Q2 2025 BioHarvest Sciences Inc Earnings Call

<unk> are in listen only mode.

A question and answer session.

[noise] 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 maybe subject to a number of risks and uncertainties that could cause actual.

Our results to differ materially from those described on the call.

Please refer to the company's regulatory filings for at least of all 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 I off I F. R. S financial measure, which it believes provides helpful information to investors about deeper four months on the business on an ongoing basis.

A reconciliation of adjusted EBITDA to its most directly comparable I F. R. S.

Financial measure is included in today's earnings release, which is available.

Harvests website under the Investor tab.

On our call today is chief Executive Officer, Atlanta, So Bill and Chief Financial Officer, but Victor.

I would now like to hand, the call over to seal Atlanta Sobell Eli.

Bill on.

The floor is yours.

Thank you operator, and good morning, everyone.

I'm pleased to welcome you to today's second quarter 2025, corporate update conference call.

Q2 marked a pivotal quarter for ball harvest not just in terms of execution, but in setting the stage for a major inflection in the second half of 2025 with.

With continued gross margin expansion.

Vignettes subscription revenue and accelerating C. D. M O traction we remain on track to achieve adjusted EBITDA breakeven targeted for Q4 of this year.

Now before going further into the second quarter I'd like to quickly introduce our company and background.

Bob is the inventor of botanical synthesis, a patented non GMO platform that produces highly potent plant based compounds without needing to grow the plant.

Cell banks replicate key phytonutrients at magnified potency and industrial scale to enable the creation of consistent soluble and by available products.

This allows us to serve high value market across pharma, nutraceuticals cosmetics and nutrition, both through our branded products and as a C D and my partner.

Now moving to the second quarter.

We continued in the second quarter scaling both our products and C. D M O divisions.

Revenue rose, 41% year over year to $8 5 million in line with our $8 5 million guidance.

Growth was fueled by balanced performance across many of Dot com and Amazon plus revenue contribution from our C. D. M O services division, helping to drive our progress towards adjusted EBITDA breakeven in the fourth quarter of 2025.

Looking at our direct to consumer health and wellness products Division total active customers in the U S. As it reached approximately 65000 as of end of July 2025, with subscription customers, representing the majority of these daily users, our Amazon business, which now.

For approximately 20% of total sales continues to deliver strong result across conversion rights repeat purchases and return on AD spend and vignette is currently the number one risk virtual only products sold on Amazon Dot com in the U S. We continue to build real consumer equity a momentum across each.

All of these core platforms.

In Q2 gross margins expanded by 800 basis points to 60% up from 52% in the same year ago quarter.

This improvement reflects both scale and technology leverage driven by the deployment of 22% larger bioreactors enhanced manufacturing yield and continued digitization of our biological production workflows, we continue to improve efficiencies in our supply chain for example.

In Q2, we began shipping all six and 12 month purchases in a single larger one time shipment rather than a 90 day supply each quarter, which has reduced transportation cost and packaging materials and added 50 basis points to our gross profit margin efforts.

Virginia has maintained its premium pricing and the reversal market.

Our high customer retention and a $4 seven as far as writing on veneer Dotcom continues to validate the efficacy and brand trust and we are about to read a major milestone of 10000 customer reviews on veneer dot com with over 9900 verified reviews as we.

Speak today. This is a very significant achievement for our hardworking vignette team.

Our direct to consumer health and wellness E. Commerce machine is proving highly scalable, allowing us to successfully launch new binya inside products via our e-commerce channels without having to add significant marketing dollars and enabling us to create strong operating leverage.

In Q2, new products defined as all non capsule products contributed to 20% of the company's incremental revenue growth.

Prior year and now constitute a healthy 10% of the total revenue mix.

This healthy contribution is balanced by the fact that our core capsule business is still the primary growth driver of the direct to consumer health and wellness business contributing 80% of the year over year revenue growth in the second quarter.

In Q2, we continue to expand our vanilla inside delivery systems and in June we successfully launched vignette daily two X form they choose a double dose 800 milligram first of its kind to design to increase not think oxide production in arterial dilation and to enhance blood flow and oxygen delivery.

Free for athletes and individuals with high active lifestyles. These shoes are informed sports certified meeting global anti doping standards and expanding access for us into the critical professional sports and institutional wellness programs are.

Our vignettes to extended family shoes are targeting a younger demographic than our core capsule business and enable us to capture revenue from a much younger consumer oriented we're looking for the extra edge on the sports field and workplace. The consumer feedback. So far has been very encouraging and we are quickly building strong Amazon.

Reviews, with a very encouraging start with many five star reviews.

In addition, we added this quarter to new Superfood T S skews, our English breakfast and much of Green tea in K Cup compatible pods to follow the successful Q1 debut of our Superfoods Ts insertion is looking.

Looking forward. We are also expanding our vignette superfood coffee, Lord with vignette espresso expected to launch soon in the suppressor compatible format.

During the more than 5 million U S households that use the nespresso original system.

In the second quarter. We also saw major milestones achieved by the C. D M O Division.

Firstly, we announced that a C D M a research contract.

