Good afternoon, and welcome to Arcadia Biosciences Second Quarter 2024 Financial Result and Business Highlight 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. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to Mark Kawakami, Chief Financial Officer at Arcadia. Please go ahead.

Thank you and good afternoon. Joining me on the call today is T.J. Schaefer, 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-Q. With that, I will now turn the call over to T.J.

Good afternoon everyone. And thank you for joining us today to discuss our second quarter financial results for 2024. The second quarter of 2024 was a significant turning point for Arcadia. As we transform the business and chart our path to becoming cash flow positive. We have made great strides over the last two years and even more significant progress over the last three months, that I would like to share with you today. But first, let me start by reminding everyone of the two transactions that we completed in the second quarter of 2024 that allowed us to monetize part of our wheat IP. In May, Arcadia entered into an asset purchase agreement to sell certain patent and related rights associated with our resistant Starch Durum Wheat, to a wholly-owned subsidiary of Corteva Agriscience, in exchange for $4 million cash. The collaboration with Corteva started in 2017 with an agreement for Corteva to have exclusive North American rights to Arcadia's resistant Starch Durum Wheat Trait. Corteva has been steadily advancing this trait toward commercialization, introgressing it into elite germplasm lines, and this transaction gives them access to markets beyond North America. For Arcadia this means earlier monetization of our resistant Starch Durum technology, accelerating royalties with the one-time payment of $4 million. The second transaction also occurred in May, when Arcadia and its wholly-owned subsidiary, Arcadia Wellness, entered into an asset purchase agreement to sell certain assets relating to our GoodWheat business to Above Food Corporation. As part of the agreement, Arcadia agreed to transfer GoodWheat grain and finished goods inventory, trademarks and $2 million cash in exchange for a $6 million promissory note with a three-year term and annual interest that accrues at the prime rate. In less than two years, we launched the GoodWheat brand into three…

Thank you T.J. and welcome to everyone joining us on the call. I'd 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'll begin our discussion of the financial results. In Q2, total revenues were approximately $1.3 million. This was an increase of 32% sequentially and it was basically flat compared to the same period of last year. Total revenues were driven by strong growth in Zola, that was partially offset by a decline in GLA oil revenues. Zola sales increased 86% sequentially and 42% versus last year. This quarter, Zola represented about 90% of the total revenues. As T.J. mentioned, Zola is off to a very strong start in 2024, with the sales growth outpacing the category. We are optimistic about the outlook going forward as our new product offerings and new distribution begins to take hold in Q3. Q2 gross profit was $673,000. This represents an increase of 30% compared to last quarter and an increase of 4% compared to last year. The resulting gross margin was 52% of total revenues. The improvement in gross profit dollars was driven by revenue growth as the gross margin percentage from continuing operations has remained consistently around the low 50s. As a reminder, we expect GLA oil to decline as a percentage of total sales as we sell through the remaining inventory over the second half of the year. We expect the impact to gross profit rates to be a trend towards the low 40s in 2024 and the trend toward the low 30s after that. Research and development costs were $10,000 in Q2. This was an increase of $4,000…

Thank you. [Operator Instructions] And our first question comes from Raghuram Selvaraju from H.C. Wainwright & Company. Your line is now open.

Thanks very much for taking my questions and congratulations on all this important progress. Firstly, I wanted to ask if there are any remaining crop trait assets that the company still owns that could be monetized in the future? Or if you feel that at this juncture, you've effectively transacted on everything that could be monetized?

Hi, Ram. Thanks for the question. Yes, we still do have a few traits in our library that we are actively working on monetizing as well. Still -- there still remains to be seen whether that will be in the form of licensing agreements or potentially even an asset sales similar to what we did with our RS durum.

Okay. And then secondly, I was wondering whether you can provide us with any visibility, any color on the timing of introduction of any additional Zola flavors? Or if you expect pineapple and lime to be the sole new flavor introductions that you make for the foreseeable future?

Yes. So, as I stated in my prepared remarks, the pineapple and the lime just started shipping in Q2. So those are very new into the marketplace. We do have some ideas that we could potentially launch in 2025. And then we continue to explore innovation longer term. So I think the short answer is yes. We are looking at an innovation pipeline and potential new product introductions in the coming years.

