Q4 2019 Earnings Call
Good afternoon, and welcome to Arcadia Biosciences. Your end 2019 earnings Conference call. Today's presenters will we map 11, President and CEO, Sarah writer, Chief Commercial officer, and Pam Haley CFO.
This call is being webcast and you can refer to the company's press release at Arcadia Bio Dot com.
Before we start we would like to remind you that Arcadia biosciences with making forward looking statements on this call based on current expectations and currently available information.
However, since these statements are based on factors that involve risks and uncertainties. The company's actual performance and results may differ materially from those described or implied today.
You can review of the company's Safe Harbor language in the their most recently filed 10-K and on page eight of today's press release.
With that I'll now turn the call over to Mount Pleasant, President and CEO.
Thank you operator, and thanks to everyone who's joining us on the call today from their homes or wherever you maybe sheltered in place we very much appreciate you taking the time to tune in today.
Today, we'll briefly discuss our successes in 2019, well, we built the foundation that paved the way for exceptional growth.
And then update you on our progress so far in 2020, and our outlook for the rest of year.
Dialing the lens back on 29 team without a doubt.
The legalization of him cultivation in late 2018 opened the floodgates for new products and health wellness and industrial application markets, creating an unparalleled opportunity in agriculture over the past century, CBD has quickly become ubiquitous as a health and wellness product in.
Greedier.
With sales topping a whopping $4 billion globally in 2019 with other can have an weights like CBG CBN also getting traction in multiple other industrial applications queuing up and as you've probably read estimates for the retail value products derived from happened. This decade alone approaches 30 billion.
However, what we also know is it happens essentially on domesticated and will only achieve its full potential if the underlying genetics, our improved to the level of broadacre row crops like wheat, corn and soy therefore get logically follows that the opportunity for market, leading providers of quality him seeds and genetic.
In this market will be compelling to say the lease and with Arcadia has proven plant transformation capabilities in the very crops that I, just mentioned wheat corn soy.
They have genetic improvement opportunities tailor made for Arcadia, and therefore, where we spent much of our R&D focus and cultivate cultivation accomplishments in 2019.
And now we're rapidly building on the a central foundation of a leading HAMP and cannabinoid XTRAC provider.
Beginning in March 2019, we first established in advance HAMP research programs situated across three diverse geography.
This new proprietary research discovery process that we branded architect combines modern breeding science and you know me technology with real time market intelligence from the field to produce superior varieties and new genetics.
Through architect we acquired new Germplasm and began our accelerated breeding to develop and qualify the good have to seed supply chain, enabling us to introduce the good Ham seed catalog and bring to market over half a dozen good hemp varieties quality verified and tested.
Through our archipelago, JV, we built our own vertically integrated Hawaiian good have supply chain, which is the foundation for a full commercial scale up once either the state or federal rules to govern commerce go into effect by late summer, we now control could have cultivation CBD extraction.
In processing and channel sales of our branded Hawaiian products.
I'd say channel sales because on Monday.
We signed and announced our agreement with Vivien specialties to certify and distribute our Hawaiian have products by managing the stateside marketing and sales of our archipelago Hawaiian produce products in key North American markets like food and beverage human in pet nutrition and personal care.
When it comes to him and hemp derived products like CBD ingredient transparency and quality control or a high priority for discerning retailers and shoppers are partner Vivien has pioneered and new and rigorous standard for testing and certification of premium ingredients like those from hemp known as vis sure they have a short.
Guarantees products are free up more than 950, contaminants, including pesticide residues heavy metals and microbial organisms.
We spent a lot of time in their labs evaluating their processes understanding their capabilities.
On their 60 year history.
And we're convinced that they that Weve say less selected the best partner not only to ensure our final product quality, but to most effectively market and distribute our premium Hawaiian grown have to extract CBD ingredient.
As for our good we'd portfolio of products in 2019 importantly, we snap the legal deadlock book between Arcadia, and Arista regarding the rights to our RF suite.
And where each party is authorized to sell globally. We also harvested more than 2300 acres of good week varieties on 10 times more acres in Twain 19 than in the previous year supplying us with enough to meet our green and seed supply targets for 2020 sales.
Lastly in 2019, we made excellent progress expanding the number of countries approving for sale our age before drought tolerant herbicide resistant soybean stack now exceeding more than 80% of the global soybean market, including U.S., Brazil, Argentina, and most recently Paraguay.
