AquaBounty Technologies, Inc. (NASDAQ:AQB) Webcasted Corporate Presentation September 15, 2022 12:00 PM ET
Company Participants
Sylvia Wulf – Chief Executive Officer
David Frank – Chief Financial Officer
Chris Beattie – Chief Science Officer
Alejandro Rojas – Chief Commercial Officer
Conference Call Participants
Kristen Owen – Oppenheimer
Ben Klieve – Lake Street Capital Markets
Brian Wright – ROTH Capital Partners
Sylvia Wulf
Good afternoon. I’m Sylvia Wulf, the CEO of AquaBounty, and I’m joined today by David Frank, our CFO; and Chris Beattie, our Chief Science Officer; and our Chief Commercial Officer, Alejandro Rojas.
We want to share an update on the status and progress that AquaBounty has made in bringing our delicious genetically engineered salmon to market. We will be indicating as we turn to a new page, so that you’ll be able to follow along with the deck that was loaded to our website.
There’s a forward-looking statement included in the deck, which we always do, because we have attorneys, and it gets longer I think every time we do it. So, just please make sure that you read the forward-looking statement and understand what will be included in the deck.
Who is AquaBounty? I think many of the people in the room certainly are familiar with who we are and what we’ve done. But for those that are joining, we really do believe that we are pioneers in land-based aquaculture. We’ve been doing this for 25 years, we’ve honed our practice, we’ve developed training and development techniques, as well as operational improvement, so that we can continue to deliver what we believe will be one of the solutions to meeting the needs to feed a growing population. We are also doing this in a way that we think is efficient, sustainable, and profitable.
We did blaze the trail for genetically engineered animals that have been approved for food use, and we think that that’s a critical component of our competitive point of difference, and we’ll speak to that later in the deck. The way that we farm and the fish that we farm gives us a better financial profile when compared to other salmon produced either in net pens or specifically in other land-based recirculating aquaculture systems. We think that that 25-plus years of operational experience truly sets us apart.
I’m now on Slide 5. I think we all recognize that the population is growing and that geographies where that population is growing will continue to see a growing middle class, and as the middle class expands, protein consumption is something that they consistently look for. That means that aquaculture, as a component of the protein that we consume globally, is going to need to double its output in the next 30 years to meet that growing demand for healthy proteins.
That means that new technologies like ours, the way that we farm and the technologies that we employ, and, as importantly, the fish that we produce, are necessary to make sure that we can contribute to both nutritionally feeding that population as well as contributing to global food security. I think that what we experienced during the pandemic as supply chains shutdown makes domestic source of supply of food security increasingly important.
We believe that RAS farmed salmon can be produced with very little environmental impact, and we’re committed to making sure that as we build our business, we’re doing it in an environmentally sustainable way.
Slide 6. The pressure on the oceans continues to build, and I’m sure that most of you don’t get the same news reports that I do as part of the seafood industry, but there continue to be rising ocean temperatures, which creates algae bloom, it’s forcing wild populations further and further away from their natural feeding grounds, and it’s also contributing to more pressure on the fish themselves as they have to adapt to a warming ocean.
When we think about our competitors in the net pen, there’s definitely challenges that they face. We believe that all types of farming is going to be contributing to being able to meet that growing consumer demand. But think about what salmon in a net cage are exposed to: sea lice, algae bloom, microplastics, high net nitrogen levels in the ocean. There’s a lot of pressure placed on those operators, because those licenses are becoming more expensive, and fewer and fewer are being granted. That’s because of the environmental impact near the coast. So, we think that RAS farming has got to play a role in meeting that growing consumer demand.
Side 7. We like to think of ourselves as actually an aquaculture company. We start with salmon, and so when we think about seafood, we think about starting with salmon and growing it more efficiently, more sustainably, and more profitably.
As we ship salmon, the second most consumed species in the world, to land-based agriculture farms, we believe that use of fresh water which allows you to stay away from the coasts, and you can then build those farms in agriculturally oriented parts of the country, our country or others, is going to be important, because agriculture—there’s a circular opportunity with by-products, etc., and so where we locate our farms is very important to us. We’re going to talk about the process that we use on site selection.
But then it’s our genetically engineered salmon, which really after 25-plus years, we believe, has been designed to be optimized in this type of a system, because of its faster growth, because it eats consistently, and, more importantly, the fact that it is highly efficient in the use of its feeds, and so it requires less feed.
As I said, I’m a big believer in innovation with the purpose, and I think biotechnology is going to play a critical role in solving the global challenges that we face, both on the human healthcare side as well as in agriculture, when you think about bio manufacturing, it’s going to have to play a role. I think government regulation is going to have to change to make sure that we continue in a safe, secure environment to be able to address those challenges.
One of the things that we spend time doing as a team—and I’m on Slide 9—is really thinking about what it is that’s unique to AquaBounty, because sometimes what we do we take for granted. And yes, we farm a genetically engineered salmon. But I think it’s important to recognize that it is the combination of these components of our operating model that sets us apart. So, we are a big believer in people, training, development, selecting the right people, retaining the right people, processes, using continuous improvement and lean principles, and building an infrastructure that is efficient and secure.
That culture of continuous improvement is critical, and so we continue to train our teams on just exactly what those process and tools provide to us so that we can protect our salmon, protect our people, and protect the environment.
