Prepared remarks
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 hone in on our groundbreaking success on the regulatory pathway with our achievement of Piggy Sooy. I cannot adequately 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 regarding 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 for creating value for the shareholders and the planet at the same time, 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 the 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% over total soybean protein. Now turning to the next slide, we can share with you why we understand Piggy Sooy is relevant for our planet. At Moolec, we work daily with the mission to create food ingredients that can make a positive impact on the food industry's 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 1 acre of traditional soybean can feed 10 pigs used for livestock. To produce these livestock, it is estimated that more than 60,000 liters of water are required, and that the process produces 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. Isn't that amazing? Turning with me to the next slide to see what we understand is the 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 in its 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 slaughtering 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, and dumplings. 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 properties when compared to meat and need to be mixed with extra ingredients, mostly chemicals, colorants, 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 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 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 started with seeds. And how will we do this? Well, Piggy Sooy will be a unique product used as an ingredient replacement with a higher level of nutrition, potentially matching 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 on top of the safflower platform highlights. Amit, over to you.
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 IP portfolio while filing regulatory applications in other territories. With the approval from the USDA-APHIS, we started field trials at three different locations in May 2024 with fourth-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 two to four years. The commercialization process will likely begin in 2027 to 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, functional foods, cosmetics, personal care, pharmaceuticals, food and beverages, 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 processing facility, where we optimized the processes 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 that have been planted for seed production. We used roughly 200 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 while engaging 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 used to increase the expression levels in safflower seeds until 2041. Building 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 for 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 from 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 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 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 increased as well on a year-over-year basis from nil to close to $1 million, resulting in a gross margin of around 18%. Regarding the expenses for 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 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 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 is 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 insight 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 confirm that there is no such pest risk in planting our animal proteins in U.S. soil. I am very proud of Amit, Martin Salinas, and Bruce, along with the entire Moolec team for achieving this great milestone, as I personally believe they are rewriting the history of biotechnology. They are unlocking, in some way, molecular farming food by getting this kind of approval. 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 a lot of information regarding product development and the next regulatory steps that will involve the FDA. We have already started conversations with the FDA, and I am optimistic about how our regulatory team operates. I'm looking forward to continuing to provide information to regulators. I'm pushing this product from a collection of seeds to commercialization. So, thank you for the question, and again, I'm very happy. I take this opportunity to congratulate the Moolec team during this earnings call for this great milestone.
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. GLASO is in pre-commercialization stages. The types of customers for GLASO and GLA will be pet foods, dietary supplementation, companies that provide dietary supplements, ingredient companies that blend nutritional oils, not only omega-6 but also omega-3, which is very complementary to EPA and DHA omega-3 oils, as well as nutritional beverages. This will also be applicable in some specific food applications. So potential customers are found throughout this category of products. As mentioned earlier, we are very close to hitting the market with GLASO. We are planting around 600 acres in Idaho, U.S., for commercial purposes, and we are in active conversations with customers to aim for market entry, hopefully, in the first part of the 2025 calendar year. We are diligently working to deliver. Moolec is a science-based food ingredient company, and this is definitely a scientific product with a significant market understanding that the GLA market is around $1.5 billion globally per year. So the opportunity is quite substantial.
On Piggy Sooy, when can you expect commitments from customers? Have you had feedback from potential customers so far?
Good question. While it's hard to specify the timing of customer commitments, I can say that we are receiving very positive feedback from potential customers and various stakeholders who are very interested in receiving samples of Piggy Sooy. In fact, we have already started delivering some samples, but we haven't had too many seeds to crush and deliver samples. We are actively working on multiplying seeds to increase our supply for potential customers. Moolec is a science-based company, but it's also an ingredient company explaining the ingredient business. As such, you need to deliver samples, collaborate with established players, and work with their R&D departments. That relationship takes time; it's not just a plug-and-play process. We are engaged in great conversations regarding Piggy Sooy, but we are taking 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 you to proceed.
Sorry, William, to interrupt, but I saw Scott Fortune raising his hand from the beginning of the earnings call. Sorry, Thomas, but I would prefer to prioritize Scott's question, if you don't mind, William.
Questions and answers
That's fine. We can go to Scott Fortune at Roth MKM next. Scott, please unmute your line and proceed.
I appreciate all the insight and the progress you've made here, but could you provide a bit more detail on the conversations you're having regarding ingredient foods and dietary supplements? I know you've given out several samples and delivered them to those different companies. But some additional context on those conversations, what's the feedback ahead of the commercialization of GLASO early in 2025 would be helpful.