Now, let's talk about how we are building on these foundations in 2020 in hand.
I don't element of our strategy become a market leader in high value hemp seeds varieties and trades is deploying the best breeding technologies in close partnership with the half grower community a number of elite growers are enrolling in our good have innovation partners program, which is located in six major hubs, including Hawaii.
The Pacific Northwest, Southern California, Northern California, and the desert, South southwest and the mountain West they have begun providing invaluable feedback to us regarding their experiences the good the bad in the ugly, which were using to inform our development strategies.
And as we anticipated interest in our developmental varieties is very high amongst the majority of our grower partners.
Also interest in our good have new reliable as remains strong and continues to grow.
In fact as of this moment, we've secured backlog purchase commitments exceeding $3.7 million. These represent minimum order commitments from retailers and growers for our seems to be delivered for the spring and summer plantings in 2020.
And represent take or pay contracts that must be fulfilled no later than November of 2020.
As these are take or pay agreements the backlog revenue. We're disclosing represents the minimum expectation for each contract in reality, we expect the actual numbers seats sold will exceed these minimums and in some cases significantly and we continue to entertain strong interest above and beyond these commitments and we look forward to making more of our seats available.
To meet these demands in 2020.
With our joint venture archipelago, we've tested upwards of half a dozen different temporize in Hawaii and have brought several more onto the island for testing through the Hawaii Department.
Of Agricultures importation protocol.
Since launching our pilot program just over a year ago, we've gathered highly valuable Intel and experience with Hawaiian hemp agronomy, which we are now putting to good use as we ramp up our acreage and prepare for initial production harvests CBD extraction and ultimately the sales of our proprietary products income.
I mean weeks, we expect to have preliminary results from our JV to report to you and our upcoming Q1 earnings call in May.
As for good wheat.
Feedback from our partners continuing to test are good we varieties suffice it to say are quite strong the results continue to exceed our own expectations for formulation taste and baking performance of our variety.
Our varieties in the hands of those evaluating our products Sarah is going to continue to to walk us through that and talk through that we get to her section regarding these positive reports and our sales prospects for 2020. Furthermore, as also reported in recent news we continue to increase the strength of our intellectual property that protects our high value.
Trades for both Rs and RG weeds.
Regarding our each before soybean as recently announced in connection with our vertically joint venture early participants in our age before program in Argentina are now able to begin testing. The drought salinity include fascinate tolerant soybean trait in their own fields.
We are planning for the potential of more than 100000 acres of seed production during the next crop season.
We continue to evaluate the impacts of recent events on the timing of the expected approval of H. before by Chinese regulators that regulatory approval may impact commercial launch timing in Argentina, but the timing of access to North American markets is not expected to be affected.
Architect our proprietary rapid plant transformation platform is well staffed and running at full throttle with 30 dedicated scientists, including five with Phds and six with master's degrees. Our in house genomics bio informatics and advanced breeding programs are on track.
This summer we are targeting the launch of six new hemp prototype varieties for on farm evaluation through our hemp innovation partner Farmer network. These new varieties were deployed.
Or developed to provide have farmers with better returns through higher yields improved compliance rates optimize cannabinoid profiles architectural improvements, allowing for easier machine harvest and disease resistance.
We've also established a research pipeline to consistently deliver new Hampshire, right is that address challenges and deliver not deliver value not just to the can have enjoyed market segments, but also the growing grain and industrial fiber hemp markets. Additionally, we've developed a network of cooperative across the us and will be conducting multi.
Location have research trials in 2020 and beyond.
These trials will enable us to better understand how varieties performed in different geographies setting the stage for expansion in 2021.
So in summary, we are well on our way to establishing an industry, leading library of unique and high value traits that will elevate available hemp genetics to that of traditional broadacre crops like wheat, soy and corn and to do so very rapidly by architectural standards of course, we also expect a corresponding value of our emphasis.
Good to be commensurate with the value of seed genetics for those same crops.
With that I'd like to turn the call over to Sarah for more detailed update on our commercial update Sarah.
Thanks, Matt and thanks. Those are you listening in from wherever you are for your time on cannot provide a sneak peek into the recent commercial activities and our expectations and we continue to progress toward global lots of several several good wheat varieties.