That's fully completed stage, one becoming the first C. D M O project to advance to stage two.

We are excited to continue working with this valued pharmaceutical partner on our high impact approved therapeutic drug product and stage two will involve successfully transitioning growth of the target compound to our liquid bioreactors.

It is important to note that to date, we have 100% technical success rate when compounds successfully complete stage one.

And then each stage in a C. D. M O development process represents positive revenue and high gross profit margin improving our bottom line as we complete the critical research and development stages with CMO partners, bringing valuable life changing plan compounds to market.

The stadium.

This development team is actively building the new contract funnel and in Q2, we also signed our first contract targeting our fragrance molecule.

AI capabilities were integral in securing this new agreement at all providing invaluable insights as we engage with prospective industrial partners. Our target compound on this project is a provocative use case for a botanical synthesis technology as the compound is a highly valuable compounds derived from any.

Dangerous plant species that sell for thousands of dollars per kilo, we now have ongoing projects for pharmaceutical and nutrition and fragrance industry partners and I'm pleased to report that our deal funnel is very healthy we are being very selective in the deals we finalized but our expectation.

Is that we will announced multiple new CMO contracts here in the second half of 2025.

So as all products and all C. D M O services business unit to expand we are constantly innovating. So that we can actively layer on incremental high margin revenue drivers.

I'd like to spend a few moments here to discuss three examples of major new programs that are designed to rapidly accelerate our revenues in the second half of 2025, each of which is incremental to your existing core growth catalysts, such as incremental C D about contracts and our upcoming.

Olive cell product.

Call. These are big bets for the downhill of 2025.

The first big bet I want to talk to you about is in our products business in our direct to consumer health and wellness products business.

I'm very pleased to announce the launch of Albania Health Pros professional affiliate program, which is our new proprietary program to activate major health practitioners athletes coaches and trainers and health influences, we have significant following and we share.

Our passion for healthy and sustainable living.

We have always foster relationships with like minded influences and practitioners, but this formalized health pros professional program will dramatically increase the vignette exposure within our targeted partner physical and social networks and is expected to drive significant.

Subscriber growth at lower acquisition costs.

The health Pros professional network will all be approved and supported by the vignette team and our own proprietary back end technology systems and our goal is to have 300 top thought leaders enrolled by the end of 2025.

We are launching with a dynamic and eclectic mix of partners. One. Great example is doctor Anatol <unk>, a top colorectal surgeon with a growing social media audience of 160000, Instagram followers, who is focused on gut health and who advocates the critical importance of blood flow given the need for.

Healthy blood flow in the intestinal tract to digest food absorb nutrients and ensure optimal delivery of these nutrients to the body's tissue cells and organs.

And not a great new partner is Marcellus Wiley and NFL Hall of Famer and sports media personality, who's partnering with us to bring the power of veneer to ease community and sporting ecosystem.

Just these two health froze alone represent over 1 million engaged social media followers today, we kick off a test phase with 10 health pros using the platform and in September we will scale 200 by the end of the month with a target of 300 health pros on our platform by the.

The end of the year.

Our second Big bet also relate to our direct to consumer health and wellness business and fits squarely in my own personal wheelhouse I saw my 18 years of experience with the Coca Cola system, where I managed major hydration brands in the USA, such as vitamin water Smartwater.

Empower right sports drinks.

I'm excited to announce that we are in the final phases of commercializing our differentiated entry to disrupt the $13 billion electrolyte drink market in the USA.

In October we will launch a Virginia blood flow hydration solution into the market as a daily powdered electrolyte mix, which comes in six great tasting flavors, we will be the first Electra lot hydration beverage powered by blood flow and driven by our unique video.

Matrix of parts, he was virtual and other polyphenols demonstrating that this blood flow driven hydration solution is a breakthrough that only Virginia and Bob can deliver.

Currently the marketplace is swamped by players with marketing claims largely related to electric a lot.

We plan to be a disruptor in the market focusing on the importance of having better blood flow to deliver the necessary oxygen fluids, actualized and nutrients to organs muscle tissues and cells right, where hydration matters. Most in addition to the blood flow benefits we.

You all know about our solution will feature premium electrolyte thoughts from nature.

Formulation features salt from the RMC as a source of sodium potassium from coconut water and magnesium from the ocean bid and a 25 calories it tastes amazing.

We have been very fortunate to partner with one of the best formulated in the industry Lewis highs the owner of <unk> and previously head of R&D for the Coca Cola Company for Europe Africa, and the Middle East Lewis has partnered with myself and the team on the development of this product for the last 12 months.

And as you invested more than 1000 hours of R&D time to get this product tasting just.

Perfect Albania blood flow hydration solution will be sold via our e-commerce channels and it is a great strategic fit for our health professional affiliate program.

Our third Big bet is the addition of a new revenue driver in our C. D M O services Division.

We call this our AI enabled.

However, you face this new service offering has been developed for cosmetic pharmaceutical and nutraceutical nutrition companies.

Who need help identify the most promising botanical compounds for their products.

Leveraging our proprietary AI.

