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Operator: Good day and thank you for standing by and welcome to Arcadia Biosciences’ Q4 2022 Financial Results and Business Highlights Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. . Please be advised that today’s conference is being recorded. I would now like to hand the conference over to Arcadia Biosciences. Please go ahead. (Technical difficulty)

T.J. Schaefer: I’m T.J. Schaefer, Chief Financial Officer and presenting with me today will be Stan Jacot, 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 their most recently filed 10-K. With that, I will now turn the call over to Stan.

Stan Jacot: Good afternoon and thank you for joining us today. I’m excited to speak with you about our fourth quarter and full year results for 2022. But before we dive into the results, let’s take a moment to reflect. It was exactly one year ago today that I spoke to you for the first time, so I want to highlight the tremendous progress Arcadia has made over the last four months. On that very first earnings call in March 2022, we highlighted the need to reduce complexity, develop robust processes and nail the priorities in order to focus on activities with the highest likelihood of bringing long-term value to our shareholders. As part of this initiative, we introduced a disciplined approach to evaluating our businesses and identifying priorities based on the size of the opportunity, the ease of which we could scale the business and the level of expected profitability.

During our May earnings call, we announced that we had made a decision to exit a body care co-packing business that we had inherited as a part of the 2021 acquisition. While this business generated revenues and increased our capacity utilization, it resulted in significant losses. We estimate that exiting this business will save us $1.5 million to $2 million on an annualized basis. In June, we officially launched our GoodWheat pasta in both the retail channel and online through Amazon and have experienced significant growth in distribution in the second half of the year, which I will touch on in more detail in a few minutes. On our August earnings call, we entered this Project Greenfield, Arcadia’s three year plan to unlock potential and create shareholder value.

As a reminder, the four key strategies are as follows; one, established GoodWheat footholds in retail categories representing over $10 billion in annual consumer spending. Two, drive share growth in key brands where there is a large opportunity to scale the business and deliver attractive margins. Three, leverage partnerships and build future licensing royalty streams. And four, build an agile organization and winning culture. In regard to strategy number two, we communicated that we made the decision to divest our manufacturing facility in Los Angeles as the manufacturing of our body care products was a complex process that included a large number of inputs and tied-up cash. At the same time, we reached an agreement to license the Saavy Naturals brand to its original founders, further simplifying our body care business while reducing the number of Arcadia employees by about one-third.

These strategic decisions allowed us to focus on the most compelling opportunities and avoid allocating our resources to unprofitable businesses. The benefits were almost immediate, as we reported Q3 gross margins of 28% in November and saw additional improvement in Q4. For the full year, despite the fact that we exited several business lines resulting in lost revenue, our 2022 revenues increased 47% versus 2021 and our reported gross margins were positive for the first time in Arcadia’s history. During the same period, our spending on research and development declined by 61% and our SG&A spending was 21% lower than prior year. And perhaps the most significant impact was on cash. In 2021, our cash used in operations was $25.9 million compared to $14 million in 2022, a decline of almost 50%.

I’m extremely pleased with the progress this team has made over the last 12 months. And while there is still plenty of work to do, I think it’s important to celebrate what we’ve accomplished thus far. So, let’s turn our attention now to GoodWheat. The pasta category continued to expand in the last three months of 2022. Based on Nielsen data for the 13 weeks ended December 24, unit sales increased 3% and dollar sales rose 25% driven by pricing action across the category. Looking at the last 52 weeks, units grew 2% while dollar sales increased 21% leading to category sales of $2.9 billion. GoodWheat continued its impressive distribution gains in Q4 as store count increased 34% in the quarter not normally associated with significant new Shelf placements.

From the initial launch in June, we have added more than 1,200 stores in seven months beating our own internal projections by more than 50%. As we look forward into 2023, our focus will remain on gaining significant new distribution and launching or acquiring new categories, but we will also support our retail customers through a variety of programs that will drive traffic to our brand and increase velocities. One, example of our program that I’d like to a couple of minutes talking about is the Heart-Check certification. In mid-January, we announced that GoodWheat pasta received the American Heart Association’s Heart-Check certification on all five varieties. According to the American Heart Association, the heart disease and stroke statistics fact sheet, heart disease accounted for approximately 13% of deaths in United States in 2018 and heart disease remains the number one cause of death in the United States.

Established in 1995 by the American Heart Association, the Heart-Check mark gives consumers an easy, reliable system for identifying heart healthy foods. Based on the June 2021, W5 market research among Millennial and Gen X, the Heart-Check symbol is far more likely to drive purchase interest than other certifications like organic, plant-based or gluten free. The same study show that heart, health importance ranked number two out of 23 claims, just behind great source of protein. Additionally, the 2019 Heartland Group report on health and wellness cited that 78% of consumers look for foods and beverages that are good for my heart. Aside from the outstanding health benefits, the Heart-Check certification also differentiates us from every traditional pasta competitor made with wheat and to drive awareness and trial as a large number of consumers shop for food’s with benefits.

