Biome Australia Limited (BIO) Earnings Call Transcript & Summary

Good morning, and welcome to the Biome Australia webinar. Today, you've got myself, Blair Norfolk, Founder and CEO; and our CFO, Lauren Dwyer. So today, we'll be going through 2 things at the webinar. But first, I'll start off with a little bit of housekeeping. So any questions that haven't already come through via e-mail to our support inbox support@activated.co. You can put in the webinar chat at the bottom and send through and we'll do our best to get to all the questions once we get through the main parts of the presentation today. So starting off, Lauren will be walking through the 4C, which was released last Wednesday, and then I'll be following on with an update on the international market presentation. Following that, we'll get into questions. So after a wonderful FY '26, very pleased for Lauren to report Q4.

Thanks, Blair. Good morning, everyone, and thank you for making the time. As Blair said, today, I'm walking you through our Q4 and full year FY '26 Appendix 4C as was released last Wednesday. FY '26 was the strongest year in Biome's history on revenue, on cash generation, debt reduction, and Q4 capped off the year strong with a number of strategic milestones that set us up for record success in FY '27. Today, I'll cover off briefly on the FY '26 growth story, the cash flow results, the balance sheet, our strategic milestones and then pass back to Blair to speak on international markets before we take time for some investor Q&A. FY '26, a record year. We achieved $23.9 million in annual sales revenue, which was up 30% on FY '25 $18.4 million. It wasn't just attributable to one quarter spikes. It was a full-year compounding practitioner-led growth. In June 2026, which was a landmark month, For the first time, we achieved consumer sell-through of Activated Probiotics surpassing 100,000 units for the single month. Sell-through represents real products moving off the shelves, not just invoicing or timing convention. Biome Daily is now the #1 probiotic product in the Australian pharmacy by both units and dollar value, according to IQVIA Pharmacy Scan sales data for FY '26. It's our flagship product, and it's leading the entire category, a great result. Most importantly, the #1 title represents a platform, not a peak. This ranking is a gateway for us to grow across the Activated Probiotics and Activated Therapeutics ranges from an already strong base. The #1 positioning builds directly on the momentum that we signaled at the first half, with FY '26 first half revenue of $12.4 million, 40% up on the pcp, and with a record EBITDA of $1.47 million. Looking ahead to FY '27 and beyond, our seasonally highest quarter annually, which is Q1, we have a number of new product development launches scheduled, coupled with key strategic opportunities in international markets. This positions Biome for what we expect to be our highest revenue-generating half in the company's history. Our cash flow can be described as disciplined, growing and self-funding. Q4 cash receipts from customers were $5.9 million at the half -- at Q4, up $1.1 million on Q3 and staggering 61% or $2.2 million on the prior corresponding period. A net operating cash inflow of $708,000 was reported for the quarter, which was a swing of nearly $2 million compared to the Q3 cash outflow and $1.2 million positive turnaround on pcp. For the full year ended 30 June, we reported a net operating cash inflow of $1.6 million versus FY '25, which was an operating cash outflow of $1.4 million. We're continuing to demonstrate now that Biome is a business that generates cash from its operations while still investing heavily in growth and expansion. We did this while deliberately holding safety stocks ahead of our seasonally biggest quarter, as I mentioned, and navigating global freight uncertainty and volatility. This growth was delivered by real working capital discipline, not growth funded by growing down the balance sheet. Marketing investments stayed efficient at approximately 7.5% of FY '26 sales, and we're proving that the model scales without ballooning advertising or promotional costs. Moving on to our balance sheet. It's evidently more stronger and flexible. Biome is reducing debt, building cash and self-financing for the next phase, including onshore manufacturing the transition and importantly, without needing to lead on shareholders, who will take on more debt. Our cash balance as at 30 June was reported at $3.6 million, which is an increment of $0.2 million on Q3 and $0.8 million from pcp. Importantly, our debt reduced by $1 million year-on-year to just $1.9 million drawn at 30 June against total NAV facility available of $5 million. That leaves $3.1 million of undrawn facility headroom and $6.65 million of total funding available heading into FY '27. Our strategic milestones set us up for FY '27. So in Q4, we entered a binding manufacturing agreement with Specialty Probiotics Australia, SPA, for onshore production of Activated Probiotics, including zero capital investment required from Biome. Our first commercial batch was targeted for September 2026. This is expected to structurally improve the cost of goods sold, freeing up working capital and cutting out inventory and freight lead times and adding the Australian-made edge in our export markets, while we keep our European partnerships for EU biodistribution and diversification. The market has already recognized the significance of this. Biome shares rose 20% on the day the SPA agreement was announced in June. Separately, BMB18, our first wholly proprietary probiotic strain, the patent application was lodged during the quarter ended Q4, and the clinical trial is now expanded internationally to the University of Athens alongside La Trobe University in Melbourne. This represents a genuine pipeline asset building long-term IP value for Biome. Looking ahead, first half FY '27 is expected to be Biome's highest revenue-generating half 1 record, supported by new product launches and continued international momentum. To sum up, FY '26 closed with record revenue, record sell-through and #1 pharmacy product in genuine with genuine positive and improving operating cash flow, a stronger balance sheet, reduced debt and 2 major strategic wins, onshore manufacturing and BMB18, both of which position us perfectly as we head into FY '27. I look forward to presenting the full year FY '26 financial metrics following the release of the Appendix 4E preliminary final report at the end of August. Thank you. I pass it now to Blair.

