Rajendra Ketkar - President, CEO & Director Matthew Plavan - CFO & Secretary.

Analysts:.

Good afternoon, and welcome to Arcadia Biosciences Fourth Quarter and Full Year 2017 Earnings Conference Call. Today's presenters are Raj Ketkar, President and Chief Executive Officer; and Matt Plavan, Chief Financial Officer. This call is being webcast, and you can refer to the company's press release and slides at arcadiabio.com.

Before we start, if you refer to Slide 2, 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 results may differ materially from those described or implied today. You can review the company's safe harbor language in their most recent filed 10-K and again on Slide 2 of this presentation.

With that, I will now turn the call over to Raj Ketkar, President and Chief Executive Officer..

Thank you, Brian, and thanks to everyone who is joining us on the call today. The purpose of the call is to report 2017 earnings, and we also have some exciting developments in 2018 that we would like to talk about today.

I will summarize the 2017 results and our growth strategy for 2018, and Matt will discuss our recently completed financing round and the 2017 financials. At the end of the call, we will, as always, take your questions. Turning to Slide 3. 2017 was a pivotal success for Arcadia.

We began the year by implementing the results of the strategy review that we conducted in 2016. We determined that the shortest path to shareholder value creation is to focus on the commercialization of our non-GM wheat quality traits portfolio and have restructured the company to achieve this.

We sharpened our focus on the commercialization of our non-GM wheat quality traits, targeting the $200 billion global wheat market. We developed new lines of high fiber Resistant Starch wheat, identified the phenotype for a Reduced Gluten wheat and advanced Extended Shelf Life wheat.

We demonstrated steady advancement towards the commercialization of our high-value agricultural productivity traits, namely HB4 drought-tolerant soybeans in Argentina and field trials of Nitrogen Use Efficiency and Salinity Tolerance traits in India.

We further enhanced our industry-leading development capabilities by adding one of the most advanced gene editing tools to our toolkit, CRISPR-Cas 9. And we achieved meaningful reductions in our operating loss for the fourth quarter and full year, which was driven by continued cost containment as well as our focus on a select group of products.

Our 2017 accomplishments position us favorably for even greater success in 2018 on several fronts, including commercialization of our consumer branded products, advancements of additional new quality traits and current ag productivity traits as well as continued improvements in our financial results.

We recently announced achievements of 2 major milestones in RS wheat; high amylose and high fiber. We launched the GoodWheat consumer ingredient brand.

And as you may have seen in our announcement yesterday, we completed a $10 million private equity financing, which will meaningfully fortify our cash resources and allow us to better execute our health and nutrition growth strategy in 2018 and beyond.

Looking forward to 2018, on Slide 4, our focus is now on commercializing product in our non-GM wheat quality traits portfolio to address the current challenges in the food and agriculture value chain.

Consumers are demanding healthier natural ingredients in their food as evidenced by changing consumption patterns and the types of specialty foods we see in the grocery stores today. As food companies respond to these demands, they are looking for distinct innovations in the food ingredient industry.

We believe that as innovators of quality traits, we can meet the demand of the food companies by providing ingredients that food companies can use to provide healthier products for their customers. This also means that our business model shifts from being a trait provider to seed companies to an ingredient provider to food companies.

By branding our wheat ingredients and reaching downstream into the value chain, we believe we can capture more value from the innovations we bring to consumers and food companies. As a result, we've launched the GoodWheat brand of innovative wheat ingredients as shown on Slide 5.

This is the first major step towards commercialization of our healthier wheat ingredients. The first product under this brand would be high fiber Resistant Starch wheat. Other quality traits like Extended Shelf Life wheat and Reduced Gluten will follow.

We believe that branding these ingredients enables consumer food companies to differentiate their products from their competitors and assures consumers that they are getting a healthy ingredient in their wheat product, including flour, bread, pasta, cookies, cereals and other wheat products.

To help us in this process, we have retained Ian Miller, who is an expert brand strategist. Ian was the architect of the NutraSweet brand and hundreds of other well-known consumer brands. Turning to Slide 6, we recently announced 2 important milestones in the development of high fiber Resistant Starch wheat, the lead product in this portfolio.