And finally, we believe the certification mark makes GoodWheat less susceptible to distribution losses compared to its peers that lack heart health claims. So in summary, with a high fiber, lower sodium, zero saturate fat GoodWheat meets the criteria for a heart healthy pasta and provides consumers with a better-for-you option that delivers superior nutrition, with the taste and texture of traditional pasta. Shifting gears now to coconut water. The coconut water category experienced a 4% decline in units, but a 10% increase in dollars for the 13 weeks ending December 24. As we have seen throughout the year, pricing was the primary driver of category growth in the last quarter of 2022. For the last 52 weeks, units declined 8% but sales were up 11% to $433 million.

In the fourth quarter, Zola sales declined compared to the same period last year, driven by some distribution losses in Q3 as a result of supply chain constraint. For the full year, Zola gained market share as sales were up 12% from our price increase in the first half of the year to offset higher freight costs. Despite the fact that 2022 was a challenging year from a supply chain perspective, we are optimistic about the prospects for Zola moving forward. We started to see freight costs improve towards the end of 2022 and that progress has continued in the early part of 2023. We are investing in the brand, refreshing our packaging and plan to launch innovation later in the year. Moving now to body care. As mentioned on prior calls, as well as in my previous comments, we licensed the Saavy Naturals brand in August 2022 and retain the CBD brand, SoulSpring and ProVault due to their higher margins.

However, the CBD category has experienced four obstacles that impact the growth opportunity of these brands. One, the vast majority of U.S. retailers will not take CBD products including online retailers such as Amazon. Two, many retailers that do sell CBD put the product behind locked glass doors which has had a significantly negative impact on sales. Three, CBD products cannot be marketed on large mainstream platforms such as Google Search, Facebook and Instagram, limiting the ability to advertise the product. And four, many retailers that once sold CBD have either a significantly reduced the set or stepped out of CBD completely. SoulSpring was a victim of lost distribution, as several retailers that carried SoulSpring often not to carry CBD products any longer.

As a result, SoulSpring lost more than half of the distribution that once had and ProVault has struggled to make meaningful gains. So we have made the decision to explore strategic alternatives for these two brands. As we consider our options, we plan to continue to sell both brands in our current retail footprint and we’ll keep you updated as any new information comes to light. Last two topics I’d like to cover before turning the call over to T. J. are the reverse stock split in our March 2023 capital raise. At the end of September 2022, we were notified by NASDAQ that our stock price had closed below $1 for 30 consecutive days and that we had until the end of March to get the stock price back above the $1, but we would be at the risk of being delisted.

Over the next several months, the stock remained under pressure and continue to trail lower despite positive announcements such as the doubling of GoodWheat distribution in November 2022 and the Heart-Check certification by the American Heart Association in January 2023. And while we could apply for an extension, we felt that the best course of action need to move forward with reverse stock split so we could focus on executing Project Greenfield. On February 15, we held a special shareholder meeting where there is overwhelming approval to initiate the reverse stock split. After the special shareholder meeting, our Board approved one for 40 reverse stock split that became effective March first. After the reverse stock split went into effect, we are presented with an opportunity to raise additional capital.

Access to capital in the current environment is extremely challenging but we don’t know how long that uncertainty will last. As we have previously discussed, we are evaluating potential acquisitions to help scale the business and reach breakeven faster than planned, but that will require additional capital. As a result, we decided to take advantage of the opportunity in on March 2, we announced a transaction that would provide us gross proceeds of $ 6 million. While decisions such as reverse stock splits and capital raises are always difficult, we believe it is the right move to ensure the long-term success of Arcadia. With that, I will turn the call over to T.J. to discuss our 2022 financial results.

T.J. Schaefer: Thank you, Stan, and good afternoon to everyone joining us on the call today. As Stan mentioned, Arcadia has made tremendous headway that has resulted in significant financial improvement and today, I will focus primarily on the progress we made in 2022. But before I discuss the full year results, I do want to spend a few minutes discussing Q4 in order to provide you with some perspective into our operating performance as well as the drivers of that performance. In Q4, our total revenues of $1 million were $877,000 below the previous quarter. The primary drivers were seasonality in Zola where Q4 is historically the softest quarter for the entire category, as well as distribution losses in both Zola and SoulSpring that Stan mentioned earlier.

