Q1 2024 Arcadia Biosciences Inc Earnings Call

May 9, 2024

Operator: Thank you for standing by. My name is Prilla, and I will be your conference operator today. At this time, I would like to welcome everyone to the Arcadia Biosciences Q1 2024 Financial Results and Business Highlights conference call. All lines have been placed on mute to prevent any background noise.

Thank you for standing by my name is relying that will be your conference operator today at this time I would like to welcome everyone to the Arcadia Biosciences, Q1, 2024 financial results and business highlights conference call all lines have been placed on mute.

Prilla: Prevent any background noise I figure speakers remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press the star followed by the number one on your telephone keypad. If you would like to withdraw your question. Please press star one again. Thank you I would now like to turn the conference over to P. J cheaper.

Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star 1 again. Thank you. I would now like to turn the conference over to T.J. Schaefer, Chief Financial Officer at Arcadia. Please go ahead.

Thomas J. Schaefer: Chief Financial Officer at Acadia. Please go ahead.

Operator: Yeah.

Thomas J. Schaefer: Thank you and good afternoon. Joining me on the call today is Dan Jacot, Arcadia's President and Chief Executive Officer. This call is being webcast, and you can refer to the company's press release at ArcadiaBio.com. Before we start, we would like to remind you that Arcadia Biosciences will be 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 the company's Safe Harbor language in our most recently filed 10-K. With that, I'll now turn the call over to Stanley.

Thomas J. Schaefer: Thank you and good afternoon, joining me on the call today is Dan J caught Arcadia, as President and Chief Executive Officer.

Thomas J. Schaefer: This call is being webcast and you can refer to the Companys press release at Arcadia Bio Dot com.

Thomas J. Schaefer: Before we start we would like to remind you that Arcadia biosciences will be making forward looking statements on this call based on current expectations and currently available information How's.

Thomas J. Schaefer: 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.

Thomas J. Schaefer: You can review the Companys Safe Harbor language in our most recently filed 10-K.

Thomas J. Schaefer: With that I'll now turn the call over to Sam.

Stanley: Good afternoon, everyone and thank you for joining us today to review our first quarter results for 2024.

Stanley: Good afternoon, everyone, and thank you for joining us today to review our first quarter results for 2024. Since we last talked six weeks ago, I am pleased to report that the positive business trends from Q4 2023 have continued in Q1 2024. Revenue continues to grow, both sequentially and year over year. Our gross profit margins have been greater than 30% for five consecutive quarters. Operating expenses continue to decline at a double-digit pace versus last year.

Stanley: Since we last six weeks ago I am pleased to report that the positive business trends from Q4 2023 have continued in Q1 2024.

Stanley: Revenue continues to grow both sequentially and year over year.

Stanley: Our gross profit margins have been greater than 30% for five consecutive quarters.

Stanley: Operating expenses continued to decline at a double digit pace versus last year.

Stanley: All of these factors have contributed to Q1 2024 achieving the lowest loss from continuing operations in over six years. Now, let's turn our attention to GoodWeek. The GoodWeed brand continues to expand, with Q1 adding a couple hundred stores of distribution for Pancake and Waffle Mix. Our focus continues to be nurturing our existing points of distribution and building success stories by category. There are plans in place for each customer, addressing Everyday Pricing, Promoted Pricing, Shelf Placement, View Expansion, and Account-Specific Marketing.

Stanley: All of these factors have contributed to Q1 2020 for achieving our lowest loss from continuing operations in over six years.

Stanley: Let's now turn our attention to good wheat.

Stanley: The good news brand continues to expand with Q1, adding a couple of hundred stores of distribution on pancake and welcome mixes.

Stanley: Our focus continues to be nurturing our existing points of distribution and building success stories by category.

Stanley: There are plans in place for each customer.

Stanley: Addressing everyday pricing promoted pricing shelf placement SKU expansion and account specific marketing.

Stanley: These plans are required at significant expense to execute but are necessary in order to achieve brand scale and defend shelf space from fierce competition. On our last call, I mentioned several accolades our GoodWeek brand had received from some significant publications, including Better Homes and Gardens and the website Eat This, Not That. And I want to share another accolade that GoodWeed has received from a customer. In Q1, we launched Good Wheat Mac and Cheese Nationwide on Amazon in three varieties. Classic cheddar, white cheddar, and three cheese.

Stanley: These plans are required a significant expense to execute but are necessary in order to achieve brand scale and defend shelf space from fierce competition.

Stanley: On our last call I mentioned several accolades our <unk> brand had received from some significant publications, including better homes and gardens and the website EPS not that.

Stanley: And I want to share another accolade that could we have received from our customer.

Stanley: In Q1, we launched good REIT Mac and cheese nationwide on Amazon in three varieties market chatter.

Stanley: And Amazon recently selected Goodwheat Three Cheese Mac and Cheese as an Amazon's Choice New Arrival Pick. This designation is solely driven by Amazon's criteria, which include being highly rated, well-priced, and available to ship immediately. This is one more example from an independent source that proves what we already know, that our proprietary wheat is commercially viable to create great-tasting products while sneaking in more fiber and protein. To reiterate, our business model includes expanding the use of our wheat technology into food products beyond Good Wheat.

Stanley: <unk> Cheddar and three Cheez it.

Stanley: At Amazon Unreasonably selected good week, three cheese, Mac and cheese as in Amazon's choice New arrival Pik.

Stanley: This designation is solely driven by Amazon's criteria, which includes being highly rated well priced and available to ship immediately.

Stanley: This is one more example from an independent source that proves that we already know that our proprietary week is commercially viable to create great tasting products, while sneaking in more fiber and protein.

Stanley: To reiterate our business model includes expanding the use of our <unk> technology in the food products beyond good week.

Stanley: There are thousands of products across the grocery store and in food service that can offer these same valuable benefits, so we see a long-term path to generate recurring royalty revenue. We have been actively pursuing two key steps to monetizing this technology. One, partner with a wheat supply chain in order to produce a scalable, cost-effective, identity-preserved wheat supply. We need our wheat technology integrated into all customer-preferred wheat varieties and then efficiently moved from seed, to farm, to mill, to delivered flour. We are currently in final discussions with potential partners and hope to update you soon. In parallel, the second step is to work with large food manufacturers to create demand for our wheat.