Thank you, Lauren. That's incredible to hear as if I was a spectator. What an amazing year we achieved in FY '26. And I think we can often get caught up in the short-term details of what's going on in the world. But it seems a long time ago when we started this financial year and to see what we've been through with major projects and Vision 27 milestones just being kicked off is incredibly exciting in my chair and very, very proud of what the team have achieved. So as we get into the international markets, I will get a presentation up on the screen and share, but I want to reflect on a couple of things. Certainly, the IQVIA Scan data that Lauren shared. So the fact that Biome's Activated Probiotics, Biome Daily, has now got the #1 position in pharmacy is incredible, and it will allow us to really leverage and continue to grow taking more market share, but also continuing to grow the category, which is something that Biome has really built in as a fundamental to its business model, not just competing with the market but growing that market. Within the international markets, I note that we pulled out a 68% gross margin, which is still under audit, but 7 points higher than the Australian business, which is a significant value add and reason for us to continue to pursue our strategy in those markets. So if you just bear with me for one moment as I share my screen and get the presentation up for you all. Okay. So at the high-level point on the international market performance for FY '26. So as you -- I'm sure you've all read the announcement, $1.8 million revenue, up 26% on FY '25. It's important to know while this is still a smaller base compared to the Australian operating company, we've done this on a shoe string budget. So wanting to always prove and test markets before we invest majorly. We've been running at near breakeven and expect to be able to continue to run it very lean while FY '27 will be a marquee year for international markets and expect to be getting more color on that as the financial year evolves. We now have more than 2,000 distribution points, which is very meaningful. It's a base that we've built. And to build that, you don't just walk in day 1 and get them. So there's a significant amount of work that goes into, firstly, the regulatory sign-off, making sure the packaging and the marketing is compliant for each of those 4 local markets. in Canada, Ireland, U.K. and New Zealand. Doing deals with the distributors. I note at the start of the financial, we released 2 major deals, one with Uniphar in Ireland, which was wholesale and retail pharmacy, also ProPharma in New Zealand. And later on in the financial year, we released that we launched with Fullscript in Canada, in North America. So that foundation, that base has now built 2,000 distribution points in FY '27, we will be developing further. So in the Australian model, we now have announced we have more than 7,500 distribution points between pharmacy, health food and the practitioner market. So what we're trying to demonstrate is how that model compounds. So if you look back to FY '22 to FY '23, we're sitting in that 1,200 to 2,600 distribution points. So that should give a bit of guidance on how we expect to be able to continue to grow and build this business. Most importantly, in the Australian business, the underlying growth is coming from, as Lauren shared, the same-store sales and sell-through. It isn't deals. It isn't launching new products as is often seen in the VMS market. It's the underlying sales and growth and development and business development that we're doing, which Biome has become an expert on. Now being able to leverage the Australian success and the #1 Australian product, the #1 kids product in the probiotic market, the #1 immune health product in the probiotic market. For those that aren't aware, immune health drives the entire category. These are really important flagship statements that we're going to be able to carry into the international markets in FY '27. So the 4 active markets that we are working in now are all very different and require a different approach, but one thing that's consistent across all markets is we're running a very lean sales and education-led model. So in Canada, we have 3 staff on the ground who are sales and education staff, working in pharmacy, in practitioner clinics and health food stores every day, detailing, building trust and gaining that active recommendation that Biome has been able to establish as its foundation for growth and support of its brand in all markets. Within the United Kingdom, we have a mix of a territory team calling on pharmacies, which is more the traditional sales model and then a practitioner sales and education team that are out there calling on practitioners developing their clinics. Ireland, most similar to the Australian market, community pharmacy and practitioners. We have 3 practitioner education consultants, again, a mix of sales and education out there detailing practitioners and pharmacists and developing that core business. And then New Zealand, which is very similar to the Australian model as well. We are working in pharmacy and practitioners with 2 reps on the ground every day detailing stores and developing the business. So I've done a bit of a high-level summary of each market, the channels that we're working through. I'm not going to go through these slides one by one. But absolutely, if anyone has any questions, happy to get into it. And if I can, I will absolutely answer in as much detail as we can. But what I will say is Canada and Ireland