2019 brought our agreement with basic milling and our risk material technologies, which cleared the way for North American launch of our high fiber good wheat exclusively through Baystate under the health sense umbrella. Our first seed sales. The base date occurred in fourth quarter as we anticipated however, inhospitable weather and the accompanying increase in disease.
These across the upper Midwest and the 2019 season did not leave US gain we lost several grain production field, reducing our initial sale by about $250000. The good news is that the full extent of the impact and in 2020, well supports based states expanded go to market plan with additional seed sales coming.
For spring planting.
The February announcement of base States noon million bushel elevator for specialist specialty we'd highlight their expectations for the health sense brand of high analysts fleet and elevator of that volume is a necessity for the scale of rollout and innovation of this calendar demand.
In December we also rolled out a limited retail release of good Weve reduced Clinton flower, which reduces the allergenic components of gluten, 65% or more. Additionally, we did time fiber and is about 30% lower and calories. Some standard all-purpose flower are limited supply sold out by the end of January.
And is currently being enjoyed by home bankers so.
The limited commercial release enabled us to validate earlier market research that it indicated a novel consumer segment will call gluten reducers these consumers reduce rather than replace wheat and their diet and are not diagnosed for Sealy Act disease sellout validates our plan to expand farming of the good we produced couldn't variety.
Well as to expand product development, among a number of new CPG partners, who began testing the flower ingredient in their products. Since early December since then five new companies have begun their valuations in products as diverse as beer pasta and Brad.
As we discussed in the last earning call. We continue progress among a list of global food companies evaluating the good we portfolio of improved we in fact target customers continue to pass key milestones in their R&D programs. For example, a major European company recently completed very positive market testing where.
Our good week products scored very favorably in terms of performance as a functional ingredient and in terms of state.
We remain on track to close commitments with a number of multi Mac multinational regional and local companies, we expect to announce several consumer foods and foodservice companies carrying foods made with good wheat in 2020, well within the timeframe required to meet our revenue expectations. This year.
Our commercial team was also busy in 2019 preparing for the launch of good hands.
And our R&D and supply chain teams quickly went to work, creating new seed products for us to break market in December we launched our Hep C line at the American seen Trade Association trade show with a special event, featuring based foods CBD drinks and a fireside chat with tenant farmers. These farmers one from North Dakota, and one from Oregon.
Discuss the challenges they experience as Hep C buyers and growers their experiences everything from poor germination inaccurate feminization rates to outright dishonest sales tactics underscore the reasons Arcadia entered the seed market in 2019.
Theres clearly a high degree of enthusiasm among American farmers and there are today many more acres approved for growing at 17 States continue to operate under the 2014 pilot rules nine state are currently under review with you Sta four states are drafting new proposal and two straight.
Steve Our Redrafting proposal 12 states have already been approved by you Sta and one state has deferred to allow their growers to participate under the Ustašas license.
Support for commodity growers to cultivate have continues to grow as they begin to gain access to crop insurance subsidies and grant become available and we expect has become a mainstream alternation options commodity crops like cereal being vegetables cotton in turn as more growers learn to grow this crop.
The demand for reliable standardize high performing varieties increases.
That's a major reason, we announced our last week, our plans to work with button Willow warehouse company and grow West two of California is best farming input distributors to expand our market reach among California growers. These companies work everyday alongside farmers to optimize harvest across many crop and because their footprints as the footprints of these two partners we feel.
Confident we can reach every California production anchor.
We believe as do many of our peers, but the floodgates to the downstream market will open wide as U.S.F.D.A. issue guidance as to the process and timeline for evaluating CBD is dietary ingredient in foods beverages and supplements.
Many consumer packaged goods companies are positioning themselves to make ambitious entry into the market. What FDA is positioned becomes clear for example, recent press coverage highlighted that the you know lever owns Ben and Jerry's ice cream line has plans to produce CBD infused frozen trees. Once regulations are a bit clearer and Molson Coors established.
Controlling interest and I.
I drove profit carry corporation, which introduced sparkling CBD a line of helped drive CBD sodas and sparkling beverages in Colorado.
C media product ingredient have made even deeper inroads in cosmetics and personal care. Some major recognizable companies or have already taken the leap into the CB CBD, Spain for example, estee Lauder.
