Moolec Science SA Q3 FY2024 Earnings Call

This morning, you will hear from Gaston Paladini, Chief Executive Officer and Co-Founder of Moolec Science, together with Jose Lopez Lecube, Chief Financial Officer and Amit Dhingra, Chief Science Officer. In today's call, we will be referring to a presentation that is available on the company's Investor Relations website. Moving to Slide 2, this conference call is mainly for informational purposes. And during this call, the company will be making forward-looking statements regarding future events and results, which are not historical facts and include, but are not limited to, the company's beliefs and expectations. Forward-looking statements involve inherent risks and uncertainties. Further information regarding these and other risks are included in the company's annual report on Form 20-F filed with the SEC, also available on the company's investor relations website. Now, moving to Slide 3, I would like to turn the call over to Moolec's CEO, Gaston. Please go ahead.

Thank you, Bill, and good morning to everyone. It's a pleasure to once again provide our latest business update. Today's agenda will address three main topics. First, I will highlight our outstanding progress on Piggy Sooy. Second, Amit Dhingra, Moolec's Chief Science Officer, will walk you through our highlights on the safflower platform. And finally, Jose Lopez Lecube, our Chief Financial Officer, will present our financial highlights from Q3. Let's move now to the next slide. I want to share with you how proud I am of our team's consistent execution on all fronts. Today, I would like to emphasize our groundbreaking success on the regulatory pathway with our achievement of Piggy Sooy. I cannot truly describe how significant an accomplishment it is to be the first company in the industry to obtain regulatory approval of this kind from the USDA-APHIS. As I said before in the press release on this topic, Moolec is unlocking the power of plants by leveraging science to address climate change and global food security concerns. I am very proud of the Moolec team for creating value for the shareholders and the planet simultaneously while rewriting the history of biotechnology. With this approval, USDA-APHIS has determined that Piggy Sooy is unlikely to pose increased plant pest risk related to non-engineered soybeans, thus giving Moolec a green light to move and ship our products without individual permits relating to the APHIS regulation. For those new to our story, Moolec developed a unique and patented soybean platform technology under the trademark Piggy Sooy. Our scientific team has achieved a high level of expression of animal meat proteins in soybeans, where the seeds exhibited protein expression levels of up to 26.6% of the total soybean protein. Now, turn to the next slide so we can share with you why we believe Piggy Sooy is relevant for our planet. At Moolec, we work daily with the mission to create food ingredients that can have a positive impact on the food industry's environmental footprint and further strengthen food security. First of all, the industry is already growing soybeans to feed pigs, which are then slaughtered to produce processed meat products and cuts of meat. It is estimated that roughly 1 acre of traditional soybean can feed 10 pigs used for livestock. To produce this livestock, it is estimated that more than 60,000 liters of water are required, and that this process produces around 550 kilograms of CO2 equivalent emissions. Now, talking about Moolec, in contrast, if we farm 1 acre of Piggy Sooy, this acre could potentially produce pork meat proteins equivalent to the same 10 pigs while not requiring any additional water to produce them and will not produce extra CO2 emissions. Isn’t that amazing? Turn with me to the next slide to see what we understand is the value proposition of Piggy Sooy. I would like to provide one perspective on the attractive value presented by our Piggy Sooy platform and why we are confident in its market potential going forward. This is currently how the industry operates. As highlighted in the previous slide, the industry consumes a significant amount of soybeans used as animal feed to support livestock, which is later slaughtered for meat. The industry is also using traditional soy protein ingredients, which are generic soy commodity plants used as meat extenders or fillers in processed meat products such as sausages, burgers, nuggets, meatballs, dumplings, and so on. By the way, these kinds of products represent 70% of the $1 trillion global meat market. That's huge—a $700 billion market. These traditional soy protein ingredients contain no meat flavors or other meat properties when compared to meat and need to be mixed with extra ingredients, mostly chemicals, colorants, and flavorings, in order to provide different functionalities to processed meat products. By the way, I am very well acquainted with this traditional meat industry since I am part of the fourth generation of one of the largest processed meat players in South America, Paladin. So now let's talk about Moolec and what we'll offer. Moolec will leverage the commodity supply chain, introducing science at the beginning of the value chain with new ingredients for food companies. Remember, we started with seeds, and how will we do this? Well, Piggy Sooy will be a unique product used in place of ingredients with a higher level of nutrition, which could potentially replicate the same iron content, flavor, and color as true meat. As a result, food processors could replace part or eventually all additives used for coloring and flavoring, as well as real meat from slaughterhouses. Now I leave you with Amit Dhingra, Moolec's Chief Science Officer, who will provide an overview of Moolec Science and Piggy Sooy milestones and highlights from the safflower platform.

