Q1 2025 Arcadia Biosciences Inc Earnings Call
Speaker Change: Hello and welcome to Arcadia Biosciences' first quarter, 2025 Financial Results and Business Highlights Conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session.
Speaker Change: To ask a question during the session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised.
Speaker Change: To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would not like to hand a conference over to Mark Kawakami, Chief Financial Officer at Arcadia. Please go ahead.
Speaker Change: Thank you. Joining me in the call today is TJ Schaefer, Arcadia's President and Chief Executive Officer
Speaker Change: This call is being webcast and you can refer to the company's press release at ArcadiaBio.com
Speaker Change: 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.
Speaker Change: 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.
TJ: You can review the company's Safe Harbor language, and are most recently filed 10k. With that, I'll now turn the call over to CJ.
Dr. Raghuram Selvaraju, Dr. Raghuram Selvaraju,
TJ: Thanks, Mark, and thank you to everyone on the call for joining us today to discuss our 2025 First Quarter Financial Results.
TJ: It has only been seven weeks since we delivered our 2024 year-end update, but the momentum from the second half of 2024 has carried in to 2025, and I am very pleased with our first quarter results.
TJ: Zola Coconut Water continues to thrive and outperform our own internal expectations.
TJ: In Q1 2025, our reported Zola sales increased 90% year-over-year, primarily driven by new distribution gains, which increased 70% compared to the same period last year.
TJ: We continue to implement tight-cost controls, resulting in strong gross margins, and a 16% year-over-year reduction in operating expenses, inclusive of nearly half a million dollars in transaction-related fees during the Corps.
Thank you for watching!
TJ: In addition to our strong brand performance, we also made significant progress during the quarter monetizing our intellectual property, a goal we have discussed for several years.
TJ: And finally, the pending business combination with Roosevelt resources continues to move forward and we believe is on track to be completed towards the end of the summer.
TJ: Today, I would like to discuss each of these topics in more detail, starting with the performance of Zola.
TJ: As I just mentioned, our reported sales of Zola increased 90% compared to the same quarter last year primarily driven by a 70% increase in new distribution.
TJ: Growing Zola's presence in the marketplace has been a focus of Arcadia and we believe it represents our best opportunity to significantly increase our share of coconut water industry sales given our relatively low penetration rates. [inaudible]
TJ: Our cell-through or scan data sales increased 76% during the 13 weeks ended, March 29, 2025, based on Nielsen data.
TJ: This rate of sales growth is more than three times faster than the coconut water category, which grew 24% during the same time period.
Thank you.
TJ: Coconut Water continues to outpace the growth of many other beverage categories.
TJ: Driven by the shift in consumer preferences toward healthy, better for you beverages.
TJ: With a rich source of key electrolytes such as potassium, magnesium and calcium, consumers are recognizing that coconut water offers an excellent way to naturally rehydrate and re-energize.
Speaker Change: With Zola, we believe we have the best tasting coconut water that is packaged directly at the source in Thailand.
Speaker Change: In the past, we have conducted consumer taste tests where Zolo was preferred to its competitors by a 2-to-1 margin, and we continue to focus on new products that we believe will bring more consumers into the category.
Speaker Change: For example, one year ago, we launched two new flavors, lime and pineapple into the marketplace.
Speaker Change: And I am happy to report that we have already sold more pineapple in the first four months of 2025 than we did all of last year driven by new placements
Dr. Raghuram Selvaraju, Dr. Raghuram Selvaraju
Speaker Change: Aside from new flavors, we are currently working on a number of new product offerings that will provide a twist on traditional coconut water that we are excited about.
Speaker Change: In fact, in a category review meeting earlier this year, we brought a sample of our new product to one of our largest customers and they were blown away by the flavor, decisively choosing our new offering over a competitive product.
Speaker Change: While our timeline to launch has been pushed back as a result of the pending business combination with Roosevelt
Speaker Change: We expect to have our new innovation on the shelf early next year.
Dr. Klieve, Stanley Jacot, Unknown Executive, Raghuram Selvaraju, Thomas Schaeffer,
Speaker Change: In addition to product innovation, Zola also has a healthy pipeline and is currently in discussions with new customers and distributors, representing more than 50% of our current customer base.
Thank you for watching!
