BioHarvest Sciences - Earnings Call - Q4 2024

Transcript

Operator (participant)

Greetings and welcome to the BioHarvest Sciences Fourth Quarter 2024 Corporate Update Conference 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. Before we begin the formal presentation, I'd like to remind everyone that statements made on today's call and webcast, including those regarding future financial results and industry prospects, are forward-looking and may be subject to a number of risks and uncertainties that could cause actual results to differ materially from those described on the call. Please refer to the company's regulatory filings for a list of associated risks, and we would also refer you to the company's website for more supporting industry information.

In addition, throughout today's call, the company may refer to adjusted EBITDA, a non-IFRS financial measure which it believes provides helpful information to investors about the performance of the business on an ongoing basis. A reconciliation of adjusted EBITDA to its most directly comparable IFRS financial measure is included in today's earnings release, which is available on the BioHarvest website under the Investors tab. On our call today, our Chief Executive Officer, Ilan Sobel, and Chief Financial Officer, Bar Dichter. I would now like to hand the call over to CEO, Ilan Sobel. Ilan, the floor is yours.

Ilan Sobel (CEO)

Thank you, Operator, and good afternoon, everyone. I'm pleased to welcome you to today's Fourth Quarter 2024 Corporate Update Conference Call, and only our second formal earnings call at a public company. An exciting milestone marking our new normal following our uplisting to the Nasdaq Global Markets late last year under the ticker BHST. Our Nasdaq listing and our continued strong revenue growth of 99% and achievement of $25.2 million for the full year of 2024 was not an overnight success and really reflects years of relentless innovation, commitment, focus, and operational momentum, as well as the trust and confidence of my fellow shareholders. This Nasdaq listing represents a pivotal step in broadening our reach, building credibility, and securing our position as an industry thought leader. For those new to our story or joining us for the first time, I would like to introduce our company and background.

BioHarvest Sciences is a biotech innovator and the inventor of botanical cellular synthesis, a proprietary process to synthesize plant-based compounds. Rooted in plant cell biology, botanical synthesis provides consistent, reliable, economically viable, and patent-potent non-GMO biological compounds for use in the nutraceutical, cosmetics, pharmaceutical, and nutrition industries. We have spent over 15 years perfecting our patented botanical synthesis technology platform, providing an alternative for non-GMO production of plant-based biological compounds without the need to grow the entire plant. Botanical synthesis allows for the perpetual creation of consistent botanical molecules, mirroring, magnifying, and multiplying the active ingredients, and uniquely requiring a physical plant only one time to develop our optimal cell banks, giving us the ability to address unmet market needs both with our own BioHarvest products and by developing molecules for industry partners via our CDMO.

Our product division is currently led by Vinia, our flagship red grape cell-derived nutraceutical sold direct to consumers via subscription and accounting for the majority of our $25.2 million revenue in 2024. Vinia delivers a full matrix of red grape polyphenols, including pysaedrus virginal, at concentrations 100x higher than what is found in a grape, and Vinia has been clinically shown to significantly increase dilation of arteries when consuming one 400 milligram capsule of Vinia every day for 90 days. This dilation increases blood flow, which enhances the delivery of oxygen and nutrients to the body, tissue, cells, and organs, increasing one's physical energy as well as mental alertness. Vinia is now a consistent top 10 performer in its category on Amazon. Despite its premium pricing, it has over 50,000 plus active subscribers, with an impressive more than 90% of Vinia.com revenue derived from subscriptions.

We have now surpassed well over $50 million in lifetime revenue, maintain a 4.8 out of 5 rating from more than 8,500 verified reviews. We own or have an exclusive license to use 26 patents and patent applications protecting our botanical synthesis platform technology, as well as different Vinia applications. Vinia is backed by three peer-reviewed and a total of eight scientific studies and is currently sold in the U.S. and Israel, with regulatory approval secured in Canada and efforts underway in other key markets. The success of Vinia has been an important validation point for our botanical synthesis technology in the marketplace.

This success has laid the foundation for our Vinia Inside strategy, scaling the red grape cell compound by disrupting new high-margin, billion-dollar categories where consumers are yearning for better health and wellness products and are willing to pay a premium for products with superior science, efficacy, and taste. These categories include functional coffee and tea, hydration powders, and cosmetics, where in particular a natural product origin is critical for consumers. As we introduce future plant-based compounds to market in our direct-to-consumer business, we plan to repeat this playbook, leveraging a direct path to a large community of loyal subscribers who already understand the benefits of our technology and have a deep relationship with BioHarvest and our mission. For example, in March 2025, we announced in vitro test results showing that our olive cell compound caused a reduction in fat accumulation in human liver cells.

When we release our other product in 2026, we expect it to be backed by additional clinical testing, and we believe the product will launch with a strong consumer proposition with immediate demand from our growing follower and subscription base. One year ago, we launched our CDMO, Contract Development and Manufacturing Organization, Services Division, to give major industrial partners access to botanically synthesized non-GMO compounds via our proprietary botanical synthesis technology. Critically, this decision to open our technology allowed us to deliver on the company's North Star that I want to reiterate for the audience, as it drives every decision we make at BioHarvest. That North Star is to discover, develop, manufacture, and democratize five to ten life-changing compounds from plants that positively impact the health and wellness of hundreds of millions of consumers globally, whilst doing this in a way that preserves the planet for generations to come.

This enables us to develop patentable plant-based compounds for third-party partners across pharmaceutical, nutraceutical, cosmeceutical, and nutrition industries. These complex molecules offer key advantages: faster development, lower costs, improved safety, and the ability to produce what others cannot, especially at scale. We have now built an incredible infrastructure with the equipment and scientific manpower to address multiple projects simultaneously, whilst concurrently ensuring we source key plants ethically or with the help of custom AI tools to help optimize R&D processes and discover new beneficial plant compounds. This, paired with a new partnership with a reputable regulatory advisory firm to assist our pharmaceutical customers with navigating their new compounds throughout the regulatory landscape, further eases the process for our customers.

