Q1 2020 Earnings Call
Really and welcome to Arcadia Biosciences first quarter 2020 earnings conference call today's presenters will be map Plavan, president and CEO So writer.
Chief commercial officer, and Pam Haley.
Financial offs.
This call is being webcast you can refer to the company's press release.
Arcadia bio dotcom before we started we would like to remind you that Arcadia biosciences, well be making forward looking statements on this call.
Based on current expectations and current available information.
Burst since these statements are based on factors that involved.
I'm sorry.
The company's actual performance and results may differ materially from those described or implied today ill review the company's safe Harbor language in there most reasons file and K.
And on page five of today's press release.
With that I'll now turn the call over to Matt Plevin, President and CEO.
Thank you Victor good afternoon, everyone and welcome.
With me today, it's a distances RPM Haley, our chief Financial Officer, and Sarah writer, our Chief Commercial officer, I want to opened by saying that I hope all of you listening in today your families and your loved ones are staying safe and healthy.
As an extraordinary moment in time for all of US the Corona viruses affected every business in the world together, we are navigating a global health crisis that is bigger and more widespread than anything we have witnessed in our lifetime.
Now before getting into the results I'll provide some perspective on what we haven't seen since the pandemic kit.
Current dynamics in our business and the actions we have been taking so not only manage through but to adapt quickly and to make sure we're well positioned to emerge stronger our priorities throughout this challenge challenging time remain the same.
To maintain the health and safety of our people to act as a responsible corporate citizen following local governmental regulatory regulations and guidelines, while maintaining our field operations under the essential worker exception granted to agriculture and to maintain business continuity and advance our business objectives without it.
I'm happy to say that we've been successful in accomplishing these goals.
Getting in March we preemptively deployed plans for shelter in place mandates in the regions, where we operate.
We were able to put into effect rather seamlessly.
I've been impressed again and again by the dedication creativity.
And nimbleness of our employees that they've shown in order to adapt to changing circumstances and to keep our operations running smoothly.
I'd also like to acknowledge the growers farm workers and food industry professionals, who keep our food supply chain running smoothly has never been more clear that the work we're doing at our Acadia and enhancing the quality nutritional value of crops and food ingredients is truly essential.
Although we find ourselves among the fortunate at this time the curve in 19 pandemic disruption to our global economy has certainly had some impact on our business. We saw a number of him growers poised to purchase are good have seeds last month simply stand down for a time.
While the gathered their bearings and waited for better visibility into the reopening of our economy.
However may has historically been what are the most active months in temp seed sales in the production areas in the western use and we are experiencing significantly greater interest and activity in the past 10 days than we did in the prior six weeks combined.
This is when we've been forecasting the majority of seed shipments to begin occurring as expected. We are beginning now to see a market increase in deal flow as we are re engaging in discussions with a number of growers, who have decided they are moving forward with their spring plantings.
Our harvest schedules and planned processing activities in Hawaii were impacted by the shipping delays and island quarantine restrictions, resulting in several weeks of delay and harvesting processing and beginning initial shipments of our new archipelago ventures CBD line through our partner Viviane specialties.
The trade publications affords close around the world disrupted gate grain shipments sales and consumption, which had minimal delays and the expected sales of our wheat.
We were looking to close in the early part of the quarter.
Although we did expect to reported an increase in our hemp backlog over the prior reported amount of 3.7 million.
Aforementioned pause and commitments during April resulted in no change as of today. However, since growers are now ready to take shipment of seed upon order our orders from here forward will no longer run through backlog rather this number will begin declining as we fulfill these orders.
We're also very encouraged by the steady progress of our HB for soybean project, having secured regulatory approval on more than 80% of global soybean acres produced.
And how that portends for the beginning of our Vertica HP for soybean sales in 2021 should China food and feed approval be granted.
So with that said you have to covert pandemic remains on a recovery trajectory. We believe the worst is behind us and that we are positioned to recover those delayed sales in the coming months and to ultimately regain alignment with our gross targets.