Speaker Change: So far in Q2, we have already won new customer accounts and are optimistic about being awarded additional placements based on initial feedback from our category review meetings earlier
Speaker Change: One positive outcome of these meetings that I would like to highlight is that we were awarded an additional skew at existing customers representing more than 1,000 stores or nearly one-third of our current distribution.
Speaker Change: This is meaningful, not only for the additional revenue that it will bring, but it also highlights the strong performance of the existing Zola SKUs and opens the door to additional placements and offerings in the future.
From an inventory perspective, Zola is well positioned
Speaker Change: We have replenished our inventory ahead of the all important beverage season after it was depleted last year following large new customer wins.
Speaker Change: The timing of this replenishment was beneficial, as it gave us approximately three months of inventory before any of the recently announced tariffs took effect.
Speaker Change: Therefore, we expect terrorists to have little to no impact on our Q2 financial results.
Thank you for watching!
Thank you for watching!
Speaker Change: Going forward, we believe the 10% baseline tariff that went into effect in early April is not likely to have a significant impact on our results, as we have identified potential cost savings opportunities that we expect to largely offset the impact.
Speaker Change: As a result, we do not anticipate taking any action at this time in direct response to the baseline terrace.
Speaker Change: Having said that, we continue to have conversations with our customers and distributors and have developed mitigation plans should the need occur.
Speaker Change: Shifting gears, I want to discuss the actions we have taken to exit Arcadia's legacy business and monetize our intellectual property.
Speaker Change: As disclosed on form 8K on April 3rd, we entered into an agreement with Bioseries effective March 28, 2025.
Speaker Change: Under the terms of the agreement, all rights related to certain previously licensed soy patents were returned to Arcadia, along with $750,000 cash.
Speaker Change: In exchange for Arcadia's granted patents and patent applications for reduced gluten and oxidative stability, as well as the elimination of all future royalties pursuant to a previous agreement between the two companies.
Speaker Change: This transaction represented a meaningful step for Arcadia in our efforts to streamline operations, exit the legacy ag tech business, and monetize our intellectual property, so let me provide some context on the significance of this agreement.
Speaker Change: First, it allowed us to receive $750,000 of cash that was non-delutive to Arcadia shareholders.
Speaker Change: Second, the Soy Patent, which was originally acquired in a 2005 transaction more than 10 years prior to Arcadia going public, resulted in a $1 million contingent liability on our balance sheet.
Speaker Change: By regaining the rights to this patent, we were permitted to take the next step and notify the patent authorities of our intent to abandon the technology.
Speaker Change: The abandonment of this patent eliminated the possibility of future commercialization, allowing us to release the $1 million liability from our balance sheet.
Speaker Change: And finally, we are able to avoid any future expenses relating to the maintenance of patents and patent applications for technologies we are no longer pursuing.
Speaker Change: As a result of this transaction, along with various other agreements that have been previously disclosed
Speaker Change: Arcadia no longer expects to receive any license or royalty fees, or to incur any significant future expenses related to any of its weak related intellectual property.
Thank you for watching!
Speaker Change: Currently, we have one remaining tomato pattern that is licensed to a third party and represents a $1 million contingent liability on our balance sheet.
Speaker Change: While we can make no assurances, we are working on options that could result in the removal of that contingent liability, which would conclude our exit from the legacy ag tech business.
Thank you very much.
Speaker Change: The last topic I would like to discuss is the pending business combination with Roosevelt
Speaker Change: As you are aware, in December 2024, we signed a definitive agreement to combine with Roosevelt resources pursuant to a security's exchange agreement.
Speaker Change: While the process has taken longer than originally anticipated, I want to reiterate that the plan transaction continues to move forward as evidence by our recent Form 8K filed on May 2nd with the FCC.
Speaker Change: The amendment to the exchange agreement that was filed, modified one of the closing conditions, allowing a party to terminate the agreement if the transaction was not completed, from May 15 to August 15.
Speaker Change: In order to give both companies adequate time to prepare financials, respond to SEC comments, update our initial form S4 filing, and host a shareholder meeting to vote on proposals relating to the transaction.
Speaker Change: In addition, the amendment also provided for a fixed equity share ratio of 9010 between the Roosevelt partners and Arcadia stockholders.
Speaker Change: The original exchange agreement included a calculation where the ownership state could be adjusted upward or downward based on several factors, including the amount of cash and cash equivalence on Arcadia's books at the closing date.