We can deliver trial-ready biomass in nine to fifteen months, with full-scale production possible in twenty to twenty-four months for a non-recurring engineering fee of $2.5 million-$4.5 million, which we earn a strong margin on. Successful products then transition to royalty-based commercial manufacturing agreements, providing long-term recurring revenue and potential equity stakes. We've already signed multiple CDMO customers, including a marquee partnership finalized in Q4 last year with Tate & Lyle to develop next-generation plant-based zero-calorie sweeteners. We have taken a selective strategic approach, ensuring our R&D is focused on the highest impact opportunities with strong commercialization potential. We have made significant progress on these CDMO contracts, and I look forward to reporting CDMO research milestones in the near term, as well as discussing potential new CDMO customers, several of which are in the pipeline for announcement in the near term.

The CDMO division is also taking the lead on the discovery of new plant-based biological compounds using internally developed state-of-the-art AI tools that enable us to bring compounds to market faster with greater efficiencies. We expect detailed progress and a roadmap on these activities in the Q1 earnings call. In the fourth quarter, we made continued progress in both our product and CDMO services divisions. Fourth quarter 2024 revenue grew 62% year-over-year to $7.3 million, exceeding our prior guidance of $7.2 million, driven by continued strong Vinia sales, further reflected in our robust 99% full-year growth with total 2024 revenues of $25.2 million.

We continue to see significant growth in our core nutraceutical capsule business, augmented by our Vinia Inside products such as our hot beverage lineup of superfood coffees, which are expected to continue to drive consistent revenue growth in 2025 as our Vinia K Cup compatible coffee business continues to scale, having already driven $2.3 million in revenue since its launch in December 2023. This new product momentum is poised to accelerate with the recent launch of our Vinia superfood functional tea lineup in tea sachets and the upcoming extension of our English breakfast tea and matcha green tea into a K Cup compatible format, a major growth segment for our hot beverage business taking place in April 2025.

Our focus on margin optimization and driving efficiencies across the organization has driven a substantial 600 basis point increase in gross margins, which grew to 57% in the fourth quarter of 2024 as compared to 51% a year ago. year-over-year, gross margins improved by 1,000 basis points, from 45% in 2023 to 55% in 2024. Our production line has now been fully digitized, and in Q1 2025, we completed the implementation of new bioreactors with 22% increased capacity. The result of these efforts is that we truly have a state-of-the-art, fully digitized biological manufacturing facility that will enable us to see a step change in efficiency and optimization of our production, which we believe will be reflected in improved go-forward gross margin profile in the coming quarters.

We are also seeing significant operating leverage in operations, with full-year general and administrative expenses decreasing 1.8% year-over-year in absolute terms, despite a doubling of our revenue base and decreasing to 17% of revenue as compared to 35% in the prior year. This is a testament to the efficiencies that are possible as we scale, with further operating expense growth largely constrained to only higher sales and marketing spend that is required to accompany our planned high double-digit revenue growth, which is also expected to continue to shrink significantly on a percentage of revenue basis as we saw in 2024 versus 2023. The business today has strong growth momentum, and I want to specifically stop and talk about our growth model for 2025. Our growth model is guided by the principle of balancing growth with profitability while achieving scale.

We have elected to achieve adjusted EBITDA profitability at around $11 million-$12 million in revenue per quarter, which we feel, based on the momentum we have, will be realized in the second half of 2025. This balancing approach allows us to continue to make important investments in three critical areas, which will act as major catalysts to our business in the near future. One, increasing our product portfolio in the direct-to-consumer business. This means broadening the footprint of our red grape cell molecule to new customers and channels, increasing scale and conversion in our funnels, and ultimately driving further reduction of acquisition costs per new customer. In addition, this includes bringing to market new compounds backed by clinical trials, such as our olive cell products, which will be targeting liver health.

Two, investing in R&D to drive critical process improvements, utilizing cutting-edge technology, which we call Botanical Synthesis 2.0, to improve gross margins in our manufacturing organization and the speed of compound development in our CDMO. Three, developing new AI-empowered capabilities for CDMO customers to increase speed to market of compounds we develop and improve efficiency levels, translated to lower R&D costs required for the development of each compound. In the longer run, our growth model is targeting a 20% adjusted EBITDA margin for our products business, and we believe we can target higher levels for the CDMO business over time. I'd like to elaborate a little more on how we plan to accelerate growth in our core capsule business and prioritize new direct-to-consumer product launches over the next few quarters.

Our core capsule business grew by more than 90% in full year 2024 versus 2023, and we expect continued high double-digit growth on our capsule business via new initiatives to improve even further our high rate of funnel conversion, including our newly launched Vinia Double Packs initiative, where we provide additional value for two consumers purchasing Vinia capsule subscriptions in each single household. To build on our great momentum with Vinia Superfood Coffee and further penetrate into U.S. households, in June this year, we will launch the first superfood espresso coffee in espresso-compatible pods to complete our play to bring disruptive functionality to the coffee category.

Similarly, in addition to the Vinia Superfood Tea portfolio already launched in tea sachets, in the month of April, we will launch Vinia Superfood English Breakfast Tea and Matcha Green Tea in K Cup compatible format to penetrate the 40 million-plus K Cup and K Cup compatible machines in households and offices in the United States. The summer of 2025 will also see the launch of our Vinia Daily 2X Formula Chews lineup, targeting superactive consumers, people 20 to 45 who are looking for all the benefits of improved blood flow to increase their physical energy and mental alertness during sporting and exercise activities, as well as in high-stress demanding jobs. This Vinia Daily 2X Formula Chews will be double-dosed at 800 milligrams of Vinia, in a great-tasting chew for these superactive consumers and athletes.

In fact, we'll also be Informed Sport Certified, a global third-party certification that provides assurances to athletes that products carrying the Informed Sport mark have been tested for prohibited substances and manufactured to the highest quality standards. These activities really demonstrate the significant lifetime value of our compounds based on their efficacy and ability to play across multiple delivery systems and categories, giving consumers superior health and wellness benefits that they are craving across multi-billion dollar categories, whilst allowing our business to drive accretive margins. Before I provide my closing remarks, I'd like to call upon our CFO, Bar Dichter, to review our financial results for the quarter ended December 31, 2024. Bar, over to you.