are absolutely, at this point, the crown jewels that we're seeing the most growth, the most positive acceptance of the brand, and the level of engagement that we're getting from the practitioner community in those markets really only rivals the Australian market, and it's really pointing toward successful development long term. Okay. I'm going to click through towards the end of this. This is something that I found very interesting that we wanted to share for the first time with investors. So what's driving that higher gross margin? So in the Australian market, we have a retail price for Biome Daily. Biome Daily Kids and Biome Baby are our entry-level products at $34.95. We have not increased the price on those products since 2019, unlike other competitors in the market who review every year or 2 and put constant price rises. We think it's a strategic advantage that we've been able to maintain this in the Australian market, but also overseas, we're able to reset our pricing and take advantage of being, I suppose, a newer entry brand into that market and test out different pricing strategies as well. Most of you will be aware that we employ a no discount policy in Australia, which we also have taken abroad. This is something that's never been done before in our category. It is harder, the initial conversations with retailers. However, sticking to our guns has been able to maintain our margin, but also give us additional credibility and trust to be able to grow as a solutions-driven brand rather than just a product and a price. If you go through the different channels we've kept it in local currency, but you can see Canada, $46.99. Canadian dollar and the AUD is usually within about 10% difference. Right now, it's pretty similar. So there's significant extra gross margin in the Canadian business. The U.K., GBP 29.95, so quite expensive. U.K. and Ireland are our 2 most expensive retail prices that contribute the most significant per unit to our gross margin. And then New Zealand is weighted off the Australian market, just covering off some risk and currency transfer. So across the board, it's given Biome an opportunity to test out different models. The Canadian model and we are like-for-like with competitors, whereas in the U.K. and Ireland, we've tested a slightly higher, more premium pricing strategy where we are a bit more expensive than competitors in the market. But still no pushback or complaint at pricing, which is very positive for Biome. Another key thing I really wanted to highlight in this presentation was the Northern Irish hub and advantage that Biome has. So after a huge amount of work over the last 2 or 3 years, we've identified a hub in Northern Ireland to be able to supply tariff-free to the United Kingdom, Ireland and Mainland Europe. I suppose Brexit created a lot of challenges for European companies, but also opportunities as well. So with our partner, TDS in Northern Ireland, we are now supplying the United Kingdom and Ireland and Mainland Europe to a lesser extent. And as we move ahead with this B2B2C e-commerce platform, where we'll be delivering eScripts. This is one of the first times we've mentioned or the first time to announce that officially. That will be tested in the U.K. starting this quarter, and that's going to give us the ability to really switch on a new digital health play and using this hub in Northern Ireland will allow that to function very smoothly. Lauren already mentioned the onshore manufacturing with SPA or Specialty Probiotics Australia. With the international markets, this is also very material and key points as well. It's going to allow smaller batches, higher turnover in products and being able to really move quickly on any new products or opportunities to get them into the markets faster. Previously, our large batch European manufacturers weren't able to help us with small tests. But now with our local Australian partner, we'll be able to run smaller batches, different packages and be able to get things to market faster and also saving on our cost of goods as well in each market. I have already mentioned the practitioner and the gross margin teams. So priorities for FY '27 before we hand over for some questions on the 4C and the international markets. This is the year where we expect to have a step change. So we had a fantastic start in our first full financial year in FY '26 in Canada. Same thing in Ireland, a great first full financial year where we've now got some deeply entrenched product and trust within the pharmacy market in Ireland. We continue on our development journey in the U.K. that have really highlighted the U.K. as the best opportunity for Biome to have its hub for the Northern Hemisphere with a strong management team there already operating for 3 years, being able to support us when we are asleep. We are looking constantly at new markets as well. And I want to be really clear, we won't be taking on anything new because we need to make sure that we've got the right capacity internally. However, with other key markets like China and the U.S.A., we're continuing to look for partners on the ground where we could open up Activated Probiotics into the future without needing to invest locally with our own money. So we are looking at other markets in Southeast Asia, China and the U.S.A. as we always review. However, we feel we have the perfect amount of challenges and opportunities in front of us to manage with the internal team at Biome in Melbourne. Okay. Happy to hand over to some questions. Lauren, have you got any on the 4C to kick us off?