Speaker Change: By keeping the ratio constant, we believe we are providing Arcadia stockholders with a greater level of ownership certainty post transaction.
in terms of next steps.
Speaker Change: Both companies are working to finalize financial results for Q1 2025.
Speaker Change: along with other information, and we anticipate filing an amendment to the initial form S4 Registration Statement after this information and other disclosures are updated.
Speaker Change: Once the registration statement is declared effective, the proxy materials will be mailed out to stockholders of record to be voted on at the shareholder meeting.
Speaker Change: Although there are many uncertainties that could affect the overall timing of the transaction,
Speaker Change: And no assurances are possible. We are hopeful of being in a position to close the transaction around the August 15th date noted in the First Amendment agreement with Roosevelt.
Speaker Change: With that, I will now turn the call over to Mark to discuss our 2025 first quarter financial results in more detail. Mark?
Mark Kawakami: Thank you, TJ, and welcome to everyone joining us on the call. I would like to remind everyone that my discussion of the financial results will refer to the impact of continuing operations only. Any reference to prior year results will exclude the impact of the discontinued good wheat and body care operations.
Mark Kawakami: With that, I will begin our discussion of the financial results.
Mark Kawakami: In Q1, total revenues were approximately $1.2 million, and this represented an increase of 22% compared to the same period of last year.
Mark Kawakami: However, it's worth noting that Zola revenues increased 90% compared to last year since revenue in Q1 of 2024 included $354,000 of sales related to GLA oil.
Mark Kawakami: In 2025, we expect product revenues to be driven entirely by the Zola product line as we no longer carry any inventory of GLA oil.
Mark Kawakami: The cost of revenues in Q1 was approximately $680,000, and this represented a 45% increase compared to the same period last year.
Mark Kawakami: The gross margin rate was 43% this quarter compared to 52% in Q1 of 2024, and this is the ninth consecutive quarter with gross margins above 30% [inaudible]
Mark Kawakami: Consistent with the last couple of quarters, we continue to expect gross margin rates to turn toward the low 30% range, now that we have transitioned to a single product line.
Thank you for watching!
Mark Kawakami: There were no research and development costs this quarter compared to $6,000 of R&D costs in Q1 of last year. This continues to reflect our strategy to develop the Zola brand by leveraging our existing resources and minimizing new investment.
Mark Kawakami: As TG mentioned earlier, we completed a transactions quarter that allowed us to sell our remaining wheat patents in exchange for cash and the return of a legacy soy patent.
Mark Kawakami: The wheat patterns did not carry a value on our ballot sheet, so we recognized the entire $750,000 of consideration as a gain on the sale of intangible assets. We received $500,000 of this in cash prior to the close of Q1, and we received the remaining $250,000 following the end of the corner.
Thank you.
Mark Kawakami: Additionally, regaining control of our legacy soy patent allowed us to eliminate our royalty obligations associated with the technology.
Mark Kawakami: This benefit was recognized as a change in fair value and it had the effect of increasing our net income and reducing our non-current liabilities by $1 million.
Thank you for watching!
Mark Kawakami: In Q1, selling general administrative costs were $1.7 million, and that included almost a half a million dollars of costs related to the pending transaction with Roosevelt resources.
Mark Kawakami: This was a reduction from Q1 of 2024 when costs were $2.1 million, including $200,000 of costs related to
Mark Kawakami: There was no loss from discontinued operations this quarter compared to $1.5 million of costs in Q1 of 2024.
Mark Kawakami: We expect losses from discontinued operations to remain low for the remainder of 2025.
Thank you.
Mark Kawakami: Moving to the balance sheet, we ended Q1 with $3.2 million of cash compared to $4.2 million at the start of the year.
Mark Kawakami: Recall that our cash consumption included ongoing M&A expenses which we were able to accommodate by reducing our underlying cash spend and by monetizing our legacy business assets.
Mark Kawakami: The increase was driven by consideration from the sale of our patent assets, the recovery of some receivables that had previously been reserved for, as well as the addition of interest related to our note receivables.
[inaudible]
Mark Kawakami: For inventory, we ended Q1 with a balance of $1.3 million to pair to $900,000 at the start of the year.
Mark Kawakami: The growth in inventory reflects the growth in Zola revenues, as well as the run-up to the spring, summer, selling season, and the effective longer lead times from our suppliers.