Stanley: One thousands of products across the grocery store and in foodservice that can offer the same valuable benefits.

Stanley: We see a long term path to generate recurring royalty revenue.

Stanley: We have been actively pursuing two key steps to monetize this technology.

Stanley: One partner with a wheat supply chain in order to produce a scalable cost effective identity preserved supply.

Stanley: We need a re technology integrated into all customer preferred wheat varieties, and then efficiently move from seed to farm to mill two delivered flower.

Stanley: We are currently in final discussions with potential partners and hope to update you soon.

Stanley: In parallel the second step is to work with large food manufacturers to create a demand for wheat. This can create a long term hold through partnership to ensure we have enough volume through our supply chain system.

Stanley: This can create a long-term, pull-through partnership and ensure we have enough volume through our supply chain system. Conversations are underway across several categories, and it will take some time to develop products with their R&D. Now, let's move to Zola Coconut Water.

Stanley: Conversations are underway across several categories and it will take some time to develop products with their R&D groups.

Stanley: Now, let's move to Zillow coconut water.

Stanley: The coconut water category continues to perform well in Q1 2024 with unit sales and dollar sales both increasing 10% versus a year ago, according to Nielsen data for the 13 weeks ending March 30th, 2024. Zola's momentum is continuing, and the latest four weeks ending March 30th, 2024 show Zola growing 15% in dollar sales and 14% in units. DOLA is back to growing its share in the category, and we are optimistic that this double-digit growth will continue in 2024 for a couple of reasons.

Stanley: The coconut water category continued to perform well in Q1 2024 with unit sales and sales, both increasing 10% versus a year ago. According to Nielsen data for the 13 weeks ending March 32024.

Stanley: <unk> momentum is continuing in the latest four weeks ending March <unk> 2024 shows Zola growing 15% in dollar sales and 14% in unit sales.

Stanley: <unk> is back to growing share in the category and we are optimistic that this double digit growth will continue in 2024 for a couple of reasons.

Stanley: One our fleet renovation will begin shipping in Q2, adding more variety to bill does naturally hydrating lineup.

Stanley: One, our flavor innovation, will begin shipping in Q2, adding more variety to ZOBA's naturally hydrating lineup. Original lime and pineapple flavors in the new 16.9-ounce refillable Tetra Pak container have been well-received by retailers as pineapple is the number one coconut water flavor and lime is the number one flavor in sparkling water.

Stanley: Original one and pineapple flavors and the new 16 ounce resealable Tetra Pak container have been well received by retailers as pineapple is the number one coconut water flavor and live as the number one flavor and sparkling water.

Stanley: Two we have confirmed several new accounts that we will be adding <unk> to their single serve beverage set in the produce section.

Stanley: The store count for this new distribution in nearly 1300 stores.

Stanley: Bringing our total store count to over 3300 by the end of Q2.

Stanley: Our focus will be to ensure these new stores can quickly achieved the same velocity and dollar sales as our current retailers enjoy.

Stanley: So, we expect Zola to be a key growth driver for us in the future for both revenue and gross profit, and we will continue to explore the next wave of consumer-preferred innovation. The last initiative to discuss today is the strategic review announced last year, which stated that Arcadia would explore a range of strategic options, which could include an asset sale, acquisition, merger, sale, or other strategic transaction. Since that time, we, along with our bankers, have engaged with a significant number of potential transaction partners to find the best outcome for Arcadia and our shareholders.

Stanley: So we expect <unk> to be a key growth driver for us in the future for both revenue and gross profit and we will continue to explore the next wave of consumer preferred innovation.

Stanley: Since that time, we along with our bankers have engaged with a significant number of potential transaction partners to find the best outcome for Acadia and our shareholders.

Stanley: And while we aren't ready to provide a detailed update today, we continue to have discussions and perform the due diligence work necessary to accelerate our ability to monetize our IP and deliver a cash flow positive result. We will keep you updated as material events occur, and we must point out that there can be no assurance that this exploration of strategic alternatives will result in the company entering or completing any transaction, and no timetable has been set for the conclusion of the strategic review.

Stanley: And while we aren't ready to provide a detailed update today, we continue to have discussions and performed the due diligence work necessary to accelerate our ability to monetize our IP and deliver a cash flow positive results.

Stanley: We will keep you updated as material events occur.

Stanley: I must point out that there can be no assurance that this exploration of strategic alternatives will result in the company entering or completing any transaction.

Stanley: Timetable has been set for the conclusion of the strategic review.

Stanley: As discussed in our last call we anticipated our 2024 net operating loss to be under $10 million for the first time in the company's history.

Stanley: As discussed in our last call, we anticipated our 2024 net operating loss to be under $10 million for the first time in the company's history. Our Q1 performance and trend has met our expectations in order to deliver that objective, and we plan to grow revenue, optimize margins, and reduce operating expenses for the remainder of 2024 in order to achieve this goal. With that, I'll turn the call over to TJ to discuss our Q1 financial results.

TJ: Our Q1 performance and trend has met our expectations in order to deliver that objective and <unk>.

TJ: Land to grow revenue optimize margins and reduced operating expenses for the remainder of 2024 in order to achieve this goal.

TJ: With that I'll turn the call over to T J to discuss our Q1 financial results.

TJ: P J.

TJ: Thank you Dan and good afternoon to everyone joining us on the call today.

Thomas J. Schaefer: Thank you, Stan, and good afternoon to everyone joining us on the call today. Before I begin, I would like to remind everyone that all comparisons to our prior year results exclude the impact of our body care brands, which were discontinued in September 2023. With that, let me walk you through our results for the first quarter of 2020. Revenues of approximately $1.3 million increased 7% sequentially and 2% compared to the same period last year.

Thomas J. Schaefer: Before I begin I would like to remind everyone that all comparisons to our prior year results exclude the impact of our body care brands, which were discontinued in September 2023.

Thomas J. Schaefer: With that let me walk through our results for the first quarter of 2024.

Thomas J. Schaefer: Revenues of approximately $1 $3 million increased 7% sequentially and 2% compared to the same period last year.