Good near term visibility into our good have seed sales are Hawaiian CBD sales coming online in the third quarter at our wheat sales expected to commence in late Q2 early Q3, we reiterate our guidance for total revenue of total of more than 10 billion in 2020.
I would be remiss not to call out the unusually high cash burn during our first quarter of 9.3 million, which was double our recent average quarterly burn of about 4.5 million. The additional cash flow was due to inventory builds for we enhance as well as certain capital expenditures for archipelago operations to see.
Support our 2020 sales targets.
We expect our cash burn to be closer to the prior levels or less going forward, our burn will be for aggressively reduced by expected incoming Hep C CBD and we'd sales and the corresponding flow through of those inventories as discussed out of an abundance of caution and given the uncertainty in the markets we have reduced.
All nonessential spend to ensure we retain sufficient cash resources to execute our plan.
Also important to our forward strategy. In addition to our again our organic growth strategy. We are now poised to accelerate shareholder value creation through acquisitive and strategic growth opportunities in the processing manufacturing and brand segments of the have value chain to create a leading vertically integrate.
Platform focused on the best technology, the highest quality and transparency in half and half derived products.
To help us navigate this emerging market Arcadia has reached into the sector and is working with strategic advisors, including corner capital Group, who has been an early investor enhanced technology, and healthcare industries, including tilt holdings and modify labs, we see a number of strategic opportunities and are evaluating.
Those we believe our accretive and synergistic to our existing portfolio, we see that have supply chain.
The full supply chain from field to retail is ripe for consolidation and we expect to play in active role in those opportunities.
We look forward to providing more information on these activities in the near future for now I'll turn the call over Sarah for commercial update Sarah Thanks, Matt.
We have robots first quarter in terms of strategic partnerships in good hands and archipelago metrics businesses, We announced agency agreements with grow West and Buffalo Warehouse company to the nations largest independent crop input retailers together their teams of crop advisors at more than 100 agronomic specialist our team.
Good half agronomists, serving California.
Our engagement is in line with our strategy further the best practices from industrial agriculture, as they have supply chain matures.
Good Hep C shipped during second quarter, so you'll begin to see significant Hep C revenue. When we next report as Matt described previously we will migrate from talking about backlog to speaking about sales in our second quarter earnings report.
Archipelago ventures, our joint venture dedicated to year round production grown half in Hawaii and now in the first quarter and exclusive distribution agreement with any on specialty Inc.
Hi, this is a distributor of quality ingredients for nutritional pharmaceutical food and beverage cosmetics personal care agricultural and industrial markets under this agreement the sizable exclusively distribute our Hawaiian grown Phd free distillate and CBD isolated in North America.
Tested for more than 950, pesticides and contaminants like heavy metals and microbial organism products will offer an industry, leading purity and quality standard known adventure.
Archipelago ventures will maintain the rights to market our own ingredients in Hawaii as well as an international markets.
Archipelago ventures also expanded Hawaiian land under production in first quarter by partnering with local Hawaiian participants in the states industrial pilot program now producing on 30 acres with another 20 under development.
Second quarter, we expect to open the extraction facility after code related delays due to travel and shipping restriction.
Looking forward through the remainder of 2020, we anticipate additional announcements about our strategy in Hawaii.
Why an economy heavily focused on tourism continues to suffer painful employment losses in the after effects of the pandemic unemployment.
Excuse me unemployment rates have reached 34% among the highest in the nation and at the state plans for economic recovery continue to evolve we hope to be invoices support and assistant today archipelago ventures employs more than 20 people enrolled from fields laborers to extract scientists we're committed to acting.
The responsible corporate neighbor, keeping our team and the communities in which they work and Landsafe and vibrant.
We will continue to communicate more in the future regarding our Hawaiian operation as we come to better understand the Hawaiian Department bags, New rules under Ustašas Federal HAMP program and the state's recovery plan.
Turning to soybeans.
We are pleased to report strong harvest results in Argentina, where our nearly 7000 acres and sleeping fields continue to demonstrate strong yield protection and drought condition.
