Moolec Science - Q2 2024

Transcript

Stephanie Oshchepkov (VP of Investor Relations)

Good morning, and welcome to Moolec Science's second quarter 2024 conference call. My name is Stephanie Oshchepkov of ICR's Strategic Communication & Advisory. During this conference call, all participant lines will be muted until after the management's remarks, when there will be a question and answer session. Please also note that today's session is being recorded. Today, Moolec announced its second quarter fiscal year 2024 business highlights. The document is now available on the company's investor relations website at ir.moolecscience.com. This morning, you will be hearing from Gastón Paladini, Chief Executive Officer and Co-founder of Moolec Science, together with José López Lecube, Chief Financial Officer, and Amit Dhingra, Chief Science Officer. Henk Hoogenkamp, Chief Product Officer, will also be joining the subsequent question and answer session to be held immediately after the business update remarks.

In today's call, we will be referring to a presentation that is available on the company's investor relations website. Moving on to slide two. 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, statements about 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 three, I would like to turn the call over to Moolec's CEO, Gastón. Please go ahead.

Gastón Paladini (CEO and Co-Founder)

Thank you, Stephanie, and good morning, everyone. I am glad to present to our attending audience our latest business update. As we have been doing over the last couple of conferences, today's agenda will address three different topics. First, I will give a quick review of Moolec strategic pillars for value creation. Second, Amit will walk you through our latest scientific and operational developments. And finally, José will present our financial highlights from Q2. Here, I would like to take the opportunity to reintroduce our framework for value creation. Let's move now to slide five. This framework not only organize, but also illustrate the way in which we are creating value for all of our stakeholders. We have refined our current business strategy into four foundational pillars. Allow me to provide a more detailed overview. Number one, product development.

This pillar include research and development, product creation and improvement, and associated processes to ensure the highest standard of food and environmental safety and quality. Our primary focus is on developing disruptive solutions using innovative technology for the food industry. Number two, patent portfolio. Our strategy objective is to evolve into an IP powerhouse. R&D is feeding our portfolio, and we incorporate a wide spectrum of patents that covers methods, processes, and applications. We continuously screen the market to identify the most valuable geographic areas for our IP efforts, ensuring our assets align with market demands. Third, regulatory pathway. We possesses deep knowledge and expertise in navigating regulatory approval processes, such as those with the FDA and the USDA in the United States, among, of course, other territories as well. Our objective is to navigate the regulatory landscape swiftly and efficiently, maintaining compliance while minimizing time to market.

Number 4, strategic alliances. Building a strategic partnership with leading industry players is crucial to accelerate and complement our business. These alliances are pivotal for the exchange of technology, expertise, and industrial processes, ultimately enhancing our competitiveness in the market. This framework is our roadmap for planning and execution, providing a comprehensive and focused approach to achieving our objectives. Before I hand over to Amit to discuss operational progress, let's move to slide number six, where we will examine the status of our pipeline. As illustrated, most of the projects maintain their status, with notable internal progress in GLASO and SOOY1. However, I would like to highlight the exceptional advancement in YEEA1 project, specifically in progression in product development. Now, I leave you with Amit Dhingra, Moolec's Chief Science Officer, who will provide a thorough overview of our technical and operational advancement.

Amit Dhingra (CSO)

Thank you, Gastón. Greetings to all of you. We will move now to slide eight. I'm excited to present our technical and operational milestones... We continue to make progress on our Piggy Sooy platform. We are getting ready to harvest the fourth generation, or T4 seeds, in April this year. In the meantime, our team performed analysis on the stability of the porcine myoglobin gene. The gene is no longer segregating, which means that it is genetically stable in the selected lines. I am also excited to share that the integration of the bovine myoglobin gene has now been confirmed in several first-generation, T1, or second-generation, T2 seeds, indicating that the myoglobin gene is being stably integrated across the generations. Moving now to slide nine, I'm excited to provide an update on Moolec's prototyping division using our novel yeast platform.

