Good afternoon, and welcome to Arcadia Biosciences First Quarter 2020 Earnings Conference Call. Today's presenters will be Matt Plavan, President and CEO; Sarah Reiter, Chief Commercial Officer; and Pam Haley, CFO. 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-K and on Page 5 of today's press release.

With that, I'll now turn the call over to Matt Plavan, President and CEO..

Thank you, Victor. Good afternoon everyone and welcome. With me today at safe distances are Pam Haley, our Chief Financial Officer and Sarah Reiter, our Chief Commercial officer. I want to open by saying that I hope all of you listening in today your families and your loved ones are staying safe and healthy.

This an extraordinary moment in time for all of us. The Coronavirus has affect every business in the world. Together we are navigating a global health crisis that is bigger and more widespread than anything we have witnessed in our life time.

Now before getting into the results I'll provide some perspective on what we have been seeing since the pandemic hit, the current dynamics in our business and the actions we had been taking to not only manage through, but to adapt quickly and to make sure we are well-positioned to emerge stronger.

Our priorities throughout this challenging time remain the same, to maintain health and safety of our people, to act as a responsible corporate system following local, governmental regulations and guidelines while maintaining our field operations under the essential work exceptionally granted to agriculture, and to maintain business continuity and advance our business objectives without interruption.

I'm happy to say, that we've been successful in accomplishing these goals. Beginning in March we preemptively deployed plans for shelter-in-place mandate in the regions where we operate, which we were able to put into effect rather seamlessly.

I been impressed again and again by the dedication creativity and nimbleness of our employees that they've shown in order to adapt to changing circumstances and to keep our operations running smoothly. I'd also like to acknowledge the growers, farm workers and food industry professionals who keep our food supply chain running smoothly.

Its never been more clear that the work we're doing at our Arcadia and enhancing the quality nutritional value of crops and food ingredients is truly essential. Although we find ourselves among the fortunate this time, the COVID-19 pandemic disruption to our global economy has certainly had some impact on our business.

We saw a number of hemp growers poised to purchase our GoodHemp seeds last month simply stand down for a time. While they gather their bearings and awaited for better visibility into the reopening of our economy. However, May has historically been one of the most active months in hemp seed sales in production areas in the Western U.S.

and we are experiencing significantly greater interest and activity in the past 10 days than we did in the prior six weeks combined, which is when we've been forecasting the majority of seed shipments to begin occurring.

As expected, we're beginning now to see a market increase in deal flow as we are re-engaging in discussions with a number of growers who have decided they are moving forward with their spring plantings.

Our harvest schedules and planned processing activities in Hawaii were impacted by the shipping delays and island quarantine restrictions resulting in several weeks of delay in harvesting, processing and beginning initial shipments of our new Archipelago Ventures CBD line through our partner Vivion Specialties.

The trade implications of ports closed around the world disrupted grain shipments, sales and consumption, which had minimal delays in the expected sales of our wheat that we were looking to close in the early part of the quarter. Although we did expect to report an increase in our hemp backlog over the prior reported amount of $3.7 million.

The aforementioned pause in commitments during April resulted in no change as of today. However, since growers are now ready to take shipment of seed upon order, our orders from here forward will no longer run through backlog rather this number will begin declining as we fulfill these orders.

We're also very encouraged by the steady progress of our HB4 soybean project, having secured regulatory approval on more than 80% of global soybean acres produced and how that portends for the beginning of our Verdeca HB4 soybean sales in 2021 should China food and feed approval be granted.

So with that said, if the COVID pandemic remains on a recovery trajectory, we believe the worst is behind us and that we are positioned to recover those delayed sales in the coming months and to ultimately regain alignment with our growth targets.

With good near-term visibility into our GoodHemp seed sales, our Hawaiian CBD sales coming online in the third quarter and our wheat sales expected to commence in late Q2, early Q3, we reiterate our guidance for total revenue of more than $10 million in 2020.