Bar Dichter (CFO)

Thank you, Ilan, and good afternoon, everyone. I will provide you with a succinct review of our financial results. A full breakdown is available in our FCC filings and in the press release that crossed the wire after market close today. Please note that all figures are in US dollars unless stated otherwise. Revenue for the fourth quarter of 2024 increased 62% to $7.3 million, which exceeded management's prior revenue guidance as compared to $4.5 million in the fourth quarter of 2023. The increase was largely driven by the growth in Vinia, which exceeded 50,000 active subscribers as of February 2025. Gross profit increased 80% to $4.1 million, or 56.7% of total revenue in the fourth quarter of 2024, as compared to $2.3 million, or 50.7% of total revenue in the same year-ago quarter. The increase in gross margin was primarily due to benefits of increased manufacturing scale, improved manufacturing yields, and cost reduction in downstream packaging and delivery costs.

Total operating expenses for the fourth quarter totaled $5.8 million, as compared to $4.8 million in the same year-ago quarter. The increase in operating expenses was primarily due to increased marketing spend and the higher expenses from the CDMO service division. Total operating expenses shrank on a percentage of revenue basis to 80% of revenue as compared to 107% in the same year-ago quarter. General and administration expenses in the fourth quarter of 2024 decreased to 20% of revenue as compared to 34% in the same year-ago quarter, reflecting an increase in operating leverage as the company continued to scale. Net losses for the fourth quarter of 2024 totaled $3 million, or $0.17 per basic and diluted share, as compared to a net loss of $7.2 million, or $0.53 per basic and diluted share in the same year-ago quarter.

Adjusted EBITDA, a non-IFRS measure, totaled $1.8 million, as compared to adjusted EBITDA loss of $2.4 million in the same year-ago quarter. Cash and cash equivalents as of December 31, 2024, totaled $2.4 million, as compared to $5.4 million as of December 31, 2023. Subsequent to the quarter end, the company raised $3.9 million in attractive debt financing, primarily from existing investors. I would like now to pass the call back to Ilan to offer some closing remarks, after which we will begin our Q&A session.

Ilan Sobel (CEO)

Thank you, Bar, and thank you once again for everyone's time today and for your continued support of BioHarvest. We continue to remain guided by our North Star, which is to discover, develop, manufacture, and democratize 5 to 10 life-changing compounds that will positively transform the health and wellness of hundreds of millions of consumers whilst preserving the planet for generations to come.

I feel privileged to have such an incredible team around me, supported by a world-class board, and I'm more excited at this point of time about what the future holds than at any prior point in the company's history, given the capabilities we have built and the momentum the business has. I truly believe that BioHarvest is poised to change the world, and I count myself very lucky to be in the seat I am in today, fully understanding the gravity of the responsibility to succeed and deliver the benefits of our transformational technology to the world and to create value for our shareholders along the way. With that, I would now like to hand the call back to the operator to begin our question-and-answer session.

Operator (participant)

Operator, over to you. Thank you, Ilan. We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Anthony Vendetti with Maxim Group. Please go ahead.

Anthony Vendetti (Executive Managing Director of Research)

Thank you. Ilan, I was just wondering if you could give us a little bit of an update on some of the CDMO contracts you've signed, particularly the one with Tate & Lyle. Where are you at with them in terms of developing molecules? And has some of these CDMO contracts that you have already signed up, particularly the Tate & Lyle one that's been announced, has that spurred interest in other contracts? If you can give us sort of what your pipeline looks like as of right now in the CDMO business. Thank you so much.

Ilan Sobel (CEO)

Thank you, Anthony. Appreciate the question. As excited about the direct-to-consumer business as I am, I share even more enthusiasm for the CDMO business, just given the scale and the gravity of the life-changing compounds that we have an opportunity to work on and the potential impact from a health and wellness perspective on hundreds of millions of consumers. As it relates to specifically the Tate & Lyle agreement, we've made great progress. I'm very excited to say that we have sourced our key plant, and the team were working feverishly in the last couple of weeks with our critical tissue culture work. That's a major milestone for us.

From here, we will see continued good progress that we will be updating in the future. What's important as well, in addition to the Tate & Lyle deal, and I'll come back to it in a second, is we have signed a deal with a Nasdaq-listed pharmaceutical company. That deal, similarly, there's extensive amounts of work that's been completed as it relates to phase one in the context of developing a specific enzyme from a plant that has significant sensitivity from a geopolitical and supply chain perspective. There's been continued excellent progress from the team in this area, and I look forward to updating our shareholder partners on further next steps in the near term as it relates to that project. What's important to understand when it comes to the CDMO and what we would obviously—it's important for the analysts and shareholder partners out there to understand—there's two factors.

One factor is the deal flow and the amount of deals coming through the pipeline. The second factor is our ability to move deals from phase one to phase two and phase three. Importantly for everybody to be conscious of is that when we get through a phase one deal and we move a deal from phase one to phase two, we have the highest confidence that if we're successful in phase one, that we're able to move the cells through to phase two when we go from tissue culture to medium-scale bioreactors and then to phase three in large industrial-scale bioreactors. We've never failed moving from a phase one to a phase two and a phase three. That is why phase one is so critical.

With that context, I'd like to share with you that, yes, prior to the Tate & Lyle deal, we were dealing with, I would say, a hectic in a positive way pipeline of opportunities. Subsequent to the Tate & Lyle deal and obviously the important validations that that deal had in the industry, the nutrition industry, all the way through to other major industries like nutraceuticals, cosmetics, including pharmaceutical. With the validation of the major giants of industry, industry leader like Tate & Lyle, it has for sure taken the ante from a pipeline deal flow for us as it relates to potential life-changing compounds that we can work on to the next level.

Obviously, we're working very hard to diligently go through each opportunity because it's really important that we prioritize the opportunities based on a number of key factors that we have as it relates to our, let's call it, internal stages and gates process that we utilize to make sure we're getting the best return on investment and return on effort as it relates to our specific resources that we have within R&D. I would like to say to the question as well that the pipeline right now and the deal flow is intense. There are a number of contracts that we're working on, and we will be talking more about these future molecules in the near term.

It's going to really allow us to really bring to the market additional compounds that have the same potential and gravity of opportunity as the Tate & Lyle deal, which allows us to bring to the market the next generation of non-nutritive sweetener out there, which is obviously the next generation out there optimizing taste as well as democratizing the compound, which is so important for the future of overall basic health and wellness. We are working on compounds with a similar level of gravity and magnitude.