Thank you, Gaston, and good morning to everyone. As critical as our regulatory approval milestone is, we continue to work on commercializing our product. I want to emphasize our team's excellent track record of effectively delivering on scientific and product development milestones. From the discovery stage in 2020 to the planned transformation stage, regulatory approval applications, and patent applications, we have consistently produced results and continue to build our intellectual property portfolio and file regulatory applications in other territories. With the approval from the USDA-APHIS, we started field trials at three different locations in May 2024, using fourth-generation seeds. Everything is progressing on schedule and as originally planned. Starting next year, we will strategize the breeding of the selected events and scale up the production in two to four years. The commercialization process is likely to begin in 2027 or 2028. We look forward to updating you on our progress and implementation of our plans in subsequent business updates. Moving on to the next slide, I would like to highlight our recent achievements for Moolec's safflower platform regarding product development and intellectual property. Moving on to Slide 10, I will begin with our team's progress on gamma-linolenic acid, safflower oil or GLASO. This nutritional oil has many varied applications, such as dietary supplements and functional foods, cosmetic and personal care, pharmaceutical industry, food and beverage, animal nutrition, and others. We are proud to share that our GLASO is now in the pre-commercialization stages. In February of 2024, we started trial production of GLASO at our processing facility as we optimized, processed, and produced roughly 5 tons of material to develop pre-commercial collaborations. We began planting in April and May 2024. We have successfully contracted 600 acres of production with key growers to plant GLASO seeds for crushing purposes. We have additionally contracted another 60 acres, which have been planted for seed production. We used roughly 200 tons to 400 tons of safflower during this production season. Shortly before the year ends, we plan to harvest, crush, and market our 2024 GLASO seeds as we engage with potential customers and partners. Now to the next slide, I would like to highlight our exciting progress on the SPC2 product. Two U.S. patents were granted for SPC2. These patents extend the protection of our technology and processes that were used to increase the expression levels in safflower seeds until 2041. Building up our intellectual property portfolio is one of the strategic pillars at Moolec. To protect our leading-edge innovations in the coming years, we continue to pursue patents for all technologies and processes across strategic geographies. Now, I'd like to turn the presentation over to my colleague, Jose, for the financial overview. Thank you very much.

Thank you, Amit, and good morning to everyone. It is a pleasure to provide this business update of Moolec for the third quarter of fiscal year 2024. Today, I would like to review our latest highlights regarding revenues, expenses, and cash utilization. In particular, we are introducing year-over-year figures alongside quarter-over-quarter comparisons as we have completed four quarters of reporting as a public company. We are confident that this change in how we report progress at Moolec will provide our stakeholders with a more comprehensive understanding of the evolution of the business, given that year-over-year comparisons offer a clearer view of the company's progress. Please keep in mind that all figures mentioned today are in U.S. dollars, unaudited, and based on or derived from IFRS unless otherwise stated. Let's move on now to Slide 13. During the third quarter, normalized revenues and other income, excluding IAS29, increased year-over-year from nil to approximately $1.3 million. This increase was due to the consolidation of the soy protein ingredient business, which occurred in April 2023. Normalized costs of goods sold also increased year-over-year from nil to close to $1 million, resulting in a gross margin of around 18%. Regarding expenses for this quarter, SG&A and R&D have increased to $2.3 million from $1.4 million in Q3 2023. This increase is mainly related to non-cash items such as depreciation, amortization, and equity incentives, as well as the consolidation of the soy ingredient business. We continue to be confident in our conservative approach to expenses while delivering significant milestones and supporting company growth. In terms of cash utilization, operational cash flow this quarter was approximately $2.7 million, which includes close to $1.4 million allocated to lower accounts payable mainly related to transaction costs. On a year-over-year basis, operational cash utilization has decreased from $4.2 million in Q3 2023, as this quarter we have had significantly lower cash payments associated with listing costs. Finally, our cash position of approximately $4.3 million as of Q3 2024 was strengthened by approximately $2 million of additional funding received during the end of April 2024, as a result of utilizing the equity line of credit in place with Moolec. We are very pleased with how Moolec continues to deliver significant milestones such as the USDA-APHIS regulatory approval of Piggy Sooy while maintaining an adequate corporate structure and a cost-efficient strategy. I will now turn things over to Bill for the Q&A portion of our call. Thank you.

