Burcon NutraScience Corporation (BU) Earnings Call Transcript

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Burcon's NutraScience Corporation Fiscal 2027 First Quarter Conference Call. Joining us today are Kip Underwood, Burcon's Chief Executive Officer; and Alex Varty, the company's Interim Chief Financial Officer. [Operator Instructions] Then before we conclude today's conference call, I'll provide you with the company's safe harbor statement with important cautions regarding the forward-looking statements made during this call. Now I would like to turn the call over to the CEO of Burcon, Mr. Kip Underwood. Sir, please go ahead.

Thank you, Natasha, and good morning, good afternoon, good evening, and thank you to all of those who have joined the call today. For today's call, we would like everyone to walk away with 3 takeaways. The first is there's a convergence of things right now that mean present tremendous opportunity for Burcon. Consumers are seeking more protein. Food companies need innovation to deliver against that consumer need and Burcon's proven technology enables food companies to deliver against that need. We solve food companies' problem. Second, simply put, we are executing our plan. We are producing and selling day by day, week by week against our expectations. And third, we are investing in our future. We see demand -- customer demand coming down the pike, and we are going to invest to be ready to meet those future customers' expectations. Our safe harbor statement. I mentioned the market, the protein market specifically. You cannot watch television, stream a show, walk through a grocery store right now and not see that protein is everywhere. Not too long ago, protein was niche. Now it is a mainstream consumer sought after benefit. 30 years ago, people who sought after protein were motivated. They were athletes. They were willing to make trade-offs. Today's consumers will not make that trade-off. They want higher protein, lower calories with no compromise on the eating experience. They want the protein to be food that they enjoy. That is all further accelerated by not just health reasons by consumers on GLP-1 weight management medication. They specifically need higher protein and lower calories, and they need to be able to incorporate those foods in their everyday lives. It is a great time for a company that delivers protein to food companies as well. And we can quantify this growth. Tremendous demand, $17 million to $20 million in incremental protein growth. There are supply constraints out there. As demand has increased, supply constraints has gone and serviced against our potential competition, tremendous growth, particularly with GLP-1, we are only at the beginning of the growth runway, long-term growth runway for consumers seeking protein and then companies that provide that protein to food companies. Why does this matter for Burcon? I mentioned the convergence. We have consumers seeking protein. We have food companies are trying to figure out how they meet that unmet need without taste trade-off. The way companies meet those consumer needs is they need purity. They need purity to put protein in the food product and still deliver the taste expectations everybody wants. They want them to buy that food product once, twice, 3, 4, 5 times. Burcon's unmatched purity that is delivered by our technology platform enables food companies to solve that problem to meet those consumer unmet needs. Specifically, it's not into the platform. It's not across one product, it's across multiple products. We have launched our sunflower protein, our Peazazz C, our FavaPro protein and our Puratein canola protein. All of these are delivered by our technology platform and their core feature, their core benefit is unmatched purity, again, which enables food companies to deliver against those consumers' unmet needs. Details of our presentation today. We've talked about the market what a great opportunity is. We've talked about why our technology is so relevant in today's market. We need to get to some of the details, right? We'll talk about our -- the highlights from our fiscal '27. We have a sales update, production update. We'll talk about the financing that we released today. Why are we doing it? What does it mean? Summary. And then obviously, we will have time for closing remarks and Q&A. First quarter highlights. I mentioned one of the takeaways was execute the plan. This slide is we have executed the plan. So the first piece is customers. We've surpassed our customers purchasing our ingredients. This is the ultimate validation that we can, in fact, deliver against our promise. We can deliver that unmatched purity that then enables food companies to deliver to their consumers. Every day, every week, we consistently produce more protein, produce more products on a by shift, by day, by week basis. You've heard me say before, we cannot sell it until we can produce it, and we are producing more every day. We are investing today right here right now to increase our capacity to meet the customer demand we see coming down the pipe from our sales funnel. Again, I've mentioned several times today, simply put, we're executing our plan. With that, I'll turn it over to Alex Varty for our financial highlights. Alex, please take it away.

