Earnings Call Transcript - STKH Q2 2024

Operator, Operator

Greetings and welcome to Steakholder Foods Limited Business Update Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the call over to your host Mr. John Mills with ICR. Thank you. You may begin.

John Mills, Host

Great. Thank you, Melissa. Good day, everyone, and thank you for participating in today's Business Update Call for Steakholder Foods. Today's call is being recorded. And joining us today is Steakholder Foods' Co-Founder and CEO, Arik Kaufman, and Steakholder Foods' VP of Finance, Moran Attar. Certain comments made on the call include forward-looking statements, which are subject to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1985. These forward-looking statements are based on management's current expectations and beliefs concerning future events and are subject to a number of assumptions, risks, and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Please refer to the company's filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any of the forward-looking statements made today. Following our prepared remarks, management will take questions from the investment community. Now, I will turn the call over to the CEO of Steakholder Foods, Mr. Kaufman. Please go ahead, sir.

Arik Kaufman, CEO

Thank you very much, John, and hello, everyone, and welcome to today's call. As part of our ongoing commitment to transparency, we continue to hold these semiannual investor calls to keep the investment community apprised of our activities. We value this regular opportunity to provide you with insights into our progress and strategic direction. In the first half of 2024, we've made significant progress in executing our business model shift that began a year ago. Our new approach focuses on two key revenue streams: selling our 3D printers and associated services, and selling our meat and fish premix blends to businesses in the foodservice industry. This shift towards a B2B approach has yielded impressive results. We are proud to announce that in the first half of the year, we successfully inked our first recurring revenue strategic agreement, a milestone that was swiftly followed by three similar agreements. Importantly, we achieved these agreements while reducing our operating expenses by more than 50%, largely due to the completion of the major phase of our R&D work. This rapid succession of deals coupled with a reduction in expenses as we move from development to commercialization not only validates our new business direction, but also establishes a solid foundation for sustainable profitable growth. Now I'd like to highlight the four commercialization agreements we've secured to date. These agreements represent significant milestones in our growth strategy and demonstrate the market's receptiveness to our innovative solutions. While it's still early in the implementation phase, we're excited about the potential that these agreements hold. Based on our projections and the scale of our partners' operations, we believe these deals have the potential to drive substantial recurring revenue growth beginning in 2025. Moreover, they serve as powerful proof points that we can leverage to attract additional partners and expand our market presence. Let's begin with our first agreement, which we've inked with Wyler Farm, leading alternative protein producer and a premier tofu manufacturer in Israel. It is a multimillion-dollar agreement initially signed in February and has since evolved and expanded. In May of this year, we signed our first Commercial Cooperation Agreement with Wyler Farm, marking our official transition from the R&D stage to the commercialization stage. Wyler Farm will manufacture alternative proteins on a commercial scale using our Steakholder Foods beef premix blend and proprietary know-how, paying us royalties on sales. They will manage the production process to ensure product quality and the integration of our advanced production technologies while leveraging their market influence to make the products available at a wide range of sales points. Production of these new plant-based products is set to begin in the coming months, with initial commercial revenue expected by the end of this year or early next year. Looking ahead, we are in active negotiations for follow-on deals with Wyler Farm to produce plant-based 3D printed meat products utilizing our proprietary 3D printing technology and premix blends, including production of our flagship printed marbled beefsteak products. Our second key agreement was with the Industrial Technology Research Institute, ITRI, a world-leading Applied Technology Research Institute based in Taiwan. This partnership agreement marks a significant step in our global expansion strategy and showcases the versatility of our technology. The core of the agreement is to develop and commercialize a range of food products, specifically tailored for Taiwanese cuisine, utilizing our advanced 3D printing technology and plant-based premixes. To accelerate our expansion across Taiwan, we are focusing on commercializing our products through collaboration with leading food companies in the region. A key part of this strategy involves the sale of our commercial-scale 3D printers and premixes to these commercial partners. Importantly, this partnership underscores our strategy of collaborating with partners that have strong R&D capabilities. By leveraging ITRI's research power, we can continue to innovate while maintaining a lean operational structure. By combining our pioneering 3D printing technology with ITRI's regional consumer insights and local operations, we are well-positioned to introduce alternative meats as a sustainable and locally-sourced protein option for Taiwanese consumers. This partnership not only validates our technology but also demonstrates our ability to adapt to diverse culinary traditions and consumer preferences while maintaining a cost-effective approach to innovation and growth. Building on the momentum from our partnerships with Wyler Farm and ITRI, I am excited to discuss the third significant agreement we secured back in June with Sherry Herring, a gourmet fish delicacies brand. We signed an MAU to establish a strategic partnership with Sherry Herring to unveil a new line of vegan fish salads developed with the company's proprietary Steakholder Foods SH-Fish premix blends. The collaboration will leverage Sherry Herring's regional expertise and brand recognition to expand our geographical footprint and consumer base, further bolstering our growing product portfolio. Capitalizing on Sherry Herring's well-established distribution networks spanning delis and restaurants, this new vegan fish salad line will roll out to Sherry Herring's current channel as well as new locations. Lastly, our last agreement in August this year with Premazon, a renowned frozen food manufacturer, will be integrated into a new plant-based white fish kebab line to be made commercially available through Premazon's manufacturing capabilities and distribution network. Premazon currently produces and distributes its products across Israel, selling into hotels, restaurants, catering services, and other foodservice establishments. This strategic partnership will leverage Premazon's established distribution network, introducing a new line of plant-based white fish kebabs to these diverse channels in the Israeli market. Shifting to the financial front, I am pleased to report progress in receiving funds from the $1 million grant awarded to us last year by the Singapore-Israel Industrial R&D Foundation. In March of this year, we received our first payment of $220,000. This infusion of non-dilutive capital not only strengthens our financial position but plays an important role in supporting our innovative work in the alternative protein space and helps us to maintain a trajectory of growth. As we turn the corner into the latter half of this year, our sights are set on three key objectives: clinching more commercial deals to broaden our market footprint, supporting our current clients, and rolling out the first product to the market along with an expanded suite of product applications. The groundwork we've laid to date through strategic agreements and technological breakthroughs serve as a springboard for our future expansion and market penetration. As we progress through the initial phases of our commercial operations and product rollouts, we anticipate modest revenue generation to commence in late 2024 or early 2025. Looking ahead, we project accelerated revenue growth in 2025. This anticipated uptick is supported by our progress towards finalizing a global commercial agreement, which we hope to announce by early 2025, as well as the continued expansion of our commercial activities and full implementation.

