Earnings call transcript: Arcadia Biosciences Q4 2024 sees revenue growth

Arcadia Biosciences reported a strong finish to 2024, with significant revenue growth and strategic shifts towards its Zola coconut water product line. According to InvestingPro data, the company’s revenue growth reached 24% in the last twelve months, outpacing its 5-year average. The company’s stock experienced a minor decline in regular trading but showed a slight uptick in aftermarket trading, reflecting mixed investor sentiment. InvestingPro analysis suggests the stock is currently undervalued based on its Fair Value model.

Key Takeaways

• Arcadia’s full-year revenue increased by 13% to 5 million dollars.
• Zola coconut water sales surged by 46% in 2024.
• The company exited underperforming brands and sold GoodWheat assets.
• Operating cash consumption was reduced by 30% in the latter half of 2024.
• The stock price decreased by 3.93% during regular trading but rose 1.8% aftermarket.

Company Performance

Arcadia Biosciences demonstrated robust growth in 2024, driven by a strategic focus on its Zola coconut water products. The company’s revenue for the year increased by 13% to 5 million dollars, and Zola sales alone rose by 46%. This growth outpaced the overall category, which grew by 18.5% for the year. Arcadia’s decision to exit underperforming body care brands and sell GoodWheat assets reflects a targeted approach to enhance profitability.

Financial Highlights

• Revenue: 5 million dollars (13% increase from 2023)
• Q4 Revenue: 1.2 million dollars (56% increase YoY)
• Gross Profit: 2.1 million dollars
• Gross Margin: 41.3%
• Zola Gross Margin: 33%

- Cash at year-end: 4.2 million dollars

• Current ratio: 4.6x, indicating strong liquidity

• Financial Health Score: Fair, according to InvestingPro metrics

• Price to Book ratio: 0.44x, suggesting potential undervaluation

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Market Reaction

Arcadia’s stock closed down 3.93% at 3.435 dollars in regular trading, dipping from its previous close. However, in aftermarket trading, the stock saw a slight recovery, rising 1.8% to 3.4 dollars. This mixed reaction could be attributed to the company’s solid revenue performance countered by ongoing restructuring efforts and market uncertainties.

Outlook & Guidance

Looking ahead, Arcadia is optimistic about its growth trajectory, with a healthy distribution pipeline for 2025. The company plans to complete a pending transaction with Roosevelt Resources by Q2 and is exploring the monetization of its wheat patent portfolio. InvestingPro data reveals the company holds more cash than debt on its balance sheet, providing financial flexibility for future growth initiatives. For comprehensive analysis of Arcadia’s growth potential and detailed financial projections, access the full Pro Research Report, available exclusively on InvestingPro. Arcadia has confirmed its exit from the GLA product line, further refining its focus on high-growth areas.

Executive Commentary

CEO TJ Schafer remarked, "2024 was a tale of two stories," highlighting the company’s transition to focus solely on Zola coconut water. He emphasized the company’s leaner operations and commitment to profitability. CFO Mark Cowell Cumming noted the reduction in operating cash consumption, indicating improved financial management.

Risks and Challenges

- Market Competition: Intense competition in the coconut water segment could impact growth.

• Financial Position: While the company maintains strong liquidity with a current ratio of 4.6x, InvestingPro analysis indicates rapid cash burn as a key risk factor.

• Market Valuation: Trading at 0.44x book value, significantly below industry averages.

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• Supply Chain Issues: Potential disruptions could affect product availability and cost.
• Economic Conditions: Broader economic pressures may influence consumer spending.
• Execution Risks: Effective implementation of strategic shifts is crucial for success.
• Patent Monetization: Uncertainty surrounds the potential success of monetizing the wheat patent portfolio.

Q&A

During the earnings call, analysts inquired about distribution expectations for 2025 and the strategic rationale behind exiting the GLA product line. Executives confirmed a complete exit from GLA and discussed ongoing efforts to explore patent monetization, reflecting a focus on core competencies and profitability.

Full transcript - Arcadia Biosciences Inc (RKDA) Q4 2024:

Conference Operator: Good afternoon and welcome to Arcadia Biosciences Fourth Quarter and Full Year twenty twenty four 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 Please be advised that today’s conference is being recorded. I would now like to hand the conference over to Mark Cowell Cumming, Chief Financial Officer at Arcadia. Please go ahead.