The hbfour soybeans, which combines drought and stressors in stance with herbicide tolerant have already cleared regulatory hurdles in more than 80% of global soybean producing areas, including Brazil, Argentina and here in the United States.
And our joint venture with bio series craft solutions advances commercial plans as it awaits deregulation in China requirement for commercial launch of soybean traits in Argentina in light of the global impact of Coven 19, we continue to monitor the regular regulatory status in China.
In first quarter. The product was highlighted Expo agro 2020, the premier agricultural trade show in Argentina, which was attended by more than 100000 growers from throughout South America. The trade fair, who used as an opportunity to register growers for the next cycle of seed multiplication and interest exceeded by nearly 10 fold the maximum.
Average potential available.
Looking forward through 2020, we expect to share updates on the regulatory status of HP for throughout the world and we will progress in our commercial efforts with HP Fortunately being.
Today, we capture three routes to market as a technology license to seed companies as varieties license to see distributors and through the proprietary eco seed program of our joint venture partners, which combines germplasm trait biologicals actiq.
And implementation as a package to approach growers Vertica has previously announced licenses for varieties with buyers serious EMEA and you see in Argentina.
Fan SMS, HBP and Eric why as well as technology licenses with bio series in the us in Argentina, TMT in Brazil and report on Mario in several countries in South America.
And now two week.
And our first quarter, we advanced our commercial adoption of good we seed trait grain and ingredient in both international and US market. We're early in the quarter. Our ingredients were featured in processing panels.
Our recent press release announced expanded use patent coverage and in fact, we secured eight additional patent covering our good we portfolio in the U.S. and a key foreign markets in recent months.
We've continued to progress our exclusive distribution relationship of our resistant starch high fiber bread leak in North America through Baystate milling company, who continues their introduction of health sense flower products.
In the second quarter, you should expect to see initial revenue from European shipments and we'll compete complete excuse me our spring seed sales.
We will also revealed plans to expand our retail flower line, which reduces by more than 60% the allergenic component.
In terms of outlook for the remainder of the year, we will carefully monitor the impacts of the pandemic on sale basic ingredient.
Food companies focus on activities that ensure grocery store show our replenished.
Have shifted away from innovation initiatives, but on the other hands, we see an increase in sales volumes of retail flowers. So beyond that the latest Matt mentioned earlier, we see the impact of Cowen 19 on our wheat business as limited and manageable.
With that I'd like to turn call over to Pam, who will review the financial results in more detail.
Yeah.
Thank you Sarah.
Revenue in the first quarter of 2020 was $151000 higher than the first quarter of 2019, driven primarily by licensees milestone achievement.
Really product revenues were favorable well and royalty revenue was recognized this quarter as part of the contracted annual minimum.
Total operating expenses for the first quarter was $6.1 million compared to 4.4 million in the first quarter of last year for an increase of 1.7 million for 39%.
R&D expense of $739000 higher for the quarter compared to 29.
And the increase was primarily due to higher employee expenses and hemp related costs as we've launched our Katie good HAMP product line and that was the joint venture archipelago.
As DNA expense was $911000 higher in the first quarter and in the first quarter 2019.
The increase of mostly due to additional consulting activities in consult stock compensation expense, along with higher employee related expenses.
Net income attributable to common stockholders for the first quarter of 2020 was 2.5 million compared to net loss of 12.6 million recognized in the first quarter 2019.
The fair value Remeasurement of the common stock warrant liabilities at the end of each quarter resulted in a noncash income of 8.2 million for the first quarter of 2020 versus a non cash expense of 8.5 million for the first quarter of 2019.
The common stock warrant liabilities associated with the registered direct offering transactions in 2018 in 2019.
And you can refer to footnote nine in our 10-Q 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 $16 million at the end of the first quarter versus 25.3 million at year end or change of 9.3 million.
The net cash used in operating activities for the quarter was 9.3 million of which 4.2 million was attributed to a change in inventory.
And as Matt alluded to it and as we expected we invested significantly in inventory buildup for hemp, both good hands and archipelago and lead this quarter, along with property plant and equipment purchases, primarily supporting our archipelago operations in Hawaii.