A lot of questions coming through on international markets. So that and none such yet on the 4C. Yes. Perhaps one on international gross margin.

You can handle that one.

Sure. How is it calculated? Does the OpEx line carry a pro rata share of group overhead or only directly attributable international costs? If direct only, what would the fully loaded margin look like? So Blair in the presentation has touched on our international markets are consolidated 68%. So that gross margin is literally sales revenue net of cost of goods sold. So those are fully loaded COGS costs for the actual -- the manufacturing and landed cost of the product in each jurisdiction and with reference to the actual dollar value sales in each particular region. It does include all of the directly attributable international costs. Obviously, Blair has touched on the workforce, the number of employees that we have in sales satellite roles, but also direct international costs such as printing, marketing, other on costs specific to each region.

Where there's an exciting opportunity for Biome as well as we get through FY '27 is starting to look at the Australian business and the international business. And this is the first time that we've started to pull it out and be able to look at what we can deliver in each business unit as a stand-alone as well and also down the line, start to run some analysis on pulling out the international business and looking at the Australian business as a whole and showing how much even stronger that business unit will report. So I think that's a very fair question. We wanted to make sure that we can give a little bit more color on why it's such an exciting proposition for us. The gross margin piece is definitely part of it.

Few longer-term questions on international sales beyond FY '27 and at the end of the decade.

Yes. So do you have a sense of what proportion of international sales will comprise total sales? So yes, good question. So look, we have a goal. The goal is for international sales to be a larger percentage than it is today. We haven't given an official forecast. However, my expectation is that international is more than 10% sooner than later. We need it to be a material driver. And I suppose to that, there was another question in there I just pulled out around international growth and is it accelerated or slowing. It's very different to the Australian business where we have 50 staff on the ground, 15 or 20 of them out in pharmacies every day developing the business. So with that derisk approach where we are building trust, building relationships, it's not just about hitting the ground and generating the most revenue we can immediately. It's about doing it in a measured way that's consistent that allows us to derisk the business and scale. So my expectation is that growth will increase, and we'll be really pleased to report that throughout FY '27. So we're certainly not in a position where growth is slowing in international markets. It's a process of setup and being at the earlier stage, it's going to be a lot lumpier.

We've had a somewhat related question come through. So is the growth just a rise in tide or are you genuinely taking market share?