Thomas J. Schaefer: The quarter-over-quarter improvement was attributable to a 28% increase in Zola as Q4 is seasonally the softest quarter for coconut water. Our year-over-year growth was primarily driven by Goodwheat and Zola sales, partially offset by higher costs associated with new distribution.

Thomas J. Schaefer: The quarter over quarter improvement was attributable to a 28% increase in solar as Q4 is seasonally the softest quarter for coconut water.

Thomas J. Schaefer: Our year over year growth was primarily driven by good wheat, Angola sales, partially offset by higher costs associated with new distribution.

Thomas J. Schaefer: Gross profit of $435000 was slightly below the prior quarter and prior year due to product mix, but still resulted in a very healthy gross margin of 35%.

Thomas J. Schaefer: Gross profit of $435,000 was slightly below the prior quarter and prior year due to product mix, but it still resulted in a very healthy gross margin of 35%. And, as Stan mentioned earlier, this is our fifth consecutive quarter delivering gross margins in excess of 30%, which is a testament to the progress we have made in delivering high-quality revenue. Research and development expenses of $272,000 declined 18% quarter over quarter and 24% year over year due to the timing of innovation work following the launch of new GoodWeek categories as well as new Zola flavors.

Thomas J. Schaefer: And as Stan mentioned earlier this is our fifth consecutive quarter delivering gross margins in excess of 30%, which is a testament to the progress we have made in delivering high quality revenue.

Thomas J. Schaefer: Research and development expenses of $272000 declined 18% quarter over quarter, and 24% year over year due to the timing of innovation work following the launch of new good wheat categories as well as new Zola flavors.

Thomas J. Schaefer: Selling general and administrative expenses of approximately $3 $2 million decreased 7% versus Q4, 2023, and 22% compared to the same period last year as we rightsize the organization and our marketing investment.

Thomas J. Schaefer: Selling general and administrative expenses of approximately $3.2 million decreased 7% versus Q4 2023 and 22% compared to the same period last year as we right-sized the organization and our marketing investment. Total operating expenses of $3.5 million improved 9% sequentially and 21% year-over-year, resulting in a loss from continuing operations of approximately $3.1 million, which is the lowest level in the past six years. From a balance sheet perspective, we ended the quarter with $8.5 million in cash and short-term investments, which is $3.1 million below our Q4 2023 ending balance.

Thomas J. Schaefer: Total operating expenses of $3 $5 million improved 9% sequentially and 21% year over year, resulting in a loss from continuing operations of approximately $3 1 million, which is the lowest level in the past six years.

Thomas J. Schaefer: From a balance sheet perspective, we ended the quarter with eight $5 million in cash and short term investments, which is $3 $1 million below our Q4 2023 ending balance.

Thomas J. Schaefer: As we stated on our last earnings call, we believe our use of cash will be in the single digits, and we continue to hold to that guidance. However, our use of cash will be more heavily weighted towards the first half of the year, driven by larger cash payments related to employee bonuses and insurance.

Thomas J. Schaefer: As we stated on our last earnings call. We believe our use of cash will be in the single digits and we continue to hold to that guidance.

Thomas J. Schaefer: However, our use of cash will be more heavily weighted towards the first half of the year driven by larger cash payments related to employee bonuses and insurance.

Thomas J. Schaefer: Our inventory balance stood at $5 million at the end of Q1, 2024 of which 84% was good wheat.

Operator: Our inventory balance stood at $5 million at the end of Q1 2024, of which 84% was Goodweek. We will continue to work down these balances as we focus on driving velocities in existing stores versus new distribution. In summary, Q1 continued the positive momentum we've achieved over the past few quarters. Our revenue grew quarter over quarter and year over year. We have achieved gross margins in excess of 30% for five straight quarters.

Operator: We will continue to work down these balances as we focus on driving velocities in existing stores versus new distribution.

Operator: In summary, Q1 continued the positive momentum we've achieved over the past few quarters.

Operator: Our revenue grew quarter over quarter and year over year we.

Operator: We have achieved gross margins in excess of 30% for five straight quarters.

Operator: At the same time, we have reduced our operating expenses by 21%, or nearly $1 million, which has resulted in our loss from continuing operations being at the lowest level in six years. And we estimate our use of cash to be in the single digits for the first time since Arcadia went public in 2015. So while we still have plenty of work to do in order to achieve positive cash flow results and deliver value to our shareholders, we are very pleased with the progress we made in Q1. I will now turn the call over to the operator for questions.

Operator: At the same time, we have reduced our operating expenses by 21% or nearly $1 million.

Operator: Which has resulted in our loss from continuing operations being at the lowest level in six years, and we estimate our use of cash to be in the single digits for the first time since <unk> went public in 2015.

Operator: So while we still have plenty of work to do in order to achieve positive cash flow results and deliver value to our shareholders. We are very pleased with the progress we made in Q1.

Speaker Change: I will now turn the call over to the operator for questions.

Operator: Yeah.

Speaker Change: Thank you we will now begin the question and answer session. If you have dialed in and would like to ask a question. Please press star one on your telephone keypad to raise your hand and joined the queue. If you would like to withdraw your question simply press Star. One again, if you are called upon to ask your question and our listening via loud speakers and yard.

Operator: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, please press star 1 to join the queue. Your first question comes from the line of Ben Klieve with Lake Street. Please go ahead. All right, thanks for taking my questions. First, a couple.

Benjamin David Klieve: Please speak up your handset and ensure that your phone is not on mute when asking your question again. Please press star one to join the queue. Your first question comes from the line of Ben Please.

Benjamin David Klieve: Lake Street. Please go ahead.

Benjamin David Klieve: Alright, thanks for taking my questions. First, a couple of questions around the expenses associated with the GoodWeed expansion that you both noted in your prepared remarks. I'm wondering first if you can kind of help characterize the magnitude of the associated expenses and the impact on gross profit during the first quarter.

Benjamin David Klieve: Alright, thanks for taking my questions.

Benjamin David Klieve: First a couple questions around the expenses associated with the goodwill expansion that you're both noted in your prepared remarks I'm wondering first if you can kind of help characterize the magnitude of the associated expenses.

