Moolec Science SA Q1 FY2024 Earnings Call

Good morning, and welcome to Moolec's Conference Call. My name is Michael Bowen, from ICR's Strategic Communications and Advisory. Please note that today's session is being recorded. Moolec announced today's first quarter fiscal year 2024 business highlights yesterday after market closed. The document is now available on the company's Investor Relations website at ir.moolecscience.com. This morning, you will hear from Gaston Paladini, Chief Executive Officer and Co-Founder of Moolec Science, together with Amit Dhingra, Chief Science Officer; and Jose Lopez Lecube, Chief Financial Officer. In today's call, we will be referring to a presentation that will be available on the company's Investor Relations website. This conference call is mainly for informational purposes only. During this call, the company will be making some forward-looking statements regarding future events and results. Statements that are not historical facts, including, but not limited to, statements about the company's beliefs and expectations are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. Further information regarding these and other risks will be included in the company's annual report on Form 20-F filed with the SEC, later also available on our Investor Relations website. Now I would like to turn the call over to Moolec's CEO to comment on our business and recent developments. Gaston, please go ahead.

Thank you, Michael. Hello, everyone. I am happy to present our quarterly business update conference call. I want to thank you all in advance for your interest and support. Not much time has passed since our last update, but this quarter has been another solid period of performance and development. After having a great 2023 fiscal year, where we announced many breakthroughs in our development, we certainly continue to steadily deliver and execute on our strategies. I would like to start by outlining today's agenda. First, let me briefly review Moolec's business opportunity. Second, our Chief Science Officer, Amit Dhingra, will walk you through our latest scientific and operational progress. Third, Moolec's Chief Financial Officer, Jose Lopez Lecube, will go through our financial highlights from Q1. Let's move now to Slide 4. This morning, I will start our remarks by quickly reemphasizing the important work we do here at Moolec. Moolec is using science to bypass dependence on animals by genetically engineering plants to produce the proteins of animals in addition to the native plant proteins. Moolec is at the forefront of contributing a solution to the current unsustainable food industry. We are a science-based food ingredient company using molecular farming, a cutting-edge technology to move away from traditional practices that over-consume resources and contribute to excessive gas emissions. To quantify the massive market opportunity ahead, we are exposed to a very large agro-market sitting in an $829 billion market by 2025, mostly represented by processed meat. Moolec focuses on these big markets on top of our genetic protein niche due to the good scientific and product development results we have obtained. And in comparison to the chart we showed last quarter, we have included iron supplementation as one of our addressable markets. Our ingredients can be applied not only to the food ingredient industry but also to pharmaceuticals, nutraceuticals, supplementation, and others. I would like to comment on our product development and research team for their excellent work in developing revolutionary products. Now, I would like to hand the call over to Amit, Moolec's Chief Science Officer, to comment on our scientific and operational progress.

Thank you, Gaston. I will provide an update on our scientific and operational progress section of today's agenda. Let's go to Slide 8. First, I will highlight the progress on our gamma-linolenic acid, safflower oil, which we call GLASO. During the first quarter of fiscal year 2024, we successfully harvested 35 hectares of GLASO with a yield of 1.8 tons per hectare, which exceeds average yields by approximately 50%. We maintained expression levels of up to 60% from the previous harvest, exceeding our original expectations by 10%. We are in the process of scaling up our operations as we move towards commercialization, and we expect to plant between 100 to 350 hectares in fiscal year 2024. In 2025, we still have plans to harvest, crush, and market our 2024 GLASO seed. We continue to engage with potential clients and partners to advance our GLASO business. This will result in risk reduction as we prepare to launch our inaugural molecular farming product and represents a crucial step towards diversification in terms of our product portfolio. On to Slide 9. Let us walk through our process of discovery to selection to get the one selected event of molecular seed for our soy 1, the first product of our piggy soy platform. Our goal is to find the transgenic event that has the best combination of the highest expression level of animal protein and yield performance. We first started with 550 T0 transgenic events that were narrowed down to 256 T1 events and finally selected 140 T2 events. We are currently at the developmental stage and have just finished harvesting our T3 transgenic events. I will discuss the results in the next slide. We will then select some of these transgenic events and test them in the field to see how they behave under real agronomic conditions, aiming to select the best event. Now, an update on our fully equipped molecular biology lab. I'm pleased to share that Moolec has successfully set up Moo Labs, a fully owned plant molecular biology lab in an incubator space operated by Texas A&M University in College Station, Texas. Our lab became fully operational in September 2023. The lab currently allows us to perform a significant part of R&D in plant biology projects. Compared to conducting research via third-party labs, centralizing Moolec's molecular farming research will establish a clear chain of command, facilitate quick implementation of decisions, ensure higher quality control, and improve timeliness while reducing costs. Our new facilities have already generated cost and time savings for each phase of the R&D projects completed there thus far. I want to thank my research team for their quality work. I will now hand it over to Jose for the financial overview.