Then we think about the competence that we’ve built, it’s really operating recirculating aquaculture system farm, because we know how to do it, and that environment is absolutely critical to making sure that those fish are thriving. It’s not easy, because it is a combination of biology and chemistry that’s so critical to the health of productivity of those fish. We’ve been doing that with mature salmon for 25 years, and that is a long process with lots of key learning that we believe sets us apart. We also think that we continue to improve the viability and productivity of a RAS system, as we’re experiencing as we build our Ohio farm.
But just as importantly, we have a science-based data-driven culture. Science is where we started, and science continues to play a critical role, both biological science as well as data science. So, we’re improving our breeding and genetics. We are improving our fish health and nutrition. There’s a lot that is still to be learned in operating in an environment like this with our fish. More efficient operations, how can we make sure that we are adequately and effectively utilizing water, and then streamlining regulatory approvals, building relationships with our regulatory bodies, so that we can be transparent, and they can trust what we’re doing, both from a production standpoint as well as from an environmental standpoint.
The team that we’ve built is purpose driven, and it tends to be a young workforce, and purpose is absolutely critical to that. The purpose and value statements on Slide 10 were developed by the team. This is what we believe will help us attract and retain talent.
Our purpose is to feed the world by transforming aquaculture through the use of technology, both biological science and data science, creating a safe, secure, and sustainable future. What we like to refer to is our EPIC values.
Excellence. We want to be excellent at everything that we do. It is innovation. Think creatively about the problems that we have and that we’re going to solve for. Passion. Do we really believe in what we’re doing and how does that translate into the way that we work? Lastly, collaboration. I will tell you, when you talk to our team members, there is back and forth in collaboration across all functions in our organization, and we continue to foster that, because our R&D center sits in Prince Edward Island, and our major farms sits here in Indiana. So, making sure that we’ve connected those two in collaboration is absolutely critical.
Let me speak a little bit about ESG. There’s been a lot of press about this. We have been on an ESG journey for well over a year, and the reason is not because it’s a popular strategy. It’s because we believe that it is foundational to who we are and how we operate. The principles of environmental social governance are critical to running a very efficient and effective company.
Over the last year, because we are very data driven, we’ve identified how we fit into the UN SDG goals. We’ve used what was its predecessor SASB and GRI to frame the metrics that we believe are most applicable to our business.
Thinking about aquaculture and the critical phase one metrics that allow us to continue to measure and improve our business with targets related to both the environment, our impact on communities, and the way that we operate our businesses. We believe that all that data has been collected. We’ve actually got our partner sitting at the table with us, because what we want to be able to do is measure and monitor that data so that any statement that we make, any target that we set, we can absolutely share the data, because we are transparent in all that we do.
When we think about environmental and our impact on the planet, we’re looking at greenhouse gas emissions from every piece of equipment that sits in our farm, and transportation in, transportation out. We think about energy consumption. This is a very energy consumptive business, and so making sure that we continue to operate effectively from an energy standpoint is critical. How do we think about use of natural resources? Water being the most important. And then you think about our packaging, we’re looking at ways to think about recyclable packaging, because that’s critical to us, and it’s important to what we do, making sure that we’re protecting the environments where we operate.
Let me talk a little bit about social. Our Board is 50% female, 50% male, and there’s a number of talent on our Board that speaks to other forms of diversity. We really believe that diversity creates creativity and innovation. Even our management team, we continue to make sure that we are heading a diverse workforce board, because that brings the best and the brightest to the table. Making sure that we are operating in a way that provides a safe environment for our team members is absolutely paramount to us.
Lastly, how we conduct ourselves. We want to make sure that we are paying a competitive wage, that we act with integrity, that we are sharing with our team what’s expected of them. The old term used to be compliance. It’s not about compliance with us, it’s about doing what’s right and making sure that people understand what that looks like.
We built what I believe is a very high-quality management team. We have diverse experience across this management team in terms of being able to have scientific capability with the addition of our Chief Science Officer, Dr. Chris Beattie. Our Chief Operating Officer, Dr. Alejandro Rojas, has 25-plus years of experience in the salmon and seafood industry. Then you think about David Frank, our CFO, he’s built start-ups. And understanding start-ups and early-stage companies is not something that a lot of executives really understand and can do. We’re complementing that with David Melbourne, who’s got 25-plus years of seafood experience. Melissa Daley, who builds culture. Lastly, Angela Olsen, who, quite frankly, is one of the best IP attorneys that I’ve ever worked with, and that’s what’s critical about—and regulatory. She understands the regulatory process and she understands IP.
I’m now on Slide 13. Let’s think about the historical milestones. We are a company that perseveres. It wasn’t easy to get where we are, and we continue to make sure that we are prudent in the way that we operate and we persevere through any hurdles that we’re going to encounter. First genetically engineered animal, there wasn’t a process at FDA or Health Canada to approve a genetically engineered animal for food use, so we worked closely with the FDA. Then you think about it took us 20-plus years to get that approval and we ran into some political challenges, and we persevered through that.