Trains on rare plant biology, and biosynthesis and couple that with our team's proven ability to achieve full scale production from indication to market with these assets. We are uniquely positioned to provide companies and researchers and assessments for the most effective plant candidates based on scientific evidence.

<unk> unique value propositions and prior success in tissue culture.

We will provide models of feasibility and future product analysis, including evaluation of active ingredients and formulation patent ability sourcing and safety. These customers will receive a final shortlist of suitable plant candidates with multi pathway efficacy and full scalability within the Baja.

The system.

This service includes the utilization of our computational biologist and access to our catalog library of plants information.

Whereby our ph D plant cell biologist analyze the AI driven data to provide a human experience base point of view behind the recommendation or plans to take into a stage one contract. The discovery phase will be completed in seven to 10 days at a cost to the C. D M O customer of <unk>.

The 35 to 50000 U S dollars.

The goal of the discovery phase is to finalize one or two recommended plants to move into stage one.

We anticipate that this new service addition will accelerate the rate of new high value C. D var customer projects answering into stage one contracts.

Each of these big bets, along with our subscription driven operating leverage expanding gross margins and maturing CD ammo contracts are designed to put us in a strong position to reach the adjusted EBITDA breakeven target in Q4 of this year with that I'll now turn it over to Bob our CFO to walk.

Walk through the financials. Thank you Bob.

Thank you and good morning, everyone I will provide you with as Cynthia view of our financial results and full breakdown is available in our SEC filings and in the.

The press release disclosed awhile before market opened today.

Please note that all figures are in U S dollars unless stated otherwise.

Revenue for the second quarter of 2025 increased 41% to $8 5 million in line with our revenue guidance as compared to $6 million in the second quarter of 2024, and the increase was as a result of continued success of the company's vignette family afford that.

Gross profit increased 65% to 5.1 million or 60% of total revenue in the second quarter of 2025, as compared to 3.1 million or 52% of total revenue in the same year ago quarter.

The increase in gross margin was primarily attributed to the benefits of increased manufacturing scale and improved manufacturing yields.

Total operating expenses for the second quarter totaled $6 9 million as compared to $4 8 million in the same either go for them.

The increase in operating expenses was primarily due to increased marketing spend and the development of our health or affiliates program to support future revenue growth.

And higher expenses from the C. D M O said with division.

General and administration expenses increased 61% in the second quarter as compared to the same year ago went down due to one time cost associated with our NASDAQ calculate compliance upgrade.

Net losses for the second quarter of 2025 totaled $4 million or 24 cents per basic and diluted share as compared to a net loss of $4 7 million or four cents per basic and diluted share in the same year ago quarter with them.

Adjusted EBITDA loss and non isos measure.

$1 3 million in the second quarter of 2025 as compared to an adjusted that'd be that lost $1 2 million in the San Diego for them.

On a percentage of revenue basis, adjusted EBITDA loss totaled 14, 7% in the second quarter of 2025 as compared to 27% in the same year ago quarter.

Cash and cash equivalents as of June 32025, total $3 7 million as compared to $2 4 million as of December 31st 2024.

Importantly, with the current margin and.

And expense discipline, we continue to project that we will each adjusted that'd be the breakeven in the softball again.

We believe this is achievable within the second half of 2025 based on opinions on wage growth expanding Amazon com people Ocean and maturing of our fast C. D. M O M.

This inflection is a key financial milestone for validating the scalability of how that'll business all of it.

I would now like to pass the call back to Atlanta also some clothing came out after which we will begin our Q&A session.

Thank you Barbara and thank you all for joining us today and for your continued support of Baja <unk> Sciences.

As we wrap up today's call I want to take a moment to recognize the strength of the platform we built.

The discipline of our team.

And the momentum we're carrying into the second half of the year.

Which I view as a monumental financial turning point in the history of our organization.

Consider it a privilege to lead this company and I remain confident in our ability to deliver both operationally and financially against the incredible opportunity in front of us.

We're seeing our strategy come to life, the direct to consumer business is scaling efficiently with growing margin leverage and our C. D. M. O pipeline is starting to unlock long term value through marquee partnerships. This synergy between product and platform is translating into real commercial traction and most importantly, a path.

To adjusted EBITDA breakeven target in Q4 of this year.

That inflection will mark a turning point for ball harvest the shift from foundation building to scalable execution.

From early validation to accelerating value creation.

Botanical synthesis is no longer just a breakthrough technology, it's a commercial platform with expanding utility across multiple high value verticals.

As we scale from here, our focus remains unchanged execute with discipline deliver measurable health benefits from life changing plan compounds for millions of consumers and drive long term sustainable value for our shareholders.

That I'll hand, the call back to the operator to begin our Q&A session. Thank you operator.

Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our house.

The next question is from Matt Hewitt, Craig Hallum Copycat capital group.

Good morning, and congratulations on all your progress maybe to start off if we could dig a little bit into the consumer side.

I'm curious if the two X two launches kind of progressed as you would've anticipated how you think that ramp could it could look over the back half of the year and then regarding the hydration launch.

