Moolec Science - Q3 2024

Transcript

Operator (participant)

Good morning, and welcome to Moolec Science's third quarter 2024 conference call. My name is Bill Zima of ICR Strategic Communications and Advisory. During this conference call, all participant lines will be muted until 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 Science announced its third 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 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 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, Gaston. Please go ahead.

Gaston Paladini (CEO)

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 on our outstanding progress on Piggy Sooy. Second, Amit Dhingra, Moolec's Chief Science Officer, will walk you through our highlights on 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 hone in on our news-breaking success on the regulatory pathway with our achievement on Piggy Sooy. I cannot simply describe how big of 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 from this particular topic, Moolec is unlocking the power of plants by leveraging science to overcome climate change and global food security concerns. I am very proud of the Moolec team, creating value for the shareholders and the planet at the same time, while rewriting the history of biotechnology. With this approval, USDA APHIS RSR has deemed Piggy Sooy 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 the story, Moolec developed a unique and patented soybean platform technology under the trademark Piggy Sooy.

Our scientific team has achieved high level of expression of animal meat proteins in soybeans, where the seeds and exhibited porcine protein expression level up to 26.6% over total soybean protein. Now, turn to the next slide, so we can share with you why we understand Piggy Sooy is relevant for our planet. In Moolec, we work daily with the mission to create food ingredients that can make a positive impact on the food industry environmental footprint and further strengthen food security. First of all, the industry is already growing soybeans in order to feed pigs that are then slaughtered to produce processed meat products and cuts of meat. Roughly one 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 the process produce around 550 kilograms of CO2 equivalent emissions. Now, talking about Moolec, in contrast, if we achieve to farm 1 acre of Piggy Sooy, this acre could potentially produce pork meat proteins equivalent to the same 10 pigs as well, while not requiring any additional water to produce them and will not produce extra CO2 emissions. Is that amazing? Turn with me to the next slide to see what we understand is Piggy Sooy value proposition. I would like to give you one perspective on the attractive value presented by our Piggy Sooy platform and why we are confident it is a market potential going forward. This is currently how the industry works.

As highlighted in the previous slide, the industry consumes a significant amount of soybeans used as animal feed to support livestock, later slaughtered for meat. The industry is also using traditional soy protein ingredients, which are generic soy commodity plants used as meat extender or fillers in the processed meat products such as sausages, burger, nuggets, meatballs, dumplings, and so on.... By the way, this kind of product represent 70% of the trillion-dollar global meat market. That's huge, $700 billion market. These traditional soy protein ingredients contain no meat flavors and other meat properties when compared to meat, and need to be mixed with extra ingredients, mostly chemical, colorant, and flavoring, 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'm part of the fourth generation of one of the largest processed meat players in South America, Paladini. So now let's talk about Moolec and what Moolec will offer. Moolec will leverage commodity supply chains, introducing science at the beginning of the value chain as new ingredients for food companies. Remember, we are starting with seeds. And how we will do this? Well, Piggy Sooy will be a unique product used as a meat replacement, as an ingredient with a higher level of nutrition, could potentially boost 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 Chief Science Officer, who will provide an overview of Moolec Science and Piggy Sooy milestones on top of the safflower platform highlights. Amit, over to you.

Amit Dhingra (Chief Science Officer)

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 plant transformation stage, regulatory approval applications, and patent applications, we have consistently produced results and continued to build our IP 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, with 4th-generation seeds. Everything is progressing on schedule and as planned originally. Starting next year, we will strategize the breeding of the selected events and scale up the production in 2-4 years. The commercialization process will likely begin in 2027, 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 in terms of 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 2024, we started trial production of GLASO at our toll processor 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 expect to produce roughly 200-400 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 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 on 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.

Jose Lopez Lecube (CFO)

Thank you, Amit, and good morning to everyone. It is a pleasure to be providing this business update of Moolec for the third quarter of fiscal year 2024. Today, I would like to review our latest highlights with regards to revenues, expenses, and cash utilization. In particular, we are introducing year-over-year figures from quarter-over-quarter comparisons, as we have completed four quarters reporting as a public company. We are confident that this change in how we report the progress of Moolec will provide our stakeholders with a more comprehensive understanding of the evolution of the business, given that year-over-year comparisons offer a more stable view of the company progress. 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 13.