In a lever with their brand Grad and l'oreal with their brand keel have all introduced hemp based products into the U.S. market in the last six months.
Recent comments from FDA newly appointed Commissioner Stephen Han on February 26, acknowledge CBD products are here to stay said the commissioner quote people are using these products, we're not going to be able to say you can't use these product. It's a fools game to try to even approach that and club.
And Commissioner Han further recognized the quote we have to be open to the fact that there might be some value in these products and certainly Americans think that's the case, but we want to get some information to help them make the right decision close club.
New guidance on CBD products has also been issued in the United Kingdom by its could standards agency. This guidance allows current CBD products to remain on shelf that requires businesses to submit novel food authorization applications by March 31st of 2021 after that date only products for which the FSP has a valid application will be allowed to.
Remain in the market this guidance should facilitate the availability of regulated TV products in the UK.
The World Health organization also recently weighed in on CBD products, emphasizing CBD is not subject to control under the 1961 single convention because it shows no potential for abuse or dependent and no and any illustrates our minimal.
And it's January 31st 2020 report for the UN Commission on Narcotic drug the World Health Organization stated it was quote aware that CBD products, such as food are being sold in many countries and that member states can regulate its availability using their own national legislation close club.
As a company with the history of successful approvals of novel dietary ingredient by Sta. We welcome their oversight, we look forward to the opportunity to provide data in support of the analysis of the safety of CBD and helped drive well.
We applaud the proactive efforts ft I described in their March Fiveth 2020 update Congress.
The agency said, it's taken a quote highly proactive approach to analyzing relevant safety questions close quote about CBD, considering the significant public interest in CBD definite.
It wrote quote rather than waiting for data to be submitted we've been actively working to identify and review all available data to understand the risk profile of CBD and the potential for CBD to be used safely in dietary supplements under certain conditions have you.
Close CLO, we look forward to the next scheduled step and FDA process. The results of their CBD product sampling study due to be reported to Congress by June Twentyth because this year.
Finally, let's turn to soybeans and our progress with the introduction of each before drought and herbicide tolerant soybeans globally in November of 19, we announced the regulatory approval of the H. before trait by Paraguay.
This means this new technology, which ensures yield under drought and other environmental stresses now has regulatory approval in more than 80% of the global soybean market. The trade has already been approved in the United States in Argentina, and Brazil with regulatory submissions currently under consideration by China among other relevant.
Production and consumption territory.
At the Expo Agro trade fair in Argentina earlier this month.
I mean this month.
Vertica, our joint venture with bio series crop solutions presented field plots of HP for soybeans, demonstrating the trait stacks tolerance to drought salinity and Glufosinate herbicide.
Early adopters to the H. before program can evaluate the trait in their own field and Vertica is currently scaling seed production of the pre commercial varieties on more than 7400 acres and has developed the potential to expand seed production to more than 100000 acres in the upcoming season.
Approval from China is needed for commercial launch in Argentina and has been expected in late 2020, we continue to monitor recent events to measure the impacts of the timing of our broad market introduction in Argentina.
With that I'll turn it over to pan to discuss our financial.
Tim.
Thank you Sarah as we've discussed throughout the year, our financial results from 29 team, we're going to reflect the impact of our transformation from a predominantly research and licensing business model to one of a consumer products health and ingredients company, we see the impact of these factors on our overall revenue in the fourth quarter and in the full year.
Our legacy revenue sources have wound down as we shipped a new revenue sources in 2020 contributing to a 6% reduction in revenues this quarter over the prior year fourth quarter, and a 20% reduction for the full year over annual 2018.
We've continued to invest in key added resources and external expertise leading necessary for success as a commercial company and as such our annual 2019 operating expense was $2.2 million greater than an annual 2018.
Operating expense for the current quarter was 393000 or 8% lower than in the fourth quarter of 2018, primarily due to $1 million noncash gain related to the reduction in the fair value of the company's contingent consideration liability.
Total R&D expense was $166000 higher for the quarter and $1 million higher year to date as compared to 2018.
The increase for fourth quarter, I was primarily due to higher employee related expenses and hemp related costs.
Drivers for the year to date increase for consistent with the fourth quarter increase along with additional soybean pre commercial activities.