Is there anything different given that this will be a liquid versus your prior consumer products.

And then how do you anticipate that launch proceeding into the back half of the year.

So good morning, Matt Thank.

Thank you for your questions.

The two.

<unk> formula.

The feedback has been phenomenal I would encourage everybody to go to Amazon.

And have a look at our consumer reviews I think the last time I looked we had 25 reviews read the reviews. It will help you understand the level of engagement that consumers have seen the overall taste feedbacks Diego functionalities and this is really encouraging for this it's a premium product at $79.

You know, obviously, it's still a strong value proposition because you're getting.

Basically 800 milligrams of veneer in each specific shoes. So when you benchmark it versus singles, it's still a better value proposition, but from an absolute profit point, we premium wise it because we understand that they use them as different user is looking for.

Very unique functionality increase vascularity and.

And all the benefits that you get from increasing nitric oxide from an overall blood flow and oxygenation perspective, So we're very enthused.

It does take time to get the product out there and to get the reviews going and just from an efficiency perspective, and you understand that we're all about marketing efficiency in how we operate you can't really stop spending significant resources on a platform like Amazon as an example until you have a critical mass of reviews to now we're tracking.

That 25 reviews, which is a significant number of reviews. The last time I looked at a five star rating from twenty-five reviews, which again just emphasizes the.

The consumers vote on quality on functionality and on taste. So we're very encouraged and we see that the the two guests choose will.

Continuing to build momentum and be an important contributor for the business in the third quarter and then again in the fourth quarter as we start to ramp up.

Additional.

Marketing spend behind that and specifically because the new health pro channels is going to be a key channel that the two product is going to be you know totally appropriate for for the consumer that the health problems. The discerning consumer health probably channel is focusing on and then.

It's probably a good segue to the hydration product that we're bringing to the marketplace. This is unique and has a fish in the nodes. So in my commentary yeah, it's personal having.

Having spent 18 years in the beverage business on both the ready to drink math and on the powder side of the business I I did have the privilege of launching in Vietnam.

Pat powdered beverages.

Back in the in the previous loss I have lot of experience with this space, but obviously, we're focused on the stick packs, which is the powder beverage space, which you know today just in the U S. It's roughly about a $4 billion market you have players like liquid IV.

Who lead this market that right now more than $1 billion of revenues on an annual basis, and obviously, there's significant interaction between the powdered stick business and the ready to drink business right now our focus is on the powder stick business.

As I said, we've developed a formula which we believe is a game changer from an overall taste perspective, it's clean the formulary Super clean which is so important to these consumers very very discerning as you can see you've got the power of veneer from a blood flow perspective.

Which is powering hydration and its you know its pretty much common sense. When you when you when you actually talk to the consumer he understand consumer behavior and the consumer.

Just cognitive thinking approach consumers understand that in order to have the best hydration you got to have really good blood flows to transfer all of the fluids and the electrolyte to your muscles, you're tissues and yourselves. So the consumer is really when we it resonates very strongly you can.

C and this is just working progress packaging, we've evolved the packaging even more breakthrough in the last 72 hours, but it's very clearly it's blood flow hydration is hydration powered by blood flow and we have naturally derived electrolyte again as it is is very unique differentiated in the category.

With sodium from RAC sold the detached Samsung coconut water powder, and then magnesium from a bit of the ocean in a really unique clean sugar sweetness system, where we're using organic cane sugar and a red Ray ban with a very unique ratio that Lewis from best knowledge. He has developed and you have a product.

It has very little aftertaste, so the power of the two X twos and the hydration product.

All being double down and executing through our regular channels plus through the health Pro channel. This timing has been absolutely critical to start to build the additional scaling and additional incremental growth points within our business with in a way it was through the health pros with the sales force.

That Oh, let's say to help close act as our sales force for our business and educated technical sales force for our business to be able to communicate to the more discerning health based audience. The power about two X form they choose and the hydration product. Thank you and I hope I've covered your.

Yeah.

No, yes that was fantastic.

Maybe shifting gears a little bit on the CD side, obviously congratulations on your color. There you noted the success with the initial pharmaceutical company in the fragrance I'm just curious how that pipeline is progressing maybe an update on the Tate and Lyle opportunity.

Yes, sure. So the we've been very busy to put it are simply.

The pipeline is significant we have high single digit number of of Alere.

Leads that we are working on and these are all I would say significant catalysts.

We're looking to bring into the <unk> business.

Not all of them will get through the gates, but there is.

Consistently new use cases that we are being.

Dean.

<unk> shared significant life changing compounds billion dollar opportunities. A good example is the announcement that we made in may regarding the fragrance I mean that was a use case that we wouldn't have coming into this 12 months ago thought that that would be a use case and we continue to see new incremental use.

Cases, which just basically opens up the opportunities for us.

The team is very very focused on pulling the topline through it's a really good mix of pharma nutraceuticals and of the food companies that are part of the pipeline and you know we are confident that in the down here of the year. So between now.

At the end of the year.

We will announce at least one and maybe two new deals into the C D mode, which I think.

Would give us.