Anthony Vendetti (Executive Managing Director of Research)

That's great. That's a great update. Just switching back to the retail side, obviously with over 50,000 customers and strong recurring subscription rate, that brand, the Vinia brand, is off to a great start. I think you mentioned—sorry, I just wanted to verify when that's going to be available in coffee pods. I know there were other formats you were contemplating. I was wondering whether it's protein bars or electrolyte drinks. Where is that development process?

Ilan Sobel (CEO)

There is great momentum behind our direct-to-consumer business. The 50,000 number that we reference is a subscriber, active subscription number. Obviously, that does not include all the non-subscription customers that we have from our website as well as Amazon. As you can probably appreciate these days with Amazon Prime being so on time, in full, if you want to say, you order it at 10:00 P.M., literally at 10:00 A.M., you have your product at the door. It is kind of like a subscription. Separately, our Amazon business has really exploded.

Importantly, whilst it's exploded and literally grown 3.5x, it still represents under 20% of our overall revenue mix, which is a healthy mix to have. That is because our vinia.com, 90% of our revenue on vinia.com is subscription, is continuing to grow at such an aggressive rate. We have a very healthy channel management approach, which is also important as it relates to being able to manage the profitability and manage, obviously, we want to have that direct access to the large majority of our customers is critical. I just wanted to help people understand the 50,000 subscribers in the context of a much bigger picture. As it relates to the different products that comprise our direct-to-consumer wellness business with Vinia sales, our capsule business, which is our core business, is growing at north of 90%. That is critical because that's the core business.

As I've learned from my 18 years as a senior executive at the Coca-Cola company, it's always critical to have that core business being really, really healthy from a growth perspective. In addition, we've been able to successfully layer on, very successfully, new product innovation, which has been disruptive as it relates to really bringing new health and wellness credentials to multi-billion dollar categories through our Vinia inside superior science, superior efficacy, and superior taste strategy. As many of the people out there understand, everything that leaves our door is consumer taste tested, quantitative consumer taste tested. Products do not leave the door of BioHarvest Sciences unless they are at least parity, if not preferred, to market leaders in quantitative taste, blind taste testing. This is critical for the success of our disruption of these major billion-dollar verticals.

Let's walk through, and I'll help you understand what's coming in the short term and what we're working on a little bit more in the medium and long term. In the short term, there's a lot of action, which is obviously why we understand that that action will also drive the incremental growth, compounded growth, as we move into the second quarter and then again into the third quarter. We'll help you also understand a little bit of your own modeling. On the coffee side, let's first start there. We've had a really successful launch of coffee. We've now sold $2.3 million direct to consumers of coffee. That's just two SKUs. Okay? We have one regular coffee and one decaf. These are city blends. When you step back, you understand it's one blend working really, really hard.

You have other companies that might have 10 SKUs delivering that kind of sales revenue. This is obviously all direct to consumer. The $2.3 million has focused initially on K Cup compatible, which is your 40 million K Cup compatible machines that exist in the United States of America. Now we're double-downing on the coffee category by going into Nespresso compatible. In the course of May, we will be launching the first-ever Vinia Superfood Coffee in a Nespresso compatible pod. This is the first time you're getting functionality in the Nespresso compatible pod of the likes of a superfood. We believe it's going to be an additional disruptor because the Nespresso consumer is a higher level of income consumer. We believe our pricing structure will appeal even more so for this consumer with high levels of affordability.

We're very excited about this launch because it's going to be a real breakthrough in that particular segment of the market. Now let's talk about teas. We launched teas, four SKUs. Vinia Superfood Tea was launched in December. We have our English breakfast tea, matcha green tea, regular green tea, a cranberry hibiscus tea, and we have a variety pack or sampler pack. It's been three months, and I can't tell you, Anthony, the feedback has been overwhelming from a taste perspective. Again, it goes back to superior science, superior efficacy, and superior taste. Every single one of our coffee pods or tea sachets, in this case, has one equivalent of one capsule of Vinia inside. We have organic tea. We have rainforest-certified sourcing. We have a unique sustainable sourcing, which is really important from a brand vision and a brand value perspective.

The feedback we're getting now after being in the market for just over 90 days on taste has really been nothing but amazing. I was just looking at a review about 20 minutes earlier before the call started where, again, just consistently across all flavors, great feedback. We are not stopping there. We are now extending from tea sachets into the K Cup compatible market. In the next two weeks, we will be launching English breakfast tea and matcha green tea in a K Cup compatible version across our website and across Amazon. That all, at this stage, completes the play as it relates to the functional coffee and tea business. In addition, we've decided to make a big bet on a segment we call Chews, C-H-E-W-S, Chews. We have developed a Vinia, what we call a Vinia Daily 2X Formula Chews.

The genesis of this is that we know there are a number of athletes out there. We did a lot of work with NFL previously. We have seen with athletes, when they're on Vinia, and normally it's a higher dosage of Vinia just because of their peak fitness, that the increased arterial dilation, the more blood flow, increasing oxygenation is really able to help them deliver their best from an overall execution perspective on the sports field. As a result, as we look to make the brand younger and targeting those elite athletes or wannabe weekend warrior athletes or just super active people that are working crazy hours that need that extra punch, we have the Daily 2X Formula Chews. It's a great flavored Chews. It tastes amazing. This will be coming to market sometime towards the middle of May, early June.

This basically gives us the heft on top of our already existing core capsule business where we're going after multiple new channels, also broadening our scope from an international availability perspective for people coming in and buying off our US website, being able to ship to key markets where, from a regulatory perspective, we're able to. We're kind of opening up a lot of those access points so that we can continue to effectively scale the business at a similar rate to what we have done over the past few quarters. As it relates to other disruptive innovation on two other categories we've talked about, I'll just give a quick update.

The first one is in the area of hydration, electrolyte-enhanced beverages, where we're shortly going to be starting a clinical trial with Tel Aviv University on a key population base that we feel is going to be most representative of the target audience we want to go after. We've decided to be very, very clinical around our approach. We're going up against some, let's call it, major titans: the Gatorades of the world, the Powerades of the world, and I know that world pretty well from our previous life, all the way through to billion-dollar brands like Liquid IV. We want to make sure when we come into the market that we're coming in with real hardcore outcomes from clinical trials related to an amazing product that we've developed. We've already had very, very good initial taste test results and other key brand-related parameters.