Total SNA expense was $110000 higher in the fourth quarter of 2019 and in the fourth quarter of 2018 and $2 million higher year to date.
The increase for both periods was mostly due to higher employee related expenses.
Related consulting fees and marketing activities during 2019.
The annual on favorability was partially offset by strategic advisory costs recognized in 2018, but not present in 2019.
Net loss attributable to common stockholders for the fourth quarter of 2019 was $6.2 million compared to 646000 in the fourth quarter of 2018. The registered direct offering completed in June and September resulted in the recording of liabilities with significant noncash charges that hit the piano as the liabilities were re measured.
At the end of the applicable quarter.
Please refer to footnote 11 in our 10-K for a detailed description of the accounting for these transactions.
Regarding our liquidity and capital resources cash on hand, cash equivalents and short term investments totaled 25.3 $9 at the end of the year.
Our net cash used in operating activities for 2019 was 17.2 million and the equity offerings generated 17.5 million of gross proceeds in 2019, along with 5.39 of proceeds from the exercise of Investor Warren.
That wraps up our financial highlights for 2019. Thank you for your time and attention today and with that I'd like now turn the call back over to Matt for a wrap up Matt.
Thanks Pam.
In closing we are energized by the foundations late in 2019, and how well positioned we are to achieve our growth goals and 20 and 21 as we take stock of our progress. So far this year in the context of our outstanding guidance. We remain confident we will achieve our projections to exceed 10 million in revenues in 2020, our confidence.
As in a few factors first our strong minimum backlog commitment for good Ham seat orders early this year.
On the breadth of the ongoing interest for more in 2020.
Also we are beginning to harvest our biomass from our Hawaiian have acreage and we will begin soon processing the extracts for CBD sales and lastly, we remain on track to scale up our we'd sales as planned this year.
However, I would be remiss.
If I were not to caveat our confidence in achieving our guidance subject to the unknown forward implications of the Corona virus, although agriculture is deemed and essential industry, meaning our growers ourselves and the rest of our supply chain are able to continue operating despite the current quarantine conditions should market conditions worsen.
Significantly or it become apparent that the current conditions are likely to extend over a longer period of time, we'll have to evaluate and recess our guidance at that time.
And with that I'll turn the call over to you all for questions. Thank you.
Thank you, ladies and gentlemen, if you'd like to ask question. Please press Star then one on your touched on telephone to withdraw your question press the pound key please stand by what we compile the Q1 day roster.
Our first question comes from Ram Selvaraju with H.C. Wainwright. Your line is now open.
Thank you very much for taking my questions and congratulations on all the progress.
I was wondering if you could first comment on the revenue guidance and what you expect the relative split to be between the hemp and we product line. Thank you.
Thanks, Ron.
I think at the beginning of year, we probably would have said it was a race to see who is going to be the majority between those two but I think at this point, we'd be more comfortable saying that between the hemp seed sales and the CBD sales, they're likely to dominate.
Revenues, but.
I think we still have a pretty good shot at pulling in a meaningful amount of wheat as well, but if I had to if I had to give you a.
Split I would definitely.
Error towards more on the home side.
So like it's reasonable to say it might potentially be 60 40 in favor of come right.
Yes that is reasonable.
Okay can you provide some commentary on the impact of social dispensing and broader economic downturn in the United States on a week consumption in general if you're seeing any directionality with respect to that.
Yes, yes, thanks for that question as well to go out and Sarah has as good answer for that.
Yeah. So thanks, Ron it's great question for those of US has been to the grocery store, we've obviously seen nod transition away from being.
Being able to eat out in quarantine areas to home cooking and that has meant that most of the milling capacity in the United States has in the past 10 days shifted to 24 seven production.
The green industry is reporting about 180% we gone weak.
Volume gain and reporting that the current.
Production.
Sorry, the current ship rate of what is called family flower flower that youre newer I encounter at the grocery store.
Is running better then holiday.
Volumes, which is really unusual for March.
There is.
No question about what this will look like long term.
But certainly the we industry the pasta industry are both operating at full capacity and our.
Meeting demand today, and expect to be able to meet demand through their.
Additional hours and additional capacity.
As we we'd shelter in place.
Okay, that's very helpful.
Also wanted to.
Kind of in that same thing whether you see added potential for good wheat brand line to potentially gain an additional foothold.