Significant momentum going into 2026 importantly, as well as it relates to the new products that we've launched the discovery product. This is a for US has been a game changer, because many of our customers are coming to us they have very clear indications.

That they're focusing on.

<unk> analyzed Tate and Lyle who are very very.

Focused and had done enormous research that it was planned a implant be many of our customers are more focused and starting with the indication and they'll come to us and say look we have a specific indication with targeting let's say I'll just use a broad exalt out their asthma and obviously they have these are companies that have.

Played in the chemical synthesis space, we have for the last 2030 years and all of a sudden they're starting to understand that there's massive blind spots out there that they have to make sure they get their arms around and that may be a critical answer in driving a game changing comp.

Pound for their businesses and that's when they knock on the bio harvest sciences door, because obviously, where the critical bridge between the plant Kingdom and scaling these life changing compounds with unique consistency economic viability and obviously patents and so we've developed now this unique discovery.

<unk>, which is indications focused and then utilizing the different tool the computational biology tools that we've developed.

And obviously utilizing a significant amount of AI, because we've actually been able now to catalogs.

So many libraries of plans of compounds of the mechanism of action of understanding what's working tissue culture, what hasn't worked in tissue culture, and we're able to very quickly and as normally as a 14 day process that we were able to work through to be able to then sit down with the customer and say, okay based on that indication here.

There are one or two or three plants that we believe have the compounds that can be the next generation of life changing compound for you and we believe that based on the mechanism of action based on the work that's been done in the last 30 years from a tissue culture perspective that we.

We can deliver on this compound and that thing gives them the confidence to go into that critical stage ones. So with this new tool. We're able to also increase further the amount of leads that are coming into the pipeline and I think that's going to really stand us in very.

Strong position as we go into 2026 lastly in the case of.

I'll take the La partnership the partnership continues to strengthen the relationship between the two working teams is is excellent.

Great collaboration we have we have sourced.

A critical one of the critical plants, we are working actively on the tissue culture work and I promise that when we have news to share we will be sharing that news, but the partnership continues to grow from strength to strength and that gives us opportunities to take them all or a significant company they have a mini <unk>.

Categories, and I think typing law have experienced.

The professionalism the capabilities of our organization over the last six months and I believe that can also open up some potential new opportunities for us outside of the existing swim lane that we've been working on and at the right time I can share a little bit more in this area if appropriate. Thank you.

That's helpful. Maybe one last one for me and I'll hop back into here, but.

Will you guys be seeing any impact from the implementation of tariffs and if so how do you expect to respond. Thank you.

Yeah. So.

Obviously, everybody is familiar that the the final tariff impact.

From an Israel perspective is now sitting at a 15%.

As far as transfer material from Israel to the U S. We obviously are transferring material from one company from earned by Bob is to another company.

So we have factored that in into our value chain.

And obviously I would prefer to be zero.

But the impact of that we've been able to.

Manage that through driving efficiencies in other areas, we had budgeted actually for a higher number thinking it was going to go up to 17.

It's basically what we had factored into our downhill now that it's sitting at 15 for the moment and I do think that that's not stationary that may change.

So we do get a little bit of upside and you know obviously, we're focused on everything here, but.

But we have been able to factor that into our P&L and into our projections as we look to guide the business to that adjusted EBITDA profitability that we're focusing on getting to and in the fourth quarter. It would be it's not a major impact okay. The quantum is not major.

A manageable and we manage that through just you know religious.

Focus on cost reduction and other areas to balance that impact.

That's helpful. Thank you.

Next question is from Amit Dayal.

H C Wainwright.

Thank you good morning, everyone.

And congrats on you know and others.

Strong quarter.

With respect to the sales turnover.

Can you give us sort of a high level overview of what are the different sales channels. We will have by the end of the year and how are you managing this.

Well, it's nice to hear from you Okay from a sales channel perspective, obviously, our core linear dot com direct to consumer business.

Is basically the lion's share of our business today is roughly.

Oh, right about 80% of the business.

Mostly Amazon we've been able to manage this at a healthy 20% of the business. So today. These are the core channels. In addition, we have a growing direct to Doctor professional business, where we have a small team that focuses on key integrative medicine specialist centers around around the U S and key doctors.

That that actually do sell supplements directly to their to their patients. We've also opened up.

Our international.

Purchases in the last two months and we're seeing a really nice steady stream of international purchases come through every single day and that's you know obviously it helps us from a marketing efficiency perspective, because they're seeing this through leakage of a lot of our TV, we do a lot of work with TVN Trinity.

<unk> Corporation, which is the fourth largest TV channel in the U S that a lot of that.

Content is projected into.

The Southern Hemisphere, Australia, and New Zealand also into Singapore, Malaysia, and even into Europe. So we start to starting to see now that those consumers and that's one of the reasons why we turned on international purchasing and every single day, we're getting more and more requests and I believe that will continue to grow the health pros channel Amit.

As a major major bet for us.

And something that I believe will be a critical source of our competitive advantage because to be able to manage and build that professional channel requires it capabilities.