During the third quarter, normalized revenues and other income, excluding IAS 29, 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 increased as well on a year-over-year basis from nil to close to $1 million, resulting in a gross margin of around 18%. On the expenses front this quarter, SG&A and R&D have increased to $2.3 million from $1.4 million in Q3 2023. This increase in expenses 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, given that 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 the utilization of the equity line of credit in place with Nomura.

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.

Operator (participant)

Thank you, Jose. 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 is not indicated on your profile, please submit your name and firm in the Q&A box 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?

Gaston Paladini (CEO)

Well, thank you, William. Hi, everyone. Thank you for joining us today. A pleasure to be here with Moolec team. It's a very, very good question. We are really happy of being the first molecular farming company by achieving this kind of USDA approval. The U.S. government and the agency telling us that there's no such a pest risk in planting our animal proteins in U.S. soil. Very happy of that. I think personally that this achievement is beyond Moolec. I'm quite proud of Amit and Martin Salinas, Henk, and Bruce, and let's say all the Moolec team, to achieve this great milestone. Because I personally believe this, they are writing the history of biotechnology.

They are unlocking, in some way, molecular farming food by getting these kind of approvals. So what's next? Well, in terms of operations, field trials, we are planting, as we speak, Piggy Sooy in three different locations in the United States without permits, because now it's approved. That will bring us a lot of information in terms of product development. In terms of the next step of a regulatory front, that will be FDA. So we have already started conversation with the FDA, so we quite understand how the FDA framework works. I'm quite optimistic about how our regulatory team works. So really looking forward to continue providing information to regulators and pushing this product from a bunch of seeds to tons and commercialization.

Thank you for the question, and again, I'm very happy, and I take this opportunity to congratulate Moolec team now in this earnings call, for this great milestone. Thank you.

Operator (participant)

Thank you, Gaston. 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?

Gaston Paladini (CEO)

Sure, I could do that. Well, yes, GLASO product is in pre-commercialization stages. The type of customers for GLASO and GLA oil will be pet food, dietary supplementation, the companies that provide dietary supplements, ingredient companies that blend nutritional oils, not only omega-6, that's GLA GLASO, also omega-3 is very complementary to the EPA and DHA, omega-3 oils. And nutritional beverages, that would be another application as well, and some specific food applications. So, customers and potential customers are all around this category of products. And this, and as you said before, William, in the question, I don't know who is asking, but who is asking, but this is true.

We are very close to hit the market with GLASO. We are planting around 600 acres in Idaho, U.S., for commercial purposes, and in active conversation with customers to hit the market, hopefully by the beginning of the first part of the 2025 calendar year. We are working hard to deliver. Moolec is a science-based food ingredient company, and this is definitely a scientific product, a science-based product, and a huge market, understanding that the GLA market is around $1.5 billion globally per year, so the opportunity is quite big.

Operator (participant)

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

Gaston Paladini (CEO)

Good question. Well, it's hard to say a specific timing of customer commitments. But I can say that we are receiving very good feedback from potential customers and different stakeholders that are very interested in receiving samples of Piggy Sooy. Actually, we have already started delivering some samples, but we haven't had too many seeds to crush and deliver samples. So we are actually multiplying seeds, making a seed increase. Actually, this is happening as we speak. As I described before in our field trials, we are also increasing seeds to get more seeds to crush, prepare sample for potential customers. So Moolec is a science-based company, but it's an ingredient company.

It's playing in the ingredient business, and that's how the ingredient business work, you, you need to deliver samples, co-work with established players, co-work with the R&D departments, make the... and that relationship takes time. You know, this is not just plug and play. You need to co-work in some way with the, with the customers in the applications. We are in, in, in great conversations on, on Piggy Sooy, but, let's go step by step.

Operator (participant)

Okay, thank you, Gaston. Now we're gonna take our first question from the live queue. The first question comes from Thomas McGovern at Maxim Group. Thomas, at this time, we ask you-

Gaston Paladini (CEO)

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

Operator (participant)

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

Scott Fortune (Managing Director and Senior Research Analyst)

Thank you. Thank you for the questions. I appreciate all the color and the progress you've made here, but just provide a little more color on the conversations you're having with, you mentioned ingredient foods and dietary supplements. I know you've given out a number of samples and delivered kind of to those different companies, but just a little more color on how those conversations, what's the feedback for, you know, ahead of this GLASO, you're still looking to commercialize this in early 2025 here. That'd be, that'd be helpful from that standpoint. Thanks.