First, we achieved wheat varieties containing 94% amylose, which, we believe, are the highest levels available compared to 25% to 30% in traditional wheat. Secondly, these varieties can deliver high levels of dietary fiber that meet the FDA's designation of good source of fiber or high in fiber for wheat product packaging.

Having the increased fiber intrinsically in the wheat enables food companies to have clean labels, meaning they don't need to add fiber to their formulations and the ingredient list won't be as complicated. Wheat is an important part of our diet.

As much as 500 calories per day or almost 25% of the normal intake of 2,000 calories per day in the typical American diet comes from wheat. By delivering healthier wheat varieties to consumers, we can contribute to improved health benefits for our customers.

It has been well-documented that having higher levels of fiber in the diet promotes reduction of obesity. Resistant Starch wheat is digested more slowly than regular wheat, and the FDA recently concluded high-amylose Resistant Starch may reduce the risk of type 2 diabetes.

We're building partnerships along the value chain for wheat, including seed production, processors and food companies to bring our wheat products to consumers. We've been providing samples to companies for testing in their food formulation, and the initial results have been very encouraging.

Making products out of Resistant Starch wheat grain is not much different than commodity wheat and the end products provide a high fiber content that is beneficial for good health. We expect that our food company clients will be testing and reformulating their products before ordering RS wheat.

This spring, we will be planting increased acres of wheat to produce enough wheat for us to supply samples for expanded testing by our processor and food company customers.

In prior calls, we've talked about building our commercial capabilities within the company as we transition from an input trait technology company to a quality traits ingredients company. A key component of this capacity building was achieved this week as we hired Sarah Reiter as the Chief Commercial Officer for the company.

Sarah has over 20 years of experience in ag products in many marketing and strategy roles. She's been involved in launching many new products, and she will bring needed capabilities to the company. Our ag products -- productivity traits also made good progress in 2017, as shown on Slide 7.

HB4, the Drought Tolerant soybeans trait being developed by Verdeca, a joint venture between Arcadia and Bioceres, continues to make steady progress. The second season of trials and commercial germplasm were planted in the fourth quarter of 2017 in Argentina. In this growing season, Argentina is facing drought conditions in many parts of the country.

We visited Argentina recently to view the trials and early indications of the performance of the trait are positive. Once the trials are harvested and the data analyzed, we will, of course, report the results to you.

Meanwhile, regulatory progress continues in the form of studies being conducted for submission of the dossier for import approvals in Europe and other countries. In India, our partner Mahyco received approval for field trials for Nitrogen Use Efficiency and Salinity Tolerance in rice and cotton, and those trials are being conducted now.

We initiated restructuring of our agreements with Mahyco in which certain traits and geographies will be jointly licensed by Mahyco and Arcadia to other parties and licenses for other crops and geographies were terminated.

We also terminated, by mutual consent, our agreement for corn yield traits with Dow AgroSciences, as the performance of the trait candidates in field trials did not produce desirable yield improvements. Summarizing our results from the fourth quarter, our financial performance in 2017 was much better than in 2016.

We advanced our lead traits of non-GM wheat. We obtained a license for CRISPR-Cas 9 adding state-of-the-art technology to our technology platform that will accelerate products for commercialization. Our ag productivity traits, HB4 Drought Tolerant soybeans in Argentina and traits in India continue to advance.

We're most excited about looking forward to 2018 by launching the GoodWheat brand of wheat ingredients and advancing these traits towards commercialization. With that, I would now like to turn the call over to Matt for an update on our financial results for the quarter and for the year..

Thank you, Raj, and good afternoon, everyone. As Raj touched on briefly earlier in the call, we are very pleased with the $10 million private equity financing secured and announced yesterday.

Adding to our cash balance as reported at the end of the year of $13 million, we are well positioned to focus on the acceleration of our high fiber RS wheat commercialization activities.

And we are really excited about the potential for our portfolio of wheat quality traits to maximize value for all of our stakeholders, including food companies, consumers, growers and of course, our shareholders.

Turning for a moment to our financial results for the fourth quarter and all of 2017, let's take a look at our revenue performance on Slide 8. As you can see, total revenues were favorable for the quarter and for the year as compared to 2016. Our biggest driver in the quarter and the year was an increase in our license revenues.