Critical technology that we as a company you know it's part of our DNA the way, we run our business with technology and system is running the whole back end of the business.

We spent literally the last four months building the backend of how do you onboard 300 health pros.

How do you make sure that you have all the required information that's critical banking information text information being able to pay them at the appropriate time and all the all the backend systems. We've now developed that we've also developed all the content to be able to educate these people the catalogs.

The the specific programming to make sure that these health tech expert understand the technical nature of our product.

Like it's our own sales force going out and communicating to the world.

The uniqueness of our in this case all of our video product and obviously this the health problems will continue as we've launched new products into the marketplace. So our expectation you know with these health plans that are coming on board. They are people that are highly respected in the in their ecosystems in their communities many of them have.

Significant social media presence as we articulated the two examples that we shared a little bit earlier, and we see this as being a critical strategic channel for the company.

A channel that we can control a channel that we were able to.

Our scale initially it will go from 10 to 100 to 300 by the end of the year and you know ultimately we will continue to build this out and scale up and my expectation is that this well.

<unk> contributes shortly 20% of the business and we will then start to kind of give us.

You know a nice balanced channel mix and importantly, the marketing efficiency in this channel is much greater than all the other channels.

Because it allows us to be able to generate a much lower cost of acquisition. So this should help us really drive increased marketing efficiency and leverage as we continue to scale the business. The only other channels that I think you know we would start to consider as we scaling our business is other e-commerce channels.

Rich play in parts of the world or play in certain areas that we don't specifically play in.

And I'll be able to share more about that.

Probably in the next call.

Understood.

Crews are these.

The fitness and boat sort of influences or some other type of you know.

Okay.

Thanks.

No. This is this is like another level a lot of the people who are going to be bringing on board on the health pros they are doctors.

They are nutritionists.

Ill Physiotherapist Aircard practice. These are people that are there our top coaches. They are training is these are people that basically live and breathe health every single day that when you explain to them about dilation of arteries and nitric oxide and E. T. One they get they understand exactly the unique.

Because of our product when you talked about solid ability and bioavailability.

They get it when we talk to them about hydration powered by blood flow. They get it. These are educated people that live and breathe in the health and nutrition World and we were very very selectively bringing on board. These people.

We are very very tight agreements with them as well.

And so you know it's it's it's a N a.

<unk> of.

Very highly skilled trained health professionals that.

I understand the science and understand the consumer and it can be a very important and highly effective bridge between our company and consumers out there and a consumer that you know basically we can then target in a much more efficient way.

Understood. Thank you for that and then.

With respect to margins, you'll see we'll see another sort of improvement in this quarter.

Is there more room here you know you you spoke about some maybe slight headwinds from.

Tariffs et cetera.

With that in mind.

Sort of capped at around 60% at least for the near term.

So I think you know my answer to that and you know that you know we literally are a company that you know as a result of some great work that bar has done with her team and the systems that we've put in like where like ABC costing on steroids in all countries. We know every single step of what the cost is of that step and.

We're maniacal and looking at every single opportunity to turn the knobs. So I would tell you that we still have targeted opportunities to turn the knobs.

And you saw us I'm sure that example, a little bit earlier, just purely by changing how we ship and shipping and a double pack for many of the households that purchase to subscriptions for each household.

This added let's see another 50 basis points for us.

And there are a number of other opportunities like that that we will be able to execute between now and the end of the year and then obviously, where we do get the benefits of scale as.

As we continue to scale up the revenue of the business. So I would say to you there's more in it.

And and you know what.

We're very very focused on on literally turning every single screw it may be the pace will not be as fast as the pace of what we've done I mean, you think about it we went from 6% to 60% in three years, but I think importantly, I mean, this is really really important I want everybody out there to understand this.

So vignettes.

Core package, which is a 90 days.

Three months subscription package when we launched in May 2021 was nine was $99. If you all go online today and you want to buy that same package. It's $99. We've maintained price and showed me another company out there that has in this hyper inflationary for years.

Being able to maintain price on their call S. K U.

This is super unique it's driven by number one the company's vision and value system, which is all about democratizing loss changing compounds and we felt at this price point is a magical price points and critical and then just real servant leadership across the end to end value chain to find other ways outside of pricing to be.

Able to drive margin in the business. So there are plenty of opportunities left for us obviously pricing for us is not a lever.

That we want to be pooling cause as we democratize and scale. The business. We do utilize mixed management, obviously, a coffee products and <unk> products.

Higher margin than our capital business and I think you know with the success, we're going to see in our hydration business. We have very high expectations. This will help us improve margin as well from a mixed perspective, but again on the cost side and the efficiency side, there's still more work for us and it won't be at the same pace, but there's still work to be done there.

Understood. Thank you for that comprehensive answer the island.

Take my other questions offline. Thank you. Thank you. Thank you.

Next question is from Anthony Vendetti Maxim Group.

Thank you.

Elon I was wondering if you could just dig a little deeper into your your mechanical process there any any other this quarter, particularly.

Innovation in the process in terms of improving the throughput.

And any other new molecule isolation that you've been able to.

Yeah.