Following the quarter end Arcadia secured a $1.1 million under the Paycheck protection program contained within the current of virus aid relief and economic Security Act a signed into law on March 27th of 2020.
That wraps up our financial highlights for the first quarter of 20 point. Thank you for your time and attention today and with that I'd like to turn the call back over to Matt.
Thanks Pam.
Together, we're working hard to position our business for strong and sustained growth. We believe this year, we entered with a position of strength and we're on track to achieve our revenue guidance, we're confident that our R&D initiatives proprietary commercial products and accelerated verticality in the health space will continue to give us the edge to successfully established.
Leadership and have just as we have another crops.
With that I'd like to turn the call over for questions to the operator Victor.
Thank you as a reminder to ask a question you need to press star one on your telephone.
To withdraw your question press the pound key.
Please stand by only compared the Kenny roster.
Our first question will come from the line of.
Ben Klieve from National Securities You May begin.
All right. Thanks for taking my questions everybody.
First question is Matt regarding the acquisition discussion that that that you had within hemp can you talk a bit about how you're looking at expanding vertically kind of up and down the supply chain rather than horizontal expansion to kind of grow your footprint of seed production or or breeding capabilities.
Do you really see as the more substantial value proposition to two vertical expansion rather than rather than growing horizontally here.
Ben Thank you for the question.
I wouldn't want to rule out.
Horizontal.
Opportunities we.
We do see some interesting genetics out there and I would actually include them in the bucket of opportunities that could be accretive to the company and extend our capabilities. When we think vertically. This comes back to at the moment. There is a lot of risk in the supply chain around quality and I think that.
That's because mpas in dire need of improvements to reach its full potential and there's a general awakening to that throughout the supply chain.
Whether its processing manufacturing brands whatnot, we all understand is a great risk that trying to grow to the full potential of all the industrial applications without having the right genetics and so that puts us in privileged position to evaluate a number of opportunities that would allow us to capture.
A greater share the value in the supply chain.
And that by bringing together the strong genetics.
The processor for example.
And being able to make that stronger connection between the growers the processors and all the way through the supply chain, we find ourselves.
Well position to make it.
A more profitable and efficient supply chain the draft anyone else in.
It plays in the space. So we're thinking that there's.
More value to be captured vertically at the moment than there is horizontally.
Because our expertise is enginetics.
But I wouldn't want to rule it out because.
You know candidly there there are a number of companies we are talking to that that could extend our capabilities and accelerate our ability to create value.
Got it but that's that's helpful. Thank you and I guess is a follow up can you talk about the.
The quality of the supply chain.
In Hawaii versus versus on the mainland and then and I know, it's early but are you.
Can you can you kind of.
You know disguise if you're if your initially targeting targeting the fixed this acquisition strategy on on Hawaii or on the mainland.
Well.
We are we're fairing pretty well in Hawaii, and we kind of our the supply chain for archipelago ventures, we have genetics, we have the mall processing unit as you know so it's not like we arent in processing at all at this time and with the recent announcement of the beyond specialties. We've also we've also got the channel into.
We have the sales channel into the retail space. So.
Right, there I would say, we're pretty well equipped to scale and lead the.
The market in Hawaii.
Which means that the mainland is likely to be where we're going to youre going to see our first moves with regard to verticality competitive. So would you got anything of that.
But were good okay.
Okay perfect. Thanks, Matt.
Turning over to the inventory build can you break down the.
That build either by crop or.
Or maybe bye bye finished goods that are.
And our bags and ready to ready to go versus.
Versus inventory, that's still in the field and process.
Yes, I think fam can kind of walk you through.
We did file the Q.
And Panda did we provide visibility into.
The degree of visibility that he's he's asking about in the queue. We do we upped that we've got to enter footnote, we've got a breakdown between our materials inventory and process in finished goods and we do include some crop information.
And quite a bit of it was good hands and most of that is ready to go but we've got some and good hands or I'm, sorry, Senhance in Hawaii and archipelago that is still in process.
So you've got some weak that's in process. So it's a good mix that is.
And we've got some we're starting with.