Importantly, for this product and our Chews product, it's going to be approved by Informed Sport. Informed Sport, we've already gone through the approval process for our Chews. This is a critical, critical validation point. Informed Sport means it's produced at the highest quality standard and it meets all the guidelines from an international athletic perspective as it relates to anti-doping laws, which is critical given us targeting those athletes that are looking to really up their game from an overall impact on the sports field. Right now, from a clinical trial perspective, we believe that the electrolyte-enhanced hydration product will come out either towards the end of this year or sometime in the first quarter of next year. We will pace ourselves based on the demand in the market, supply, and just the pace of our innovation rollouts.

Lastly, there's a major play that we're making in health and beauty with a system where we bring the systemic capsule and the power of the capsule and its ability to increase blood flow to the epidermis layer of the skin and all the benefits that come from the capsule, plus an amazing product we've already developed from a topical solution that similarly is going into research, clinical trial, sometime towards the end of the second quarter. That will be, again, a major bet for us for Q4 if we decide to bring it into Q1 next year. What's great is we have a number of major plays, and we're just balancing and landing all the planes based on ensuring that we have supply, the ability to execute and operationalize our strategy.

Of course, Anthony, you're well aware of the exciting news that we shared as it relates to our Olive Cell product. That's, again, another piece of work that the team's doing in the next 12 months as it relates to driving the regulatory process for that, as well as additional clinical trials. Similarly, we don't bring products to market without clinical trials, which are really backing the structure function claims that we're making in the market. Hopefully, that gives you and everybody listening on the call a good understanding of what's coming as it relates to the direct-to-consumer business.

Anthony Vendetti (Executive Managing Director of Research)

That was a great overview, Ilan. Appreciate all the color on both the CDMO business and the direct-to-consumer business. With that, I will hop back in the queue. Thanks so much.

Operator (participant)

Thank you. The next question comes from Amit Dayal with HC Wainwright. Please go ahead.

Amit Dayal (Managing Director and Senior Technology Analyst)

Thank you. Good afternoon, everyone. So Ilan, you have so many initiatives going on. How do you manage your working capital needs and growth needs with the balance sheet you have? Can you give us a little bit of color on whether you are a little bit handicapped to execute as aggressively given what the balance sheet looks like right now?

Ilan Sobel (CEO)

Thanks, Amit. Appreciate the question. Look, it's kind of interesting because what's beautiful about a direct-to-consumer business, and when you have a super molecule or super compound like Vinia, what it allows us to do is really leverage the power of our partnerships out there to be able to really bring resources to the table. When it comes to, for example, product development, we're working with best-in-class companies in the area of the coffee industry, in the area of the tea industry, beverage industry.

All the R&D heavy lifting from an overall cost perspective is basically sitting with them. This is part of their value that they bring to the partnership. Because of the uniqueness of our technology, these companies are game to invest big time in the R&D that's required. There are hundreds, if not thousands, of hours that are required in product samples. This is a big part of their investment because they understand that the size of the prize can be significant. This is number one. Number two is, look, when you have a direct-to-consumer business, if you think about it, we built a $25 million business pretty much on one SKU. Now what we're doing is we're basically bringing consumers a whole variety of options on how they do their Vinia. You can do your Vinia in a capsule.

You can do your Vinia in a coffee, in a tea. Ultimately, for us, it does not mean that we are increasing our advertising spend disproportionately because ultimately, I am just bringing a portfolio of opportunities to the consumer to choose from, which ultimately, what we are finding is bringing more people in the funnel when we are advertising out there, increasing our return on advertising spend. As more people come into the funnel because I have got more options for people, two things are happening. One, we are seeing improvements in our conversion rates. Two, we are seeing improvements in our overall average order value, dollar value. Ultimately, this is helping us improve our overall cost of acquisition and critical lifetime value, which ultimately is going to provide further leverage to help us get to that adjusted EBITDA profitability milestone in the second half of this year.

This is the power we've created, almost like the highway, the highway to consumers. I'm not building new highways. I'm just putting a few big trucks on the highway. I've got literally more opportunities to be able to bring consumers in and convert them into those critical subscribers, which are so important for us. The pain point on the balance sheet is not a pain point that, as a business, we're experiencing. If anything, the efforts that we're doing allow us to scale quicker and, as we said, very transparently to the market. We said $11-$12 million a quarter at roughly 62%-63% GP. We get to that adjusted break-even or adjusted EBITDA positive position. Importantly, all of this innovation, we're increasing gross profit margins and absolute margins.

One thing that my dad always used to tell me is you don't necessarily bank percentages. You bank dollars, right? For us, it's all about keeping that core business strong, layering on the extra new products, and ultimately improving the metrics, improving the gross profit, improving the overall sales and marketing as a percentage of revenue. We've seen already the sales and marketing as a percent of revenue come down significantly. That's a key metric that myself and the management team are very, very focused on. As we now look at bringing that down, we brought it down already from 61% to 47% in 2023 to 2024. We'll bring that down to the low 30s-mid-30s as we look towards 2025 and beyond. Importantly, we have significant operating leverage as a business.

You have seen this already in the P&L, which is what makes me excited when I look at where we can really drive leverage through the line with revenue growth for the year at 99%. For example, our G&A was reduced by 1.8% despite Nasdaq heavy listing costs. In fourth quarter, we reduced it by 4%. This is all 2024 versus 2023. Now G&A is sitting at 17% of revenue versus 35% of revenue in 2023. This allows us to really drive a long-range model of EBITDA profitability for our products business at 20%. For the CDMO, it is going to be even better than that. Going back to your question, it is not balance sheet pressure.

It actually allows us to depressurize the balance sheet, if you want to call it, because I'm bringing scale quickly into the business and improving the critical metrics that drive GP, that drive further leverage down to the P&L as you increase revenue.

Amit Dayal (Managing Director and Senior Technology Analyst)

I appreciate that color. That was helpful. Thank you, Ilan. Just last one from me. Revenue cadence for 2025, can we expect sequential growth given new products are coming to the market? Adjacent to that, operating costs, should we anticipate steady operating costs? I mean, it looks like from your comments, you're not expecting too much of a ramp on that side. Any commentary on how we should think about revenue cadence for the year, if there is any seasonality, etc., that we should be aware of, and how to model for operating costs for the remainder of the year?