We farmed conventional salmon so that we are able to make the comparison between our salmon and conventional salmon operating in the same environment. We’ve pursued approvals outside of North America with our approval in Brazil. We’re now harvesting our salmon. We’ve now broken ground on our large-scale farm in Pioneer, Ohio
Recent milestones. This is a team that’s committed to achieving what we’ve said we’re going to achieve. When we think about scaling the business, we continue to expand our production capacity in Indiana in a judicious fashion, ramping it up to full capacity we hope early in 2023. But again, that’s the balance of the biomass and making sure we understand how it operates effectively, and then we’ve got technologically advanced farm that we’re building in Ohio. So, we’ve broken ground, we continue to work on the design and the complementary operating practices that are going to make that farm the state-of-the-art facility in the world. We’ve gained our approval in Brazil.
We think about ramping up production. It’s the continuous harvesting of our genetically engineered salmon. We worked through COVID. Everybody had to, but we’re a very small team in a rural area, and we were able to do that very effectively as we went through COVID.
We have a farm in on Prince Edward Island that we’ve converted to broodstock. We want to make sure that we have eggs ready and available as we expand production of our AquaBounty genetically engineered salmon. That team up there has been in place for a long time, and they know how to raise the broodstock and spawn and collect those eggs. Lastly, thinking about how do we communicate with the wider market: chefs, consumers, retailers. We’re building that dialogue right now, and we have a backlog of customers.
The interest there is the way that we farm can enable long-term supply agreements, and we’ve had conversations with a number of large food service entities as well as retailers that indicate they understand domestic sources supply and a continuous supply is important to them.
Lastly, sometimes better be lucky than good. We bolstered our balance sheet because we knew that we were going to have to fund the farm, the Ohio farm. When the opportunity presented itself, we very effectively went out and raised that capital so that we would then be able to attract the debt that we needed to be able to finish financing that farm. We’ve been approved for $300 million worth of bonds by the Toledo-Lucas County Port Authority that will allow us to complete that financing, and we’re working closely with Wells Fargo on that bond placement.
Slide 15. I did want to make sure that we provided an update on consumer acceptance. In 2019, we fielded both qualitative and quantitative consumer research to give us a read on, number one, genetically engineered products and, number two, farm salmon, because both of those have been challenged and have varying degrees of consumer acceptance and different types of perception by consumers.
What we’ve found is, as we found in 2019, price and freshness are the key motivators for the purchase, which is why we’ve had conversations with retailers. Probably six years ago, there were a number of retailers that stated that they would never sell genetically engineered salmon, and many of those have walked back that statement, because what they believe needs to happen is the consumer needs to know what they’re purchasing, and they need to have the choice. We know we can deliver on the price and the freshness, which is the absolute critical buying criteria that consumers have told us.
We know that the perception of GMOs continues actually to improve, and we think that that’s going to become increasingly apparent because of what’s happening in the world around us. We looked at the most—who are our most frequent consumers, because we want to target the right types of retailers and food service establishments, and they also have the highest approval and the most positive perception of GMOs, which is important to us. But it also states that we need to educate a consumer.
We still have a 70% purchase intent. That’s double what the best new products have seen in research. So, we’re confident that telling the story in a simple transparent way, consumers will purchase the product, and we’ll be able to deliver on price and freshness.
Now, what I’m going to do is turn the presentation over to David Frank, so he can give you an update on where we are to-date.
David, we’re now on Slide 18.
David Frank
Thank you, Sylvia.
As Sylvia stated, I’m David Frank. I’m the Chief Financial Officer of the Company, and I’m going to spend a few minutes talking about our current operation.
I’m going to start with just a very quick overview of our current facilities. Our life actually started on Prince Edward Island at the Fortune Bay hatchery, which is still in existence today. It’s primarily used as a combination of broodstock and R&D research.
About three years ago, we also started work on our Rollo Bay site, and that is a complex of three buildings. There was an existing building on the site when we purchased it that we transformed into a hatchery that’s being used today, primarily for broodstock but also some R&D work, and we constructed two buildings on the site. The first is what we refer to as our 250-ton grow out facility, which has successfully produced two cohorts of AquAdvantage salmon over the course of the last two years, and we’re now in the process of converting that building into additional broodstock capacity.
Now, there’s a third building on the site that is still in its shell stage, as we refer to it, and we’re in the process of completing, equipping and building it out. And again, this building will also be used for broodstock purposes. The reason for that is that when we’re done with this transformation, we’ll have the capability of producing 30 million fertilized eggs annually. Now, to put that in a little bit of context, each one of the 10,000 metric-ton farms that we expect to build and operate will require roughly 5 million eggs annually. So, having a built-up capacity of 30 million, more than satisfies our need internally, but it also provides us with excess eggs that we can use to sell externally.
Now, just to clarify, every egg that we produce is from a non-transgenic female. They’re all non-transgenic eggs. They don’t become GE fish until those eggs are fertilized with the milk of our GE males. So, we control how many of those eggs actually become GE eggs.
Moving on to North America. We have our current facility in Albany, Indiana, and we purchased this facility back in 2017. We had to do quite a bit of work on it in order to get it ready for our fish. It’s in operation today, and we’ve been growing our AquAdvantage salmon in that facility since 2019. We started our first harvesting a little bit over a year ago, so we’ve got about a year of experience actually growing, harvesting and selling our fish.