Compared to last year, Q4 revenues were down $1.2 million with about three quarters of the variance due to revenues from brands that were no longer part of our product portfolio. The remaining variance was attributable to lost distribution in SoulSpring. Our cost of revenues as reported in Q4 was approximately $1.6 million included in this number is $941,000 of write-downs related to body care inventory, hemp seeds and CBD oil. These write downs were necessary as the prospects for these products have significantly diminished. We also believe we have minimized the risk of future write-downs related to these legacy products as 86% of our inventory at year-end is related to either GoodWheat or Zola, and the remainder consists of only finished goods that we plan to sell in 2023.

So, the performance of the underlying business was actually stronger than it’s ever been in Q4 as a result of the higher quality of revenue. With that, I will now transition to full year 2022. Our 2022 total revenues of approximately $10 million were $3.2 million or 47% above prior year revenues of $6.8 million. And while 2021, actual results only include about eight months of body care and Zola. Even if we assumed we owned these brands from the beginning of the year, our revenues still would have increased 11% despite the fact that we exited several business lines in the middle of 2022. Cost of revenues for 2022 was $9.8 million resulting in Arcadia’s first full year gross profit. Even more encouraging is the fact that our reported cost of revenues includes more than $2.3 million in write-offs.

This level of increased profitability validates our strategy of focusing on brands that offer the greatest amount of opportunity, scalability and profitability. Research and development expenses totaled $1.5 million in 2022 a reduction of $2.4 million or 61% compared to 2021. As discussed on previous calls, our transition to consumer products has resulted in a much smaller organization that is focused on product formulation as opposed to trait development. SG&A expenses of $18 million were $4.9 million or 21% lower than prior year, primarily driven by a reduction in headcount, lower facilities costs and lower consulting fees as 2021 included body care acquisition costs that were absent in 2022. At the same time, our marketing investment increased 40% year-over-year to support the launch of GoodWheat.

Going forward, we will continue to increase investment in trial and brand building marketing activities, but expect our SG&A to remain relatively flat as we reduce expenses in other parts of the business. Our reported loss from operations of $18.8 million was $16.7 million or 47% lower than prior year. The primary drivers of improvement were; one, higher gross profit, which contributed just over $2 million. Two, a little more than $7 million from lower R&D and SG&A expenses. Three, $2 million in benefits from the Bioceres milestone payment. And finally, a $5.5 million favorable variance from lower write-downs in 2022 compared to 2021. The net loss attributable to common stockholders was $716,000 unfavorable to prior year as 2021 included benefits of $10.2 million related to the sale of Bioceres stock as well as a net favorable variance of $5.7 million from the change in the fair value of warrant and option liabilities.

Before I conclude my prepared remarks, I did want to highlight a couple of improvements in our balance sheet. First, while our accounts receivable balance of approximately $1.3 million is essentially flat compared to last year there are meaningful changes in the composition. At the end of 2022, $1 million of the $1.3 million AR balance is related to the remaining Bioceres milestone payments, which was not on our books at the end of 2021. Offsetting this increase is a significant decline in the body care balances given the separation from these businesses as well as the challenges, Stan, alluded to earlier. Next, our short-term and long-term inventory declined from $6.9 million at the end of 2021 to $3.3 million at the end of 2022, as a result of the following factors; one, the write-offs associated with the legacy businesses.

Two, the separation from business lines and lost distribution in body care. And three, the launch of GoodWheat and corresponding reduction in our grain inventory. Last, we ended 2022 with $20.6 million in cash and cash equivalents as our use of cash declined significantly from a use of $25.9 million in 2021 to a use of $14 million in 2022. As a reminder, we also raised net proceeds of $4.5 million in August of 2022. And subsequent to the end of the year, we raised net proceeds of $5.5 million in March that is not included in the $20.6 million cash balance at the end of 2022. Given our current use of cash, as well as the cash we have on hand, we believe we are well positioned to fund Project Greenfield beyond 2023. With that, I will now turn the call over to the operator for questions.

Operator: And, thank you. . And our first question comes from Ram Selvaraju from H.C. Wainwright.

Mitchell Kapoor: Everyone. This is Mitchell on for Ram. Thanks for taking the questions. The first one just wanted to touch upon the GoodWheat retail footprint expansion. And just wanted to understand when we’ll be able to see the real impact from a sales trajectory standpoint. What will be meaningful if you could just provide some context around that?

Stan Jacot: We expect in the second half of 2023 to see that become meaningful.

Mitchell Kapoor: Okay, great. And then what are you planning to do with your coconut water and body care product lines. Do you consider these to be core elements of the revenue base or do you think that they could be potentially spun out like Saavy Naturals?

Stan Jacot: Yes. So for Zola, we still see strong growth prospects and as I mentioned, we are investing in marketing, both from packaging perspective and innovation in order to continue to grow share in that category. For body care, there are lots of obstacles. So we are exploring all alternatives.

Mitchell Kapoor: Okay, great. Thank you. And then just wanted to understand a little bit more about the legacy Hemp business and the opportunity to potentially monetize this segment of the business? Or do you think this is no longer feasible?

