On the November 25^th, Eevia Health (“Eevia” or “The company”) released its quarterly report for Q3-22.

Statement of Operations

During Q3-22, the net sales amounted to EUR 1.1m (1.3), corresponding to a decrease of 11% YoY which was in line with our expectations. Adjusted for raw material trading revenues of EUR 0.7m, net sales increased from EUR 0.6m to EUR 1.1m, corresponding to an increase of 105%.

Gross profit in Q3-22 amounted to EUR 0.7m, compared to EUR 0.1m in Q3-21, and EUR 0.7m in Q2-22. However, the gross margin was up from 25% in Q3-21, and from 35% in Q2-22, to 63% in Q3-22. This is a substantial improvement, since Eevia’s gross margin has been depressed due to temporary issues with equipment from Q2-21 and onwards. The total improvement in the gross margin stem from multiple factors however, such as higher production yields from changes in production protocols, efficiency gains from new equipment, high-margin product mix, and improved pricing in terms of both purchase and sales price.

The EBITDA during Q3-22 amounted to EUR 56k, compared to EUR -749k in Q3-21, which was above our expectations, resulting in an EBITDA-margin of 5%. The increase in EBITDA was attributed to the same factors that improved the gross profit, i.e., improving yields, better pricing etc., but also due to lower personnel and other operating expenses. Worth to note is that this is the first time Eevia shows a positive EBITDA, which is a major financial milestone for the company in our view.

The net income of Q3-22 amounted to EUR -0.4m, an improvement of EUR 0.5m compared to Q3-21 EUR -0.9m. However, the net income in Q3-22 was impacted by a non-cash foreign exchange loss of EUR 0.2m.

In summary, seeing a near break-even and positive EBITDA two quarters in a row is something that, according to Analyst Group, indicates improving operational performance. Furthermore, we see that Eevia is continuing the company’s path to high growth balanced with improving margins going forward.

Cash Position and Burn Rate

At the end of Q3-22, Eevia’s cash balance was EUR 0.1m, compared to EUR 0.6m at the end of Q2-22, corresponding to a net change in cash of EUR 0.5m. The decrease in cash was mainly due to a build-up in inventory and minor investments in assets. However, in November, Eevia announced that the company received approximately SEK 18.6m in net proceeds from a recent rights issue, which corresponds to roughly EUR 1.7m, given the current exchange rate of EUR/SEK. Moreover, Eevia managed to secure a short-term bridge loan of NOK 2.0m from the company’s largest shareholder Betulum AS in November, which will be repaid at latest in December with the proceeds from the rights issue. The bridge loan was used to strategically procure sufficient volumes of high-quality berries in a timely and cost-efficient manner for contracted bilberry sales orders, since the proceeds from the rights issue had not been received yet.

Eevia’s burn rate per month amounted to EUR -0.2m, compared to EUR -0.1m in the previous quarter. Given the cash position at the end of September amounting to EUR 0.1m, the net proceeds from the rights issue of EUR 1.7m, the repayment of the bridge loan of NOK 2m, and an estimated burn rate of EUR -0.1m going forward, Eevia is estimated to be financed until the beginning of Q3-23, all else equal. However, depending on how the net sales contributes to strengthening Eevia’s liquidity position and profitability, as well how effectively the working capital is managed, the company could be financed longer than estimated.

Triggers

Going forward, we see the following triggers:

• Continued sales growth by booking new orders from customers
• Improving profitability by shifting to higher margin products as well as increased efficiency
• Launch of new proprietary products, i.e., Retinari against the eye disease AMD

In conclusion, Eevia is progressing well operatively, where achieving a positive EBITDA-margin for the first time is a solid achievement. With the net proceeds from the fully subscribed rights issue, Eevia’s financial position is substantially stronger, where Analyst Group expect that Eevia will continue to deliver on the strong customer demand in order to reach a positive EBITDA in 2023.

We will return with an updated analysis of Eevia Health.

The 3^rd of November, Eevia Health (“Eevia” or “the company”) announced that the company has developed a new plant extract with product benefits for cognitive health and improved sleep. The new ingredient product, Feno-Cerasus™, is a standardized anthocyanin extract from tart cherry (Prunus Cerasus). Eevia Health focuses on the cognitive effects, including sleep quality and quantity, memory, as well as stress, and cortisol levels.

The main health benefit for promoting Feno-Cerasus™ is improved cognitive function. Tart cherry has one clinical study with 37 subjects showing a positive effect on cognitive performance, and another four clinical studies with 63 subjects documented positive outcomes in sleep quality parameters. From PubMed 10/2022, one can also observe that 39 clinical studies have been published in peer-reviewed journals. Furthermore, tart cherries have been studied for muscle recovery (15 studies, 280 subjects), metabolic health (8 studies, 180 subjects), cardiovascular health (5 studies, 150 subjects), antioxidant properties in clinical studies (2 studies, 59 subjects), and for pain management with positive results (2 studies, 108 subjects). Consequently, Eevia Health’s recent strategic focus on cellular recycling is supported as the tart cherry has preclinical evidence of autophagy induction via AMPK signal pathway and anti-inflammatory properties via Sirtuin6 activation of cyanidin, which has been confirmed in in-vitro studies.