Benjamin David Klieve: And the impact on gross profit during the first quarter.

Speaker Change: Yes, Thanks, Ben for.

Speaker Change: For calling calling in and.

Operator: calling in, and I'm actually going to turn that over to TJ to answer that question.

Benjamin David Klieve: I am actually to turn that over to TJ to answer that question.

Thomas J. Schaefer: Yeah, Ben, so a lot of the upfront investment is around promotions and slotting, but as we've noted previously, you know, our overall marketing investment will come down significantly relative to prior quarters or prior years as we focus more on our existing customers and, again, driving those velocities versus new distribution into new stores.

TJ: Yes so.

TJ: A lot of the.

Thomas J. Schaefer: The upfront investment is is around promotions and slotting.

Thomas J. Schaefer: But as we've noted previously our overall marketing investment will come down significantly relative to two.

Thomas J. Schaefer: Prior quarters or prior years.

Thomas J. Schaefer: As we focus more on our existing customers and again driving those velocities versus new distribution into new stores.

Ben: Okay. That's helpful to sort of I think you've kind of answered my follow up question, but will.

Benjamin David Klieve: Okay, that's helpful. So I think you kind of answered my follow-up question, but we'll ask it anyways here about the trajectory of these costs throughout this year. So it sounds like you're saying you think the costs associated with these initiatives that you just outlined, TJ, are going to be potentially ramping down here, you know, into the second and third quarter, or are they going to stay at kind of a consistent run rate from the first quarter level?

Benjamin David Klieve: Ask it any way here are around kind of the trajectory of these costs throughout this year. So it sounds like Youre, saying you think the.

Benjamin David Klieve: The costs associated with these initiatives, but just that warranty jr are going to be.

Benjamin David Klieve: Potentially ramping down here into the second and third quarter or are they going to stay at the kind of a consistent run rate from first quarter levels.

Thomas J. Schaefer: Yeah, Ben, it'll probably start to ramp down by two...

Speaker Change: Yes, Ben.

Benjamin David Klieve: It'll it'll probably start to ramp down by Q4.

Thomas J. Schaefer: Okay.

Benjamin David Klieve: Very good. That's helpful. Thanks, Dan.

Thomas J. Schaefer: Good.

Ben: That's helpful. Thanks, Dan.

Benjamin David Klieve: And then you talked about your focus on kind of nurturing existing retail relationships. Today, something you've talked about for the past couple of quarters is being a focus throughout 2024. I'm wondering if you could just talk on a high level about the early results thus far in this process. Are you happy with the kind of progression of the relationship that you have with your existing retailers? Are there things that are going uniquely well? Are there challenges that are still in place? If there's anything you can elaborate on regarding the strategy, it would be great. I'd say the results are mixed.

Benjamin David Klieve: And then the.

Benjamin David Klieve: You talked about your focus on kind of nurturing existing retail relationships today, it's something you've talked about for the past couple of quarters as being a focus throughout 2024 I'm wondering if you can just talk on a high level about kind of it.

Benjamin David Klieve: The early results thus far.

Benjamin David Klieve: In this process are you are you happy with the.

Benjamin David Klieve: Kind of progression of the relationship that you have with your existing.

Benjamin David Klieve: Existing retailers.

Benjamin David Klieve: Other things that are going uniquely well are there challenges that are still in place.

Benjamin David Klieve: Is there anything you can elaborate on regarding the strategy would be great.

Stanley: I'd say the results are mixed, Ben. Then, you know, we do have some... Some high spots with some retailers, but there are some retailers who are really still struggling to execute the plan that we've laid out. And again, there's a variety of reasons behind it. It differs by account. Sometimes it's a change in the buyers. Sometimes it's resistance to either changing the planogram or adding SKUs. Other times it's the difficulty in securing promoted prices. But I would say it's mixed at this point.

Benjamin David Klieve: I'd say the results are mixed spin the we do have some.

Stanley: Hi spots with some retailers.

Stanley: But there are some retailers were really still struggling to execute the plan that we've laid out.

Stanley: And again, there is a variety of reasons behind it differs by account, sometimes it's a change in.

Stanley: And the buyers sometimes its resistance to either changing the plan, a gram or adding skus other times.

Stanley: The difficulty in securing promoted prices.

Stanley: So it's it.

Stanley: But I would say its mixed at this point.

Stanley: It is difficult and competitive in these markets.

Speaker Change: Yes, no fair enough and if theres no doubt about that okay.

Benjamin David Klieve: Yeah, no, fair enough. There's no doubt about that. Okay, very good.

Benjamin David Klieve: We'll look forward to updates on that in the coming quarters. And then, you know, the last one for me is Zola. You guys seem pretty enthusiastic about the opportunity here from expanding both the SKU count with new flavors and also, you know, expanding single serve. Can you kind of characterize the, you know, kind of your vision for Zola? Progress here throughout this year, and especially in 2025 as all of these initiatives begin to scale.

Speaker Change: Okay very good well look forward to updates on that then in coming quarters.

Benjamin David Klieve: And then.

Benjamin David Klieve: Last one for me is on <unk>, you guys seem pretty enthusiastic about the opportunity to hear from Michael from its Ben.

Benjamin David Klieve: Both the SKU count with new flavors and also.

Benjamin David Klieve: It's been expansion of single serve.

Benjamin David Klieve: Can you kind of characterize the.

Benjamin David Klieve: You know kind of your vision for Zola.

Benjamin David Klieve: Progression here throughout this year and especially into 2025 is as all of these initiatives begin to scale is this something thats going to be.

Benjamin David Klieve: Is this something that's going to be ultimately I'm trying to understand is all going to be, you know, really a revenue driver above and beyond good weight here in the coming quarters, given, you know, given these initiatives?

Benjamin David Klieve: Trying to understand is always going to be.

Benjamin David Klieve: Really.

Benjamin David Klieve: Revenue driver above and beyond good wait here in coming quarters given.

Benjamin David Klieve: These initiatives.

Stanley: I think that's a fair characterization, that Bill is going to be the majority driver of revenue and, in particular, gross profit. And part of the reason for that is because the growth that we have in Zola doesn't come with the same kinds of costs. You know, it's a much different category in that product set in terms of selling dollars required and promotion dollars required. Got it.

