Good afternoon and welcome to Arcadia Biosciences' Second Quarter 2021 Earnings Conference Call. Today's presenters will be Matt Plavan, President and CEO; and Pam Haley, Chief Financial Officer of Arcadia. 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-Q. With that, I'll now turn the call over to Matt Plavan, President and CEO.

Thank you, Josh, and hello everyone. Welcome to our second quarter conference call and thank you for joining us. Our second quarter marks the first time Arcadia has recorded sales from its newly acquired consumer products, namely our broad portfolio of on-trend CBD and wellness products under the Lief brands umbrella. Because the deal was closed on May 17th, our new Lief brands revenue are only realized during half of the quarter, but their impact over the prior year is still quite apparent. Revenues for the quarter were fivefold of those in the prior year second quarter and we're up fourfold on year-to-date revenues. When we spoke in May, we focused much of our discussion on how the Lief transaction signaled Arcadia's transformation to a dynamic consumer products company by adding an established CBG brand business with meaningful recurring revenues to our P&L and new growth opportunities. Today, I want to build on that theme discussing our post-acquisition results and placing the Lief transaction in a broader context of our path forward as a consumer focused enterprise driven by health and wellness brands. In particular, the Lief integration is progressing well. In just the last 90 days or so, we've accomplished a lot and overall we are on track with our plan. Immediately upon the close of the acquisition, we began integrating the Lief manufacturing team into the Arcadia organization, leveraging overhead synergies and building out processes and management routines that will enable us to scale capacity within our existing manufacturing facility to meet our anticipated Lief brand volume growth. We are also quick to secure automation equipment to further optimize our output, improve our gross margins and ensure product quality as we scale. After some port entry delays due to the global shipping congestion, we've recently begun receiving this…

Thank you, Matt. I'd like to take a few moments to share the financial highlights for the quarter and year-to-date with you now. As Matt mentioned, we were very pleased to have made the asset acquisition of Lief Brands and Zola coconut water and we're happy to include revenue from product sales in this second quarter. Total revenues recognized for the quarter were $1.4 million compared to $281,000 in second quarter 2020 with the majority of the $1.1 million increase driven by the acquisition of the Lief Brands and Zola portfolio of health and wellness products. In addition to GoodHemp seed sales this quarter, the acquisition was also the main driver in the year-to-date increase of $1.6 million as it generated $837,000 of revenue, in addition to GoodHemp seed sales this quarter and GoodWheat grain sales earlier this year. Total operating expenses of $9.1 million in Q2 of 2021 were $1.9 million higher than the $7.2 million recognized in Q2 of 2020. Cost of product revenues of $1.6 million, increased by $97,000 from the second quarter of 2020 to the second quarter of 2021 due primarily to the increase in cost of product revenues associated with the product sales of the portfolio of newly acquired brands, partially offset by lower inventory write down. Year-to-date cost a product revenues was $2.4 million, compared to $1.6 million in 2020 year-to-date with the $821,000 increase related primarily to the acquisition as well as increased GoodHemp and GoodWheat product sales. R&D expenses for the quarter were $1.1 million in 2021 as compared to $2 million in second quarter 2020 and $2.3 million second quarter year-to-date compared to $4.2 million second quarter 2020 year-to-date. The decrease for both periods was driven primarily by lower employee-related expenses as we right sized our research teams with the…

Thank you. [Operator Instructions] Our first question comes from Ryan Meyers with Lake Street Capital. You may proceed with your question.

Hi, guys. Thanks for taking my questions. First one from me is can you just kind of dig in through some of the 8-K filings. It looks like the acquired brands posted $1.5 million in the first quarter of 2021, which is a little bit lower than the quarterly run rate from the $6.6 million on what they get posted in fiscal year 2020, not a huge decline. But can you just walk us through how these brands have performed over the last four quarters and maybe if they saw a boost due to the pandemic pantry loading?