“We are pleased to offer a new anthocyanin extract for cognitive health. The maintenance of cognitive health is a growing area for consumers. Eevia Health already has customer interest. The product will have perhaps the highest concentration of anthocyanins in the industry, while also providing a whole spectrum of other health-beneficial polyphenols as well,” says Petri Lackman, CTO of Eevia Health.

In conjunction with the press release, Analyst Group has contacted Eevia Health CEO Stein Ulve to ask questions about the new product.

Could you give us a brief background about the product and how the idea to create the product, Feno-Cerasus™, came to mind?

We are looking to utilize our green-chemistry platform to make other polyphenol extracts with the technologies we employ, especially when our technology can provide a superior product in terms of bioactive or nutritional profile than for instance membrane filtration technologies can. Over the last year, we have had multiple requests for tart cherry extract, so we thought this product fits well with our capabilities and matches up with our strategic focus on certain health indications.

Can you tell us more about Eevia’s strategic focus on cellular recycling and what role the tart cherry plays for someone uninitiated? Are there synergies with other product lines?

The Cellular Recycling is an extremely interesting area of human health. The failure of cells in recycling waste materials such as protein precipitates, organelles and other waste products is deemed as a root cause for a range of disease pathways. You will see an escalating interest in cellular recycling over the next five years and it will become a mega-trend within health and nutrition. Tart cherry has some documentation towards autophagy induction. It is not a key product for this strategy, but it is complimentary. It has benefits for cognitive health and as a polyphenol rich product, it is anyway a product that fits our equity story.

We understand that this might be difficult question to answer, but could you give us some insight into Feno-Cerasus’s potential price level and positioning in relation to your existing product portfolio?

We are probably the first manufacturer to offer a tart cherry extract standardized at 10% anthocyanins and with a high concentration of polyphenols. It follows that it will be a quite expensive product compared to other tart cherry extract that may offer 2% anthocyanins. Therefore, the price of the product will be over 300 euro per kg.

Which markets are, in your view, relevant for Feno-Cerasus™, how fast are they growing, what are some of the main players that develops and sells comparable products, and how do you differentiate?

US brand owners which focus on condition-specific supplement will be the primary target group. The segment for Cognitive Health is growing faster than the overall market. We will differentiate with a higher concentration of anthocyanin, and a wider composition of other polyphenols, and compounds of high molecular weight.

What are your expectations with the new ingredient product in the portfolio? How will it drive sales going forward?

We do not expect large sales coming from the Feno-Cerasus™ (tart cherry extract). If so, it will be a bonus. However, the effort will provide a decent ROI, because the investment was small. It has been a nice and reinvigorating experience for us to develop a new product this year after a few years of focusing on existing products and manufacturing. Launching a new product satisfies some customer and shows our agility with customers. The Feno-Cerasus™ also compliments our focus on Cognitive Health and it is for us, quite easy to manufacture.

Following a successful exhibition at the Supply Side West trade show in Las Vegas, US, last week, Eevia Health (”Eevia” or ”the company”) received an order for the elderberry extract Feno-Sambucus™, corresponding to SEK 34.4 million in order value. The order is a new contractual volume section related to a five-year sales agreement with a US brand owner.

Eevia has received a call-off for quantities for November 2022 – December 2023 for Feno-Sambucus, an elderberry extract product. The value of the call-off equals a revenue of SEK 34.4 million. The customer uses the elderberry ingredients from Eevia in nutraceutical formulations for sales primarily in the US market. The new order makes it the largest order ever received since Eevia went public, succeeding the previous largest order of SEK 8m over three years that was communicated the 9^th of March this year.

According to the global food and agriculture intelligence service Tridge¹, the US is the number #1 importer of value-added elderberries, with a total import value of USD 1.7bn in 2021. Furthermore, the import value in the US has grown 59% over the last five years. Thus, this trend supports Analyst Group’s view that Eevia will continue to grow as the company’s target markets are growing rapidly. Additionally, Eevia’s end customer is an internationally recognized brand leader in the marketplace with a global footprint. The group had sales of USD 1.4bn in 2021. It offers over 500 premium dietary supplements, including single herbs, vitamins, minerals, and specialty formulas sold under the Company’s well-recognized brands in over 60 countries.

”This call-off secures an important part of our order book and sales revenues going into 2023. We have improved our yields and productivity and adjusted the margins so that we can expect acceptable profitability for this volume,” says CEO Stein Ulve.

Eevia initially entered the sales agreement on June 11th, 2021. The new volume sections of the sales agreement, which the parties refer to as “Programs,” are contracted at adjusted prices. The reason is that the new program will consume raw materials purchased at different prices than the earlier programs. All raw materials for this order have already been purchased and are in stock in Finland.

References:

1. Value Added Elderberry Global Imports and Top Importers – Tridge

The 18^th of October, and on the 19^th of October, Eevia Health (“Eevia” or “the company”) the company has received sales orders for bilberry extract products from different customers amounting to EUR 96k, 20k, and 85k, corresponding to a total of EUR 201k.