Now, let’s stop for a second and think about that. The Company has been in existence for 30 years, we’ve been growing fish for over 25 years. But this is new for us, we’ve only been a commercial operation for a little bit over a year, so there are a lot of firsts that we’re still going through, and obviously we’re still learning.
The benefit of that is that, with our Ohio facility, we’re taking the learnings that we have from Albany, which as many of you know is a 20-year old technology, and we are adapting to that technology, learning from it, and building those learnings into the design of the Ohio farm.
Moving on to Slide 19. Our current operations have two main objectives.
Obviously, we want to continue to validate the market acceptance for our fish. But we want to do so in a prudent and controlled manner. We want to make sure that as we ramp up our production, we’re very cognizant of maintaining the health of our fish in the tank, and at the same time we also want to make sure that we don’t onboard customers too quickly, because as we bring on a new customer, we want to make sure that we can satisfy their requirements week in and week out, and not be in a situation where we’re doing fits and starts with a particular customer. It’s very important for us to maintain a good customer relationship, because that will help us moving forward to build our revenue base.
The second priority that we have is our operational processes. We already heard Sylvia talk about how we manage processes internally. We are very data driven, and everything that we do in the farm is based on key performance indicators. We track everything. We track the growth of the fish, the feeding of the fish, the amount of electricity that we use, the water we use, the quality of the water that we have. We set parameters for each of these metrics, and we monitor them. Many of you here around the table saw today that, on our huddle boards, we have all of that data, and we discuss it every day with our team to see how we’re tracking. It’s very important to us.
Moving to Slide 20. This is foundational to how we actually operate. Sylvia mentioned that we’re based on continuous improvement, and our mantra internally is test, review, and refine. Now this may harken back a little bit to our R&D heritage, but what I want to make clear is that we do this throughout the organization in every function. So, if we look at how we onboard a new employee, there’s a process for that. How do we enter an invoice into our general ledger, there’s a process for that. How do we feed the fish, there’s a process for that. We map every process inside the Company.
The benefit to that is that, as we gain experience, we review those processes, and we improve them. We make them better, we make it either more efficient or more productive, and that leads us to the third component of the diagram here, and that is that, with all of this data, we can collect that, we can analyze that, and we can use it for business intelligence and make our operations better.
Moving to Slide 21, and talk about Ohio, which you all know is a very transformative project for this Company. Here are some pictures of the current state of the construction. We actually broke ground earlier this spring. One of the things that I want to mention is that, as we moved forward with the construction activity, we had already made the decision that we were going to design and construct in phases, so we actually started construction while we were still completing the design of phase one and we had not yet started the design of phase two.
Now, as we progressed with the design, that’s when we became aware of the escalation in our cost estimates. This happened in the late spring of this year. Obviously, everyone knows what was driving cost escalation; we’re not the only ones that experienced it. We had inflation at a 40-year high, you have interest rates rising, you have supply chain issues that are still feeling the hangover of COVID, as well as the impact of the Ukrainian war. So, it’s not unusual that we would see this type of impact; but, I think true to our nature, we did not panic when we saw those costs start to go up.
What we decided to do was to take a step back and to analyze the data. What is driving the cost higher? And what can we do to help bring those costs back down? So, we’ve been working with our design construction partner for the last month or so to figure out what we need to do moving forward. We’re not yet complete with that process; but at this stage of our analysis, we are feeling much better that we can start to rein that cost back in and that we can continue forward and still produce the returns that we need to make this a successful product.
As we move forward over the next several weeks, we will disseminate more information about where we are in terms of our cost estimate for the farm.
Slide 22. We talked about Ohio as being a template for future farms. Farms, four, five and six. But really what we want to do is learn from the Ohio farm, learn from the design process and the construction process. We’re not just going to duplicate exactly what we do for Ohio with the next farm. Just like we learned from our operations in Albany, we’re going to learn from this process that we’re going through for Ohio, and we’re going to incorporate it into the design and the construction of the next farm.
Now, how does all of this impact our bond financing? Well, we’ve been working with Wells Fargo for almost a year now on this transaction. At the point where we paused and took a look at the cost of the project in the late spring, we decided we were at a very good point in terms of pulling together all of the legal documentation for the transaction; but in order to move forward and complete the transaction, we needed to know what the timeline for the construction was going to be and what the final cost was going to be.
As we resolve those two issues over the next several weeks, we expect that we are going to move forward with the transaction, and right now our current target is to start marketing the deal in mid-November, and to try to close the deal before the holidays, so before Christmas. We’re on track to do that. We just need to complete our work on the cost estimation and the timeline.
Why is that important? Well, we have a very aggressive plan. This is Slide 23. We expect to construct a new farm every two years, but we are not going to do so haphazardly. We have a plan. This plan already exists, we’re already moving forward with it. The main steps in this plan begin with site selection. I think you’re all very aware of the rigorous selection criteria that we have for selecting a site for a new farm. Water is important. Electricity rates are important. The availability of labor is important. Now, when we selected the Ohio farm site, we also did that in conjunction with our overall plan for North America, so we had an idea of where the next farm would be and the farm after that.
Our plan is, before the Ohio farm is finished being constructed, we will already know where our next farm is going to be, and we will have started the preliminary due diligence on the site in terms of soil quality, water quality, and the other factors that are very important for us to finally go in and purchase the farm site. This exists.