The inventory also.
Got it okay ill wait for the cute opposed but I appreciate that comment on lastly from me and I'll get back in queue. After this but.
Could you kind of provide a bit of.
But a color regarding your kind of outlook for.
Seasonality the balance of the quarter Manav I know you talked about it.
Acceleration here in recent in recent weeks.
That you're expecting.
But.
Nice sequential improvement from Q1 to Q2 on the revenue side, but do you have any better visibility regarding kind of how the next three quarters hard to know what from a percentage of revenue breakdown of your full year total.
Yes set service.
Yes so.
Thanks, Ben the.
The majority of our hands business will flow out in May June and July though we also have production areas in the far southern United States, which will be planting in the fall Hawaiians Lora offer us year round opportunity. So so those are compelling businesses.
Year round are weak sales will not be visible until third or fourth quarter.
In large part.
Yes, starting in late third quarter.
We have some wheat business that we'll start seeing in second and in our European.
Stuff, that's actually already in transit, but hasn't land.
And so you'll see small amounts in second.
Deeper in third and fourth.
From the week business.
And I wish I could say that theres soy revenue, but we'll have to hold off until next year or 22.
Yep understood very good that's that's really helpful. Thank you Sarah.
That does it for me Congrats all of you on all the progress thanks for taking my questions and I'll get back in line now.
Thanks Ben.
Thank you.
And our next question will come from the line.
Ram Selvaraju from H.C. Wainwright, you may begin.
Okay and combined.
Copper drops off Roger.
HC Wainwright congrats on the progress despite current climate.
Just one question for me.
So how can acadia and its continents on weak based consumer products from capitalized on the recent trend towards home bake.
The reason by the recent panic and stay on restrictions.
You see this as an important development going forward or just a transient kind of thing.
No we absolutely see this as a.
A strong indication that we.
Is important part of home baking and the home experience, we've always talked about we as a comfort food and I think we're actually seeing at.
Consume that way.
We will be announcing in second quarter, and our retail flower partnership and so we would.
Encourage everyone to come back and here, we have to say in next quarter.
Because we believed that the reduced allergenicity product will definitely have a fit.
Among retail shoppers were specialty flowers has flown off the shelves at the same or increased pace compared to.
Regular flower, which we all have heard about being in short supply. These days. So we're very excited about the opportunity to enter that market later this year.
Or eliminating thank you congrats again.
Thank you.
Thank you and our next question will come from the line of Steven Ralston from Zacks, you may begin.
Good afternoon.
Good.
Hi.
Could you expand on your Hum hub model that you mentioned in the press release.
What stage or you have the.
Six locations I assume you're more advanced in Hawaii in California.
Sure sure happy to you.
So our model or rolling out our business, which is brand new to us this year.
One to ensure that our farmers can be successful growing headcount in a.
Regulated environment. So we put agronomists on the ground to serve our farmers through very frequent contact.
Sure there successfully farming.
So we have.
Established our footprint in the Pacific Northwest headquartered out of the Portland area.
We have footprint in California, both at our Davis headquarters here and then further south in the Central Valley of California.
We also have established foot hold in Florida, which is new to the hand industry, but is growing rapidly.
And we continue to build out our capabilities in the mountain West.
And in the desert Greater desert area anywhere from Imperial through Yuma, Arizona down into West Texas.
Obviously, Hawaii has appointed strength for us we have not only a.
Agronomists, two conservis farmers, but also across to service our own acres. There so real on the ground experience happening every single day.
We are continuing to look for the right place position our Midwest location.
I hope that answers your question, yes, yes.
With the number.
Just talking about the number of acres that you have in test fields.
It sounds like you have about 30 now in Hawaii, and you said you're developing another 20 when will they come on come online.
There are some coming online as we speak.
Okay.
Hawaii also research field station in far Southern California Imperial County.
My next question, how many acres for there.
Ken.
Tim.
Huh.
Moving over to Soi.
Could you give some color on the Expo agro.
Oh last year in the press release said there were about 1200 attendees the came actually to your pavilion.
Even though we know over well over 100000 attend overall.