I would be remiss not to call out the unusually high cash burn during our first quarter of $9.3 million, which was double our recent average quarterly burn of about $4.5 million.

The additional cash flow was due to inventory builds for wheat and hemp, as well as certain capital expenditures for Archipelago operations to support our 2020 sales targets. We expect our cash burn to be closer to the prior levels or less going forward.

Our burn will be progressively reduced by expected incoming hemp seed, CBD and wheat sales and the corresponding flow through of those inventories as discussed. Out of an abundance of caution and given the uncertainty in the markets we have reduced all non-essential spend to ensure we retain sufficient cash resources to execute our plan.

Also important to our forward strategy in addition to our organic growth strategy, we are now poised to accelerate shareholder value creation through acquisitive and strategic growth opportunities in the processing, manufacturing and brand segments of the hemp value chain to create a leading vertically integrated platform focused on the best technology, the highest quality and transparency in hemp and hemp derived products.

To help us navigate this emerging market Arcadia has reached into the sector and is working with strategic advisors including Corner Capital Group who has been an early investor in hemp technology and health care industries including TILT Holdings and Mile High Labs.

We see a number of strategic opportunities and are evaluating those we believe are accretive and synergistic to our existing portfolio. We see the hemp supply chain, the full supply chain from field to retail is ripe for consolidation and we expect to play an active role in those opportunities.

We look forward to providing more information on these activities in the near future. For now, I'll turn the call over to Sara for commercial update.

Sara?.

Thanks Matt. We have robust first quarter in terms of strategic partnerships in GoodHemp and Archipelago Ventures businesses. We announced agency agreements with Grow West and Buttonwillow Warehouse Company two of the nation's largest independent crop input retailers.

Together their teams of crop advisors add more than 100 agronomic specialists to our team of GoodHemp [Indiscernible] serving California. Their engagement is in line with our strategy further the best practices from industrial agriculture as the hemp supply chain matures.

GoodHemp seeds shipped during second quarters, so you'll begin to see significant hemp seed revenue when we next report. As Matt described previously, we will migrate from talking about backlog to speaking about sales in our second quarter earnings report.

Archipelago Ventures are joint venture dedicated to year-round production of sun-grown hemp in Hawaii announced in the first quarter an exclusive distribution agreement with Vivion Specialties Inc. VSI.

VSI is a distributor of quality ingredients for nutritional pharmaceutical food and beverage, cosmetics, personal care, agricultural and industrial markets. Under this Agreement VSI will exclusively distribute our Hawaiian grown THC free distillate and CBD isolate in North America.

Tested for more than 950 pesticides and contaminants like heavy metals and microbial organisms the products will offer an industry-leading purity and quality standards known as VivAssure. Archipelago Ventures will maintain the rights to market our own ingredients in Hawaii as well as an international market.

Archipelago Ventures also expanded Hawaiian land under production in first quarter by partnering with local Hawaiian participants in the state's industrial pilot program now producing on 30 acres with another under development.

In the second quarter, we expect to open the extraction facility after COVID related delays due to travel and shipping restrictions. Looking forward through the remainder of 2020 we anticipate additional announcements about our strategy in Hawaii.

Hawaii, an economy heavily focused on tourism continues to suffer painful employment losses in the after-effects of the pandemic. Unemployment rates have reached 34% among the highest in the nation and as the state plans for economic recovery continue to evolve we hope to be a voice of support and assistance.

Today Archipelago Ventures employs more than 20 people enrolls from field laborers to extract scientists. We're committed to acting as a responsible corporate neighbor keeping our team and the communities in which they work and live safe and vibrant.

We will continue to communicate more in the future regarding our Hawaiian operations as we come to better understand the Hawaiian Department of AG's new rules under USDA's Federal Hemp Program and the state's recovery plans.

Turning to soybeans, we are pleased to report strong harvest results in Argentina where our nearly 7,000 acres of soybean fields continue to demonstrate strong yield protection in drought conditions.