If we move to Slide 24, this is actually a heat map that we developed a few years ago when we started the site selection process for Ohio. The colors on this chart indicate where we think the best sites would be throughout North America. The green colors indicate where we think the typical range would be for the site. As we go through our due diligence and sift through different sites, you’ll find that what we have is specific areas within the green section where we’re most likely to choose our site location.
One thing that this particular graph does not show is Southern Canada. But Southern Canada is definitely up for review, on our part, in terms of being able to service the Northeastern part of the United States.
Now, moving to Slide 25, I’m going to pass it back to Sylvia so that she can discuss our expansion plans.
Sylvia Wulf
Many of you know that we have plans to build outside of North America, and that the way that we plan to approach that is with an operating partner that brings commercial, political and cultural expertise to the joint venture. That joint venture may take different forms, but the areas of the globe that we’re most focused on are those that mirror what’s happening in the U.S. They’re net importers, and they’re also growing markets, and so we’ve identified Israel, Brazil, and, of course, China.
We prioritize Israel for a couple of reasons. They’re very forward thinking in terms of technology, particularly genetic engineering, as well as digital technology. They’re very progressive in terms of the way that they think about renewable energy and water usage. So, we think that there’s much to be learned by building a farm in a location like Israel. We’re in the later stages of the final negotiation of the joint venture terms with a commercial operating partner in Israel.
We think Brazil is probably the next location that we would look at, because we have an approval in Brazil, it’s a growing market, and it’s a very protein consumptive market.
Finally, China. Everyone, I think, around the table and on the simulcast understands the geopolitical issues that we face right now. We haven’t stopped. We have field trials going on in China in preparation for submitting documents for regulatory approval, and we still believe that, with an operating partner, China presents a huge opportunity for us. Our IP doesn’t reside in a patent, it’s in our eggs, and we will be the supplier of the eggs. For them to reengineer what we’ve already done doesn’t even make economic sense for them. So, I think it’s going to be—again, timing is everything with China, but we’re continuing to pursue an approval.
The other opportunity that we’ve identified is expansion with species. If you think about what I described in our operating model, we know how to operate a RAS farm, it’s biology and chemistry, it’s that intersection. It can be applied to a number of different species. It’s the ability to understand breeding, genetics, health, nutrition; that can also be applied to a number of species.
We actually, believe it or not, started with shrimp 20-plus years ago. So now what we’ve decided to do is to continue to review RAS technology and what it would take to enter shrimp with this type of farming operation. Shrimp is the most consumed seafood in the world. It has the same challenges that we see with salmon, and it’s a large and growing market. So, we are evaluating the technologies to be employed, and we think our expertise lends itself to being successful with respect to this species, particularly our R&D capability.
Now, I’m going to turn it over to Chris Beattie, who’s going to… Sorry about that. We are now on Slide 28. Chris joined us in August and has a wealth of knowledge in aquaculture. So again, we continue to build out our competence, particularly in R&D and operational research.
Chris.
Chris Beattie
Thanks, Sylvia.
As Sylvia mentioned, my name is Chris Beattie. I’m the Chief Scientific Officer for AquaBounty. I just want to take the next few minutes to give you some background on our approach to biotechnology, regulatory processes, and digitalization and leverage of data. A little bit more from that, how that really allows us to optimize internal fish performance, but also to expand into new areas of business and to new geographies.
AquaBounty is a very unique aquaculture company. A big part of that uniqueness is the R&D and regulatory team that’s been established by PhDs on the team with experience in fish nutrition, fish health, genomics, gene editing. Lots of strong collaboration with academia and contract researchers. What that really gives us, having that level of expertise in the internal team, is what I would refer to as a docking station for external collaboration, as well, as with specialists from other fields.
In terms of operational performance, we’re currently looking through areas around fish health, fish nutrition, and looking at the performance of the animals in the RAS system with the idea of producing RAS specific lines. The more genetic techniques improve, also looking at genome-wide association studies and how they relate to performance of animals in the operation that you saw today. The next part of that, and this is the real value in having our internal farm, is the iterative capability of taking that knowledge and putting it into process and into farms as quickly as possible with techniques such as gene editing.
Slide 29. A real background of AquaBounty and the experience—and David showed the slide—was the regulatory experience. Our regulatory experience gives us a real level of rigor that informs a lot of our other processes and our approaches to regulatory bodies in the U.S., Canada, and across the world.
Of course, we had the first successful approval for the first GE animal, and we’ve built significant internal regulatory experience. We know how to interact in a scientific, constructive, positive manner with the regulators, which is a real key when you look at some of the processes that we’ll run through, both in terms of our potential new products, potential new geographies.
In terms of the facilities that we operate, certainly, that’s an advantage with the contained [ph] facilities. Moving to—seafood [ph] is a very certified area, and that level of regulatory rigor gives us a real advantage when we come into seafood [ph] certifications, operational certifications, and following complex processes, and interacting with regulatory bodies.
Slide 30. A real area of interest, we’re operating in a really data rich environment, and when it comes to taking that data and leveraging it into what I would call as actionable data, that’s where AquaBounty has a real advantage. We have the capabilities on the science side, on the data side, and we also have an in-house facility where we can take data and really close the iterative cycle in terms of improvement and optimization.