And then the last question was with respect to what you see currently in terms of market research, broader market size assumptions for the segment in which Zola Coconut Water as a franchise competes. What percentage of that market would you need to effectively penetrate in order to achieve the goal of sustainable profitability according to your internal model approximately. Just so we have a sense of what kind of market share would translate into sustainability for the company?

Yes. It is a good question. So I think today, based on kind of the -- grocery category that we typically look at, which is a little bit of a subset. We're probably 1% of the market. And I think, still a very low single-digit rate -- is where we need to get to, in order to -- those are the kind of -- that's the kind of scale we are looking at just to reach breakeven.

Thank you.

Thank you. And one moment for our next question. And our next question comes from Ben Klieve from Lake Street Capital Markets.

All, right. Thanks for taking my questions. Congratulations on a nice quarter and a lot of progress here year-to-date. A question on the quarter itself. You talked about all the different kind of tailwinds supporting Zola. And -- but I want to make sure that I really understand the kind of revenue makeup in the second quarter. Can you clarify that there was no kind of lumpy onetime revenues that came in and drove this real outperformance that were a function of kind of new product placements or anything sizable that would have given you that outperformance versus the category?

Yes, that's correct. There were no sort of onetime lumpy revenues and no sort of -- no large initial sell-in that would have drove the performance.

Okay. Great. Great. That's good for you guys. Another question on the quarter itself and just maybe kind of longer-term trends over the last few quarters regarding GLA, you talked about this kind of ratcheting down to -- be zero once you burn through your inventory exiting the year. Can you comment on GLA, as a percentage of your revenue base in the first quarter and the second quarter and kind of how you expect that to tail off here into the balance of this year?

Yes. So second quarter, it was 10% of our revenue. Let me get -- it looks like in the first quarter, it was closer to 30%. In terms of the go forward, you're right. We are -- we sell -- we will be selling GLA through the end of 2024, but that will be the end. We are selling through all the remaining inventory that we have. And so what you saw in the second quarter is essentially what we would be projecting for quarters three and four.

Okay, great. Very good. Let's see, one for me, you guys noted the kind of halfing of your cash burn from $15 million last year to this year. Wondering if you can talk about kind of the run rate that you're looking at as you exit '24 and go into '25, either on a quarterly or full year basis. I would expect your cash burn is going to be the lowest exiting the year and that -- in this year, it will be $7.5 million. So I'm kind of curious how low that cash burn you think is going to be exiting '24 going into '25?

Yes. So I think the guidance for '24 is that we would cut the burn in half. So you are right. Kind of in that $7 million to $7.5 million range based on the comments we made. Our use of cash was 3.5% in the first half, and we said it would be similar in the second half. And so that's kind of where we are landing for ‘24. The other thing that we identified in my prepared remarks was an additional $2 million of annual cost savings that I said we expect to be on top of kind of that $2 million run rate of where we are. So we see that coming into play more in ‘25, so kind of as we exit. So that takes another $2 million out. And beyond that, I don’t want to make any comments at this point with respect to ‘25, we’ll have more information in November. But it’s what we’re looking at is kind of trying to reduce this into that low to mid-single digits next year. So we’ve got a little bit more work to do, but we’ve already identified $2 million beyond where we are at our current run rate today.

Got it. Very good. Good for you guys. I appreciate you pick my questions. Congratulations again, really lot of good momentum coming onto you guys. I will get back in queue and best of luck here in the second half.

Great. Thanks so much.

Thank you. And I'm showing no further questions. I would now like to turn the call back to T.J. Schaefer for closing remarks.

In summary, we view the second quarter of 2024 as a significant turning point for Arcadia as we transform the business. Over the last two years, we have exited several underperforming brands right-size the organization and streamlined our cost structure in order to extend our runway. We have introduced new products and secured significant new distribution wins for Zola Coconut Water and we are positioned to grow faster than the category and gain market share. We thank you for your continued interest in Arcadia and look forward to updating you on our progress as we continue on our path to profitability.

This concludes today's conference call. Thank you for participating. You may now disconnect.