Eevia reported that a sales order worth EUR 96k from a European nutraceutical brand owner was received. The customer is a European brand owner headquartered in Sweden, which is marketing its consumer products in over 50,000 pharmacies, health food shops, and other retail outlets across 36 countries, including China, and the US. The product is a bilberry extract standardized for anthocyanins and is a repeat order. Eevia is selected due to the high quality and authenticity of the product. This is one of the customers Eevia services without using a distributor. The business has been developed over the last few years, with growing repeat orders.

Furthermore, Eevia received two additional orders. The first order was worth approximately EUR 20k and was received from a contract manufacturer in Helsinki, Finland, that manufactures nutraceutical products of all types of administration forms for large brand holders in the Nordics. The customer ordered a standardized bilberry extract product from Eevia. This is one of the customers Eevia services without using a distributor since the customer is based in Finland and the need for distribution services is very limited. The business and client are new, and Eevia was selected due to the high quality and authenticity of the product. The second order that Eevia received was from Natural Ingredients, Eevia’s distributor in France and certain other European countries. The order is worth EUR 85k and originated from an on-site quality audit that Natural Ingredients undertook at the beginning of October, which resulted in successful audit, and a sales order on standardized bilberry extract products from the distributor.

In conclusion, Eevia has received several sales orders the last couple of days with a total worth of EUR 201k. Although the sales orders are relatively small, Analyst Group believe it is positive that Eevia keeps receiving smaller orders more frequently which keeps the momentum going and adds continuous cash flows which strengthens the liquidity. Furthermore, it is as of now advantageous for the company, as it broadens its customer portfolio and reduces dependency on single large customers. By continuously receiving frequent small orders, we see that it could create “rings-on-the-water”, triggering more sales orders, which will further increase the sales momentum and create a flywheel effect where smaller orders will accumulate over time to become substantial.

On the 29^th of August, Eevia Health (“Eevia” or “The company”) released its quarterly report for Q2-22. Our thoughts about the development during the quarter are presented below:

Statement of Operations at a Glance

During the Q2-22, the net sales amounted to EUR 1.8m (1.5), corresponding to a growth of 23% YoY which is in line with our expectations. The increase in net sales was attributed to improved production performance and output enabled by previous investments which thus made the company to catch up with backlogged sales contracts.

Gross profit in Q2-22 came in at EUR 0.7m, up from EUR 0.4m in Q2-21 and EUR 0.2m in Q1-22. The gross profit in the quarter represents a gross margin of 35% (as a percentage for net sales). This is a significant improvement compared to the latest quarters, and it is in line with our expectations since Eevia’s gross margin has been depressed due to temporary issues with equipment and capacity. Going forward, Analyst Group believes that Eevia should be able to consistently achieve a gross margin of 35-40%. Additionally, the management has guided for an improving gross margin in the future.

The EBITDA during the second quarter amounted to EUR -70k (0.4m) which is near a breakeven level. The decrease of the operating loss was a consequence of implemented changes in production protocols as well as efficiency improvements from the new equipment installations. For example, Eevia installed a new decanter increasing liquid-solid separation by 400% during Q2-22.

Cash Position and Burn Rate

At the end of Q2-22, Eevia’s cash balance was EUR 0.6m, compared to EUR 0.4m the previous quarter at the end of Q1-22, corresponding to a net change in cash of EUR 0.2m. The increase in cash was partly due to Eevia improving the net change in working capital and achieving a positive cash flow of operations of EUR 12k, partly due to a new loan received of EUR 0.6m. Eevia has not been cash flow positive since Q4-20, but after several investments and improvements, it seems that the company has now capacity to take advantage of operational leverage to achieve profitability. Although, one quarter is not a trend, we are positive about Eevia’s prospects going forward. The company’s burn rate per month amounted to EUR -0.1m, compared to EUR -0.5m in the previous quarter which a significant improvement attributed to both a lower operating loss and positive net change in working capital. Given a cash position of EUR 0.6m, and an assumed burn rate of
EUR -0.1m which we think is reasonable due to the company’s improving yields and margins, Eevia is estimated to be financed until the end of Q4-22, all else equal. However, it should be noted that depending on how the net sales contributes to strengthen Eevia’s liquidity position, as well how effectively the working capital is managed, the company could be financed longer than estimated.

Triggers

Going forward, we see the following triggers:

• Continued sales growth by booking new orders from customers
• Improving profitability by shifting to higher margin products as well as increased efficiency
• Launch of new proprietary products, i.e., Retinari against the eye disease AMD

In conclusion, Analyst Group sees that Eevia is progressing well operatively, where achieving a positive cash flow during times of market turmoil is something we see as a significant sign of strength and resilience in the business model. Although, the company’s liquidity in the short-term looks challenging, we are of the opinion that Eevia’s growth trajectory is sustainable and is likely to continue, given that the company can continue to deliver on the sales backlog, where we have a positive long-term outlook on the company.

We will return with an updated analysis of Eevia Health.