In terms of the RAS environment itself, it’s far less noisy than what you would see in a net [ph] pen. The key to good data is really controlling variables. And to a large extent in RAS, we can control a number of variables so we get cleaner information that we can pull into the R&D team, through the operational team. And Sylvia talked a little about collaboration, we have very strong collaboration within the group and across functions. But also from the R&D side, one of my R&D teams is actually embedded in the farm, so on-site, so we have that very close communication between them.
That allows us to measure what we’re doing. Also manage what we’re doing operationally. But one of the real key areas for the future, it allows us to manipulate what we do. We have very close data oversight, which allows us to see what key areas are influencing the key metrics and KPIs of the business.
Sylvia Wulf
Thanks, Chris.
We believe that both our operational expertise as well as our R&D competence and regulatory competence sets us up to very prudently think about how we can drive value and growth. When we think about leveraging those core competencies across genetics, fish health, and nutrition, operating in a RAS environment, there’ll be organic opportunities for growth.
We talked about four to five farms in North America and in other geographies in the world. We’ll continue to improve our RAS genetics and that allows us, as David pointed out, we have conventional or non-transgenic eggs that are going to be in demand for other RAS facilities, and we can optimize those RAS genetics for others, as well as ourselves. That allows us to create a line of business to sell those eggs.
Our other R&D projects. We’re thinking about how do we collaborate with our feed suppliers. This is where our General Counsel is absolutely critical to our business model going forward, because as we put those collaborative agreements in place, we’re protecting the IP that’s generated. That potentially provides us new lines of business or licensing opportunities.
Then we think about inorganic growth. RAS farming and aquaculture in general is an emerging and sector, and so there may be very opportunistic acquisitions or joint ventures that allow us to closely build on our current competence that would provide us new lines of business and alternative forms of revenue and profitability. We continue to have those dialogues as we focus on our operations. As our primary responsibility, we still think our R&D competence may open up discussions with potential for, as I said, M&A or joint ventures in an emerging sector.
Lastly, one of the things, as I said when I talked about our focus on ESG, is every part of the fish and the environment that they thrive in is important to us. The circular economy is one that has become a key term. But what we want to really think about is what do we do with the waste streams, and how can we potentially monetize those waste streams in a very prudent fashion? We’re going to have them. It doesn’t make sense to just dump them, so we’re looking at—we actually have research projects in place today to think about what are we going to do with the waste streams? What can we test in Indiana? And what can we build into the design in Ohio?
When you think about that, the costs associated with disposing of all that organic matter could be turned into a revenue stream. What we want to think about is renewable energy, you can use anaerobic digestion to produce biogas, can we actually be energy efficient by utilizing our waste stream? The use of salmon plasma is a good reagent. We actually sell the plasma out of our operations in Canada right now, and we’re looking at how do we build that into our ability to collect and sell in Ohio. Lastly, using the offal as a pet food ingredient, we have discussions ongoing with pet food producers.
There’s plenty of opportunity to hone what those waste streams will do and to optimize how we think about monetizing those waste streams, as opposed to just thinking of them as waste.
On Slide 34. David, do you want to conclude?
David Frank
What is important to us? As you all know, we’re very milestone driven, so the key items that we’re attempting to achieve in the near term start with continued validation of market acceptance. That is obviously number one for us. We have to continue to increase our sales and to bring on more customers. That’s paramount as we move forward and get closer to bringing Ohio online.
Second is our facilities. We’re still moving forward to optimize the Albany farm and to increase its production capacity, that’s important. At the same time, we have to be very careful and we have to be successful in constructing the Ohio farm and getting it operational.
As I said before, these are a lot of firsts for us, and we don’t take these types of challenges haphazardly. We move forward prudently and we make sure that we’re thoughtful about what we do, and we’ll do the same with our milestones.
Our processes. I mentioned this already. We want to learn from everything we do, that’s our culture. We don’t want to stand pat on anything, we always see that there is room for improvement. Even if it’s a tiny advantage moving forward, those can build on one another.
Lastly, in terms of our market strategy. You want to take the same approach in building shareholder value that we do in building our Company. We want to make sure that we’re doing it thoughtfully. We understand the value inside of our Company and our goals, but we need to do a better job in making the market aware of the value of this Company.
Moving to our last slide. How do we value who we are? We’ve listed a number of items here on Slide 35. Our experience, obviously, is a differentiator for us compared to other folks who are in the land-based recirculating aquaculture system space. We have over 25 years of experience growing mature [ph] salmon. Other people do not have that. That’s why you don’t see us experiencing the same types of growing pains that others are experiencing. Obviously, there are a lot of firsts that we’re going through, but growing a salmon to harvest size is not one of those. We’ve been doing it for a long time.
We are very focused on fish genetics and fish biology. This is another differentiator for us, because other people may have grown salmon in net pens, but they don’t particularly understand the salmon biology within a land-based system and understand the intricacy of growing that salmon, the water quality that the salmon are living in, and the biofiltration that keeps that water quality sufficient for the salmon. We understand those things.