Stan Jacot: I’ll turn that over to T.J to answer.

T.J. Schaefer: Yes. So from a legacy business perspective, our Archipelago business, we have written down all of the inventory. We’ve written it off. So we’re carrying no value on our balance sheet any longer. From a Hemp seed perspective, we did significantly write it down. We still have about $200,000 in inventory on our balance sheet. We will continue to try and sell that. We have agreements with distributors in both the U.S. and Canada that continue to sell those products. And so our goal would be to sell through the remaining Hemp seed inventory in 2023.

Mitchell Kapoor: Okay, great. Thanks. And the last one for me, if you could just provide any commentary on when you potentially see yourselves reaching profitability?

Stan Jacot: Yes. So Project Greenfield had a three year path to profitability. We are ahead of that plan currently through the end of 2022. Our all the aspects that T.J had commented on both gross profit improvements, operating expense reductions, all of those have kind of helped us in our trajectory. But yes, we are looking at still that kind of three year horizon when we launched it in June.

Mitchell Kapoor: Great. Thank you all so much.

Stan Jacot: Thank you.

Operator: And one moment by our next question. And our next question comes from Ben Klieve from Lake Street Capital Markets. Your line is now open.

Ben Klieve : Thanks for taking my questions. The first one on fourth quarter performance specifically within GoodWheat. I appreciated your comments on the sequential challenges from Zola and body care businesses. Could you provide a little bit more granularity around the performance of GoodWheat from the third quarter to the fourth quarter? Did the revenue pickup from third quarter to fourth quarter, did you see similar headwinds in that product specifically on a revenue front?

Stan Jacot: I’ll let T.J. answer that one.

T.J. Schaefer: Yes. Thanks Ben. So from a GoodWheat perspective, we are still in launch phase having only launched this in June. And so from a Q4 perspective, there obviously was a slowdown in the new store count growth. And so that does have an impact on GoodWheat sales in Q4 relative to previous quarters where we’ve been doubling distribution.

Ben Klieve : Okay. So then I guess a follow-up to that in some of the early adopters for this product that have been selling products since June. Did those locations see increase or decreases in revenue from the third quarter to the fourth quarter that had kind of a same store sales type number that you can actually have there?

Stan Jacot: Yes. Ben, this is Dan. What we’ve seen in the market is that velocities have been steadily improving from when we first launched these products. So that’s where the — it takes some times a while for the lost increase to show up in revenue because there are still inventory that’s in the markets and the launch, the pipeline fill.

Ben Klieve : Got it. Okay. And then turning to the distribution losses in Zolo loss rate. Can you kind of elaborate a bit more on these and most notably are these distribution losses that you still maintain relationships with that you think may come back online in 2023 or are these kind of permanent losses that you’re seeking to replace particularly on Zola, but do so from a kind of from square one?

Stan Jacot: Yes. T.J. you want to take that?

T.J. Schaefer: Yes. So on Zola that is there is an opportunity potentially to win those back. Those were supply chain issues nothing specific to the product or our go to market strategy. On SoulSpring, not likely to win those back. One was a retailer that a rather large retailer that made the decision to get out of all CBD products. The other was another larger retailer that has reduced their CBD set. They decided to keep ProVault but they decided to get out of SoulSpring.

Ben Klieve : Okay. And then I got a follow-up question to what you were just asked about the path to profitability. You said from the launch of Project Greenfield in June of 2022, you had a three year path to profitability and you think that that you’re ahead of schedule on that path. But particularly given what you observed in the — what was seen in the fourth quarter of 2022. I’m having a hard time reconciling that. So can you elaborate a bit more on how you think the path to profitability has been really accelerated over the last six months? And then how much of that visibility that you have is going come from future acquisitions that you may have in the hopper versus organic growth?

T.J. Schaefer: Yes. I’d say what we had been in our model was less cash at the end of 2022 than what we actually delivered. So it’s really about our cash position that was improved through the end of 2022. And yes, acquisitions were always a part of the Project Greenfield model and we do think that that’s going to be a sizable impact once we find the right acquisition in close.

Operator: And thank you. And I am showing no further questions. I would now like to turn the call back over to Stan Jacot for closing remarks.

Stan Jacot: Thank you. So in summary, Arcadia has made tremendous progress over the last 12 months. We’ve streamlined the business by exiting less profitable brands and activities. We’re focused on the most compelling opportunities that will build long term value for our shareholders. We successfully launched GoodWheat pasta and have made significant distribution gains. We’ve increased sales and gross margins while lowering our operating expenses and reducing cash burn. And we have a clear vision for building the future of the company. We look forward to updating you on our progress in the months to come and on our next earnings call. Thank you again for joining us today. Have a great afternoon, everyone.

Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.