Ilan Sobel (CEO)

Yeah. Look, past performance always predicts future performance. You understand a little bit of how we've operated in the past. Obviously, we've given clear guidance in the announcement that came out about an hour ago on guidance for the first quarter of no less than $7.8 million for the first quarter. Obviously, you've just heard me go through second quarter, a number of big bets that we're going into the marketplace as we move into the second quarter, which obviously will continue to compound moving into the third and fourth quarter. You see that every single quarter, because our business is a subscription business, we have that beautiful compounding effect because our churn rates are best in class in the industry as a result of the efficacy of a super compound like Vinia.

Because of that effect, you start to see that those people you recruited in Q1, you see the compounded effect in Q2 with low churn rates. Similarly, the people you brought in in Q2, and it compounds. You can start to see how it builds. The build is probably a little bit more aggressive than what we've had before because there's a lot more innovation that's coming into the marketplace, specifically in the second quarter, which will allow us to really get the compounded effect in the third quarter and fourth quarter. The CDMO, importantly, and similarly, the CDMO deals, specifically the magnitude of the life-changing compounds that we're working on, these are big deals.

They take time negotiating and getting through with the legal channels and, kind of, as I like to say, landing the plane beautifully with all wheels on the ground, not on the belly, but all wheels on the ground. There is a lot that's in the funnel right now, as I was suggesting to Anthony a little bit earlier. We will see some of that continue to roll out and the pace of that increase as you go into second quarter, third quarter, and fourth quarter.

Amit Dayal (Managing Director and Senior Technology Analyst)

Understood. Maybe last one on just checking my notes here. On the CDMO side, right, is there any tariff-related issue or even on the D2C side, the direct-to-consumer side? Any tariff-related impact?

Ilan Sobel (CEO)

I am really glad that you asked that question. Thank you, Amit, for doing that. Look, it's kind of interesting. Pretty much most of my professional career, I've been dealing with headwinds and, in some cases, really, really strong headwinds. As a company today, we're in a really fortunate and privileged position that we're just dealing with tailwinds, which is amazing, especially after you've had headwinds. To have that tailwind blowing in your back is amazing. Those tailwinds are really driven by notions like the whole Make America Healthier again movement and the focus on the next generation of non-nutritive natural sweeteners, all the way through to basically, in the context of what you've just asked now on the tariff side, we're in a winning situation in a few areas. Firstly, we are a product of Israel.

Right now, I'm cautiously optimistic that we're not going to be playing, given the unique relationship between Israel and the United States of America. I believe that will be very favorable for us. This is number one. Number two, what we have seen is a couple of things. Firstly, in the direct-to-consumer world, all of our competition, they're going to be hit by tariffs. Okay? This gives me an opportunity to score a really important point for all of you out there, that an important factoid out there. Since we launched Vinia in May 2021, we have not taken a price increase on Vinia. $99 for three months was the starting price point of May. I think it was May 14, 2021. Today, it's the same price.

That was a conscious strategic decision as we look to deliver on our North Star, which is all around democratizing our life-changing compounds, making sure it's affordable to the consumer. Just to give you a reference point, if you look at food inflation since May 2021, according to the Labor Bureau of Statistics, it's increased by 19%. Whilst we are premium, we haven't upped the game from a pricing perspective. We see in the nutraceutical world, our competitors will have no choice because most of them are buying their ingredients from China. Therefore, they are going to be hit by the impact of tariffs and are going to have to take significant price increases, which means our premium will actually be less of a premium. We think from an elasticity perspective, that will be a significant tailwind for us.

In addition, now jumping to the CDMO business, we've started to see breaking points, breaking points of companies whereby they have just generally challenges from a supply chain perspective for geopolitical reasons, challenges from a supply chain perspective because they're dealing with plant-based compounds. Therefore, they have major challenges around consistency just given you're operating in an ecosystem, climate change, etc. Now you have the impact of tariffs. All of a sudden, it's like, "Look, now it's time to turn to biotech. It's time to control our destiny. It's time to have consistency, the unique economic viability to be able to control pricing because they own the compound." You can have unique IP around the composition given once you go through our end-to-end cycle, the actual customer, our partner, owns the composition rights.

Obviously, we have all the rights from a production as it relates to the royalty-based manufacturing model, but ultimately, they own that unique composition. We are seeing it as an additional tipping point for important customers to basically cross the line and to move into biotech. This is the future. Ultimately, this is the future, but the tariff is just accelerating the move towards the future. Lastly, because of the demand that we have started to see in our CDMO pipeline, we have also increased our pricing on the CDMO side from an R&D perspective. In the past, we were between $1.8 million-$2 million, up to about $2.5 million. Those prices have gone up significantly when we look at phase I, phase II, and phase III.

We believe that we have now the ability from a supply-demand elasticity perspective to be able to make sure that we're earning more margin upfront because we do make money in phase one. We make more money in phase two. We make even more money in phase three. Now we're obviously looking at ensuring that we optimize these opportunities. Again, the tariffs discussion helps us. We did not necessarily need it, but hey, we'll take that tailwind and enjoy the benefits of it.

Amit Dayal (Managing Director and Senior Technology Analyst)

Thank you, Ilan. Good to see all the progress. I'll follow up with you offline with my other questions. Thank you.

Ilan Sobel (CEO)

Thank you, Amit. Appreciate it.

Operator (participant)

Again, if you have a question, please press star, then one. Our next question comes from Hunter Diamond with Diamond Equity Research. Please go ahead.

Hunter Diamond (CEO)

Hi, everyone. Firstly, congratulations on the strong results. A lot of my questions have been answered, but I wanted to get additional details on the Oliverina compound, the preclinical data, maybe the process that you see to potentially commercializing it, and how it can leverage the existing subscriber base and distribution that you already have.

Ilan Sobel (CEO)

Thank you, Hunter. Just writing, it's like three questions in one. I want to make sure I cover each one. Okay? Just give me a sec. Okay. Subscriber base, path to market. High-level, non-alcoholic fatty liver disease affects literally one in four American adults. This is today, 100 million people in America dealing with NAFLD. Major, major challenge. Right now, from an overall, let's call it FDA-approved therapeutic solution, there is very little on the table right now. We have really zoned in on a critical molecule called verbascoside.