We’re also focused continually on improvement. It’s not a flashy thing, but I think when people see us achieving our milestones, they get it in terms of us continuously moving forward. Lastly, another differentiator for us is our strong balance sheet. There are there are folks out there that don’t have the resources that we currently have on their balance sheet, and this is helping us. No one was more surprised, I think, than Sylvia or myself when we were able to build the war chest that we set out to construct as we were getting ready for the Ohio farm.
We knew that on our own we couldn’t afford to construct it just with equity, that would not be a prudent way to move forward. We knew that in order to attract debt, we had to have a built-up war chest of equity, so we succeeded in doing that. But what surprised us was the level of attractiveness of debt that we were able to bring in.
When we think about $300 million worth of bonds that we can place for the Ohio farm construction, that is just simply amazing, and I don’t think the market yet has taken that into account when they look at us.
Let’s talk a little bit, and we’ll finish off here with a look at our stock. Well, we’re an ag [ph] stock, but I think we’re more geared towards the tech side of ag. We have a differentiator. We have an ability to do better, I believe, than other land-based salmon farms because of the technology that we bring to the table. As I said, I don’t think the market has yet fully valued us and our capabilities and our value, and part of that is just the uncertainty that the market sees regarding the bond financing. They see it out there. We haven’t achieved it yet, so I think the market is looking at that as a milestone. As soon as we do complete that, I think the market will give us credit for that.
This is a very fragmented industry. There are a lot of new players coming into this space. You see new folks coming in on the technology side, you see new folks coming in on the growing side. There’s also some consolidation taking place on the supply side, so I think one of our benefits there is that we are vertically integrated, we are our own source of eggs. Other land-based RAS farms don’t have that capability, which is why some of them are talking to us about being their supplier for eggs.
I think, in terms of our strategy for our market valuation, as I said, we’re going to be thoughtful and prudent, and we’re going to address it the same way we address every other issue inside the Company.
With that, I’ll turn it back to Sylvia.
Sylvia Wulf
That concludes our formal presentation, and now I’d just like to open it up to questions. You’ve seen the farm, you’ve heard what we’ve said about the Company and where we’re headed, so let’s have a conversation.
Kristen.
Question-and-Answer Session
Q – Kristen Owen
Hi, I’m Kristen Owen from Oppenheimer.
I wanted to ask about the learning [ph] cycles that you discussed [ph]. It took you 25 years to get to this stage. Now, on the science side as we look at new [indiscernible] to look at and on the international [indiscernible]? How do you think about learning cycles contributing to that accelerated [indiscernible]?
Sylvia Wulf
We have very specific metrics in place, and so we prioritize based on where we think we’re going to get the greatest operational improvement, because that’s the focus for us. We think about, how can we make sure that the fish continues to thrive, that it’s providing the consumer the properties that they require in terms of a quality perspective, things like color, things like fatty acids, etc., and then we want to think about fish, health, and nutrition, so how do they operate in that environment?
We have a number of studies going on with large feed producers, because a RAS environment may require a different type of feed. You feed by growth segments, so again, how do we optimize that environment? Because you’re satisfying two biologies, the fish and the biofiltration. We think that’s another operational factor that we think about.
Those cycles are continuing, and we have very robust plans with milestones attached to each one of them in terms of genetics, in terms of breeding the eggs—certainly egg quality, and then fish health and nutrition. We’re constantly looking, as you saw at the farm today, what’s the environment? Cameras, lights, different colored tanks. Does that, in fact, enhance the fish’s ability to thrive? Does it produce the right quality? That’s how we think about prioritization of what we’re doing.
Ben.
Ben Klieve
For Sylvia, question for you on supplies, I think [indiscernible] you referenced that heat map of the country and the appropriate geography, there’s not a lot of green in Ohio. What does this map imply the challenges are in Ohio in the location of Pioneer [indiscernible].
Sylvia Wulf
These are farms after Ohio.
Ben Klieve
Okay. Yes. To me, this slide implies that it’s not a perfect location geographically for one reason or the other. Is there an inherent challenge in Northeast Ohio that this map doesn’t…
Sylvia Wulf
The five sites that we looked at, before we selected Ohio, are not represented on this map. So, there was a precursor to this that said it was Ohio, Indiana, Kentucky, so it was the Upper Midwest. This would be farms subsequent to that. Ohio is an excellent location, just like Indiana was. But this would be farms two, three, four. These are the areas we think are probably the next geographic expansion.
As David said, Southeast Canada, when you think about Ontario, the population of Canada sits along the border, and so there’s an opportunity in Canada, as well, and a very supportive government structure.
Ben Klieve
If I can take one more. Chris, I’m curious about your background in the industry, and what you’ve observed in terms of the industry reducing the time to harvest for salmon over the years, either from the corporate side or academia, how is the industry improving the growth cycle for salmon? How do you think AquaBounty positions itself for [indiscernible] units were catching up? Is AquaBounty maintaining its advantage? How do you look at that?
Chris Beattie
It’s a really interesting question. I’ll try and answer it quickly.
I think the kind of traditional industry, they’ve gone through their own improvement optimization schedules, but I think the main difference there is that they have an increasing challenge environmentally. So, the optimization is being pushed back by some of the issues that Sylvia was mentioning. Just in terms of our environment and in terms of [ph] RAS, which is, as I mentioned, less noisy, more controllable. I’d say we have a better environment for optimization and getting ahead and staying ahead. There’s some challenges that we work with being in RAS, but we don’t have those larger oceanic-type challenges that are really kind of pushing back the traditional industry.
