Arcadia Biosciences, Inc. (RKDA)·Q2 2024 Earnings Summary

Executive Summary

• Q2 2024 delivered a positive EPS inflection to $0.78, driven by a $4.0M gain on sale of the resistant starch durum wheat trait to Corteva and stronger Zola coconut water performance; revenues were $1.306M (+4% sequential, +1% YoY), gross profit was $0.673M, and gross margin was 52% .
• Business mix continues to pivot to Zola: Zola represented ~90% of Q2 revenues; Zola sales rose 42% YoY and 86% sequential with new flavors (pineapple, lime) and broader distribution; GLA fell to ~10% of revenue and is expected to be sold through by year-end .
• Management reaffirmed 2024 guidance: revenues flat vs 2023 ($5.3M), gross margin in the low-40s (>$2M gross profit), OpEx run-rate ~$2M/quarter, and 2024 cash use down ~50% vs $15M in 2023; H1 operating cash outflow was $5.666M, consistent with this trajectory .
• Strategic catalysts: monetization of wheat IP (Corteva transaction), sale of GoodWheat to Above Food (promissory note, 3-year term), Zola distribution shipments slated for Q3, and continued strategic alternatives review; CEO transition to T.J. Schaefer supports execution focus .

What Went Well and What Went Wrong

What Went Well

• Monetized wheat IP via two transactions: $4.0M cash from Corteva for RS Durum trait and GoodWheat brand sale to Above Food (promissory note with ~$6M stated value, discounted $5.705M); “a significant turning point” toward cash flow positive .
• Zola outpaced the category: Q2 Zola sales +42% YoY and +86% sequential; “Zola represented about 90% of total revenues” with 16.9-oz Tetra Pak offerings starting to ship .
• Cost discipline improved cash trajectory: headcount cuts halved salaries/benefits vs start of 2024; identified ~$2M in annual savings exiting 2024; Q2 SG&A included ~$0.5M transaction fees (one-time) .

What Went Wrong

• EPS uplift was primarily non-recurring: $4.0M gain on sale (internally developed asset, zero cost basis) boosted operating income; underlying SG&A rose due to transaction costs .
• Revenue composition still depends on a shrinking GLA contribution (10% in Q2, 30% in Q1) and sell-through by year-end, requiring Zola to carry growth and margin targets .
• Consensus estimate context unavailable via S&P Global for Q2 (API limit), constraining external benchmarking of beats/misses; management notes gross margin likely trends to low-40s in 2024 and low-30s thereafter as mix evolves .

Financial Results

Revenue Mix and KPIs

Balance Sheet and Cash KPIs

Notes: Gross margin for Q2 2024 is disclosed directly; Q2 2023 and Q1 2024 margins are computed from reported revenues and cost of revenues in Exhibits 99.2 with citations.

Guidance Changes

Additional context: Management identified ~$2M incremental annual savings exiting 2024; SG&A in Q2 included ~$0.5M in transaction-related fees .

Earnings Call Themes & Trends

Management Commentary

• “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.” — T.J. Schaefer, CEO .
• “Zola sales outperformed the coconut water category, with year over year sales increasing 42%.” .
• “We expect our marketing investment [for Zola] to be around 5% of net sales on a go-forward basis” vs GoodWheat previously requiring heavy spend .
• “From a top line perspective, we expect new distribution gains at Zola to offset the lost sales from GoodWheat… 2024 revenues will essentially be in line with the $5.3 million we reported for 2023… gross margins… low 40s… more than $2 million in gross profit… operating expense run rate of approximately $2 million per quarter.” .
• “The gain on the sale [RS Durum] is equal to the cash proceeds… as the asset was internally developed and had a cost basis of 0.” — Mark Kawakami, CFO .

Q&A Highlights

• IP pipeline: Company retains traits still being actively monetized via licensing or potential sales, beyond RS Durum .
• Zola innovation: Pineapple and lime just launched; additional flavors under consideration for 2025 .
• Scale for profitability: Currently ~1% market share in target grocery subset; “low single-digit” share likely sufficient for breakeven .
• Revenue quality: No “lumpy” one-time sell-in driving Q2 outperformance; growth reflects underlying demand and distribution .
• Mix transition: GLA ~30% of revenue in Q1 vs ~10% in Q2; expected sell-through by end of 2024 .
• Cash burn trajectory: 2024 cash use guided to ~$7–$7.5M (50% reduction vs 2023); additional ~$2M annual savings targeted into 2025 .

Estimates Context

• Wall Street consensus data from S&P Global was unavailable due to API limit errors during retrieval; thus, we cannot provide Q2 2024 vs consensus comparisons at this time. We default to S&P Global for consensus when accessible and will update when available. Values retrieved from S&P Global.*

Key Takeaways for Investors

• Q2 marked a structural narrative shift: positive EPS and strong gross profit growth, but largely aided by a one-time RS Durum gain; ongoing evaluation should focus on underlying Zola sell-through and margin durability as mix evolves to lower-40s gross margin in 2024 .
• Zola is now the core revenue engine (~90% of Q2 revenue) with sequential demand acceleration and broadening distribution; watch Q3 shipments for velocity stabilization and repeat rates in new doors as a near-term trading catalyst .
• Mix reshaping: GLA declines to immaterial by year-end, amplifying reliance on Zola’s category growth and pricing; monitor category trends and retailer produce-set space allocation .
• Cash discipline continues: H1 operating cash outflow of $5.666M with full-year targeted ~50% reduction vs 2023; incremental ~$2M annual savings exiting 2024 may further compress 2025 cash burn .
• Strategic optionality: Active strategic alternatives review plus demonstrated IP monetization (Corteva, Above Food) create potential for further non-dilutive cash inflows; track timing and terms of any additional licensing or asset sales .
• Management change to execution-focused leadership (Schaefer/Kawakami) aligns with operational streamlining and Zola-led growth; governance stability should support guidance delivery .
• Near-term positioning: With estimates unavailable, trade on operational KPIs (Zola growth, margin trend, OpEx run-rate) and Q3 distribution shipment updates; upside if Zola velocity sustains and additional IP monetization materializes; risk if margin compression accelerates faster than guided .