At this time, our management will be taking questions. You may submit questions through the Q&A chat box by submitting your name and firm in the chat and typing your question. Please be advised that we will ask you to unmute your line to ask your question live. We ask those who would like to participate in the Q&A, if your name and firm are not indicated on your profile, please submit your name and firm in the Q&A before asking a question. Again, you may submit questions through the Q&A chat box.

Before we take questions from the live queue, we have received a few questions via email. The first question is as follows: This quarter, you highlighted USDA approval for Piggy Sooy. Can you provide more color on the significance of this achievement, what's next, and the opportunity you see?

We are really happy to be the first molecular farming company to achieve this kind of USDA approval. The U.S. government and the agencies have indicated to us that there's no such pest risk in planting our animal proteins in U.S. soil. I am very pleased about this. Personally, I believe this achievement goes beyond Moolec. I'm quite proud of Amit, Martin Salinas, Hank, Bruce, and the entire Moolec team for achieving this great milestone because I genuinely believe they are making history in biotechnology. They are unlocking molecular farming food by obtaining this kind of approvals. So what's next? In terms of operations, we are planting, as we speak, Piggy Sooy in three different locations in the United States without permits, as it is now approved. That will bring valuable information regarding product development and the next steps for regulatory approval from the FDA. We have already initiated conversations with the FDA, and I am quite optimistic about how our regulatory team works. I am very excited to continue providing information to regulators. We are pushing this product from a batch of seeds to balance and commercialization. Thank you for the question and again, I am very pleased, and I take this opportunity to congratulate Moolec's team on this great milestone during this earnings call.

In the business update, you mentioned GLASO was in pre-commercialization stages. Can you talk more about the types of customers and timing of commercialization for GLASO?

Sure. Yes, GLASO is in the pre-commercialization stages. The type of customers for GLASO and GLA will include pet food companies, dietary supplement manufacturers, and ingredient companies that blend nutritional oils, not only omega 6, that's GLA GLASO, but also omega 3, which is very complementary to EPA and DHA omega 3 oils. Nutritional beverages will also be another application, along with some specific food applications. Therefore, potential customers are all around this category of products. Additionally, as you mentioned in your question, we are working hard to hit the market with GLASO. We are planting around 600 acres in Idaho, U.S., for commercial purposes and are actively engaging in conversations with customers to enter the market, hopefully, by early 2025. We are working diligently to deliver. Moolec is a science-based food ingredient company, and this is undoubtedly a scientifically innovative product with a large market—understanding that the GLA market is approximately $1.5 billion globally per year. So, the opportunity is quite significant.

On Piggy Sooy, when can you expect commitments from customers? Have you had feedback from potential customers so far?

Good question. It's hard to specify the exact timing of customer commitments, but I can say that we are receiving very positive feedback from potential customers and different stakeholders who are very interested in receiving samples of Piggy Sooy. We have already begun delivering some samples, but we haven't had many seeds to crush and deliver samples. Therefore, we are actually multiplying seeds to increase our supply. This is happening as we speak. In our field trials, we are also generating more seeds to crush and prepare samples for potential customers. Moolec is a science-based company, but it's also an ingredient company that understands the ingredient business. This is how the ingredient business operates: You need to deliver samples and collaborate with established players, working closely with their R&D departments, and that relationship takes time. We are in great conversations regarding Piggy Sooy, but we must take it step by step.

Now we're going to take our first question from the live queue. The first question comes from Thomas McGovern at Maxim Group. Thomas, at this time, we ask.

Sorry, William, to interrupt, but I saw Scott Fortune raising his hand since the beginning of the earnings call. Sorry, Thomas, but I would prefer to prioritize Scott's question, if you don't mind, William.

That's fine. We can go — we'll take Thomas next. So, we'll go to Scott Fortune at Roth MKM. Scott, please unmute your line and proceed.

I appreciate all the insights and the progress you've made here, but could you provide a little more color on the conversations you're having regarding ingredient foods and dietary supplements? I know you've provided samples to those different companies. I'm looking for feedback on what those conversations have been like as you aim for this commercialization of GLASO in early 2025.

Unfortunately, I can't reveal any names at this moment regarding these potential customers. However, what I can say is that we are, in some cases, working to finalize off-take agreements and some commercial agreements. So, that will definitely be part of our commercial conversations, and that is essential for Moolec to progress and move forward with the commercialization of these products. As for Piggy Sooy, we are receiving interest from multiple sources. Our primary focus remains on food applications. However, it's important to remember that soybean is a very well understood ingredient for feed, pet food, and some other applications as well. So, we also have interest from different industries. Nonetheless, our priority is the food sector, and I will keep you updated on GLASO's progress in the subsequent business updates or calls.