Thank you, Kip. Burcon's Q1 financial results demonstrate the progress we continue to make on our strategic plan. In the current quarter, we earned revenues of $1.3 million, representing a 54% growth rate quarter-over-quarter and an over threefold increase over the prior year-ago quarter. More notably, Burcon has posted sequential quarter revenue growth every single period since we launched operations at the Galesburg facility. Further, as we've scaled production and revenue at the Galesburg facility, we have done so while maintaining a focus of our resources and our financial spend on production. This quarter, we generated a 7% decrease in the operating loss quarter-over-quarter, driven by that revenue growth and supported by our relentless focus of our resources on revenue generation and on production. And today, we announced an offering of convertible debentures, raising gross proceeds of up to $8.1 million. In this transaction, we expect significant insider participation, underscoring the belief that insiders have in our forward-looking vision and in our ability to execute on our strategic plan. The convertible debenture financing is expected to allow for investments in growth through direct investments in labor and inventory and production capability, in planning future capacity expansions and increasing efficiency of production. We also intend to use a portion of the proceeds to retire certain debt obligations and for working capital, thereby shoring up our balance sheet and our capital structure. It remains an exciting time for Burcon. Kip does an incredible job of explaining how our operational progress and on the market opportunity and as well as how we can and how we are positioned to capitalize on that opportunity. But there's incredible power in seeing the translation of those operating achievements into the financial results, in particular, how we continue to scale the production volume and the revenues every single quarter with there still being significant growth available for us. I'll turn it back to Kip to provide more color on the sales and on production.

Thank you, Alex. So I mentioned 40 active buying customers. And we do have tremendous growth quarter-on-quarter, on year-on-year. What I'd like is to focus more on is what's the direction of the travel? Are we seeing sequential growth? Are we broadening our customer base? And the answer to that question is an emphatic yes. So across our 40 active buyers and our more than 2 in active products, we have great diversity across the type of customer, some large, some more entrepreneurial, more cutting edge across types of food products. It ranges from beverages to powder mixes at home to plant-based foods. So great diversity across different food types. And lastly, great diversity across our products. We have sales of our entire portfolio into all these products and all these types of customers. So really, it's about the trajectory of the sales and the growth quarter-over-quarter and then eventually year-on-year. We cannot sell it until we can make it. Day by day, week by week, we are driving production excellence. We've mentioned in the past, we've achieved several record production levels that could be on a day or by a week. And this matters fundamentally because we are clearly demonstrating that our technology platform scales across multiple products in a day in, day out production environment, not just internally by our information, by the customers I just mentioned. The best validation of the world of are we delivering day in, day out consistently is customers going from the evaluation process to the purchase process to repeat buy. That's the best validation that we are -- that our technology is delivering and our production facility is delivering that technology in a consistent basis. Because of all of those things, we see tremendous demand coming down the pipe. The market opportunity, the differentiation our technology provides and our sales funnel. We've announced a fundraise. Fundamentally, that raise is to expand production. It's to invest in people, efficiency and equipment to support the expansion of our portfolio. And fundamentally, as that demand comes at us, are we ready to fulfill that demand? I also want to just take a moment and go back to our strategy. We started off our strategy, it was relatively simple. We are going to -- we would put our technology in the Galesburg facility, prove that technology, prove commercial relevance, prove margins, prove price points and put Burcon on a strong financial footing. And then we would scale through licensing after that point. What we have discovered is we have an incredible capital-efficient way to expand capacity here at the site. So we have a capital-efficient way to expand capacity. We have obviously the tremendous demand coming from the consumers that we've talked about. And this really says it's not a change in the strategy. It's -- we would almost be foolish not to take advantage of this growth opportunity, put Burcon on a stronger footing, further prove out the value of our technology. And then in the future after that, the licensing opportunity still exists. So to speak to the financing a bit, again, we expect significant insider participation. We're currently working through a bridge loan to get us to the financing completion. That is, again, all about leaning in and investing for growth, expanding in people capability, production capability and funding ability to meet if not exceed our customers' expectations. The finance will be a convertible debenture, 48 months in length. And we still do have access to $3 million remains undrawn on tranche 2 from our senior secured loan. This entire package allows us to continue to accelerate growth investments today right now today, tomorrow and the day after while we finish the future fundraise. This is also on a parallel path. We are working with our manufacturing partner, ProMan for them to also make subsequent investments that allow us to increase the overall capacity and capability of the facility here in Galesburg, Illinois. When I look at Burcon today versus a year ago, we've come a long way. The technology is commercially proven. Customers are validating our products. They've gotten most important way is it's repeat purchase. They're coming back and buying our product again and again to deliver that product to consumers. And the only way they're doing that is that consumers are buying that product again and again. That is the ultimate validation that our technology delivers against the expectations. As we continue this progression, revenue growth will follow. Our job is to execute day by day, week by week, month by month. As we convert more of our pipeline into customer adoption, we grow recurring revenue and build out the facility here into an engine of strong growth and financial performance for Burcon today. What I want everyone to walk away with really I want to repeat this is the opportunity is there. It's huge. The -- we have a technology platform that delivers unmatched purity, which enables food companies to meet consumer unmet needs, and we are executing in a manner that we will capitalize upon that opportunity. So we'll continue to post percentage growth quarter-on-quarter or year-on-year, but I want people to pay attention to the trajectory. Day by day, week by week, we continue to grow our production capability, our sales capability, and we will keep doing that. We'll eventually deliver strong financial results. With that, I will leave it to Natasha to the operator for any questions.