Gaston Paladini (CEO)

Sure. Well, good question, Scott. Unfortunately, I can't reveal names now about who these potential customers are. But what I can say is that we are, in some cases, working to close offtake agreements, and some commercial agreements. So that will come for sure, and that's part of the commercial conversation, and that's definitely the output that Moolec needs to actually progress and move forward with the commercialization of these products. But what I also can say about Piggy Sooy is that this interest is coming from multiple ways, you know? So we are focusing on food in case of Piggy Sooy.

And that will be the majority of the excitement, you know, comes from food applications. But we all know that soybean is a very well-understood ingredient for feed, for pet foods, and for some other applications as well. Pet and food goes hand to hand. So we are also receiving interest from different other industries as well. Again, we are prioritizing food, that's where our focus is for now. But that's, as I said before, you know, it's quite soon to talk now about the soy progress. GLASO, well, yes, probably we will keep you updated very soon in the following business updates earning calls.

Scott Fortune (Managing Director and Senior Research Analyst)

I appreciate that. Thanks. And then one more question from me.

Gaston Paladini (CEO)

Sure

Scott Fortune (Managing Director and Senior Research Analyst)

... just maybe providing a little color around the YeeA1, kind of the scale-up process here, and timing to arrive at kind of the characterization prototypes to achieve regulatory compliance. Just kind of an update on that side of the business from your aspect here.

Gaston Paladini (CEO)

Sorry, I didn't understand the question. Could you please come again, Scott?

Scott Fortune (Managing Director and Senior Research Analyst)

Color around the, the YeeA1 scale-up-

Gaston Paladini (CEO)

YeeA1

Scott Fortune (Managing Director and Senior Research Analyst)

... characterization.

Gaston Paladini (CEO)

YeeA1, yes.

Scott Fortune (Managing Director and Senior Research Analyst)

You guys didn't update that, but just a little more color on that and achieving regulatory compliance as you move forward. Just, a little bit of help from that standpoint.

Gaston Paladini (CEO)

Sure, sure. Yes, well, YeeA1 is on track. We use our last business update to talk deeper about YeeA1. We are right now scaling up this product with our partner, Grupo Insud, in Europe. We are using their facilities to scale up this product, and that scale-up stage will also bring us samples and information for regulators in the United States. So, quite similar to Piggy Sooy, we are in multiple fronts with regulators, open channels to provide information from both products. This is moving quite nicely, but we need to respect the regulatory pathway and framework.

I'm quite happy of how our regulatory team internally, Moolec, with David Heering as an advisor, regulatory advisor of a whole team, is, are, you know, handling all the different and multiple regulatory fronts for YeeA1. So, this goes in parallel. We probably will- we will expect some, some results, not talking about regulation, but I'm talking about overall, in the products. The yeast will, yeast could eventually go faster than plants, you know, because it's a controlled environment, and plants, you need to, in terms of plants, you need to respect the biology times, the campaigns, and the multiplication. It's quite more, I will not say easy, but quite faster to scale up in liters in a controlled environment than in tons in open field.

So, but I will, I will summarize my answer to YeeA1 and Piggy Sooy are moving forward with FDA in parallel, with open channels, providing information. All the things that we are doing now is to fine-tune product development and gather information to provide for the regulators in the United States.

Scott Fortune (Managing Director and Senior Research Analyst)

Thank you. Congratulations again, the USDA, and really moving molecular farming forward for the industry. I'll jump back in the queue. Thanks.

Gaston Paladini (CEO)

Thank you so much, Scott. Yes, thanks.

Operator (participant)

Thanks, Scott. Our next question comes from Thomas McGovern at Maxim Group. Thomas, please unmute your line and proceed. Thank you.