Thanks, Ryan. This is Matt. The brands have performed fairly consistently over the year last year except really in the first quarter of 2020, I think, that's where they saw the greatest impact from COVID. But I think when you look at Zola, for example, it's actually continued – our coconut water has continued to perform actually quite strongly throughout the last five quarters. And I would say that the other brands have also held their own and that is really just in the retail channel. So what you'll see us focusing on now, and I'd like to make a quick correction to something I had said in my prepared comments, when I talked about the e-commerce launch for ProVault, Saavy and Soul Spring, I mistakenly said that they will be launched by the end of 2022. I want to make a correction that's by the end of 2021. So that is the hyper-focus right now for us is taking these products that have been very successful in the retail channel and have had virtually no investment online. We think there is a significant opportunity in the near-term as we develop these websites and the SEO formulations to drive traffic to these sites and really complement the sales that we have in retail. So I think if you can bear with us, Q3 ought to be that opportunity for us to give you a better look backwards on a full quarter of revenue in both the retail channel and the online channel.

Okay, that's helpful. And then it looks like the Three Farm Daughters has been sold out of all their products for the past few weeks. I'm just wondering is this due to demand outpacing supply? Or is there something else going on here internally with them?

Oh, thanks for that question because there has been a number of folks asking about that. So as we talked about in our last earnings call, the decision amongst ourselves and Three Farm Daughters was that they preferred to take a license to the Arcadia technology. And so we agreed that if that was their preference that we would honor that. And so we have it's really that is – that matters in their hands. And they're evaluating how they want to take Three Farm Daughters forward. And so they've basically just kind of put a halt on their activities as they're evaluating what they want to do. And of course we have wasted no time in developing our own GoodWheat brand, which is, we're in the process of evaluating our packaging and testing that with consumers and getting really, really good feedback about that GoodWheat brand, which is what we suspected and why we were actually quite supportive of Three Farm Daughters taking a license and us taking full control over the GoodWheat brand and the entry into the multiple channels that we see as opportunities for GoodWheat.

Okay. And then how does the difficult crop conditions across the wheat market affect your guys' raw ingredient supply over the next year? And kind of, how are you addressing these conditions as you look into next year's planting goals?

So we're in an enviable position of having a sufficient amount of inventory in stock to serve what we would need probably for the next two years. And therefore, we really feel well-positioned, don't see any current concerns around production for our pasta and in fact our RG wheat.

Okay. That's helpful. And then last one for me. What's a good number for us to be using as an operating expense run rate for the business going forward now that you got the new brands in there?

So operating expenses is, there's a lot of moving parts right now, having pulled together the two operations and evaluating kind of go-forward, what do we really need to spend money on to drive revenue versus not? So frankly we're looking at opportunities to further streamline and until we've really worked through that process, I wouldn't want to give you a number right now. But I think it'll be clearer and something we can talk a little bit more discretely about in Q3 once we've had this acquisition under our belt for a full quarter and got a pretty good feel on where those opportunities are to maybe streamline further and where we want to make our investments in operating expenses. And I say that not to be evasive, but there truly are so many moving parts. And in particular, as we launch these online initiatives for these brands that are very successful now, we're going to on a weekly basis evaluate against our digital marketing plans. And oftentimes as we've seen with other brands in the market that have heavy emphasis on e-commerce. It is certainly possible that we start to get good traction and accelerating our marketing – digital marketing investments to drive a greater or higher trajectory on those revenues is something we want to be poised to do. And so that's another reason it's difficult to give you a number that you could – a flat line number that you could depend on. We'll just have to see as the months roll by here in Q3 how operating expenses play out.

Great. That makes sense. Thanks for taking my questions.

Thank you, Ryan.

Thank you. And I'm not showing any further questions at this time. I would not like to turn the call back over to Matt Plavan for any further remarks.

Thanks, Josh. Again, I'd like to thank you all for joining us today. We're very pleased with the progress we've made on a number of critical funds. And I expect a very busy second half of the year with our augmented CPG bench strength, the addition of key strategic resources and the pace of our integration process. We feel very well positioned to execute on the plans we have in place, and we look forward to reporting our progress to you. Have a great day. Thank you.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.