Sylvia Wulf
Any questions about what you saw in Indiana? Or any comments about what you saw in Indiana?
Brian.
Brian Wright
There was [indiscernible].
Sylvia Wulf
Yes. Yes.
Brian Wright
Not trying [indiscernible] there are some [indiscernible] if you think about similar [indiscernible] same [indiscernible], right? And the variability [ph]. How do we think about root cause differential [indiscernible] variability and how to get a (audio interference)?
Sylvia Wulf
Right. Alejandro, you’ll need to speak up.
Alejandro Rojas
[indiscernible].
Sylvia Wulf
Alejandro.
Alejandro Rojas
Yes. So, I was explaining to Brian?
Sylvia Wulf
Ben.
Alejandro Rojas
Ben. The fish you saw in that particular time correspond to the very last portion of the lot we had. We are finishing a lot, so we are getting into the rest of the population that are smaller. [indiscernible] we’re finishing that. Yes, actually, we are [indiscernible] them [indiscernible] two weeks. So, that’s one thing. What we normally do is, as a process, we create those fish, we separate them in populations, as I mentioned, in the nursery, larger ones [indiscernible] medium and smaller sizes [ph]; but at the very end, we want to get those fish out of the system in order to have to save for the next generation that is coming behind. [indiscernible] 5,000 fish or 3,000 fish from the 70,000 fish that we have in the population that we needed to get out of the system [ph]. That’s all.
Sylvia Wulf
Another…
Brian Wright
[indiscernible] there were [indiscernible] batch and then a newer batch was popped into the same [indiscernible].
Alejandro Rojas
No, no, no, what I’m saying is that during the fish management [ph], we separate the fish in populations. This corresponds to the smallest of the latest fish that were going [ph] to be harvested, and that’s what you saw. We weren’t getting everything out of the system. That 3,000 or 5,000 fish out of the system that we’re [indiscernible] from the greatest small fish of the population, the very large fish.
Sylvia Wulf
Brian, one way to think about it is—and this is where Ohio will be different than Indiana. We have less ability to segregate by size to allow smaller fish to catch up, so if you think about it, fish grow on a bell curve. You’ve got fast growers, and you got slow growers, and you got a bunch in the middle.
Brian Wright
[indiscernible].
Sylvia Wulf
Exactly. The other is they compete for their feed. So a couple of things that will be built into this farm and that we’re testing here in Indiana—and we’re less able to do separation by size in Indiana, because it’s harder to move these fish between tanks, where it’ll be much more automated and gentle in Ohio, so you’ll be able to separate the size more readily.
The other is allowing those smaller fish better opportunity to compete for feed. And I’ve used this analogy previously as salmon are a lot like cats, they eat as much as they need, they don’t just keep eating. They get satiated, and they don’t keep eating. But if you feed on a periodic basis, it doesn’t mean that the small guys get to compete for the feed that the big guys do.
But we’re testing technology that allows us to use behavior and alternative feeding practice to give the smaller fish, the slower growers, opportunity to compete for feed once the big guys are satisfied. There’s a couple of different ways to think about how we’ll be able to optimize Ohio to give those small, slower growers the opportunity to get bigger faster.
Does that make sense?
Unidentified Analyst
Sylvia.
Sylvia Wulf
Yes.
Unidentified Analyst
Steve’s [ph] not here. But commercialization. Can you talk about the process of onboarding, and where we are with longer-term contracts and in market pricing, as well, and that strategy that surrounds that?
Sylvia Wulf
Indiana doesn’t afford us the ability to do longer term contracts, because the production just isn’t significant to those customers that, in fact, would want a longer-term contract. That being said, we’re entering into those discussions, because—and I’ll use an example, not that they would necessarily be one of the customers, but you think about what Walmart just did with beef, right? They want to own their own beef facility. You think about what Costco did with poultry. They own a poultry facility now.
Those are the kinds of conversations we’ve initiated, because a big retailer could own a farm, but not the size of Indiana, right? What we have always said is we pursue a commodity pricing strategy, we want the ability to premium price where the opportunity presents itself, and potentially discount if necessary to get market placement. But to follow that commodity strategy so that we’re providing salmon to a wider group—making it more affordable to a wider group of consumers.
We have a backlog of customers. What I mean by that is we’ve actually been approached by some of the largest food service distributors, but they also need to have that consistent source of supply. What they’ve said is, when you’re ready, we’re ready.
We may be able to do it by operation and by geography. And so as we continue to improve our productive harvesting capability, we’ll be able to onboard the customers that have come to us and said, “We want to do our operation in Toledo, we service this geography, and this is the kind of volume we’re going to need to be able to do that.”
Between David Melbourne and Dennis Bryant, we maintain those conversations. Every one of those—salmon is typically sold more on a spot basis than long-term contracts, simply because of the issues that net pen operators are subject to is the variability sometimes in terms of supply.
We feel good about where we are, but Ohio’s tricky.
Any other questions?
Okay. I thank everyone on the phone that participated in the simulcast, and that will conclude our conversation this afternoon. Thanks.
Operator
Ladies and gentlemen, this does conclude today’s teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.
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