Thank you, Amit. Good morning, everyone. It is a pleasure to provide Moolec's update for the first quarter of fiscal year 2024. Today, I would like to take some time to review our latest highlights concerning revenues, expenses, and cash utilization. Please keep in mind that all numbers mentioned today are in U.S. dollars, unaudited, and based on IFRS, unless otherwise stated. During the first quarter, revenues increased to $1.7 million versus $0.9 million in the last quarter, representing a growth of 92% quarter-over-quarter. This growth was primarily driven by a full quarter consolidation of our acquired business versus only two months last quarter and positively impacted by higher average pricing and higher volumes. Our operations benefited from stable soy origination from local farmers and favorable market conditions, leading to a gross margin increase. Quarterly expenses have remained in line with our historical track record with no significant changes, except for admin expenses of approximately $1.9 million, which were lower than last quarter. Our operational cash utilization for this quarter stood at approximately $1.8 million, in line with our historical track record of controlled cash expenses while supporting R&D progress. As mentioned in our previous earnings call, Moolec has recently closed a capital raise with strategic investors amounting to $10 million of cash contributions and $21 million of in-kind contributions, strengthening our liquidity position. We remain focused on executing our R&D pipeline. I want to thank our partners and investors for their continued support as we build value for our stakeholders. I will now turn things over to Michael for the Q&A portion.

At this time, our management will be taking questions. You may submit questions through the chat box directly to me or by using the hand-raising function. We ask those who would like to participate in the Q&A session to rename themselves with their firm and full name.

First of all, congrats on both the financial results and on the operating and R&D development during the quarter. What I noticed is that given those yields on GLASO are so impressive, could you share thoughts on potentially accelerating that commercial development or even a royalty-based model to enter the market quicker?

Thank you so much, Brian. We are happy for the strong GLASO yields, and the timeline is on track, which is important for us. We are not expecting to accelerate the process because this is part of the process. We still need to crush the grains and get the product into the market. But we are optimistic about that process. Regarding a royalty model, it's always a possibility since we focus on intellectual property for our seeds. This option could expand into different territories, specifically for GLASO in the U.S. We aim to control our product process and deliver directly to customers.

If you don't mind, I've got a couple more. It looks like the T3 for piggy soy is really strong again, around that 20% level. Is that a reasonable expectation for when you get to T6?

I'm glad you are focusing on the level of expression. The level of expression is one of our main KPIs. Initially, we aimed for 5%, so now talking about 20% is amazing. I'll pass it to Amit to clarify further.

Great question, Brian. We expect the expression levels to stabilize around the 20% level. Field trials will help solidify this expectation, and there is also the potential for even higher levels due to proper conditions in the field. We are optimistic based on our observations.

Jose, on a finance question, revenue was higher than expected, and gross margin was a bit higher than expected this quarter. Should we think about how to approach cash flow with the upcoming harvest?

The impact of the drought in Argentina will be felt for the next few months. In terms of cash burn, we will maintain controlled cash flow as we have historically done while supporting our R&D pipeline. There may be an increase in cash burn, especially related to the GLASO campaign starting mid-calendar year 2024.

Thanks! One last question, could you share your thoughts on the potential impacts of the recent economic reforms in Argentina on the business?

It’s too soon to tell. The government just took office, and there was a devaluation of the Argentine peso. Moolec has limited exposure to Argentina so the effects may not be significant, but we will know more as measures unfold.

Congrats again on all the progress and thanks for letting me ask some questions.

Thank you, Brian. We appreciate your engagement.

Can you discuss your relationships with third-party labs? How many are still in use and where are they located?

We are still using several third-party labs, including the Wisconsin Crop Innovation Center in Madison, a lab in Washington State University, and others in Argentina and the U.K. It’s important to have our lab to concentrate our efforts, achieve cost savings, and retain control of our intellectual property. However, we will continue utilizing third-party labs when it makes sense financially.

Continuing from Gaston, maintaining relationships with third-party labs allows us to innovate and explore additional ideas, though our goal is to control costs and generate intellectual property value.

We have another question coming in. Could you elaborate on the significance of transitioning from greenhouses to field trials?

Transitioning to field trials is critical for confirming performance and expression levels while targeting commodity pricing. It's essential for regulatory processes and reinforces our competitive advantage regarding cost. Amit can provide more details.

Moving from controlled environments to field trials is part of our pipeline process to determine the best-performing seeds. Field production will allow us to achieve commodity prices and ensure stability and expression levels.

Another question: What are the major operating metrics that investors should focus on each quarter and annually?

There are not just one but several pillars to consider for our value creation. I’ll hand it over to Jose to elaborate.

The pillars of value creation at Moolec are product development and science, regulatory progress, intellectual property generation, and building strategic relationships with market players. Each pillar has key metrics we continuously monitor to ensure value creation.

At this time, we are showing no further questions. We want to thank everyone for joining our first quarter fiscal '24 conference call.

Thank you all for joining us today on our conference call. We are excited about our prospects and the hard work to execute our strategies and bring value to stakeholders. Thank you again for your support, and I look forward to updating you next quarter. Happy holidays. Have a great day.

Thanks, everybody. You can now disconnect.