Speaker Change: Yes, I think Thats, a fair characterization of the bill is going to be.

Stanley: The majority driver of revenue in EMEA in particular gross profit growth.

Stanley: And part of the revamp of that is because the growth that we haven't zola.

Stanley: Doesn't come with the same kinds of costs.

Stanley: It's a much different.

Stanley: Category in that protein set.

Stanley: In terms of volume required in promoted dollars required.

Speaker Change: Got it okay very good.

Speaker Change: Well best of luck.

Benjamin David Klieve: Got it. Okay, very good. Well, best of luck rolling all those initiatives out of DOLA. Thanks for taking my questions, and I'll get back to you.

Speaker Change: Rolling all of those initiatives out of dollar. Thanks for taking my question and then I'll get back in queue.

Benjamin David Klieve: Yes.

Benjamin David Klieve: Thank you and there are no further questions at this time I will now turn it back to Stan Jacob for closing remarks.

Operator: Thank you, and there are no further questions at this time. I will now turn it back to Stan Jacot for closing remarks.

Operator: Yeah.

Stanley E. Jacot: Thank you.

Stanley E. Jacot: So in conclusion, our arkady is continuing its positive trajectory, we have transitioned the topline to high quality revenue.

Operator: And finally, we remain focused on monetizing our IP and accelerating the delivery of cash flow positive results. We look forward to updating you in the future. Thanks again for joining us, and have a great rest of your day. Ladies and gentlemen, that concludes today's call. Thank you all for joining me. You may now disconnect.

Operator: Generate gross profit across multiple sources.

Operator: We are right sized organization and streamlined our cost structure in order to extend our runway.

Operator: Good leaders and more than 3500 stores in three categories and Zyla coconut water is positioned for double digit growth with new flavors and new distribution.

Operator: Finally, we remain focused on monetizing our IP and accelerating delivery of cash flow positive results.

Operator: Look forward to updating you in the future. Thanks again for joining us and have a great rest of your day.

Operator: Yes.

Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.

Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect. ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Thomas Schaefer, Dipesh Patel, Stanley Jacot, Raghuram Selvaraju, Thomas Schaefer, Arcadia Biosciences Inc Thank you for standing by.

Operator: [music].

Operator: Okay.

Operator: [music].

Operator: Okay.

Operator: My name is Prilla, and I will be your conference operator today. At this time, I would like to welcome everyone to the Arcadia Biosciences Q1 2024 Financial Results and Business Highlights Conference Call. All lines have been placed on mute to prevent any background noise.

Operator: [music].

Thomas J. Schaefer: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number on your telephone keypad. If you would like to withdraw your question, please press star 1 again. Thank you. I would now like to turn the conference over to T.J. Schaefer, Chief Financial Officer at Arcadia. Please go ahead.

Thomas J. Schaefer: [music].

Thomas J. Schaefer: Thank you for standing by my name is for a lot of that will be a conference operator today at this time I would like to welcome everyone to the Arcadia Biosciences, Q1, 2024 financial results and business highlights conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks.

Thomas J. Schaefer: There will be a question and answer session. If you would like to ask a question. During this time simply press the star followed by the number one on your telephone keypad. If you would like to withdraw your question. Please press star one again. Thank you I would now like to turn the conference over to T J cheaper.

Thomas J. Schaefer: Financial Officer at Acadia. Please go ahead.

Thomas J. Schaefer: Okay.

Thomas J. Schaefer: Thank you and good afternoon. Joining me on the call today is Stan Jacot, Arcadia's President and Chief Executive Officer. This call is being webcast, and you can refer to the company's press release at ArcadiaBio.com. Before we start, we would like to remind you that Arcadia Biosciences will be 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 the company's Safe Harbor language in our most recently filed 10-K. With that, I'll now turn the call over to Stanley.

Thomas J. Schaefer: Thank you and good afternoon.

Thomas J. Schaefer: Joining me on the call today is Dan J caught Arcadia, as President and Chief Executive Officer.

Stanley E. Jacot: This call is being webcast and you can refer to the company's press release at Arcadia Bio Dot com.

Thomas J. Schaefer: You can review the Companys Safe Harbor language in our most recently filed 10-K.

Stanley E. Jacot: With that I'll now turn the call over to Stan.

Stanley E. Jacot: Good afternoon, everyone and thank you for joining us today to review our first quarter results for 2024.

Stanley: Since we last talked six weeks ago I am pleased to report that the positive business trends from Q4 2023 have continued in Q1 2024.

Stanley: Revenue continues to grow both sequentially and year over year.

Stanley: Our gross profit margins, having greater than 30% for five consecutive quarters.

Stanley: Operating expenses continue to decline at a double digit pace versus last year.

Stanley: All of these factors have contributed to Q1 2024 achieving the lowest loss from continuing operations in over six years. Let's now turn our attention to Good Week. The GoodWeek brand continues to expand, with Q1 adding a couple hundred stores of distribution for Pancake and Waffle Mix. Our focus continues to be nurturing our existing points of distribution and building success stories by category. There are plans in place for each customer, addressing Everyday Pricing, Promoted Pricing, Shelf Placement, View Expansion, and Account-Specific Marketing.

Stanley: All of these factors.

Stanley: Attributed to Q1 2020 for achieving the lowest loss from continuing operations in over six years.

Stanley: Let's now turn our attention to good wheat.

Stanley: The good news brand continues to expand with Q1, adding a couple of hundred stores of distribution on <unk>.

Stanley: Pancake and welcome mixes.

Stanley: Our focus continues to be nurturing our existing points of distribution.

Stanley: Building success stories by category.

Stanley: There are plans in place for each customer.

Stanley: Nothing everyday pricing promoted pricing shelf placement geo expansion and account specific marketing.

Stanley: These plans are required a significant expense to execute but are necessary in order to achieve brand scale and defense shelf space from fierce competition.

Stanley: On our last call I mentioned several accolades are degreed brand had received from some significant publications, including better homes and gardens and the website EPS not that.

Stanley: And I wanted to hear another accolade that could we would have received for our customer.