Due to you know, perhaps some supply chain disruption.
Maybe some changes in shifts and the.
The overall, we production segment within the United States and also if you can give me a sense better sense at this juncture, which good weak line is likely to be the most popular reduce starcher reduce group.
Resistance structured reduced group.
Well as Matt said earlier, that's a bit of a horse race.
Hi.
I believe that overtime, we will get a better sense frankly the.
Value of the resistant starch product is amazing it brings 10 times.
Normal fiber value too.
Oh, hi, flower without having to go to a whole wheat presentation. So it's it's lovely for folks who want to eat pizza and want to eat bread and and all sorts of.
We based food and still eat healthily.
For reduced gluten it it has about two years lag in terms of our understanding of it fit in the market and I believe that it will catch and potentially surpassed the resistant starch I fiber material in the market.
Because its offer is also include an increase in fiber and the reduction in calories. I think is is a broader offer. So both are really compelling and fabulous to have both in our portfolio.
You had another question Oh. Your other question was how how do we see our wheat fitting into the market.
Getting to develop a view of that and if you would allow us a few more weeks I think we'll have a better perspective to come back to with maybe at the next call.
Clearly there will be a demand for especially for things like Durham, which is one of our resistant starch.
Hi, fiber executions Durham is a specialty flower and we grow a desert Durham, which is particularly valued for its use in pasta.
And so certainly we anticipate that our inventory of reduced.
Sorry resistant starch, hi, fiber Durham will be hitting the market in 20.
20.
Okay. Thank you that's very helpful. Also Oh, just a very quick question here, how many production acres are accessible through grow what's the button Willow I mean, I think that equates to all the production makers in the state of Florida, you have a number on that.
It's actually all of California, If you give me a second I will get you a number.
I don't have it at the tip of my fingertips.
Suffice it to say anybody who is growing.
Known sizable grower growing him is going to be accessible to us through either of those channels.
Great.
Okay, Yes, and unfair footprints are really interesting for us because they cover grower to grow crops as diverse as perennial you know trees.
And vines, which aren't really available to help but also tons of makers that are available commodities like.
Cereal.
Cotton.
Hi appear at just under the state alfalfa.
And.
We've seen.
Not very healthy returns and some of those crops, which makes growers really interested in and alternation to a crop where they can be profitable.
Okay, great. Yeah. If you can provide the a specific number of production acres in California, when you get a chance that would be helpful. Thank you so much.
Yes, Thanks from we'll follow up if you afterwards with that information.
Thank you. Our next question comes from Ben Klieve with National Securities. Your line is now open.
Alright, Thanks for taking my questions on first on the side you talked about the likelihood that your backlog represents kind of the low bar given the.
You know that it's that just minimum commitment, but can you talk about kind of the incremental opportunity that you think is still out there for the balance of the year.
To to add additional.
You know additional purchase commitments.
Particularly from harvest that may come in the second half of the year that you can then market.
By the end of the year.
Sure.
So that it that is right than the minimum number is simply.
A way to capture a minimum number of acres sold at a minimum seed price.
Generally the retailers.
Our looking at a multiple of the number of minimum acres.
And and an average so to speak of seed price, so lets say somebody signs up for.
A minimum of 1000 acres, there probably more likely going to be bringing growers to us that will represent 1500, two 2000 acres.
With pricing for premium.
Seat as well as.
No non premium seed.
So that's that's that's the first way to look at that minimum is it as that comes in as revenue it should be substantially more than the minimum.
There are a couple of factors.
That are at play that we think.
Are going to.
Yes are we think have delayed some of the decisions for committing to seeds already.
With that are going to dissipate and so we think that in May June.
We will see a significant inflow of commitments that.
With growers that we're waiting on the fence and I think sarokin I can defer to her to outline what a couple of those are which I'm sure you're probably aware of so our expectations are that the number is going to continue to grow meaningfully over the next 90 days.
As growers make their decisions for the spring and summer plantings.
Yes, Ben let me just add we we wouldn't want anyone to thinks that this 3.7 that we've talked about is upper limit in hemp sales for the spring it's not.
That hemp season, this year is a little bit.
Disjointed impart because the transition that each of the states are making under the new you Sta rules mean that states are coming online at different timing you have to submit your state prop in your the program. Each state is going to operate under to the U.S.J. and Ustašas 60 days to approve it so what.