Uh huh.
Could you give some color of how many people.
Came to the your pavilion this year and what was there.
Attitude and what was the strength of the.
Growers that wanted to register.
Sure Let me get you the exact number of folks who.
Participating and I'll give you wrong information I can give you some color off the top of my head.
About the.
Tenor of the discussion so.
Argentina last year suffered through a pretty significant drought, which.
Served it really highlights the strength of H. before soybeans in both the.
Smaller test plots that we had at Expo agro and also in farmers fields, where we were running demonstration trial. So we came into Expo agro with already a good sense that that growers.
Perceive this as a highly valued trait.
Additionally, as herbicide tolerant so we focused on.
The strength of this this trade.
In our demonstrations at next though agro against resistant weeds and so we had a really successful show in fact, we had.
About 10 times more grower sign up to produce seeds for us in the coming fall season, which would begin starting in August or September.
Then we actually may need so we have the lucky situation, where we're going to have the ability to pick our partners.
Really.
Lucky situation.
The desire for the growers in Argentina is to have new innovation.
And they continue to.
Support our development and we today have.
I'm digging through to get you a number.
As quickly as possible I have to come back to you with a number I apologize.
No so too.
Talk offline later.
When you said 10 times more growers.
Growers versus the acreage is it would it be comparable 10 times as much acreage.
I misspoke, it's 10 times much more acreage not smart growers.
Okay.
And moving to the corporate level your guidance is for 10 million in revenues this year.
And while you're thirdly, there already with the good him.
But also you said that your legacy product Gila is.
Strong.
Okay.
I'm just looking through my model and it looks like you will have over a million dollars in revenues there this year.
My off.
No Thats a fair estimate.
Okay, and lastly concerning this paycheck protection program, you applied and received over a million dollars there.
Do you plan to apply for forgiveness and.
If so do you.
Expect to be.
The loan to be forgivable.
Pam you want to take that one.
Sure I would say that yet we do plan to.
To apply for forgiveness, and we believe that we will.
Qualify will have the call fileable expenses too.
To get forget that.
Thank you very much.
And our next question comes from the line rather Smith from center for performance investing you may begin.
Hello, Good afternoon sensor thing my question.
Well you guys are doing well and.
Mackie.
Referenced we.
Possible head winds down in Argentina.
Fair enough.
Financial difficulties and also the.
Okay, and I guess there.
The winter.
With the.
The virus.
So is your question.
Are we concerned about that.
Yes.
No I mean, we have a very.
Formidable partner in bio series.
Who is on the ground well entrenched.
And as.
Surge is laid out you know we continue to progress.
The introduction and the testing of the soybeans with farmers.
So at the moment, we don't see any reason for unnecessary alarm or concern that we won't be able to move forward with our plans.
So I would say.
Provided nothing deteriorates meaningfully we remain confident.
Executing on our plan.
Okay.
On soon.
Who was.
Really somebody Rooney.
Looking beyond.
This year.
Just stayed in them.
Sorry, Robert can you said overtime.
We will no longer range.
Targets that you've stated beyond 2020 are still impact I mean, they home.
The third at all.
Well, we think it's prudent at this point to provide visibility on 2020 have no reason to believe if we're successful executing 2020 as we projected that the years thereafter won't be in line with with the significant growth that we outlined before.
But I do think that we want to be a bit more careful and not go beyond 2020 at this point would be probably it's prudent just stick with the guidance that we have in the earnings release today.
So you stated the senior before.
Are you.
Kind of.
Withdrawing that.
No I'm not withdrawing it.
I am just you didnt reinforcing.
Emphasize thank God I got industry.
Right.
Okay and.
I can't think of.
Several of my other questions have already been answered so we should the best of luck and.
Mcrone to hearing further progress.
Great. Thank you Robert much appreciated.
Thank you.
And I'm not I'm actually not showing any further questions at this time.
The call back over to map for any closing remarks.
Great. Thank you everyone for tuning and we hope you stay safe and healthy and we look forward to consuming to report our progress have a great evening.
Okay.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Yes.
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