Mark Cowell Cumming, Chief Financial Officer, Arcadia Biosciences: Thank you and good afternoon. Joining me on the call today is TJ Schafer, Arcadia’s President and Chief Executive Officer. This call is being webcast, and you can refer to the company’s press release at arcadibio.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 and our most recently filed 10 K. With that, I’ll now turn the

TJ Schafer, President and Chief Executive Officer, Arcadia Biosciences: call over to TJ. Good afternoon, and thank you for joining us today to discuss our twenty twenty four fourth quarter and full year financial results. The year 2024 represented the culmination of a multi year plan to put Arcadia on a path to profitability, and I am extremely pleased with the progress we have made. Over the last two years, we have exited underperforming body care brands in an effort to simplify our business and focus our resources on our most promising brands. In mid-twenty twenty four, we seized on an opportunity to monetize a portion of our wheat intellectual property portfolio through the sale of a trait as well as the GoodWheat brand of wheat products, which provided non dilutive capital while significantly reducing our operating expenses.

Today, we are a leaner company that is solely focused on growing our Zola coconut water products and we are delivering what we said we would deliver. In May 2024, on the special investor call following the sale of GoodWheat assets, we provided the following guidance for 2024. We said full year revenue would essentially be in line with the $5,300,000 we reported for full year 2023 prior to the sale of GoodWheat that our gross profit dollars would be above $2,000,000 with gross margins in the low 40s and that our R and D and SG and A expenses would have a quarterly run rate of around $2,000,000 in the second half of the year. The results we are reporting today illustrate the successful execution of our strategy with full year revenues of just over $5,000,000 gross profit of $2,100,000 and gross margins of 41.3%. Our reported R and D and SG and A expenses in the second half of twenty twenty four were 4,900,000 which resulted in a higher quarterly run rate than our previous guidance as we incurred approximately $1,200,000 of transaction related fees in the second half that we did not anticipate in May when we provided guidance.

But there is an even better story deeper below the surface of the full year numbers and that is one of momentum. If I were speaking about Arcadia in 2024 using a sports analogy, we would be described as a second half team. In the first half of twenty twenty four, Arcadia sales declined 4% year over year. But in the second half of twenty twenty four, Arcadia sales grew 32% despite the fact that our GLA business was down 60% in the second half compared to prior year as we sold through the remaining inventory. The significant change in our business was driven by the tremendous amount of momentum with Zola, which grew revenues 16% in the first half of twenty twenty four and eighty percent in the second half of twenty twenty four as a result of the significant distribution gains in the second half by this hyper focused team.

In fact, in the fourth quarter alone, Zola sales increased 124% compared to the fourth quarter of last year. But the second half story is more than just a revenue story. While our consolidated Arcadia revenues increased more than 30% during the second half, our use of operating cash decreased 30% in the second half compared to the first half of twenty twenty four, consistent with our strategy of profitable growth that we have previously discussed. In fact, there were several opportunities for Zola to secure even more distribution during the year, but we walked away from several opportunities that did not meet our profitability targets. For full year 2024, Zola sales increased 46% compared to the previous year, primarily driven by the new distribution I mentioned earlier.

In 2024, we added more than 1,600 new stores and grew our retail distribution by 86%, resulting in the best annual performance for Zola since Arcadia acquired the brand in May 2021. From a gross margin standpoint, Zola gross margins in 2024 were 33%, which is consistent with the guidance we provided previously of margins in the low to mid-30s. The success we experienced in 2024 has resulted in Zola growth that is outpacing the coconut water category by more than two:one across all measured time periods. And this is a very healthy category where full year growth in 2024 was double the growth experienced in 2023 as consumer preferences shift to healthier beverages such as coconut water. Based on Nielsen data for the four weeks ending 12/28/2024, the shelf stable coconut water category in grocery grew 28.7, while Zola increased 73.7%.

During the latest thirteen weeks, the category rose 29.2% compared to Zola growth of 71.8%. And for the full year, the category grew 18.5%, while Zola increased 38.5%. As a reminder, when we provide Nielsen data, the numbers refer to scan data, which is products sold through to the end customer. As a result, our reported Zola sales growth of 46% differs from the Nielsen number of 38.5 as some product could still be in distribution centers or on store shelves. So in summary, 2024 was a tale of two stories.