The HB4 soybeans which combines drought and stress resistance with herbicide tolerance have already cleared regulatory hurdles in more than 80% of global soybean producing areas including Brazil, Argentina and here in the United States.

Verdeca, our joint venture with Bioceres Crop Solutions advances commercial plans as it await deregulation in China, a requirement for commercial launch of soybean traits in Argentina. In light of the global impact of COVID-19 we continue to monitor the regulatory status in China.

In first quarter the product was highlighted as Expoagro 2020, the premier agricultural trade show in Argentina, which was attended by more than 100,000 growers from throughout South America.

The trade fair would use these as an opportunity to register growers for the next cycle of seed multiplication and interest exceeded by nearly tenfold the maximum acreage potential available.

Looking forward through 2020 we expect to share updates from the regulatory status of HB4 throughout the world and we will progress in our commercial efforts with HB4 soybeans. Today, we capture three routes to market.

As a technology license to seed companies, as varieties license to seed distributors and through the proprietary eco seed program of our joint venture partners which combines germplasm, traits, biologicals, Ag Tech and implementation as a package to approach growers. Verdeca has previously announced licenses for varieties with Bioceres Semillas [ph].

And GYC in Argentina, [Indiscernible] and Semillas ADP in Uruguay, as well technology licenses with Bioceres Semillas in Argentina, TMG in Brazil and Grupo Domaria in several countries in South America. And now to wheat.

In our first quarter we had advanced our commercial adoption of GoodWheat seed, traits, grain and ingredients in both international and U.S. market. We're early in the quarter our ingredients were featured [Indiscernible] panel. Our recent press release announced expanded U.S.

patent coverage and in fact we secured eight additional patents covering our GoodWheat portfolio in the U.S. and a key foreign market in recent months.

We've continue to progress our exclusive distribution relationship of our resistance starch high fiber bread wheat in North America through Bay State Milling Company who continues their introduction of HealthSense flour product.

In the second quarter you should expect to see initial revenue from European shipments and we'll complete our spring seed sale. We will also review our plan to expand our retail flour line which reduces by more than 60% allergenic component gluten.

In terms of outlook for remainder of the year we will carefully monitor the impact of the pandemic on sales of basic ingredient. As food companies focus on activities that ensure grocery store shelves are replenished, some have shifted away from innovation and initiative. But on the other hand we see an increase in sales volume of the retail flours.

So beyond the delay, Matt mentioned earlier, we see the impacts of COVID-19 on our wheat business as limited and manageable. With that, I'd like to turn the call over to Pam who will review the financial results in more detail. Pam..

Thank you, Sara. Revenue in the first quarter of 2020 was $151,000 higher than in the first quarter of 2019 driven primarily by licensees milestone achievements. Our GLA product revenues were favorable as well and royalty revenue was recognized this quarter as part of the contracted annual minimum.

Total operation expenses for the first quarter was $6.1 million compared to $4.4 million in the first quarter of last year for an increase of $1.7 million or 39%.

R&D expense was $739,000 prior to the quarter compared to 2019, and the increase was primarily due to the higher employee expenses and Hemp related cost as we've launch Arcadia's GoodHemp product line and establish the joint venture, Archipelago. SG&A expense is $911,000 higher in the first than in the first quarter of 2019.

This increase is mostly due to additional consulting activities in consultant stock compensation expense on with higher employee related expenses. Net income attributable to common stockholder for the first quarter of 2020 was $2.5 million compared to a net loss of $12.6 million recognized in the first quarter of 2019.

A fair value re-measurement of the common stock warrant liabilities at the end of each quarter resulted in a non-cash income of $8.2 million for the first quarter of 2020 versus the non-cash expense of $8.5 million for the first quarter of 2019.

The common stock warrant liabilities are associated with the registered direct offering transaction in 2018 and 2019 and you can refer to footnote nine in our 10-Q for a detail description of the accounting for these transactions.

Regarding our liquidity and capital resource, cash on hand, cash equivalents and short term investment totaled $60 million at the end of the first quarter versus $25.3 million at year end or a change of $9.3 million.