Stanley: In Q1, we launched good reads Mac and cheese nationwide on Amazon in three varieties market chatter.

Stanley: White Cheddar and three Cheez it.

Stanley: At Amazon recently selected <unk>, Mac and cheese as in Amazon's choice New arrival Pik.

Stanley: This designation is solely driven by Amazon's criteria, which includes being highly rated well priced and available to ship immediately.

Stanley: This is one more example from an independent source that proves that we already know that our proprietary week with commercially viable to create great tasting products, while sneaking in more fiber and protein.

Stanley: To reiterate our business model includes expanding the use of our <unk> technology in the food products beyond good wheat.

Stanley: There are thousands of products across the grocery store and in food service that can offer these same valuable benefits, so we see a long-term path to generate recurring royalty revenue. We have been actively pursuing two key steps to monetizing this technology. One, partner with a wheat supply chain in order to produce a scalable, cost-effective, identity-preserved wheat supply. We need our wheat technology integrated into all customer-preferred wheat varieties and then efficiently move from seed, to farm, to mill, to delivered flour. We are currently in final discussions with potential partners and hope to update you soon. In parallel, the second step is to work with large food manufacturers to create demand for our wheat.

Stanley: Thousands of products across the grocery store and in foodservice that can offer the same valuable benefits.

Stanley: We see a long term path to generate recurring royalty revenue.

Stanley: We have been actively pursuing two key steps to monetize this technology.

Stanley: One partner with a wheat supply chain in order to produce a scalable cost effective identity preserved supply.

Stanley: We need our re technology integrated into all customer preferred wheat varieties, and then efficiently moved from seed to farm the mill two delivered flower.

Stanley: We are currently in final discussions with potential partners and hope to update you soon.

Stanley: In parallel the second step is to work with large food manufacturers to create a demand for our wheat. This can create a long term hold through partnership and ensure we have enough volume through our supply chain system.

Stanley: This could create a long-term, pull-through partnership and ensure we have enough volume for our supply chain system. Conversations are underway across several categories, and it will take some time to develop products with their R&D group. Now, let's move to Zola Coconut Water.

Stanley: Conversations are underway across several categories and it will take some time to develop products with their R&D groups.

Stanley: Now, let's move to Zohar coconut water.

Stanley: The coconut water category continues to perform well in Q1 2024 with unit sales and dollar sales both increasing 10% versus a year ago, according to Nielsen data for the 13 weeks ending March 30, 2024. Zola's momentum is continuing, and the latest four weeks ending March 30th, 2024 show Zola growing 15% in dollar sales and 14% in units. DOLA is back to growing its share in the category, and we are optimistic that this double-digit growth will continue in 2024 for a couple of reasons.

Stanley: <unk> momentum is continuing in the latest four weeks ending March 2024 shows Zola growing 15% in dollar sales and 14% in unit sales.

Stanley: Era is back to growing share in the category and we are optimistic that this double digit growth will continue in 2024 for a couple of reasons.

Stanley: One, our flavor innovation, will begin shipping in Q2, adding more variety to Zoba's naturally hydrating lineup. Original lime and pineapple flavors in the new 16.9 ounce refillable Tetra Pak container have been well-received by retailers as pineapple is the number one coconut water flavor and lime is the number one flavor in sparkling water.

Stanley: One our fleet renovation will begin shipping in Q2, adding more variety to bill does naturally hydrating lineup.

Stanley: Original one and pineapple flavors and then it was $16 <unk>.

Stanley: Refillable Tetra Pak container have been well received by retailers as pineapple is the number one coconut water flavor and live as the number one flavor and sparkling water.

Stanley: Two, we have confirmed several new accounts that will be adding Azolla to their single-serve beverage set in the produce section. The store count for this new distribution is nearly 1,300 stores, bringing our total store count for Zola to over 3,300 by the end of Q2. Our focus will be to ensure these new stores can quickly achieve the same velocity and dollar sales as our current retailers enjoy. Thus, we expect Zillow to be a key growth driver for us in the future for both revenue and gross profit, and we will continue to explore the next wave of consumer-preferred innovation.

Stanley: Two we have confirmed several new accounts that we will be adding the dover to their single serve beverage set in the produce section.

Stanley: The store count for this new distribution at nearly 1300 stores bring.

Stanley: Bringing our total store count to over 3300 by the end of Q2.

Stanley: Our focus will be to ensure these new stores can quickly achieved the same velocity and dollar sales as our current retailers enjoy.

Stanley: So we expect it to be a key growth driver for us in the future for both revenue and gross profit and we will continue to explore the next wave of consumer preferred innovation.

Stanley: The last initiative to discuss today is the strategic review announced last year, which stated that Arcadia would explore a range of strategic options, which could include an asset sale, acquisition, merger, sale, or other strategic transaction. Since that time, we, along with our bankers, have engaged with a significant number of potential transaction partners to find the best outcome for Arcadia and our shareholders. And while we aren't ready to provide a detailed update today, we continue to have discussions and perform the due diligence work necessary to accelerate our ability to monetize our IP and deliver a cash flow positive result.

Stanley: Since that time, we along with our bankers have engaged with a significant number of potential transaction partners to find the best outcome for our media and our shareholders.

Stanley: We will keep you updated as material events occur, and we must point out that there can be no assurance that this exploration of strategic alternatives will result in the company entering or completing any transaction, and no timetable has been set for the conclusion of the strategic review. As discussed in our last call, we anticipated our 2024 net operating loss to be under $10 million for the first time in the company's history.

Stanley: We will keep you updated as material events occur and we must point out that there can be no assurance that this exploration of strategic alternatives will result in the company entering or completing any transaction and no timetable has been set for the conclusion of the strategic review.

Stanley: As discussed in our last call we anticipated our 2024 net operating loss to be under $10 million for the first time in the company's history.

Stanley: Our Q1 performance and trend has met our expectations in order to deliver that objective, and we plan to grow revenue, optimize margins, and reduce operating expenses for the remainder of 2024 in order to achieve this goal. With that, I'll turn the call over to TJ to discuss our Q1 financial results.

Stanley: Our Q1 performance and trend has met our expectations in order to deliver that objective.