Verbascoside is one of the most potent anti-inflammatory polyphenols in the olive. I will tell you unequivocally that we produce in our bioreactors. By the way, I'll just stop at this point to mention that from a bioreactor size perspective, we have in the last 18 months just sort of doubled the size of our bioreactors. That is the scaling effect that we're getting in our business. It comes back to the question that Amit asked me around the path to profitability and really driving scale and GP into the business. Coming back now to olives, we today produce the highest levels in the world of verbascoside. The initial piece of research that we did was taking human liver cells and assessing the ability of this particular compound to reduce the levels of fat. We saw very, very encouraging results. We are now focused on really two things.

Firstly, it's moving through regulation. We should be finished the regulatory process by, I would say, the end of third quarter of this year. Right now, we're having intense discussions on what are the next stage of clinical trials. We're likely to skip animal trials. With Vinia, we basically did in vitro, then we did animal, and then we moved to clinical. Given the really encouraging results, we'll probably go direct to clinical trials. We're busy now just working through, as you know, doing clinical trials. It's not a simple process. It's a very robust, complex process, a lot of research, a lot of thinking with the right people around the table, which we do have in our company, and a lot of capability in this area.

We are busy now basically charting the path over the next 12 months of what clinical trials we want to do. It's important for me to say that our olive cell product, from a manufacturing perspective, is ready. We've produced it already in large-scale bioreactors. That's the really, really tough part. Now it's about finalizing the regulatory path and process, which we're deep in, and then moving forward on the clinical path. We have a unique trademark that we have for the product, which is called Oliverina. One-on-one of marketing that I learned is that in the name, you need to talk about the benefit. If you think about it, Oliverina, you've got olive in it, and you've got liver in it. Obviously, from a graphics perspective, we'll do the appropriate treatment. The consumer will look and understand, "These are olive.

This is literally olive compound to improve my liver health. Right? This is how you optimize your marketing mix. All the pieces of the puzzle are coming together, and we're super, super excited on the prospects of what this super compound can deliver. Importantly, as it relates to once we bring this to market, what will be the scale-up? I sat with the team about two months ago, and it was a bit of a moment where the penny dropped. We clearly understood that the build-up of our olive cell product will look very different to the Vinia build over the last four years. If you look at, say, this time next year, or let's say next basically, by the end of the first half of 2026, our subscription base will be a lot bigger than the 50,000+ subscribers. That'll move up significantly.

Let's say we're sitting on 75,000, 80,000, 90,000 subscribers. The olive cell product will be relevant for every one of those subscribers. The complementary nature of the two are amazing. The scale-up curve is going to be much faster. That's why, Hunter, we're moving like crazy to build our next manufacturing facility, which is going to be 4X the size of the existing facility. It's going to be critical for us to make sure that we have the supply side sorted out to meet what we believe will be stellar consumer demand for both Vinia. As I say, on Vinia, we're just tipping our toes into the ocean. Obviously, the power of the olive cell in addition and the combination of the two together.

Hunter Diamond (CEO)

No, it makes perfect sense. You hit on all the points of the question. In terms of, I guess, the reactors, are they all in Israel right now? Or are there some moving to the U.S. or other areas?

Ilan Sobel (CEO)

Currently, all of our manufacturing is in Israel. As I said a moment earlier, we have one facility, which is a 20—we have now pushed it because we have increased our bioreactors literally 3x this past, let's call it 15 months, literally doubling the size of the bioreactors. Again, it's important for the audience out there to understand that there are no companies out there producing plant cells at the scale that we are producing as it relates to the size of bioreactors and as it relates to the number of bioreactors that we manage every single day in our manufacturing facility.

That is why in April last year, we started a major, major project, probably one of the most critical projects for the company, where we digitized all the biological metrics for every single bioreactor, putting a full ERP system into the facility and have digitized and built a digital blueprint for manufacturing in our facility, which allows us to handle, to optimize key facets of manufacturing, including potency and yield, which are the two critical elements, and to optimize that at a unique scale that the industry has not seen before. We have kind of gone to what we call botanical synthesis manufacturing 2.0. We are going to up it again with our new facility where we are going to be building a 100-ton facility. We are in that facility today where we have 12 state-of-the-art clean rooms for all of our CDMO deals.

We're now doing all the final conceptual design work to start the detailed engineering work to be able to start to grow plant cells this time next year with a facility that's 100 tons. The roadmap, and this is something that we're going to share with the community, with the investor community in the next few months, we will be sharing with you what we call our BioHarvest Sciences Master Plan and the three specific phases of our master plan. As we've worked now this year to finish phase one, phase two will require us to have manufacturing capability in the U.S. As many of you know, we have started to have a lot of dialogues with key constituents and stakeholders in the U.S.

That will be something that we'll start to put basically bioreactors on the ground sometime in 2028, 2029, specifically as we start to scale the CDMO super molecules, super compounds that we're going to be building with partners. That's kind of like how we're thinking as it relates to bioreactor capacity. Importantly, when we move into our next facility, I should say when we start producing in our facility this time next year, I will guarantee you, Hunter, we will not be producing in existing size bioreactors. It will be at at least 50%-100% increase again. That's the plan.

That's the process engineering work that my COO, Ilana, is doing right now with her team, with an incredibly talented team of process engineers that we built to make sure that the transition to the new facility is a game changer again from an operational leverage perspective.

Hunter Diamond (CEO)

Yeah. It makes perfect sense. I can tell your enthusiasm from the call. Again, thank you for taking my questions. Congratulations on the strong results.

Ilan Sobel (CEO)

Thank you.

Operator (participant)

The next question comes from Susan Anderson with Canaccord. Please go ahead.

Susan Anderson (Managing Director and Senior Analyst)

Hi. Good evening. Thanks for taking my question. I guess maybe a lot of my questions have been answered as well, but just to follow up on the coffee and tea product, I'm curious if you said how many of the 50,000 subscribers are also buying the ancillary products. I guess, did any of those products add to the growth? I guess just what's the opportunity to kind of increase the basket size of those subscribers longer term? I was kind of curious too, what's the gross margin difference on those products versus the supplement? Thanks.

Ilan Sobel (CEO)

Firstly, Susan, great to have you on the call. Thank you for joining us. A couple of points. Firstly, we have only right now focused on trade-up at checkout, trying to get existing, say, capsule users to trade up and also purchase a coffee or a tea. We've configured our whole backend, and we're now being more aggressive in this area. In the past, if I say last like three, four months, we're starting to see a number of households that are purchasing both so people have the variety. For us, it's a secondary priority. It's important.