Moran Attar, VP of Finance

Thank you, Arik. As Arik mentioned, with the recent signing of the Commercial Cooperation Agreements with Wyler Farm, ITRI, Sherry Herring, and Premazon, we expect to generate our first commercial revenue in late 2024 or early 2025. I'm pleased to report a significant shift in our financial profile reflecting the successful completion of our major R&D initiative. For the first half of this year, our R&D costs were $1.6 million compared to $3.6 million in the same period last year. This represents a 54% year-over-year reduction as we have now transitioned to a safer focus on promoting, optimizing, and diversifying our newly developed technologies. This not only demonstrates the formation of our innovation efforts, but also allows us to operate efficiently. Moving forward, we anticipate R&D expenses to stabilize at this lower level as we focus on refining and supporting our existing technologies infrastructure. Additionally, our marketing and general and administrative expenses were also reduced for the first half of 2024 compared to the prior year period. Marketing expenses were $700,000 in the first half of 2024, a reduction of 56% from $1.6 million in the prior year period. The reduction was primarily due to lower public relations and manpower costs. General and administrative expenses decreased 9% from $2.2 million in the prior year period to $2 million in the first half of 2024. Our net loss decreased by 54% to $4.4 million or $1.10 per ordinary share compared to $9.5 million or $5 per ordinary share in the first half of 2023. The decrease was primarily driven by the reduction in R&D and marketing expenses. Our cash management was strong, with net cash used in operating activities decreasing to $4.4 million for the first half of 2024 from $7.5 million in the prior year period. We entered the first half of 2024 with $5.4 million in cash and equivalents compared to $4.2 million at the end of 2023. Now, I will return the call to Arik for closing remarks.

Arik Kaufman, CEO

Thank you, Moran. The company remains committed to executing its growth strategy with a clear focus on securing additional commercial deals, promoting current deals, expanding market reach, and launching new product applications. We're pleased to report that our momentum is building as we approach the pivotal phase in our company's trajectory. Production is set to commence shortly, bringing our products to market and providing tangible proof of our concept. We expect this real-world validation to act as a catalyst for securing additional deals and agreements. Furthermore, we're making good progress towards finalizing a global commercial agreement, which we hope to announce in early 2025. These developments collectively strengthen our outlook for future growth. And with that, I would like to open it to any questions.

Operator, Operator

Thank you. At this time, we'll be conducting a question-and-answer session. Mr. Mills, at the moment, I'm seeing no phone questions.

John Mills, Host

That's correct, operator. I'm not seeing any questions on the webcast as well.

Operator, Operator

Thank you. At this time, we'll conclude our question-and-answer session. Mr. Kaufman, I'll turn the floor back to you for any final comments.

Arik Kaufman, CEO

Thank you very much. First of all, I don't know how many people attended this call, but thank you to each one of you that have attended this call. I just wanted to emphasize the fact that as I said in the past, the last few years have been challenging not only for us but also for every growth startup out there. But I think that we are beginning to see positive signs both for Steakholder Foods and on a global level. So hopefully, once we initiate production and our products will begin to be out there, we will attract more customers and maybe we'll be able to secure more global deals. As I said, we are aiming to secure our first one by the beginning of next year. I just wanted to emphasize that we are doing everything that is possible to make this company succeed. So thank you very much for joining this call and have a great day.

Operator, Operator

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.