Unfortunately, I can't disclose names of these potential customers at this time. However, I can share that we are, in some cases, working to finalize off-take agreements and commercial agreements. So that will come for sure, and that's part of the commercial conversation that Moolec needs to progress and move forward with the commercialization of these products. What I can also say about Piggy Sooy is that this interest is coming from multiple channels. In the case of Piggy Sooy, most of the excitement comes from food applications. But we also acknowledge that soybeans are well understood ingredients for feed, pet foods, and some other applications as well. Food applications and pet food often go hand in hand. So we are also experiencing interest from various other industries. As I stated before, our primary focus is on food applications for now. We will keep you updated in future business updates or calls.
I have one more question regarding the YEA1 scale-up process and the timing to arrive at the characterization prototypes to achieve regulatory compliance. Could you provide an update on that aspect of the business?
Sure. Yes, YEA1 is on track. We used our last business update to dive deeper into YEA1. Right now, we are scaling up this product with our partner, Grupo Insud in Europe. We are utilizing their facilities for this scale-up, which will also bring us samples and valuable information for regulators in the United States. So quite similar to Piggy Sooy, we are engaged on multiple fronts with regulators, maintaining open channels to provide information for both products. Progress has been good, but we need to respect the regulatory pathway and framework. I am pleased with how our regulatory team at Moolec is handling this, with David Herron as our regulatory adviser guiding the team through these various regulatory fronts for YEA1. This process is unfolding quite nicely. While I can't guarantee specific dates, I am optimistic that we will see results. In summary, our efforts for YEA1 and Piggy Sooy are progressing in parallel with regulatory teams being informed throughout.
Thank you. Congratulations again on the USDA approval and for really advancing molecular farming for the industry.
Our next question comes from Thomas McGovern at Maxim Group.
A lot of my high-level questions were already addressed. So I just wanted to focus now on Argentina's economy as a whole. In April, for the first time in six months, Argentina achieved a single-digit inflation rate on a monthly basis. I was just wondering how your outlook on the hyperinflationary environment in Argentina has changed in recent months and if you expect this declining trend in inflation rates to materially impact Moolec throughout the calendar year and into 2025?
Well, I will leave the floor to Jose to explain the impacts of inflation rates on the Argentine business. Before that, I can confirm that inflation in Argentina is indeed going down. So, 8.8% may seem high, but compared with the five months prior, this is definitely an improvement. Our President is currently in the U.S. fostering investment opportunities in Argentina, which creates a positive momentum for the country. However, the central issue remains inflation and how the Argentine economy will recover. Jose, please go ahead and elaborate on Thomas' question.
Moolec has a global operation with a presence in the U.S., Europe, and Argentina as well. Thus, Moolec has some exposure to the Argentine exchange movements and inflation. Having said that, our business in Argentina predominantly has revenues denominated in U.S. dollars. So from that perspective, currency inflation shouldn't have a substantial impact on the underlying business. On the cost side, we do have some costs denominated in local currency, in Argentine pesos. From this standpoint, we have some exposure to inflation flowing through our cost structure. Conceptually, the following applies: when there is a devaluation of the Argentine peso, that can positively impact our costs, since we have some costs denominated in pesos. However, high inflation can increase our costs measured in pesos. The situation ultimately depends on the relationship between devaluation and inflation. If devaluation is greater than inflation, it will have a beneficial effect on our costs. Conversely, if inflation exceeds devaluation, it might impose higher costs on our P&L. Overall, though, our costs in Argentine pesos amount to a small fraction of our total cost structure. Looking ahead, it's still too early to say definitively, but we are observing a gradual devaluation of the Argentine peso at approximately 3% per month and a strong decline in inflation from 25% at the beginning of the year, now falling to single digits. If this trend continues, we should see alignment between inflation and devaluation, providing some stability in real terms for the local currency.
At this time, there appear to be 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 sincerely thank Catalina Jones, our Chief of Staff & Sustainability Officer, for managing this significant business update from our side, and I also want to thank the ICR team for their ongoing support. I thank all of you in the audience for joining us on today's conference call. We are very happy, as I mentioned earlier, about this USDA approval. Moolec is undoubtedly a leader in molecular farming. This achievement is proof of that. I am also happy to share that Moolec is providing value not only for the shareholders and stakeholders of Moolec but also for the planet. Our approach with Piggy Sooy can be incredibly beneficial in terms of carbon and water footprints when compared with livestock. And believe me when I say this is an area close to my heart. The name Paladini is well-known in Argentina as one of the most famous meat brands. I am quite familiar with the traditional meat value chain. However, we must find alternative solutions to produce the same animal and meat proteins using science and technology to tackle the pressing challenges of the food system. We need to address our carbon and water footprints for sure. So that’s the mission behind Piggy Sooy. I want to reiterate my appreciation for the excellent execution by the Moolec team. We will undoubtedly continue working hard to progress further. A big thank you to our partners, investors, and analysts following us, and to all the supporters and followers. Thanks again for joining us today. We look forward to keeping you updated in the next quarter. Have a wonderful day or afternoon to our European followers. Thanks.
Thank you all. You may now disconnect.