Our objective is to identify high-value applications for a yeast strain that's new to the food industry. This platform not only finds value for a novel microorganism, but also paves the way for future target molecules to be economically viable by distributing overhead costs across multiple products. Specifically, we have found traits in this yeast strain, which allowed us to adapt standard processing techniques to produce an iron supplement that's novel to the market. Preliminary data is promising, indicating that this supplement could approach the efficacy and cost efficiency of traditional animal-derived nutritional supplements, particularly in terms of iron absorption. A regulatory pre-submission meeting was held with the FDA. We feel encouraged to continue our efforts. On to slide 10. Our immediate focus is on scaling our production. We plan to produce successive batches at the pilot level, ultimately increasing the capacity to 1,000-liter batches.

These larger batches will allow us to create standardized prototypes, which will be thoroughly characterized. The insights gained from the characterization will be instrumental in finalizing our safety dossier and more precise cost computations. Additionally, we aim to leverage any surplus material by offering our samples to potential partners and stakeholders. Now, I will pass on the presentation to my colleague and our CFO, José. Thank you.

José López Lecube (CFO)

Thank you, Amit, and good morning to everyone. It is a pleasure to be providing this business update of Moolec for the second quarter of fiscal year 2024. Today, I would like to take some time to review our latest highlights with regards to revenues, expenses, and cash utilization. Please keep in mind that all figures mentioned today are in US dollars, unaudited, and based or derived from IFRS, unless otherwise stated. Let's move on now to slide 12. Before we deep dive into the numbers, I would like to point out that in this quarter's financials, we are also introducing normalized figures that exclude the effect of the application of IAS 29 accounting in our Argentine subsidiary, which has the Argentine peso as functional currency.

For those of you not familiar with IAS 29, it is an accounting adjustment applied in hyperinflationary economies, which utilizes the end-of-period exchange rate to convert revenues and expenses into U.S. dollars. For this period, given that the Argentine peso was devalued 125% in the last 15 days of the quarter, it affects our as-reported numbers in a way that we understand does not reflect the evolution of the underlying business. Moolec's subsidiary is located in Argentina, but the business mostly operates in U.S. dollars, given its product export nature and its raw material procurement needs. In this sense, we believe that normalized revenues and COGS, excluding the IAS 29 effect, better reflect the reality of the business. Moving on now to the performance of the operations.

During this second quarter, we continued originating soybean efficiently and delivering a sustained coverage of the existing commercial geographic footprint. Normalized revenues and other income, excluding IAS 29 effect, were around $1.7 million, generally in line versus last quarter, with a slight decrease in volume. On the other hand, as reported, revenues and other income were approximately $0.5 million. As mentioned before, this decline is mainly due to the application of IAS 29 accounting. In terms of COGS, excluding IAS 29 figures decreased versus last quarter, mainly due to lower value of inventories of our subsidiary in Argentina as a result of the devaluation of the local currency at the end of the period. SG&A expenses have remained generally in line with our historical track record, with no significant changes, continuing an efficient trend of low expenditure while supporting the company's progress.

In particular, R&D expenses increased slightly quarter-over-quarter, but partially offset by lower admin and marketing expenses. Cash utilization was approximately $4 million, which remains in line with our historical track record of controlled cash expenses, and it also includes around $2.7 million in non-recurring payments associated with transaction expenses. Finally, during December 2023, Moolec raised an additional $1 million through the issuance of a convertible note with farmers. The terms and conditions were the same as the previous capital raise, closed with strategic investors, Grupo Insud and Bioceres Crop Solutions, for $30 million. We are very pleased with the incorporation of these strategic investors, most recently farmers, who will be instrumental not only in our funding health, but also contribute to support Moolec product growth and commercialization in the near future.

I will now turn things over to Stephanie for the Q&A portion of our call. Thank you.