Dr. Klieve, Stanley Jacot, Unknown Executive, Raghuram Selvaraju,
Mark Kawakami: The promissory note we received from the sale of good wheat assets in May of 2024 continues to accrue interest at the prime rate. Your schedule to receive approximately $2.5 million of cash is the first repayment of principal and interest.
Mark Kawakami: In summary, we've had a strong start to 2025 with continued improvements across almost all areas of our financial performance.
Mark Kawakami: First, we continue to achieve revenue growth that outpaste the category and we have accomplished this without new investment or spending on R&D.
Mark Kawakami: Also, we continue to reduce our operating expenses, our underlying cash consumption, and the cost from discontinued operations, all while ramping up for the busy spring summer selling season.
Mark Kawakami: Thank you, and I will now turn the call over to the operator for questions.
Mark Kawakami: Thank you. As a reminder to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. One moment for questions.
Operator: Our first question comes from Ben Klieve with Lake Street, Emey, Proceed [inaudible]
Ben Cleave: Alright, thanks for taking my questions, and congratulations, another good quarter here with the momentum continuing in Zola. First, a couple of questions related to Zola.
Ben Cleave: Kind of the momentum continuing and expanding your distribution pipeline. You noted that you had already year to date, seeing that pipeline expand. I'm wondering if you can quantify for us.
Ben Cleave: You know, any successes that you have to date and then maybe at least, at least, directionally talk about the magnitude of the pipeline that you think is still out there for potential expansion later this year.
Ben Cleave: Sure. So in terms of the, let's start with the last. So in terms of the size of the pipeline it's probably, I mentioned in my prepare remarks.
Ben Cleave: It's about half of our current distribution which is in the neighborhood of 3,500 stores.
Ben Cleave: So, that would be the size of the pipeline. Thus far, yeah, we have added some...
Ben Cleave: Some new accounts albeit in Q2 so we're not reporting those numbers yet but some new customer accounts as well as some new distributors.
Okay, very good. And then...
Ben Cleave: regarding some new accounts and new distribution, the historically there'd been kind of a modest
Ben Cleave: You know, before those successes really hit the income statement, do you expect that to the momentum that you have here to to be reflected still in the 2025 financials or is that can be more of a 26 type of event?
Ben Cleave: So similar type of trending where we would be awarded the account and then it could be a couple of months before the product actually goes on shelf. [inaudible]
Ben Cleave: But most of those awards that we are looking towards would have an impact on 2025.
Ben Cleave: Okay, that's great. Very good. One question regarding the kind of legacy ag biotech business that one remaining patent that you have.
Ben Cleave: Do you guys anticipate that there's any commercial value there or is it similar to the patent that you just got back from Biosciaries that you simply just want to get it back so you can retire it?
Ben Cleave: So there is potentially commercial value but not for Arcadia. It is right to a third party. Our conversations with them have stated that they are probably two years away from commercialization.
and so we are...
Ben Cleave: working with them to explore options that would allow them to take advantage of that and potentially commercialize their efforts while also alleviating us of any future liabilities.
Speaker Change: Got it. Okay. Very helpful. And then last one for me, I want to get back in QV. Mark, you know that $2.5 million initial payment for the note receivable. I just want to confirm do you expect to have that in hand here within this within the second quarter, or is that something that could just push out into the third?
Get scheduled for receipt in Q2.
Speaker Change: Okay, very good. All right, well I appreciate you guys taking my questions. Congratulations again and I'll get back and kill.
Thank you.
Dr. Raghuram Selvaraju, Dr. Raghuram Selvaraju,
Speaker Change: Thank you. I would not like to turn the call back over to TJ Schaefer for any closing remarks.
Thank you.
Speaker Change: In summary, we are extremely pleased with our performance to start the year as the momentum from 2024 has continued into 2025.
Speaker Change: Zola Sales increased 90% year over year and we have a strong pipeline of opportunities and new innovation to help drive growth going forward.
Speaker Change: Our gross margins have now exceeded 30% for nine straight quarters and are operating expenses Inclusive of about a half a million dollars of transaction fees are near their lowest level in ten years
Speaker Change: We also made significant progress in exiting our legacy business, streamlining operations, and eliminating potential liabilities ahead of the pending business combination with Roosevelt
Speaker Change: This concludes my remarks. Thank you for your interest in Arcadia and have a great day everyone.
and many more. Thank you. Thank you.
Speaker Change: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.