Good day and thank you for standing by and welcome to Arcadia Biosciences’ Q4 2022 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. . Please be advised that today's conference is being recorded. I would now like to hand the conference over to Arcadia Biosciences. Please go ahead. (Technical difficulty)

I'm T.J. Schaefer, Chief Financial Officer and presenting with me today will be Stan Jacot, 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 their most recently filed 10-K. With that, I will now turn the call over to Stan.

Good afternoon and thank you for joining us today. I'm excited to speak with you about our fourth quarter and full year results for 2022. But before we dive into the results, let's take a moment to reflect. It was exactly one year ago today that I spoke to you for the first time, so I want to highlight the tremendous progress Arcadia has made over the last four months. On that very first earnings call in March 2022, we highlighted the need to reduce complexity, develop robust processes and nail the priorities in order to focus on activities with the highest likelihood of bringing long-term value to our shareholders. As part of this initiative, we introduced a disciplined approach to evaluating our businesses and identifying priorities based on the size of the opportunity, the ease of which we could scale the business and the level of expected profitability. During our May earnings call, we announced that we had made a decision to exit a body care co-packing business that we had inherited as a part of the 2021 acquisition. While this business generated revenues and increased our capacity utilization, it resulted in significant losses. We estimate that exiting this business will save us $1.5 million to $2 million on an annualized basis. In June, we officially launched our GoodWheat pasta in both the retail channel and online through Amazon and have experienced significant growth in distribution in the second half of the year, which I will touch on in more detail in a few minutes. On our August earnings call, we entered this Project Greenfield, Arcadia’s three year plan to unlock potential and create shareholder value. As a reminder, the four key strategies are as follows; one, established GoodWheat footholds in retail categories representing over $10 billion in annual…

Thank you, Stan, and good afternoon to everyone joining us on the call today. As Stan mentioned, Arcadia has made tremendous headway that has resulted in significant financial improvement and today, I will focus primarily on the progress we made in 2022. But before I discuss the full year results, I do want to spend a few minutes discussing Q4 in order to provide you with some perspective into our operating performance as well as the drivers of that performance. In Q4, our total revenues of $1 million were $877,000 below the previous quarter. The primary drivers were seasonality in Zola where Q4 is historically the softest quarter for the entire category, as well as distribution losses in both Zola and SoulSpring that Stan mentioned earlier. Compared to last year, Q4 revenues were down $1.2 million with about three quarters of the variance due to revenues from brands that were no longer part of our product portfolio. The remaining variance was attributable to lost distribution in SoulSpring. Our cost of revenues as reported in Q4 was approximately $1.6 million included in this number is $941,000 of write-downs related to body care inventory, hemp seeds and CBD oil. These write downs were necessary as the prospects for these products have significantly diminished. We also believe we have minimized the risk of future write-downs related to these legacy products as 86% of our inventory at year-end is related to either GoodWheat or Zola, and the remainder consists of only finished goods that we plan to sell in 2023. So, the performance of the underlying business was actually stronger than it's ever been in Q4 as a result of the higher quality of revenue. With that, I will now transition to full year 2022. Our 2022 total revenues of approximately $10 million were…

And, thank you. . And our first question comes from Ram Selvaraju from H.C. Wainwright.

Everyone. This is Mitchell on for Ram. Thanks for taking the questions. The first one just wanted to touch upon the GoodWheat retail footprint expansion. And just wanted to understand when we'll be able to see the real impact from a sales trajectory standpoint. What will be meaningful if you could just provide some context around that?

We expect in the second half of 2023 to see that become meaningful.

Okay, great. And then what are you planning to do with your coconut water and body care product lines. Do you consider these to be core elements of the revenue base or do you think that they could be potentially spun out like Saavy Naturals?

Yes. So for Zola, we still see strong growth prospects and as I mentioned, we are investing in marketing, both from packaging perspective and innovation in order to continue to grow share in that category. For body care, there are lots of obstacles. So we are exploring all alternatives.

Okay, great. Thank you. And then just wanted to understand a little bit more about the legacy Hemp business and the opportunity to potentially monetize this segment of the business? Or do you think this is no longer feasible?

I'll turn that over to T.J to answer.