[Operator Instructions] Your first question comes from Dave Storms with Stonegate.

I maybe wanted to start with the 40 active buying customers. Could you help us get a sense of who's still testing products, who's moved on to repeat orders, maybe not who, but as a percentage, who's testing, who's moved on to repeat orders? And maybe how that compares to the top of the sales funnel that hasn't converted yet?

Sure. Thanks, Dave. I appreciate the question. So let me provide a little texture there. So first, what we look for in our sales funnel and in our sales -- actual sales is diversity again. So we have active sales across multiple food types. So first is think about any food product you see that says 10 or 15 or 20 grams per serving on the front of the package, that's a bull's eye for our technology. And that happens in beverages. It happens in powdered beverage mix at home, it happens in nutrition bars, and then it happens in a variety of plant-based foods. So those all food types we both have customer projects in and active sales in. Second thing is the type of customer. We were very clear with everybody. We want to work with smaller, more midsized entrepreneurial brands. They move fast. They're on the cutting edge. We're aligned on values. They're more profitable and they grow faster. The majority of our funnel is, in fact, those types of customers. We also have a couple of what I call anchor customers. These are brands that most people would know and recognize, and they provide kind of the foundation volume load for the facility. And then the last is, again, those 2 first categories, type of food product, type of customer, we have sales of all of our products across those. So great diversity in terms of food type or application, type of customer and across our entire portfolio, which really gives us a strong foundation for growth in the future.

That's great color. I appreciate that. And in the response there, you mentioned diversity again. I know you've kind of touched on that a lot this call. Even with the diversity, though, are there any product lines or food types that are maybe leading the charge that you see having an outsized growth or maybe that you get most excited about?

I think first, a lot of protein in this area is really sold in think powder beverages for general health and wellness that you mix at home. That's where most protein companies start. So that's where a lot of our business is. Where I'm most excited about moving forward is there are a whole host of foods that did not have protein traditionally. Think snacks, think more snacks or beverages that don't traditionally have protein, but now people need those to have protein in them. And that's a really difficult thing to do. It's very difficult to put protein into a snack at a level that's meaningful. And then also that snack still tastes great. It still takes like a snack. We have lots of projects in that area in plant-based foods where without our technology, without our unmatched purity, maybe food companies couldn't deliver to those end consumers, both the protein level and the taste experience those consumers want. So those are the areas where we get most excited to maximize our technology, enabling food companies to do things they could not do before.

Understood. Appreciate that. Maybe pivoting over to the financing. Just is there anything more you could tell us about that maybe in terms of how much is earmarked for growth spending, the anticipated deployment of that capital, how long discussion, anything like that?

Well, a couple of thoughts. So first of all, the -- we anticipate the close to be very quickly after our Annual Shareholder Meeting on September 16. So from a close perspective, I think late September, early October. From a usage standpoint, this is entirely about growth, Dave. This is about investments that drive production efficiency, investments in people that drive better customer response or better customer outreach and/or drive production scale. So 100% of these proceeds really are about us getting ahead and driving growth and being prepared for not just the demand we hope for, the demand we can see in our sales funnel coming at us in the near future.

That's great to hear. I appreciate that. Maybe one last one, just a macro question. And you mentioned GLP-1 usage at the top here. Just any further thoughts around maybe what inning we're in? Are you still seeing a lot of experimentation, maybe a lot to be captured if you're a first mover? And I know I'm throwing a lot at here, but also, are you seeing any differences between the U.S. domestic market versus international markets with GLP-1 uptake and maybe the downstream impacts of that?