Thomas McGovern (Equity Research Associate)

Hey, guys. Yeah, so a lot of my high-level questions were addressed, so I just wanted to focus now kind of taking a step away from Moolec and looking more at Argentina's economy as a whole right now. So in April, for the first time in six months, Argentina achieved single-digit inflation rate on a monthly basis. So I was just wondering, you know, how your outlook on the hyperinflationary environment in Argentina has kind of changed in the recent months, and if you expect this trend of declining inflation rates to materially impact Moolec moving throughout the calendar year and then into 2025. Thank you.

Gaston Paladini (CEO)

... Well, thank you, Thomas, and I saw that you skipped the previous question because I have already addressed it, so thank you for that. Well, I will leave the floor to Jose to explain and to talk deeper in the inflation rates and the Argentinian business. Before that, I can say that Argentinian inflation is going down for sure, you know? So, 8.8 should be crazy, but compared what with the five-month rate before, you know, this is definitely going down. Our president, I'm saying our because I'm personally an Argentinian, so our president now is in the US, you know, expanding the network for investment in Argentina, so it's a good momentum for the country now.

But definitely the main topic should be inflation, and then how the Argentine economy will recover. So, Jose, please, go ahead and get deeper into Thomas' question.

Jose Lopez Lecube (CFO)

Sure. Hi, Tom. Thanks for the question. So, look, you know, Moolec has a global operation with presence in the US, in Europe, and in Argentina as well. So that provides Moolec with some exposure to the Argentine economic movement and the inflation as well. So having said that, our business presence in Argentina has, for the most part, revenues denominated in US dollars. So from that perspective, you know, inflation movement shouldn't have a large impact on the underlying business. On the cost front, we do have some costs denominated in local currency, in Argentine peso, so from that end there is some exposure to the inflation that, you know, flows through our cost structure. So conceptually, I would say the following: if there is...

When there is a devaluation of the Argentine peso, that has some positive impact on the cost front for us, given that we have some cost denominated in Argentine peso. When there is inflation, when there is high inflation, you know, that kind of raise our cost denominated in Argentine pesos a bit. So it all comes to what is how devaluation and inflation move along. If devaluation is higher than inflation, then that has some positive impact on our cost. If inflation is higher than devaluation, that kind of has some potential higher cost on our P&L. But again, our costs denominated in Argentine peso, it's a small part of our overall cost structure. Now, looking forward, what can we expect?

You know, it's too soon to tell, but what we are seeing is a gradual devaluation of the Argentine peso at a 3% per month, okay? And a strong decline in inflation from 25% at the beginning of the year, now falling to single digits. So if things continue in this way, you should see a match between inflation and devaluation, so that provides a stable, some stability in real terms, for the local currency. Hopefully, I answered the question, Tom.

Thomas McGovern (Equity Research Associate)

Yeah, thank you for that response. It was very helpful. All right, guys, we'll go back in the queue. Thank you.

Operator (participant)

Okay, 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.

Gaston Paladini (CEO)

Well, thank you, Bill. Well, I really want to thank Catalina Jones, our Chief of Staff and Sustainability Officer, for handling all this great business update from our side, and also thank the ICR team to help us as usual. I also want to thank you all here, all the audience, for joining us on today's conference call. Thank you for that. We are very, very happy, as I said before, of this USDA approval. Moolec is definitely a flagship in molecular farming. This is a proof of that. And I am also happy that the Moolec's are providing value, not only for the shareholders and all the stakeholders of Moolec, also for the planet, no?

Because if we farm Piggy Sooy, and this definitely could be very beneficial for our planet in terms of carbon and water footprint compared with livestock. And believe me, that's where I'm come from. My name Paladini is one of the most famous meat brands in Argentina. I'm very well acquainted with the traditional meat value chain. I'm very proud of my family business, but we need to understand what we need to find alternative solutions to produce the same animal proteins and meat proteins with science and technology to overcome the major challenges in the food system. And we need to address carbon and water footprint for sure. So that's what Piggy Sooy does.

So, going back to the final remarks, I'm happy, as I said, to share with you this solid execution of the Moolec team. And we will be continue working hard to the step ahead, for sure. A big thanks also to our partners or to our investors and the analysts that are following us, and for all our supporters and followers. And thanks again for joining us today. We look forward to updating you in the next quarter for sure. Have a great wonderful day or wonderful afternoon there in Europe for our European followers. Thanks.