The net cash use in operating activities for the quarter was $9.3 million of which $4.2 million was attributed to a change in inventory balance.

And as Matt alluded to and as we expected we invested significantly in inventory buildup for hemp, both GoodHemp and Archipelago and wheat this quarter, along with property, plant and equipment purchases primarily supporting our Archipelago operations in Hawaii.

Following the quarter end, Arcadia secured a $1.1 million loan under the Paycheck Protection Program contain within the Coronavirus Aid Release and Economic Security Act that was signed into law on March 27 of 2020. And that wraps up our financial highlight for the first quarter of 2020. Thank you for your time and attention today.

And with that, I'd like to turn the call back over to Matt..

Thanks, Pam. Together we're working hard to position our business for strong and sustain growth. We believe this year we entered with the position of strength and we're try to achieve our revenue guidance.

We're confident that our R&D initiatives, proprietary commercial products and accelerated verticality in the hemp space will continue to give us the edge to successfully establish leadership in hemp just as we have in other crops. With that, I'd like to turn the call over for questions to the operator, Victor..

Thank you. [Operator Instructions] Now first question will come from the line of Ben Klieve from National Securities Corporation. You may begin..

Hi. Thanks for taking my questions everybody. The first question is, Matt, regarding the acquisition discussion that you had within hemp, can you talk a bit about how you're looking at expanding vertically kind of up and down the supply chain rather than horizontal expansion to kind of grow your footprint of seed production or breeding capabilities.

I mean, what do you really see is the more substantial value proposition to vertical expansion rather than growing horizontally here?.

Yes, Ben, thank you for the question. I wouldn't want to rule out horizontal opportunities. We do see some interesting genetics out there. And I would actually include them in the bucket of opportunities that could be accretive to the company and extend our capabilities.

When we think vertically this comes back to -- at the moment there is a lot of risk in the supply chain around quality and I think that's because hemp is in dire need of improvement to reach its full potential. And there's a general awakening to that throughout the supply chain whether it's processing, manufacturing brands whatnot.

We all understand its a great risk if they're trying to grow to the full potential of all the industrial applications without having the right genetics. So that puts us in a privileged position to evaluate a number of opportunities that would allow us to capture greater share of the value in the supply chain.

And that by bringing together strong genetics with a processor for example and being able to make that stronger connection between the growers, the processors and all the way through the supply chain, we find ourselves well positioned to make it a more profitable and efficient supply chain than perhaps anyone else in that plays in the space.

So we're thinking that there is more value to be captured vertically at the moment than there is horizontally, because our expertise is in genetics, but I wouldn't want to rule it out because candidly there are a number of genetics companies we are talking to that could extend our capabilities and accelerate our ability to create value..

Got it. That's helpful. Thank you.

And I guess as a follow-up, can you talk about the kind of the quality of the supply chain in Hawaii versus on the Mainland? And then, I know it's early, but are you -- can you kind of discuss if you're initially targeting this acquisition strategy on Hawaii or on the Mainland?.

Well, we're fairing pretty well in Hawaii and we kind of are the supply chain for Archipelago Ventures. We have the genetics. We have the mold processing unit as you know. So it's not like we aren't in processing at all at this time.

And with the recent announcement of Vivion Specialties, we've also got the channel into -- we have the sales channel into the retail space.

So, right there, I would say, we're pretty well-equipped to scale and lead the market in Hawaii, which means that the Mainland is likely to be where we're going to -- you're going to see our first moves with regard to verticality. I don't know, Sara, would you add anything to that. No. Okay..

Okay, perfect. Thanks Matt.

Turning over to the inventory build, can you break down that build either by crop or maybe by finished goods that are bagged and ready to go versus inventory that's still in the fields in process?.

I think, Pam can kind of walk you through.

We did file the Q and Pam, did we provide visibility into -- the degree of visibility that he's asking about in the Q?.