Stephanie Oshchepkov (VP of Investor Relations)

Thank you, José. At this time, our management will be taking questions. You may submit questions through the chat box, submitting your name and firm in the chat, or by using the hand-raising function. Please be advised that we will ask you to unmute your line to ask your question. We ask those who would like to participate in the Q&A, if your name and firm is not indicated below your image, please right-click your image, click Rename, and enter your firm and full name before asking a question. Again, you may submit questions through the chat box or use the hand-raising function. Thank you. Before we take questions from the live queue, we have received a few questions via email. So first question for management: "In the business update, you highlighted SOOY1, 10 T3 events, and that the T4 seeds will be harvested in April.

What do you expect or hope to see in the T4 seeds, and what is next for your soy product?

Gastón Paladini (CEO and Co-Founder)

Well, thank you, Stephanie, and thank you for the question. Good morning to everyone. Well, I'm very happy to have Piggy Sooy on track. So, I will leave the floor to Amit Dhingra to fully explain what is next, our following steps. So moving from T1 or T-- sorry, to T4 onwards. So, Amit, could you please explain the details of this project?

Amit Dhingra (CSO)

Certainly. Thank you, Gastón. Good morning, everyone. There are two parts to this as we are moving towards T4 seeds. There is the scientific part that we continue to perform quality control, to look at the expression levels, as well as the integration of the porcine myoglobin on one side. And secondly, we will have enough seed this time now to start utilizing it for downstream. And we will be passing on a lot of that seed material to my colleague, Henk, who's the Chief Product Officer, and he can elaborate on that, how will the seed be utilized in various applications. Over to you, Henk. Thank you.

Henk Hoogenkamp (CPO)

Thank you, Amit. Good morning, everybody. So of course, I'd like to add with that, I'm very excited that we're getting more seeds to start the actual development processes on finding applications, but also sparing some seed to start sending to our most important pre-commercial customers. So, first of all, or second of all, I might also like to say, is that the efforts led by Amit to scale up the seeds will also yield in a growing amounts of samples that are available for our customers so that we can scale along with them. So this is, this means that the sampling process has begun, and we're very confident that we can meet the needs of, of, of-

Stephanie Oshchepkov (VP of Investor Relations)

Great. Thank you for your answer. The second question that we have through email, it says: "In this quarter's presentation, you highlighted your yeast product, YEEA1. Can you help us better understand your next steps there? What final steps are needed to enter commercialization? And help us understand that opportunity. What kind of customers or market size are you seeing?

Gastón Paladini (CEO and Co-Founder)

Well, thank you, Stephanie, and thank you for the question. Continue talking about our pipeline status and the next step. I'm happy to say that Henk Hoogenkamp is leading this specific project in Europe, mostly based in Europe. So, Henk, could you please explain the details of YEEA1, and also highlighting, of course, the market opportunity that is very, very exciting? Henk, go ahead.

Henk Hoogenkamp (CPO)

Thank you. Thank you, Gastón. Also, thanks for the question. Basically, our immediate priority is to scale up our process, which is planned in the coming quarter. The scaling up will yield a characterized prototype. So this is a prototype that can be used for the further refinement of our safety dossier, a further understanding of the characteristics, and any excess samples can be then shared with our potential customers in the pre-commercial processes. Parallelly, we're having continuous regulatory refinements and consultations, as Amit already mentioned in the presentation. This is really important because everything that we try and do is always tried with full regulatory compliance in mind or finding the path of least regulatory resistance.

In terms of the markets, our initial target is the iron supplementation, but also, fortification market, which has a rough size about $1 billion. Of course, this market access is something that is really important to us. So it's also worth noting that our strategic partner, Grupo Insud, who is not only providing the industrial capacities to scale up and to produce fully compliant qualities, they also have access to the market through their portfolio companies. So this is actually a fairly closed loop in terms of from beginning to end, from product idea to production, to potential market access. And that's what we're really focused on right now, to close the gap.