In the first half, the focus was on rightsizing the business and positioning Zola for success. The second half was about executing on our strategy, driving growth in Zola and delivering on the commitments we made earlier in the year. As we begin 2025, we believe that Zola has significant momentum based on the new distribution that was put in place in the back half of twenty twenty four, as well as a pipeline of new opportunities to drive additional growth in the future. Before I turn the call over to Mark, I want to provide an update on the pending transaction with Roosevelt Resources. But before I begin, I want to state upfront that the comments I can make today will be limited.

For further information and discussion, I would refer you to our Form S-four registration statement that has been filed with the Securities and Exchange Commission. Having said that, as you are all aware, on 12/05/2024, we announced that we had entered into a definitive securities exchange agreement with Roosevelt Resources, a privately held oil and gas exploration and production company based in Dallas, Texas. As I mentioned previously, we filed a registration statement on Form S-four with the SEC on 02/14/2025, related to the proposed share issuance and a stockholder meeting to vote on certain proposals relating to the transaction. As is customary in these types of transactions, the SEC can provide multiple rounds of comments on the matters included in the registration statement. Once we complete the review process and the registration statement has been declared effective by the SEC, we intend to distribute proxy materials to our stockholders to vote on proposals relating to the transaction.

Given the timing of the initial filing, as well as various actions required to go through the SEC review process, we currently expect the transaction to be completed towards the end of Q2. With that, I will now turn the call over to Mark to discuss our twenty twenty four Q4 and full year financial results. Mark?

Mark Cowell Cumming, Chief Financial Officer, Arcadia Biosciences: 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 GoodWheat and Body Care operations. With that, I will begin our discussion of the financial results. In Q4, total revenues were approximately $1,200,000 and this represented an increase of 56% compared to the same period of last year.

It’s worth noting that this increase in revenues occurred despite a sharp decline in sales of GLA Oil as we sold through the last of our remaining inventory. This decline in sales of GLA oil was offset by a 124% increase in Zola revenues. And despite the fact that Q4 tends to be in the slow end of our seasonality curve, Zola sales in Q4 of this year were higher than Zola’s best quarter in all of 2023. For the full year, total revenues increased 13% compared to 2023. This was driven by a 46% increase in Zola sales, overcoming a 49% decline in sales of GLA Oil.

The cost of revenues in 2024 was approximately $3,000,000 and this represented a 36% increase compared to last year. The increase in the cost of revenues was driven by the increase in Zola sales as product costs made up 84% of the total cost of revenues in 2024 and ninety three percent of the total cost of revenues in 2023. The effect of this shift in the product sales mix can be seen in our gross margin rate, which declined from 51% in 2023 to 41% in 2024. The gross margin rate in Q4 of twenty twenty four was 32%. Research and development costs were $53,000 in 2024.

This was a decrease of $11,000 compared to 2023 and it reflects our strategy to develop the Zola brand by leveraging our existing resources and minimizing new investment. Selling, general and administrative costs in 2024 were $9,600,000 and that included $2,000,000 of transaction costs related to the sale of GoodWheat assets as well as the pending transaction with Roosevelt Resources. In comparison, SG and A costs in 2023 were $8,200,000 For Q4 of this year, selling, general and administrative costs were $2,700,000 and that included $700,000 of transaction related costs. In comparison, SG and A costs in Q4 of last year were $1,700,000 The loss from discontinued operations was $2,700,000 for all of 2024 and the cost was mostly comprised of termination costs and fees for the remaining employees and vendors that supported the GoodWheat business. As expected, losses from discontinued operations have declined as the year progressed and losses in Q4 were $23,000 Moving to the balance sheet, we ended 2024 with $4,200,000 of cash compared to $11,600,000 at the start of the year.

As TJ mentioned, we have been able to reduce our operating cost our operating cash consumption in the second half of the year and this has allowed for us to keep our overall cash consumption steady despite having $700,000 of transaction related costs in Q4. We ended 2024 with $1,200,000 of accounts receivable compared to $500,000 at the start of the year. This increase reflects the year on year growth in Q4 ZOLO revenues as well as the addition of interest related to the short term portion of our note receivable from the sale of GoodWheat assets. We ended 2024 with an inventory balance of $904,000 compared to $837,000 at the start of the year. The growth in inventory reflects the impact of higher Zola revenues in Q4 as well as the effect of longer lead times from our coconut water suppliers.