TJ: We plan to grow revenue optimize margins and reduced operating expenses for the remainder of 2024 in order to achieve this goal.

TJ: With that I'll turn the call over to T J to discuss our Q1 financial results.

TJ: P J.

TJ: Thank you Dan and good afternoon to everyone joining us on the call today before I begin I would like to remind everyone that all comparisons to our prior year results exclude the impact of our body care brands, which were discontinued in September 2023.

Thomas J. Schaefer: With that let me walk through our results for the first quarter of 2024.

Thomas J. Schaefer: Revenues of approximately $1 $3 million increased 7% sequentially and 2% compared to the same period last year.

Thomas J. Schaefer: The quarter-over-quarter improvement was attributable to a 28% increase in ZOLA, as Q4 is seasonally the softest quarter for coconut water. Our year-over-year growth was primarily driven by Goodwheat and Zola sales, partially offset by higher costs associated with new distribution.

Thomas J. Schaefer: Quarter over quarter improvement was attributable to a 28% increase in solar as Q4 is seasonally the softest quarter for coconut water.

Thomas J. Schaefer: Our year over year growth was primarily driven by good wheat, Angola sales, partially offset by higher costs associated with new distribution.

Thomas J. Schaefer: Gross profit of $435000 was slightly below the prior quarter and prior year due to product mix, but still resulted in a very healthy gross margin of 35%.

Thomas J. Schaefer: From a balance sheet perspective, we ended the quarter with eight $5 million in cash and short term investments, which is $3 $1 million below our Q4 2023 ending balance.

Thomas J. Schaefer: As we stated on our last earnings call. We believe our use of cash will be in the single digits and we continue to hold to that guidance.

Thomas J. Schaefer: However, our use of cash will be more heavily weighted towards the first half of the year driven by larger cash payments related to employee bonuses and insurance.

Thomas J. Schaefer: Our inventory balance stood at $5 million at the end of Q1 2024, of which 84% was Goodweek. We will continue to work down these balances as we focus on driving velocities in existing stores versus new distribution. In summary, Q1 continued the positive momentum we've achieved over the past few quarters. Our revenue grew quarter over quarter and year over year. We have achieved gross margins in excess of 30% for five straight quarters.

Thomas J. Schaefer: Our inventory balance stood at $5 million at the end of Q1, 2024 of which 84% was good wheat.

Thomas J. Schaefer: We will continue to work down these balances as we focus on driving velocity and existing stores versus new distribution.

Thomas J. Schaefer: In summary, Q1 continued the positive momentum we've achieved over the past few quarters.

Thomas J. Schaefer: Our revenue grew quarter over quarter and year over year.

Thomas J. Schaefer: We have achieved gross margins in excess of 30% for five straight quarters.

Thomas J. Schaefer: At the same time, we have reduced our operating expenses by 21%, or nearly $1 million, which has resulted in our loss from continuing operations being at the lowest level in six years. And we estimate our use of cash to be in the single digits for the first time since Arcadia went public in 2015. So while we still have plenty of work to do in order to achieve positive cash flow results and deliver value to our shareholders, we are very pleased with the progress we made in Q1. I will now turn the call over to the operator for questions.

Thomas J. Schaefer: At the same time, we have reduced our operating expenses by 21% or nearly $1 million.

Thomas J. Schaefer: Which has resulted in our loss from continuing operations being at the lowest level in six years, and we estimate our use of cash to be in the single digits for the first time since <unk> went public in 2015.

Thomas J. Schaefer: So while we still have plenty of work to do in order to achieve positive cash flow results and deliver value to our shareholders. We are very pleased with the progress we made in Q1.

Speaker Change: I will now turn the call over to the operator for questions.

Thomas J. Schaefer: Okay.

Speaker Change: Thank you we will now begin the question and answer session. If you have dialed in and we would like to ask a question. Please press star one on your telephone keypad to raise your hand and joined the queue. If you would like to withdraw your question simply press Star. One again, if you are called upon to ask your question and our listening via loud speaker and yard.

Benjamin David Klieve: Lake Street. Please go ahead.

Benjamin David Klieve: Alright, thanks for taking my questions.

Benjamin David Klieve: First a couple of questions around the.

Benjamin David Klieve: <unk> expenses associated with the goodwill expansion that you. Both noted in your prepared remarks I'm wondering first if you can kind of help characterize the magnitude of the associated expenses.

Benjamin David Klieve: Yes.

Benjamin David Klieve: And the impact on gross profit.

Benjamin David Klieve: The first quarter.

Speaker Change: Yes, Thanks, Ben for.

Speaker Change: For calling calling in and.

Operator: calling in, and I'm actually going to turn that over to TJ to answer that question.

Benjamin David Klieve: I'll ask you to turn that over to TJ to answer that question.

TJ: Yes so.

Thomas J. Schaefer: A lot of the.

Thomas J. Schaefer: The upfront investment is is around promotions and slotting.

Thomas J. Schaefer: But as we've noted previously our overall marketing investment will come down significantly relative to two.

Thomas J. Schaefer: Prior quarters or prior years.

Thomas J. Schaefer: As we focus more on our existing customers and again driving those velocities versus new distribution into new stores.

Ben: Okay. That's helpful. Because I think you've kind of answered my follow up question, but will.

Benjamin David Klieve: Ask it any way here are around kind of the trajectory of these costs throughout this year. So it sounds like Youre, saying you think the costs associated with these initiatives, but just that warranty jr are going to be.

Benjamin David Klieve: Potentially ramping down here into the second and third quarter or are they going to stay at the kind of a consistent run rate from first quarter levels.

Thomas J. Schaefer: Yeah, Ben, it'll probably start to ramp down by two.

Benjamin David Klieve: Yes.

Benjamin David Klieve: It will probably start to ramp down by Q4.

Thomas J. Schaefer: Okay.

Benjamin David Klieve: Very good. That's helpful. Thanks, Dan.

Thomas J. Schaefer: Good.

Ben: That's helpful. Thanks, Dan.