Ascertain this quarter and then just an update on your facility expansion.

Thanks, so much.

So from a from a botanical synthesis.

Process perspective Anthony.

We've done we continue every you know every quarter. There is a lot of work that we're doing on the process, let's call. It the process optimization I think I first want to break this up into the first area, which is around.

Digitization of all of our <unk>.

<unk> as it relates to all the.

Biological metrics that are critical for us to make sure that the sales are growing effectively on the growth curve in a way that optimizes, the PISCES resveratrol and policy knows that they produce as well as the optimizing potency as well as optimizing yield and my C O O Ilana and her team.

Our growing and their knowledge because this whole piece has been digitized and with more data.

We're able to optimize so we're getting better and better at doing what we need to do to drive.

Optimization of yield and potency and that's really really critical and that's all just driven by the Digitization We book.

A blueprint a brain for all facility, which allows us also to be much more efficient in handling every single month, you know anywhere from 100 to 140 Bioreactors. There's no other company in the world that handles the quantum scale of Bioreactors that we handle this.

Number one number two is and I actually sat down with the team.

Before I before I went overseas.

Like last week Wednesday had a great three hour meeting with our process engineering team and there are certain parts of our process, where we have an opportunity to automate these processes more effectively and so there is a significant amount of work specifically in the area, which we call harvesting which is when we.

Basically take the cells when they finished their growth cycle and we separated from the liquid recall. This harvesting. We are now working on a number of different technologies to much more efficiently work through the harvesting side.

And then similarly on the drying side, there's a number of technologies that we're working on right now because as we scale out our manufacturing capacity, we will be putting in place our own drawing capacity and that's again just to the earlier point around.

The margin once we start to bring at least a large proportion of our drawing in house. This will allow us to improve gross profit margin. So everything that we're doing from process optimization as it relates to harvesting as it relates to downstream drying and upstream that digitization all of.

This is ultimately, allowing us to get better at what we do and will translate over time in much better gross profit for the direct to consumer business, but importantly, all of this translates into the C. D M O into the city about business itself. In addition.

We're also working on the next generation of viruses.

Now we're at 200 liter Bioreactors and you know, we're not going to see we don't stay stationery. We keep on moving you know we went from $3 50 to 600 to 800 to 1200 leaders and as we plan now to move to our.

Next facility, which we will commence you know.

The more specific manufacturing towards the back end of this year. The expectation is to be in 2000 leaders in about so there's a lot of work that we're doing in that space and this is just part of how a company like ourselves that building a movement of Chinese to bring life changing compounds to the web.

World.

The natural cycle of just continuous improvement.

Around around the process engineering of our end to end business. So we can get better and better as it relates to botanical synthesis on the C. D. M always saw it and I speak on behalf of Zaki.

It.

Amazing the way Xactly and obviously given his background as a as a mathematician and an engineer exactly has built a I would say at best in class computational biology team.

With some real experts in the industry and this is really starting to be seen as a fourth of our competitive advantage across the business. Our business. We don't talk about it a lot externally you don't see US you know kind of you know.

Stumping all tests around how we use AI, but we're using AI across our entire business and specifically within the <unk> business, whether it relates to the work that we do from a discovery perspective.

It relates to the work we're doing on the on the actual tissue culture work and leveraging the power of AI computational biology to get more and more efficient all the way through to you know we live in an ecosystem in Israel, probably the best system as it relates to them.

Tapping into best in class cutting edge technology to make us more efficient like computer vision. We started a major project in the area of computer vision. So that there's less handling all the materials and we can actually use computer vision to be able to in a on a combination of computer vision and AI to be able to assess whether.

You know the tissue culture is growing the rottweiler not so continuous continuous and this is really part of the culture and the innovative mindset that we have a bar harvest.

Okay, Great and then just maybe one last final follow.

A follow up in.

In terms of the quarter. We're in now I know fourth quarter 25 is the target for EBITDA breakeven, but for this quarter are there any other major milestones.

By September 30 that we should be looking.

For between now and then.

Look I think.

Youll start to see the impact of the health pros.

In the month of September.

US now as I said, where we're bringing in our first 10. This week everything is ready the whole back end is really the front end video, it's a huge effort of the whole marketing organization and as well as the Iot side of the organization. So.

And then we plan to very quickly bring on board.

<unk> 5100, and so we should start to see some of those benefits come through in September, but we're working through very methodically and carefully around how we do that.

But the impact of the true impact of that will be in the fourth quarter. Similarly, the hydration product.

We'll launch.

I was trying to get production completed in September and because the product is informed sports certified and again, it's one of the few products in the market that actually is third party verified anti doping, we've been very very very very.

Technical and how we're bringing this product to the market everything is best in class. So with informed sport certification. It takes about another 10 days from the time, you're done manufacturing to send samples to London to make because every single batch he certified to make sure. It passes antidumping laws and this is so critical to get into NCWA, 18th NFL MLS and <unk>.

I really believe we have the game changing the game changer of hydration as it relates to the science as it relates to the taste and then ultimately efficacy when it comes to these athletes.

That's why we are so important for us to invest and informed and inform sport certification.