Stephanie Oshchepkov (VP of Investor Relations)

Great, thank you. So, we are gonna be taking questions from the live queue now. I see a question from Thomas McGovern of Maxim Group. At this time, I'm going to give you permission to speak live and ask your questions live on the call. If you can unmute your line, you may ask your question live, Brian.

Thomas McGovern (Equity Research Associate)

All right, guys. Thanks for taking my question. So yeah, first question is related to the Gulfood trade show and those associated 50 qualified leads that you mentioned in the press release. So I was wondering if you could just give a little bit more detail on that, you know, kind of where those qualified leads are at. And then maybe if you could talk a little bit about which ingredient and product specifically those leads are interested in purchasing. Thanks.

Gastón Paladini (CEO and Co-Founder)

Sure. Well, thank you, Thomas, for the question. I will take the second one, and then Hank will elaborate on the Gulfood trade show because he attended the show personally in Dubai. Well, the ingredient products are soy-based meat analogues, mostly. We have been developing new techs and improvements of our current products. So mostly we use Gulfood trade show to present these innovative and new samples. But nobody better than Hank to fully explain the show and to give you some insight and good info about what happened there in Dubai. Hank?

Henk Hoogenkamp (CPO)

Thank you. So also, thanks for the question. In this case, the Gulfood is one of the leading shows for people all over the world, let's say, aggregate. Also, it's a really important show where, you know, where ingredients are showed not only for, let's say, niche applications, but for the large market, in this case, for meat replacement. And the meat replacement market is not in terms of plant-based, you know, for the plant-based movement, but is basically the huge market to target, to make meat affordable. And that's where currently our meat replacers are selling into the market, into, I believe, currently 11 countries worldwide. And this show is where people aggregate.

So when we have an innovation or at least an iterative improvement all the way up to an innovation, this is a show where you show—where you demonstrate this in person. You talk to customers live, you get live feedback, you start to talk to them what their problems are in terms of either from pricing, all the way to texture, to functional applications. And here's where you get... Yeah, the live feedback is very valuable, you know, in that sense. Also, it's the best place to find new qualified leads in terms of new markets which we haven't accessed before.

It's not only about showing the, you know, the commodities that we have currently in the market, but also our path to specialties which we're currently developing, you know, to have a real-time sense of how it's being received by these potential new markets that we're trying to access.

Stephanie Oshchepkov (VP of Investor Relations)

All right, and,

Thomas McGovern (Equity Research Associate)

I appreciate the response. Yeah, so my second question relates just kinda more generally to, you know, the commercialization of, of several of your planned products. So, you know, in the past, you guys have discussed plans to kinda start to ramp up or fortify your sales and marketing efforts ahead of these commercial launches. So maybe if you could just, you know, review that, kind of give any updates on, on that front and just, you know, just high level, kind of what your plans are for expanding your sales and marketing teams. Appreciate it, guys.

Gastón Paladini (CEO and Co-Founder)

Sure. Good question, Thomas. Well, this is a B2B business, so and a mostly food and dietary supplement business. So that imply to deliver samples. That's the key to capturing new customers and to engage potential clients. Having said that, what we are doing is co-working with the R&D departments of these potential customers. I can't reveal the names yet, but most of them, these specific things take time, you know? So that's what we are doing as we speak. Co-working with them, delivering samples, preparing more samples, and characterization information of the specific ingredients and deliver that samples to customers.

In parallel, we work specifically in commercial terms, in Master Supplies Agreements, in MPAs, in Material Transfer Agreements. So, that's how the plan goes, and that's what we are doing, as we speak, as I said, you know. The idea is to strengthen the commercial and sales team since you said, as you said, you're getting closer to commercialization. So that will be my short answer. I don't know, José, if you want to expand on that.

