of 2027. That's the plan, indeed.

Got it. And then maybe my follow-up. Regarding, I completely appreciate and understand the need to focus on cash preservation, but maybe explain, how do you determine? Areas that you still need to invest in because ultimately there's a huge growth opportunity here. So how are you balancing that need to invest and move programs forward, particularly on the CDMO side, with that cash preservation piece?

So the cash preservation is mostly going to come from the timing for the increase in capacity. If you remember when we raised money late last year, it was predominantly for purpose of the increase in capacity. It remains true, but it's the pace at which we want to use this cash while we're still incurring operating loss, resulting from, you know, the changes we're making on the VINIA side, And focusing on only fewer programs in the CDMO, which will bring in much faster revenue because of the speed at which they move to manufacturing. So you should look at it this way. I am not really not spending on the critical programs. And it's also a matter of focus of the team. But I am going to be spending on the manufacturing facility, the newer manufacturing facility, at a more moderate pace, trying to maximize what I can do with the existing facility and manage it better, so that we can delay a little bit or spend more moderately the cash for the purpose of bringing in additional capacity to support that. So I'm not necessarily reducing the potential of the company, because in any case, the focus now is required. Even if I had more resources in R&D, for example, I would still want to be extremely focused on a program that, as we stated many times, just this fragrance program. Every analysis we've done, including with the customer, is looking at anywhere between $150 to $200 million in the course of the next five years. So it would be foolish not to have all the focus on this program, which is because of the nature of that particular fragrance and the raw material and the cost, as I highlighted in my talk a few minutes ago, looking at a really high-end type of product. That we can command significant margins. So I do believe it's the right focus. We're concentrating the efforts that increases dramatically the chances of success, which would bring the manufacturing part for those programs much faster. And I, as I said, the The cash preservation will come mostly from the area of reducing the speed at which I build capacity, and some of it true also from the vineyard of less spending on sales and marketing, adjusting it better to the revenue and to the revenue growth.

That makes sense. Thank you.

As a reminder, if you would like to ask a question or any additional questions, please select star one on your telephone keypad to rejoin the queue. Your next question comes from the line of Sean McGowan from Roth Capital Partners. Your line is open. Please go ahead.

Yeah, thanks. And kind of following up on Matt's question and part of your response, can you be more specific on what the CapEx plans are for next year, you know, given what seems to be a shift in some timing?

So we're, for 2027 in particular, we're trying to cap the CapEx to be below $5 million.

Okay, thank you very much.

There are no further questions at this time. I will now turn the call back to Dr. Zaki Rakib, Chief Executive Officer, for closing remarks.

Thank you for your questions and for joining us today. We remain focused on preserving cash, improving Vinius contribution, and advancing our selected CDMO programs toward commercialization. We appreciate your continued support and look forward to updating you on our progress next year.

This concludes today's call. Thank you for attending. You may now disconnect.