The true impact again, it will be in October.

We are doing a lot of work on the <unk> and there's a lot of action going on but I don't want to.

I don't want to be overly predictive on this and we will obviously share more updates.

Inappropriate over the next over the next six weeks, but you can see the business is gearing up for a putting in place the infrastructure.

To really have a.

A significant acceleration in the fourth quarter and I think it was important for us to give our shareholders the visibility of what that looks like.

Building on top of already very very good core momentum in the business.

Okay, great. Thanks, so much for all that color I appreciate it.

Next question is from Hunter Diamond Diamond.

I'm an equity research.

Hi, everyone. Good morning, and congratulations on the strong results Mike.

My question relates to the CMO again, when do you see that sort of ramping up high level and contributing more meaningful to revenue and maybe you could touch on the phase one phase two assets the breakdown of contracts or how you see where do you see the low hanging fruit is there more coming in earlier stage or.

Some later stage compounds that youre able to work with.

Hi, good morning onto thank you for thank you for the questions.

So look just to kind of remind everybody you know we've made huge progress we moved all our NASDAQ listed pharmaceutical company that has an approved drug.

I repeat an approved drugs, we move them already from phase one to phase two in the second quarter in May and so that was really.

Amasia amasia validation of the power of our technology.

And given the fact that this is quite a unique biological material that we planned to produce for this very very strategic partner.

And as you know we are now working very closely with Tate <unk> Lyle and then obviously the fragrance opportunity, which we haven't really spoken about in a public Forum a forum like this but this is a monster opportunity of a category are call. It more like a segment, which is $16 billion and it's just waiting for it.

Innovation, just given the sustainability challenge that exists there, let's see that particular plant that we're dealing with here is a plant that in 20 Years' time may not exist. It's a rare plant and it's a massive opportunity from a financial leverage perspective for us So what's already in the queue is significant and.

Each of those opportunities are literally specifically.

On the state allows side and on the fragrance side. These are multibillion dollar opportunities.

On the pharmaceutical.

Pharmaceutical side, it's a good millions of multimillion dollar opportunities.

So what's sitting in the pen looks really really good right now and as I mentioned, a little bit earlier.

The team has built an amazing pappano, what's really very encouraging for me is that that pipeline has not been is not being built by a crazy amount of marketing the demand creation is coming from the customers. It's customers that are finding us.

Or are totally.

Intrigued overwhelmed by technology, and then start to understand what it could be one it could actually do for their respective businesses.

And that's why you know throughout significant interaction with customers, we decided to bring into play the discovery module because we felt that this for 35 to $50000.

A few weeks of work by our computational biologists together with our R&D team, we could very quickly get customers on the path into a stage one project. So going back to you that just gives you a bit of color and texture on what's going on which is super exciting but what.

What's important going back to your question is when are we going to start to see meaningful contributions.

The meaningful contributions I believe will start coming to play in.

Early next year, because we'll start to see more of the existing projects coming into so phase one moving to phase II phase two moving into phase III and then as a result of a lot of the work we've done in building the pipeline you'll start to see a lot more projects coming into phase one so the contribution of the <unk> will continue to increase in <unk>.

By the way the cinema contribution right now it's meaningful it's not insignificant it's meaningful because as we realizing revenue.

On a quarter by quarter basis, it's becoming more and more meaningful each quarter, and obviously that will continue and it will start to probably break it out more clearly for the for the shareholders and the analysts as we go into next year.

Great. Thanks, Thank you for taking my question.

This concludes our question and answer session I'd now like to end the call back call back to Mr. Ilan, So bell for his closing remarks.

So thank you everybody for making Tom I know some of you on the West Coast. It was pretty early this morning I appreciate that.

I I hope after the last one hour you really see the progress of the company has made.

Our ability to maniacally execute day in day out and deliver on what we said we would deliver.

I also hope you walk away from this conference call inks are encouraged by the additional capabilities that we're building as it relates to new channels as it relates to new breakthrough disruptive products going into multibillion dollar categories. All the way through to what we do on the C. D M O size.

With our new discovery service, which ultimately has the ability to really act as a significant catchments.

Customers that we can bring in and progressed through our CMO and it's those capabilities that we're building that and combined with the momentum of the business that together.

Ultimately you're going to ensure that we deliver on the financial metrics that are so important that we're all in my management team bar.

And kudos to bar is just.

Those focused on ensuring that we execute on our financial metrics and as I said earlier, we have such great visibility data visibility.

Aware, we need to be focusing our resources on to ultimately deliver those critical financial milestones that I believe all of our shareholder partners are obviously eager for us across the line and then really start to scale this business and our capabilities and built a life changing.

Company, that's delivering compounds that affecting positively affecting the health and wellness.

Initially millions and $10 million and ultimately there are hundreds of millions of consumers around the world. So thank you for your time and and I'm Super excited as we move into an exciting downhill the company as we continue to build on the existing momentum. Thank you.

Ladies and gentlemen. This concludes today's teleconference. Thank you for your participation you may now disconnect your lines at this time.

A wonderful day.