It's very important for me to say this. It's a secondary priority. The first priority is bringing in tea drinkers or coffee drinkers. I encourage you to go online and read our reviews. Okay? It all comes down to the source of volume or the source of revenue. For us, what we started to see is that the source of revenue, for example, is disgruntled coffee drinkers that are, whether it's regular or decaf, looking for a better quality of coffee, and they're looking for more health and wellness credentials, which is backed by science, which is backed by efficacy. A lot of our coffee drinkers, I would say 80% of it is being sourced by new drinkers, and I would say new customers coming in.

I would say the other 20% is trade-up, partly because it hasn't been a focus up until now. Now that I've got coffee and tea, we've grouped them together, and we start to get a little bit more economies of scale in the trade-up. Similarly, on tea, we're starting to see a very, very similar pattern where people are coming in because they're a little bit disgruntled. They're looking for better-for-you health and wellness options. They're willing to pay a premium. All of a sudden, they find a very unique proposition as it relates to the science, the efficacy, and the taste. We're bringing them in as new subscribers. We are seeing increases in the basket size as we get more aggressive in trading up at checkout. I think we'll continue to see that in the future.

My primary driver is to really bring in new subscribers from other categories. On the margin side, the actual percentage margin and the dollar margin for both coffee and for tea and for our two products are a number of margin points better than they are for capsules. Importantly, you have the dollar, the dollar margin. If you think about it, just to give you some perspective, we sell and if you look at it, we sell literally on Amazon, you're $66 for a 30-pack of coffee. We sell a lot of coffee on Amazon. On my website, on subscription, it's $59.99. Okay? It's like roughly $2. On Amazon, you get 10% off, so you get back to the $60. It's $2 a cup of coffee. Now, you're getting amazing coffee in the case of our decaf. Our decaf has a very high proportion of the mix.

Why? Because we use a very unique decaf. And as many of you probably know, the average decaf in America, they're using chemicals. They're using solvents to decaffeinate to take out the caffeine. That's not something we do because we don't have any solvents in our product. We work with Swiss Water Coffee that uses a unique water-driven decaffeination process. There's no chemicals used. We have an amazing decaf base, coffee base. Importantly, decaf drinkers, why are they coming into decaf? Because they don't want the jitters and the crash from the caffeine. They want energy. They want the physical energy and the mental alertness that you get through the arterial dilation and increased blood flow. Now they're getting it from Vinia together with an amazing decaf source of coffee.

We're starting to see our ability to justify that premium is there. We're seeing we've sold $2.3 million of coffee, right, at the most premium price point. If you look in the marketplace, the average K Cup product in the market today is anywhere between $0.20-$0.45. We're 4x-5x premium. There are segments in the American population that are looking for those better-for-you health and wellness credentials that we're able to appeal to. We will continue to scale that business. It's important to understand that's all direct-to-consumer, right? It's a lot of pods that we're selling every single day. Similarly, as I said, the stock for tea has been amazing. Again, premium product, organic tea, rainforest certified, and really proud to be part of their organization. It's important from a sustainable sourcing perspective.

The taste, again, we beat major market leaders in English breakfast tea and in our green tea propositions. We are starting to see that in the feedback. The repeat purchase rates are very, very high, i.e., the churn rates are very, very low. Superior strategy of Vinia Inside, superior science, superior efficacy, superior taste, allows us to premiumize, allows us to really, at the end of the day, put more dollars in the bank and drive that gross profit improvement. When you look at 55% was the gross profit for the full year. On our product business, we had gross profit around 57%-58%. We are pushing really, really hard. I will be jumping for joy when you get it over 60%, then we will start to see a line of path for 65%.

That's how we're going to continue to basically build out the footprint of the business by bringing increased new products very surgically, going after multi-billion dollar categories with disruptive innovation at higher absolute and percentage margins.

Susan Anderson (Managing Director and Senior Analyst)

Okay. Great. Thanks so much for all the details. I'm definitely going to check it out.

Ilan Sobel (CEO)

Great. Thank you.

Operator (participant)

This concludes our question-and-answer session. I'd now like to turn the call back to Mr. Ilan Sobel for his closing remarks.

Ilan Sobel (CEO)

Thank you, operator. Thank you to everybody for joining us this evening and for staying with me for the last literally over an hour. Really appreciate it. I just want to end with a few concluding remarks to say how excited I am to really be in this chair with an amazing team around me driving this business at a critical time from a history perspective, really driving cut-through biotech innovation.

The capability building that has transpired not just over the last 15-plus years, but specifically in the last 24 months, really has given us a unique breadth of ecosystem that no other player in our space has from the scaling of manufacturing of a biological facility fully digitized all the way through to how we use AI. We haven't spoken about it a lot today, but using predictive AI today, moving to generative AI in the future. We're doing this in our CDMO business and R&D side.

We're doing this with our customer success team where Jackie and her team of four operators, managers, 50,000 subscribers, plus another probably 10-15 thousand other customers, all the way through to building an e-commerce machine, amazing marketing and product development capabilities with the marketing organization and the direct-to-consumer business led by Jared, AJ, John, Eves, and Yael, literally five really skilled marketeers driving $25 million of revenue. It's unique. That's why when you look at basically our overall operational leverage, it's significant all the way through to the capabilities we have in executing clinical trials, multiple trials at the same time.

When you look at the breadth of the ecosystem we have and the capabilities that we continue to build, all focused on that North Star of the company, which ultimately is to discover, develop, manufacture, and democratize 5 to 10 life-changing compounds that positively affect the lives of hundreds of millions of people, but doing it in a way that preserves the planet for generations to come. We, as a company and an ecosystem of our investor partners, sit in a very, very unique place today to really create something special that has the propensity to create significant human utility value that ultimately will translate in shareholder value and in that order. Right now, we've put in place critical building blocks to have another successful year. We doubled the business every single year for the last three years.

This year, there's no reason to have similar types of growth rates as we look to continue quarter on quarter to improve the operational performance of the business and land the business to that adjusted EBITDA profitability level in the second half. We very much look forward to the journey with you all and appreciate all the support. Thank you all and have a good evening.

Operator (participant)

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.