The promissory note we received from the sale of GoodWheat assets continues to accrue interest at the prime rate. We are scheduled to receive approximately $2,500,000 of cash in May of twenty twenty five as the first repayment of principal and interest. In conclusion, we have ended 2024 having successfully executed the restructuring of our business, while making improvements in almost all aspects of our financial performance. We continue to achieve some of our highest rates of revenue growth and outpaced the category without additional investment. Also, we continued to reduce our use of cash from ongoing operations, allowing us to maintain our overall cash consumption, while we make progress in our transaction with Roosevelt Resources.

I’ll now turn the call over to the operator for questions.

Conference Operator: Thank you. And our first question today will come from the line of Ben Klieni of Lake Street. Your line is open.

TJ Schafer, President and Chief Executive Officer, Arcadia Biosciences: All right.

Ben Klieni, Analyst, Lake Street: Thanks for taking my questions and congratulations on a good end of the year here. On first question on Zola distribution, can you elaborate a bit on your expectations for continued distribution growth here in 2025?

TJ Schafer, President and Chief Executive Officer, Arcadia Biosciences: Sure. So yes, we do have a healthy pipeline as we enter 2025. I don’t want to provide any specific numbers, but the pipeline is as healthy in 2025 as it was in 2024. We will also benefit, as we noted, a lot of the new distribution and gains came in the second half of the year. So we will benefit from the just the full twelve months of all of that new distribution in 2025 compared to 2024.

Ben Klieni, Analyst, Lake Street: Okay, very helpful. On GLA, can you just help me with some housekeeping here? What was the full year GLA revenue and then also in the fourth quarter? And then can you confirm you guys are 100% sold out of that product as of twelvethirty onetwenty four?

TJ Schafer, President and Chief Executive Officer, Arcadia Biosciences: Yes. So full year GLA revenue was $756,000 Q4 was $55,000 and we have complete we are completely out of GLA inventory. There will be no GLA sales in 2025.

Ben Klieni, Analyst, Lake Street: Okay, perfect. Very good. And then last one for me and I’ll get back in queue is regarding your efforts to monetize the legacy IP from the prior business model. Can you update us on kind of the status of any of those efforts? How advanced in the conversations are?

Any expectations? Or any goals, I guess, for future events?

TJ Schafer, President and Chief Executive Officer, Arcadia Biosciences: Sure. So as you are aware, we still do have a portfolio of patents predominantly focused on wheat. It would be our resistant starch, reduced gluten and oxidative stability patent portfolio. We are seeking to monetize that entire patent portfolio. I would say it will likely be a series of transactions.

There will not be one buyer for the entire portfolio. And part of that is really due to just some of the legal constraints that we have based on licensing deals or the relationships that we have with existing partners. So I think what you’ll probably see is potentially one or two even more transactions to kind of unwind that portfolio. In terms of timeline, I think we are in advanced stages in terms of those discussions. So I’m hopeful that we could have something done in the first half of the year that we would be able to announce.

That would be kind of my target.

Ben Klieni, Analyst, Lake Street: Got it. Very good. Well, best of luck with all those initiatives and best of luck here in the hopefully final days of the Rosebel transaction. Thanks for taking my questions. I’ll get back in queue.

TJ Schafer, President and Chief Executive Officer, Arcadia Biosciences: Thank you.

Conference Operator: Thank you. And I would like to go ahead and turn the call back over to TJ Schafer for closing remarks. Please go ahead.

TJ Schafer, President and Chief Executive Officer, Arcadia Biosciences: So in closing, we developed a strategy that we believed maximized the potential of our strongest brand, Zola. And we have executed on that strategy in the second half of twenty twenty four, increasing revenues 80% while delivering on all of the commitments that we communicated back in May. At the same time, our top line is expanding. We have also maintained tight cost controls. Arcadia has now produced gross margins in excess of 30% for eight straight quarters and our 2024 use of cash in operations is at the lowest level since Arcadia went public a decade ago.

Zola’s distribution expansion, particularly in the second half of twenty twenty four, provides tremendous momentum as we enter 2025. This concludes my remarks. Thank you for your interest in Arcadia and have a great day.

Conference Operator: Thank you so much for participating in today’s conference call. You may now disconnect.

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