We're seeing as a staggered release of available acres.
In places like California, and Florida, which just finished drafting their plan last week in Georgia, and Texas until we see more and more acres coming on.
And available to us and the majority of of acres actually see purchases occur a little bit later than than we had maybe originally hoped and so you'll see even if you look around industry publications. The majority of seed sales occur.
March April May and June.
And so we're right on track to deliver our plan in him seed.
And we can obviously.
The next call give you a better sense of that.
Okay perfect. Thank you.
Hi.
Moving on H. before you talked about the kind of.
Acreage expectation from South America, which seem to be unchanged.
From prior.
From prior announcements, but I'm wondering if you can elaborate a bit on kind of your expectations on on bringing HP for into North America, I know thats still a ways off but one or really the milestones you're hoping to hit here in 2020.
You know as you move towards that.
Toward that end goal, what really can we look for here over the next nine months I'm out of North America for that product.
Sir what do you think so I think some milestones in North America are really about partnership and localization. So we have a plan to execute field trials.
That are about.
The traits performance on the germplasm that we're bringing from Argentina.
Obviously arts and time germplasm isn't going to grow in many parts of the U.S.
Soybean.
Production areas very successfully but it will grow in some of the dryer and warmer area. So we're evaluating that right now are we're planning to evaluate that in our 2020 fuel season.
We're also actively.
Pursuing partnership with a number of different North American soybean seed company, who would be bringing the straight to market under their portfolios. If we are successful we have Canadian registration underway. So that's another milestone.
And we continue to.
Work hard to bring this trade to market either directly ourselves if we find that are.
Germplasm performance effectively up here or through partners or both.
Got it okay. Thank you.
And then.
From a modeling question now that another 2020 is going to the first year that you have material product revenues. How can we think about kind of the evolution of cost of goods sold R&D and Thats GA. This year as compared to 2019 do you expect to kind of any material shifting from.
From an opex up the cost of goods sold.
As you now have a good to sell or or can we look at at.
The Opex line staying relatively.
Relatively consistent with what you what you saw on kind of the back half of 2019.
Yes, that's the right question I think we're going to see a lot of change in 2020 in terms of the financial metrics and and proportionality.
The I think it's fair to say that you know the the uptick in our investment in R&D towards the back ended the year and 19 will continue into 2020.
As as the as was the.
Sales and marketing costs, we're investing there as well don't expect it to to ramp significantly during 2020, but we will start to have gross margin and some cost of sales and I think cost of sales is going to be.
There's going to be an evolution there I think that in addition to selling our premium seed this year, we're investing in.
In seed.
Production in 2024, a meaningful scale up in 2021, which will drive our cost of sales down substantially in 2021. So.
I want to I don't mind, leading with some some visibility into our expectation that although we think the margins of our could have seed sales. This year will be good we're positioning to make them very good in 2021, how over what period of time in the back into 2020 in 2021 that occurs is differ.
Got to predict but I would expect that you know we're going to see strong margins back end and early part of 2021 and our business.
And we'll start to really experience and know what our margins are in wheat in 2020, as well and that will vary depending upon the model, we're selling through whether it's a straight trait model or whether we're actually selling grain. So there's a lot of moving parts that we need to get comfortable with in 2020 before we can give.
Better guidance than that but I I think it's good to have the conversation and let folks know that it is not our expectation that you know our operating expenses are going to need to change significantly in order to scale. This business, we think theres a fair amount of leverage in our operating expenses.
Got it okay.
I think I'm in good shape I appreciate the on the.
I appreciate you, taking my questions and I'll get back in queue. Thanks, guys.
Great. Thank you very much.
Thank you and I'm showing no further questions in the queue at this time I'd like to turn the call back to the speakers for any closing remarks.
Okay. Thank you everyone for joining the call and your continued his interest and support we'll continue working hard every day to bring new and improved healthy foods and wellness products to market, while maintaining a single minded focus on profitable growth.
And we continue to report real time, our key milestone achievements in the lab in the field and in the commercial markets. So thanks again for tuning in and we wish you all safety in good health in these very difficult time. Thank you.
Ladies and gentlemen, thank you for your participation on today's conference. This does conclude your programming you may now disconnect.
[music].
[noise] [noise].
[music].