Yes. So from a legacy business perspective, our Archipelago business, we have written down all of the inventory. We've written it off. So we're carrying no value on our balance sheet any longer. From a Hemp seed perspective, we did significantly write it down. We still have about $200,000 in inventory on our balance sheet. We will continue to try and sell that. We have agreements with distributors in both the U.S. and Canada that continue to sell those products. And so our goal would be to sell through the remaining Hemp seed inventory in 2023.

Okay, great. Thanks. And the last one for me, if you could just provide any commentary on when you potentially see yourselves reaching profitability?

Yes. So Project Greenfield had a three year path to profitability. We are ahead of that plan currently through the end of 2022. Our all the aspects that T.J had commented on both gross profit improvements, operating expense reductions, all of those have kind of helped us in our trajectory. But yes, we are looking at still that kind of three year horizon when we launched it in June.

Great. Thank you all so much.

Thank you.

And one moment by our next question. And our next question comes from Ben Klieve from Lake Street Capital Markets. Your line is now open.

Thanks for taking my questions. The first one on fourth quarter performance specifically within GoodWheat. I appreciated your comments on the sequential challenges from Zola and body care businesses. Could you provide a little bit more granularity around the performance of GoodWheat from the third quarter to the fourth quarter? Did the revenue pickup from third quarter to fourth quarter, did you see similar headwinds in that product specifically on a revenue front?

I'll let T.J. answer that one.

Yes. Thanks Ben. So from a GoodWheat perspective, we are still in launch phase having only launched this in June. And so from a Q4 perspective, there obviously was a slowdown in the new store count growth. And so that does have an impact on GoodWheat sales in Q4 relative to previous quarters where we've been doubling distribution.

Okay. So then I guess a follow-up to that in some of the early adopters for this product that have been selling products since June. Did those locations see increase or decreases in revenue from the third quarter to the fourth quarter that had kind of a same store sales type number that you can actually have there?

Yes. Ben, this is Dan. What we've seen in the market is that velocities have been steadily improving from when we first launched these products. So that's where the -- it takes some times a while for the lost increase to show up in revenue because there are still inventory that's in the markets and the launch, the pipeline fill.

Got it. Okay. And then turning to the distribution losses in Zolo loss rate. Can you kind of elaborate a bit more on these and most notably are these distribution losses that you still maintain relationships with that you think may come back online in 2023 or are these kind of permanent losses that you're seeking to replace particularly on Zola, but do so from a kind of from square one?

Yes. T.J. you want to take that?

Yes. So on Zola that is there is an opportunity potentially to win those back. Those were supply chain issues nothing specific to the product or our go to market strategy. On SoulSpring, not likely to win those back. One was a retailer that a rather large retailer that made the decision to get out of all CBD products. The other was another larger retailer that has reduced their CBD set. They decided to keep ProVault but they decided to get out of SoulSpring.

Okay. And then I got a follow-up question to what you were just asked about the path to profitability. You said from the launch of Project Greenfield in June of 2022, you had a three year path to profitability and you think that that you're ahead of schedule on that path. But particularly given what you observed in the -- what was seen in the fourth quarter of 2022. I’m having a hard time reconciling that. So can you elaborate a bit more on how you think the path to profitability has been really accelerated over the last six months? And then how much of that visibility that you have is going come from future acquisitions that you may have in the hopper versus organic growth?

Yes. I'd say what we had been in our model was less cash at the end of 2022 than what we actually delivered. So it's really about our cash position that was improved through the end of 2022. And yes, acquisitions were always a part of the Project Greenfield model and we do think that that's going to be a sizable impact once we find the right acquisition in close.

And thank you. And I am showing no further questions. I would now like to turn the call back over to Stan Jacot for closing remarks.

Thank you. So in summary, Arcadia has made tremendous progress over the last 12 months. We've streamlined the business by exiting less profitable brands and activities. We're focused on the most compelling opportunities that will build long term value for our shareholders. We successfully launched GoodWheat pasta and have made significant distribution gains. We've increased sales and gross margins while lowering our operating expenses and reducing cash burn. And we have a clear vision for building the future of the company. We look forward to updating you on our progress in the months to come and on our next earnings call. Thank you again for joining us today. Have a great afternoon, everyone.

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