Good afternoon, and welcome to Arcadia Biosciences Third Quarter 2024 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. [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'll now turn the call over to T.J.

Good afternoon, and thank you to everyone on the call for joining us today to discuss our 2024 third quarter financial results. When we last spoke in August, we characterized the second quarter of 2024 as a turning point for Arcadia as it relates to our business transformation that has taken shape over the last two years. And I believe our third quarter results exemplify the plan we have put in place as well as our ability to execute on it. First, in the third quarter, our total revenues increased 18% year-over-year, driven by a 55% increase in Zola Coconut Water sales, which I will discuss in more detail later in my prepared remarks. Second, at the same time, we grew the top line, we maintained our selling, general and administrative expenses. While SG&A expenses increased by $380,000 compared to last year, the entire variance was driven by severance and transition-related fees following the sale of GoodWheat. And finally, our use of cash during the quarter declined to $1.5 million, and that number includes more than $400,000 related to discontinued operations. To put that in perspective, this is the lowest level of cash used in a quarter since Arcadia went public. So we are extremely pleased with the progress that has been made thus far, but our work is not done. While we continue to evaluate strategic alternatives, we are focused on reducing our cost structure, including both cost of goods sold and operating expenses, monetizing our existing Wheat portfolio and growing our Zola Coconut Water business, which is off to an amazing start. In Q3 2024, Zola revenues increased 55% compared to the same period last year driven by new distribution added during the quarter, strong orders from our existing customers and the new items that started shipping last…

Thank you, T.J. 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 Q3, total revenues were approximately $1.5 million, and this represents an increase of 18% compared to the same period last year. This was driven by a strong performance for Zola, which increased 55% compared to Q3 of last year. This quarter, Zola represented about 86% of total revenues. As a reminder, sales of GLA oil have continued to decline as we sell through the last remaining inventory, and this quarter, sales were about half of what they were in Q3 of last year. As T.J. mentioned, Zola has closed out the very busy summer season with a strong finish, and we are seeing uplift from the new distribution that we secured in Q2 as well as growth from our existing portfolio of customers. The cost of revenues in Q3 was approximately $1 million, and that included a write-down of just over $150,000 related to hemp and GoodWheat seed. Including the write-down, the total cost of revenues increased by about $200,000 or 26% compared to last year. Research and development costs were $24,000 in Q3. This was an increase of $9,000 compared to Q3 of last year, but it was a decrease of $15,000 year-to-date compared to last year. Selling, general and administrative costs in Q3 were approximately $2.2 million, and that included about $380,000 of transition costs related to the sale of GoodWheat assets. These transition costs made up the entire variance to Q3 of last…

Thank you. [Operator Instructions] And our first question comes from Ben Klieve of Lake Street Capital Markets. Your line is open.

Hi. Thanks for taking for taking my questions and congratulations here on some nice momentum from Q2 to Q3. First, a clarifying question, Mark, in your prepared comments, you noted a $150,000 write-down. Did you say that, that was entirely within this quarter and associated with the legacy business? Did I hear that correctly?

Yes. It was entirely in this quarter and as it related to both Hemp and GoodWheat seed.

Hemp and GoodWheat seed. Okay.

Yes.

Okay. Perfect. Thank you. So then looking at gross margins, if you back out that $150,000 write-down and then and then strip out the GLA business here that's going to be coming off the books. Is a -- can you help give us some guideposts regarding your expectations on margins on a go-forward basis when you back out those two big ticket items?

Yeah, Ben. So if you back out those two items, I think you're going to land right around 33%. I think if you recall, historically, our long-term outlook for Zola margins is -- I think we've kind of communicated low to mid-30s, and so we're kind of right in the middle of that range.

Okay. Perfect. And then the onetime items within OpEx that you flagged, do you expect any more of those residual items to come through in the fourth quarter? Or do you think that was really contained within the third quarter?

Yes. I mean I think for the most part, things related to severance and those types of issues we're past that. And so we would expect anything related to that transaction to be pretty minimal.

Okay, great. And then one more for me, and I'll get back in queue. Regarding this just really kind of torrid pace of growth that you have in Zola with new distributors, can you maybe talk about your confidence in the infrastructure at Arcadia to support this growth, both in terms of inventory levels, any kind of ERP-related dynamic that you have to support this growth? Do you feel comfortable that you guys are going to be able to execute growth of this magnitude here in the fourth quarter and going forward?

Yeah. So let me break it up into a couple of pieces. From kind of the “infrastructure side of things”, we do feel comfortable. Zola is a product that is manufactured in Thailand. We received a finished good at the port. And so it is a very asset light business model. You did touch on inventory. That is something we, along with many of our competitors are trying to manage. Lead times have gotten longer in this industry, and so we're having to plan further ahead. And, obviously, the large orders that we shipped at the end of the quarter started to eat into our safety stock that we have. And so that's -- it's something that we're managing through. We're balancing. And as we approach a softer season, we would look to rebuild some of that of that safety stock.

Okay. Very good. That also makes sense. Well, congratulations again on a really good quarter here. Thanks for taking my questions, and I’ll get back in the queue.

Great. Thank you.

Thank you. I'm showing no further questions at this time. I'd like to turn it back to T.J. Schaefer for closing remarks.

Thank you. In our view, our third quarter 2024 results represent the progress we have made in transforming Arcadia's business as well as our ability to execute on the plan we laid out. Our total revenues increased 18% year-over-year, driven by very strong growth in Zola revenues of 55%. From a distribution perspective, Zola retail store count increased 68% year-over-year and Zola is growing faster than the coconut water category across all measured time periods resulting in market share gains. And finally, we have significantly reduced our use of operating cash to the lowest levels in Arcadia's public history. So we are extremely pleased with our performance, and we thank you again for your continued interest in Arcadia.

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