José López Lecube (CFO)

No, sure, Gastón, thank you. Tom, what I would add here is that within the current team, there is a huge expertise in terms of the ingredient business and market. And we have that, you know, in Henk's shoulders, and we have other people in the team with a lot of years and seasoned professionals in the ingredient business. So, we believe we are having very interesting conversations and in the way we should be having these conversations with market participants in the food business. As we get maybe closer to the commercialization of GLASO, and that would be, remember, you know, beginning of 2025, yes, you know, we might have some corporations to support that expansion in terms of the relationship specifically attached to the GLASO product.

But again, you know, I would reinforce and highlight the great knowledge in terms of commercial and in terms of expertise into the specific market that we have currently in the team, that will be, you know, later this year, strengthened with people more focused on the GLASO business.

Thomas McGovern (Equity Research Associate)

Understood. I appreciate you guys taking the time to answer my questions.

Stephanie Oshchepkov (VP of Investor Relations)

Thank you.

Gastón Paladini (CEO and Co-Founder)

Pleasure.

Stephanie Oshchepkov (VP of Investor Relations)

As a reminder, as a reminder, you can ask a question through the chat box or by using the hand-raising function. We have one other question that is in through our email. This is for the management: What is the market not understanding adequately about your business?

Gastón Paladini (CEO and Co-Founder)

Well, thank you, Stephanie, and thank you for the question. I think it's a good one. I will take it, and probably my, my partners here will complement on that. I will say that there is three facts to highlight. The first one is the huge TAM and SAM market opportunity ahead. We're talking about more than $8 billion TAM market and around $40 billion SAM market. And this is, of course, as Henk said, considering food, meat applications, and not only just the vegan or alternative protein niche, this is the opportunity is huge. And also consider, of course, the sustainable trend. Second fact, the extraordinary yield in soy that we got with the Piggy Sooy platform.

26.6% of porcine protein over total soluble protein is a lot, is huge. Breakthrough, this is a no-brainer. So, we patent it, and the product is moving forward, as Amit described it before. And third, lastly, the third fact would be that this team, that we are representing the team here, but there is a great team of PhDs, and food technologists, and professionals in Moolec, is delivering milestones and getting this product pipeline closer to commercialization. So I will summarize these three facts to answer the question. Of course, there are more, but these are the most important ones. I don't know if my partners here would want to comment on that, but that would be my short answer.

José López Lecube (CFO)

Well, I would add, Gastón, on top of that, that in the last couple of months, I would say in the last year or year and a half, this company has been delivering results that de-risk the go-to-market strategy. And by delivering on the execution front, we are getting closer and closer to different, to the different stages of commercialization, you know. First, the revenue that we're generating, second, it will be GLASO, as we mentioned before, beginning of 2025, and then the other products related to the Molecular Farming platform.

Having said that, the milestone that we have delivered in terms of science, with extraordinary yields in terms of animal protein present in the plants, the progress on the regulatory front, the progress on the IP front, that all encompasses a good execution and de-risks the go-to-market. So we believe that that has a lot of intrinsic value. And going back to your question, we believe that probably the market is not fully understanding the way, the value of that.

Stephanie Oshchepkov (VP of Investor Relations)

Thank you, management. I would like to conclude today's call as there are no further questions at this time, and I will hand the call back to Moolec's CEO, Gastón, for a few closing remarks.

Gastón Paladini (CEO and Co-Founder)

Okay. Yes. Okay, if there is no further question, I want to thank you all for joining us today, this conference call. We at Moolec continue to work hard on all avenues, and there's a lot, as you know, and continue to be excited, really excited about the many opportunities that we see ahead. We are working diligent with our teams and partners to execute our strategies and bringing value to our all stakeholders. I also want to thank and express my thanks to all the Moolec team, the Moolecers, also to our partners, investors, and the analysts, of course. Very grateful for that, for your continued support and help, helping us to spread the word to fully explain the Moolec technology and the opportunity ahead.

Thank you for that. Thanks again for joining us today. I'm really looking forward to updating you in the next quarter. So as I always say, "The best is yet to come." Thank you. Have a good day.

Stephanie Oshchepkov (VP of Investor Relations)

This concludes Moolec Business Update Conference Call.