One more question, if I may. Could you provide insight into the YEA1 scale-up process and the timeline to reach characterization prototypes for regulatory compliance? An update on that side of the business would be helpful.

Sure. Yes. YEA1 is on track. We previously used our last business update to discuss YEA1 in greater detail. We are currently scaling up this product with our partner, Grupo Insud, in Europe. We are utilizing their facilities to scale up this product, and that scale-up stage will also provide us with samples and information for regulators in the United States. Much like Piggy Sooy, we are working on multiple fronts with regulators, keeping open channels to provide information on both products. This process is moving along nicely, but we must respect the regulatory pathways and frameworks. I am quite satisfied with the performance of our regulatory team, which is led by David Herron—our regulatory advisor. We are managing multiple regulatory pathways for YEA1 simultaneously. While we cannot guarantee timing, I will note that the yeast products may potentially progress faster than plants, as they operate in a controlled environment, whereas plants require more time to respect biological cycles and multiplication. In summary, we are advancing YEA1 and Piggy Sooy while moving forward with our regulatory engagements in parallel and providing information to support these initiatives.

Thank you, and congratulations again on the USDA approval—it’s a significant step for advancing molecular farming within the industry.

Our next question comes from Thomas McGovern at Maxim Group.

A lot of my high-level questions were addressed. I wanted to focus now on Argentina's economy as a whole right now. In April, for the first time in six months, Argentina achieved a single-digit inflation rate on a monthly basis. I was curious how your outlook on the hyperinflationary environment in Argentina has changed in recent months and if you anticipate that this declining trend in inflation rates will materially impact Moolec as we move through the calendar year and into 2025.

I will leave that for Jose to elaborate on regarding inflation rates and business in Argentina. However, I can state that inflation in Argentina is decreasing for sure. An inflation rate of 8.8% is significantly better compared to the previous five months. Our President is currently in the U.S. working to enhance investment opportunities in Argentina, which is positive for the country. However, the main topic remains inflation and how the Argentine economy will recover. So, Jose, please go ahead and delve deeper into Thomas's question.

Moolec operates globally, with a presence in the U.S., Europe, and Argentina, which exposes us to foreign exchange movements and inflation. Our Argentine operation primarily generates revenue in U.S. dollars, so inflation movements shouldn't significantly affect our underlying business. However, we do have some costs denominated in local currency, Argentine pesos. Therefore, there is some exposure to inflation that passes through our cost structure. Conceptually, here’s what we can expect: when there’s devaluation of the Argentine peso, it has a positive impact on the cost side, as we have some costs that are incurred in Argentine pesos. Conversely, when inflation runs high, it raises our costs in Argentine pesos. Overall, it will come down to the interplay between devaluation and inflation. If devaluation outpaces inflation, it positively impacts our costs. If inflation is higher than devaluation, it may raise our costs on our P&L. However, I want to emphasize that our costs in Argentine pesos represent a small portion of our overall cost structure. Looking forward, it’s challenging to predict, but we are observing a gradual devaluation of the Argentine peso at approximately 3% per month, alongside a significant decline in inflation from 25% at the start of the year to single digits now. If this trend continues, we should observe a balance between inflation and devaluation, which could provide a degree of stability in real terms for the local currency.

At this time, it appears that there are no further questions. Therefore, I'd like to turn the call back over to Moolec's CEO, Gaston, for some closing remarks.

Thank you, William. I want to express my gratitude to Catalina Jones, our Chief of Staff & Sustainability Officer, for managing this extensive business update from our side, and also thank the ICR team for their ongoing support. I also thank everyone here, all the audience for joining us on today's conference call. We are very excited about this USDA approval. Moolec is undoubtedly at the forefront of molecular farming, and this proves that. I am also pleased that Moolec is providing value not only for the shareholders and stakeholders but also for the planet. Because if we farm Piggy Sooy, it can indeed be very beneficial for our planet regarding carbon and water footprints compared with traditional livestock. I come from the traditional meat industry, and I know this all too well. Paladini is one of the most recognized meat brands in Argentina, and I am very proud of my family business. However, we must realize that we need to find alternative solutions to produce the same animal proteins by using science and technology to address the challenges in our food system. We need to seize opportunities which reduce carbon and water footprints. That's precisely what Piggy Sooy does. So, returning to my closing remarks, I am delighted to share with you this solid execution by the Moolec team. We will continue to work diligently toward the next steps without a doubt. A big thank you also to our partners, investors, and analysts for their ongoing support and interest. Thanks again for joining us today. We look forward to updating you in the next quarter. Have a wonderful day, and good afternoon to our European followers. Thank you.

Thank you all. You may now disconnect.