We do. We up -- we've got in our footnote we've got a breakdown between raw materials inventory and process and finished goods and we do include some crop information and quite a bit of it was GoodHemp and most of that is ready to go, but we've got some GoodHemp or -- I'm sorry, some hemp in Hawaii and Archipelago that is still in process.

We just got some wheat that's in process. So it's a good mix that it's -- and we've got some -- we're starting with soybean inventory also..

Got it. Okay. I'll wait for the Q to post. But I appreciate that comment. Last one for me and I'll get back in queue after this. Could you kind of provide a bit of -- better color regarding your kind of outlook for seasonality, the balance of the quarter.

I know you talked about an acceleration here in recent in recent weeks that you're expecting nice sequential improvement from Q1 to Q2 on the revenue side.

But do you have any better visibility regarding kind of how the next three quarters are going to look from a percentage of revenue breakdown of your full-year total?.

Yes.

Sara?.

Yes. Thanks Ben. The majority of our hemp business will flow out in May, June and July though we also have production areas in the Far Southern United States which we'll be planting in the fall. Hawaii and Florida offer us year-round opportunity so those are compelling businesses.

Year-round our wheat sales will not be visible until third or fourth quarter for in large part starting in late third quarter. We have some wheat business that we'll start seeing in second. And our European stuff that's actually already in transit, but hasn't landed.

And so, you'll see small amounts in second, deeper in third and fourth from the wheat business. And I wish I could say that there's soya revenue, but we'll have to hold off until next year or 2022..

Yes. Understood. Very good. That's really helpful. Thank you, Sarah. I think that's it for me. Congrats to all of you on all the progress. Thanks for taking my questions. And I'll get back in line now..

Thanks Ben..

Thank you. And our next question will come from the line of Raghuram Selvaraju - H.C. Wainwright & Co. You may begin..

Hi, guys. [Indiscernible] behalf of Raghuram Selvaraju, H.C. Wainwright. Congrats on the progress despite current climate. Just one question from me. How can Arcadia and its partners on the wheat-based Consumer Products front capitalized on the recent trend towards home baking by the recent pandemic and the state home restrictions.

Do you see this as an important development going forward or just a transient kind of thing?.

No. We absolutely see this as a strong indication that wheat is an important part of home baking and the home experience. We've always talked about wheat as a comfort food and I think we're actually seeing it, consuming that way.

We will be announcing in second quarter our retail flour partnership and so we would encourage everyone to come back and hear what we have to say in next quarter, because we believe that the reduced allergenicity product will definitely have a fit among retail shoppers where specialty flour have flown off the shelves at the same or increased pace compared to regular flour which we all have heard about being in short supply these days.

So we're very excited about the opportunity to enter that market later this year..

You are eliminating. Thank you and congrats again..

Thank you..

Thank you. And our next question will come from line of Steven Ralston from Zachs. You may begin..

Good afternoon. Could you expand on your hemp hub model that you mentioned in the press release. At what stage are you of the six locations. I assume you're more advanced in Hawaii, in California..

Sara?.

Sure. Happy to. So our model for rolling out our hemp business which is brand new to us this year was to ensure that our farmers can be successful growing hemp in a regulated environment. So we put agronomists on the ground to serve our farmers through very frequent contact and ensure they're successfully farming out.

So we have established our footprint in the Pacific Northwest headquartered around the Portland area. We have a footprint in California both at our Davis headquarters here and then further south in the Central Valley of California. We also have established a foothold in Florida which is new to the hemp industry, but is growing rapidly.

And we continue to build out our capabilities in the Mountain West and in the desert -- greater desert area anywhere from Imperial through Yuma Arizona down into West Texas. Obviously, Hawaii as a point of strength for us we have not only agronomist to service farmers, but also promise to service our own acres there.

So real on the ground experience happening every single day. We are continuing to look for the right place to position our Midwest location. I hope that answered your question yes..

Yes. With the number -- just talking about the number of acres that you have in test fields. It sounds like you have about 30 now in Hawaii and you said you're developing another 20.

When will they be come on come online?.

They're coming online as we speak..