Benjamin David Klieve: And then you talked about your focus on kind of nurturing existing retail relationships. Today, something you've talked about for the past couple of quarters is being a focus throughout 2024. I'm wondering if you could just talk on a high level about the early results thus far in this process. Are you happy with the kind of progression of the relationship that you have with your existing retailers? Are there things that are going uniquely well? Are there challenges that are still in place? Is there anything you can elaborate on regarding the strategy? It would be great. I'd say the results are mixed.

Benjamin David Klieve: And then the.

Benjamin David Klieve: You talked about your focus on kind of nurturing existing retail relationships today, something you've talked about for the past couple of quarters as being a focus throughout 2024 I'm wondering if you can just talk on a high level about kind of it.

Benjamin David Klieve: The early results thus far in.

Benjamin David Klieve: In this process are you are you happy with the.

Benjamin David Klieve: Kind of progression of the relationship that you have with your existing.

Benjamin David Klieve: Existing retailers.

Benjamin David Klieve: The things that are going uniquely well are there challenges that are still in place.

Benjamin David Klieve: Anything you can elaborate on regarding the strategy would be great.

Stanley: I'd say the results are mixed, Ben. We do have some... Some high spots with some retailers, but there are some retailers who are really still struggling to execute the plan that we've laid out. And again, there's a variety of reasons behind it. It differs by account. Sometimes it's a change in the buyers. Sometimes it's resistance to either changing the planogram or adding SKUs. Other times it's the difficulty in securing promoted prices. But I would say it's mixed at this point.

Benjamin David Klieve: I'd say the results are mixed spin the yes, we do have some.

Stanley: Hi spots with some retailers.

Stanley: But there are some retailers were really still struggling to execute the plan that we've laid out.

Stanley: And again, there's a variety of reasons behind it differs by account, sometimes it's a change in.

Stanley: And the buyers sometimes its resistance to either changing the plan, a gram or adding skus other times.

Stanley: The difficulty in securing promoted prices.

Stanley: So it's it.

Stanley: But I would say its mixed at this point.

Stanley: It is difficult and competitive in these markets.

Benjamin David Klieve: Yeah, no, fair enough. There's no doubt about that. Okay, very good.

Ben: Yeah, No fair enough is there is no doubt about that okay.

Benjamin David Klieve: We'll look forward to updates on that in the coming quarters. And then, you know, the last one for me is Zola. You guys seem pretty enthusiastic about the opportunity here from expanding both the SKU count with new flavors and also, you know, expanding single serve. Can you kind of characterize the, you know, kind of your vision for Zola? progression here throughout this year and especially in 2025 as all of these initiatives begin to scale.

Speaker Change: Okay very good and we'll look forward to updates on that then in coming quarters.

Benjamin David Klieve: And then.

Benjamin David Klieve: Last one for me is on <unk>, you guys seem pretty enthusiastic about the opportunity to hear from Michael from its Ben you're both a SKU count with new flavors and also.

Benjamin David Klieve: It's been expansion of single serve.

Benjamin David Klieve: Can you kind of characterize the.

Benjamin David Klieve: <unk>.

Benjamin David Klieve: You know kind of your vision for Zola.

Benjamin David Klieve: Progression here throughout this year and especially into 2025 is as all of these initiatives begin to scale is this something thats going to be.

Benjamin David Klieve: Is this something that's going to be, ultimately, I'm trying to understand if Zola is going to be, you know, really a revenue driver above and beyond Goodweight here in the coming quarters given, you know, given these initiatives?

Benjamin David Klieve: Similar to trying to understand is always going to be.

Benjamin David Klieve: Really.

Benjamin David Klieve: Revenue driver above and beyond good wait here in coming quarters given.

Benjamin David Klieve: These initiatives.

Stanley: I think that's a fair characterization that Bill is going to be the majority driver of revenue and, in particular, gross profit. And part of the reason for that is because the growth that we have in ZOLA doesn't come with the same kinds of costs. You know, it's a much different category in that produce set in terms of fine dollars required and promoted dollars required. Got it.

Benjamin David Klieve: Yes, I think Thats, a fair characterization that bill is going to be.

Stanley: The majority driver of revenue in EMEA in particular gross profit growth.

Stanley: And part of the reason for that is because the growth that we haven't zola.

Stanley: Doesn't come with the same kinds of costs.

Stanley: It's a much different.

Stanley: Category in that protein set.

Stanley: In terms of volume required in promoted dollars required.

Speaker Change: Got it okay very good.

Benjamin David Klieve: Got it. Okay, very good. Well, best of luck rolling all those initiatives out of DOLA. Thanks for taking my questions, and I'll get back to you.

Speaker Change: Well best of luck.

Speaker Change: Rolling all of those initiatives that are dollar. Thanks for taking my question and then I'll get back in queue.

Benjamin David Klieve: Okay.

Operator: Thank you, and there are no further questions at this time. I will now turn it back to Stan Jacot for closing remarks.

Benjamin David Klieve: Thank you and there are no further questions at this time I will now turn it back to Stan Jacob for closing remarks.

Operator: Yeah.

Stanley E. Jacot: Thank you.

Stanley: So, in conclusion, Arcadia is continuing its positive trajectory. We have transitioned the top line to high-quality revenue that generates gross profit across multiple sources. We have right-sized our organizations and streamlined our cost structure in order to extend our runway. Our GoodWeed is in more than 3,500 stores in three categories, and Zola Coconut Water is positioned for double-digit growth with new flavors and new distributions. And finally, we remain focused on monetizing our IP and accelerating the delivery of cash flow positive results. We look forward to updating you in the future. Thanks again for joining us, and have a great rest of your day.

Stanley E. Jacot: So in conclusion, our Arcadia, continuing its positive trajectory, we have transitioned the topline to high quality revenue.

Stanley: Generates gross profit across multiple sources.

Stanley: We have right sized the organization and streamlined our cost structure in order to extend our runway.

Stanley: Good leaders and more than 3500 stores in three categories and Zyla coconut water is positioned for double digit growth with new flavors and new distribution.

Stanley: And finally, we remain focused on monetizing our IP and accelerating delivery of cash flow positive results.

Stanley: Look forward to updating you in the future. Thanks again for joining us and have a great rest of your day.

Stanley: Yes.

Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining us. You may now disconnect.

Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.

Q1 2024 Arcadia Biosciences Inc Earnings Call

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