You may remember from our prior earnings call that we were performing a review, as Raj mentioned earlier, by territory of our abiotic stress trait licenses to determine by the year end, that would be 2017, the optimal deregulation forward strategy.

In other words, do we have the optimal licensee to most quickly and effectively obtain regulatory approval? We completed that analysis. And as a result, a number of licenses were terminated, which is enabling us to potentially secure new in-country partners to work with the regulatory bodies in that country and secure approval for our traits.

In those cases, the remaining balance of the upfront license fees previously deferred for these same agreements, those were released and recognized as revenue in the fourth quarter. And that amount totaled $528,000. As for our product revenues, they were down 23% for the year due to the absence of high volume distributor orders.

During our last quarterly conference call, we guided to a lower overall result in this category for 2017 over 2016 due to the lead time required by our primary distributor to adjust their ingredient formulation for dry dog food and to establish proper labeling and channel preparation following our pet food approval that we achieved in mid-2017.

Lastly, our contract research and government grant revenues for the year were down 14% or $333,000 because we completed 2 multiyear research grants during the year, which were under way and generating revenues for all of 2016. This decrease was partially offset by new contract revenue research activity performed in the year.

As you know, contract research and government grant revenues can vary significantly from quarter to quarter depending upon the timing of contract awards, eligible R&D expenses and project completions. If you will turn now to Slide 9 and we can take a look at our expenses.

As you can see, our overall expenses are down for the quarter and for the full as we continue to focus on fewer key projects, and we lean more heavily on our non-GM cost-effective research platform. And where we can see this most clearly is in our R&D expenses year-over-year. These were down by $1.3 million or 15% from 2016 to 2017.

Although R&D for the quarter was up 9% over the prior-year quarter, the absolute dollar amounts were not significant and the primary driver was an increase in -- during the quarter of our HB4 development costs.

Total SG&A costs were also down for the quarter by $1.1 million and for the year by $1.6 million or 33% and 13%, respectively, compared to the prior periods in 2016. Both expense categories saw decreases driven primarily by lower salaries and benefits that resulted from the workforce reductions that we performed in 2016.

Therefore, comparing our total operating expenses to the prior year periods, they were down 26% for the fourth quarter and down 16% for the year.

Now putting all of this P&L activity together on Slide 9, you can see revenues were up, expenses were down, which resulted in a significant decrease in our operating loss for the quarter and for the year, 45% and 23%, respectively, as highlighted in green on the slides. And just a word about our liquidity and capital resources.

Cash on hand and investments totaled $13 million at year's end and our net cash used for the quarter was $2.7 million, which was a significant improvement from the $4 million that we used in the same quarter last year.

The annual cash used during 2017 net of our debt payoff of $26.1 million totaled $14 million, which was $2.9 million or 17% down from the $16.9 million used during 2016.

Now, of course, with the addition of the $10 million from the recent raise, we are well capitalized and debt-free as we enter this very exciting of our commercialization and growth strategy. With that, I'd like to turn the call back over to Raj for a wrap up.

Raj?.

Thanks, Matt. Before we get to your questions, I'd like to summarize our results for the fourth quarter and for the full year 2017. 2017 was a pivotal year for Arcadia as we sharpened our focus on the commercialization of our non-GM quality and nutrition ingredient traits for the $200 billion global wheat flour market.

We demonstrated steady advancement towards the commercialization of our high value agriculture productivity traits in Argentina and India, and we achieved notable reductions in our operating loss for the fourth quarter and full year driven primarily by continued cost containment and the cost efficiencies brought about through focus on a select group of products.

With the organization in place and commercial launch plans under way, we are well positioned for success in 2018. We secured $10 million in private equity financing that meaningfully fortifies our cash resources and allows us to effectively execute our health and nutrition growth strategy.

This additional financing will accelerate our commercialization activities and demonstrates our commitment to maximizing value for the food companies, consumers, growers and our shareholders. With that, I'd like to turn the call over to your questions now..

Operator:.

Thanks, everyone, for joining the call, and your continued interest in Arcadia and for your support. We look forward to speaking with you again in 2018 during our next quarter call..

Ladies and gentleman, thank you for your participation in today's conference. This does conclude our program, and you may all disconnect. Everybody, have a wonderful day..