Okay..

That’s in Hawaii and we also have research field station in Far Southern California in Imperial County..

And so my next question, how many acres are there?.

10 [ph]..

Moving over to soy, could you give some color on the Expoagro. Last year in the press release said, they were about 1200 attendees that came actually to your pavilion even though we know over well over a 100,000 attend overall.

Could you give some color of how many people came to the your pavilion this year and what was their attitude and what was the strength of the growers that wanted to register?.

Sure. Let me get you the exact number of folks who participate in. I don't want to give you wrong information. I can give you some color off the top of my head about the tenor of the discussion.

So Argentina last year suffered through a pretty significant drought, which serves to really highlight the strengths of HP for soybeans in both the smaller test plots that we had at Expo agro and also in farmer's fields where we were running demonstration trials.

So we came in to Expoagro with already a good sense that that growers perceive this has a highly valued traits Additionally, as herbicide tolerant, so we focused on the strength of this trait in our demonstrations at Expoagrow against resistant wheat, and so we had a really successful show in fact we had about ten times more growers sign up to produce seeds for us in the coming fall season which would begin starting in August or September then we actually may need.

So we have the lucky situation where we're going to have the ability to pick our partners. It's really a lucky situation. The desire for the growers in Argentina is to have new innovation and they continue to support our development and we today have digging through to get you a number as quickly as possible.

I'll have to come back to you with a number. I apologize..

That's okay. We can talk offline later.

When you said ten times more growers, growers versus the acreage? Would it be comparable ten times as much acreage?.

I misspoke, it's ten times much more acreage not ten times more growers..

Okay. And moving to the corporate level, your guidance is for $10 million in revenues this year. And while your third of the way there already with the GoodHemp. But also you said that your legacy product GLA is strong. I'm just looking through my model and it looks like you'll have over a $1 million in revenues there this year.

Am I off?.

That's a fair estimate..

Okay. And lastly concerning this paycheck protection program you applied and received over a $1 million there.

Do you plan to apply for forgiveness? And if so, do you expect to be alone to be -- the loan to be forgivable?.

Pam, do you want to take that one..

Sure. I would say that yes. We do plan to apply for forgiveness and we believe that we will qualify -- will have the qualifiable expenses to get that forgiveness..

Thank you very much..

Thank you..

And our next question will come from the line of Robert Smith from Center for Performance Investing. You may begin..

Hello. Good afternoon. Thanks for taking my questions. Hope you guys are doing well.

And Mike, can you just reference the possible headwinds down in Argentina, because there are financial difficulties and also the renting, I guess there that winter with the virus?.

So is your question, are we concerned about that?.

Yes..

No. We have very formidable partner in Bioceres who is on the ground well entrenched and as Sarah just laid out, we continue to progress the introduction and the testing of the soybeans with farmers. So at the moment we don't see any reason for unnecessary alarm or concern that we won't be able to move forward with plans.

So I would say provided nothing deteriorates meaningfully we remain confident in executing on our plan..

Okay. That's good.

I assume that the longer term gross profit for the company remaining in looking beyond this year that you stated?.

Sorry, Robert, can you say that one more time..

The longer range targets that you've stated beyond 2020 are still intact, I mean, they haven't deterred at all?.

Well, we think its prudent at this point to provide visibility on 2020 have not reason to believe. If we're successful executing 2020 as we projected that the years thereafter won't be in line with the significant growth that we've outlined before. But I do think that we want to be a bit more careful and not go beyond 2020 at this point.

It would be probably this prudent just stick with the guidance that we have in the earnings release today..

So you stated the figure beforehand.

Are you kind of withdrawing that?.

No, I'm not withdrawing it. I'm just -- it get reinforce...

And I can think of several my other questions have already been answered. So I wish you best of luck and look forward to hearing further progress..

Great. Thank you, Robert. Much appreciated..

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

Great. Thank you everyone for tuning in. We hope you stay safe and healthy. And we look forward to continuing to report our progress. Have a great evening..

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