Business Overview and History
Arcadia Biosciences, Inc. (NASDAQ: RKDA) is a pioneering agricultural biotechnology company that has been at the forefront of developing innovative, plant-based health and wellness products. With a rich history spanning over two decades, Arcadia has consistently demonstrated its ability to leverage scientific advancements and consumer trends to drive sustainable growth.
Arcadia Biosciences was incorporated in Arizona in 2002 and later reincorporated in Delaware in March 2015. The company maintains its headquarters in Dallas, Texas, with additional office space in Davis and Sacramento, California. Initially, Arcadia's focus was primarily on wheat, leveraging its expertise in science-based approaches to commercialize products through the sale of seed, grain, and food ingredients, as well as through trait licensing and royalty agreements.
In May 2021, Arcadia took a significant step in its evolution by acquiring the assets of Live Zola, LLC, a leading provider of sustainably sourced coconut water products. This strategic move allowed the company to diversify its portfolio and capitalize on the growing consumer demand for healthier beverage options. The acquisition, made through Arcadia's wholly owned subsidiary Arcadia Wellness, LLC, also included Saavy Naturals, a line of natural body care products, Soul Spring, a CBD-infused botanical therapy brand, and ProVault, a THC-free CBD sports performance formula.
Arcadia's product portfolio now consists of two main pillars: Zola Coconut Water and its proprietary wheat trait technologies. Zola, sourced exclusively from Thailand, has quickly gained recognition for its clean, crisp taste and natural hydration benefits, outperforming leading competitors in consumer taste tests. The company's wheat trait technologies, including its non-GMO Resistant Starch (RS) durum wheat and its RG Wheat with reduced allergenic glutens, have also garnered significant interest for their potential to address consumer demand for healthier grain-based products.
In August 2019, Arcadia entered into a joint venture agreement with Legacy Ventures Hawaii, LLC to form Archipelago Ventures Hawaii, LLC. This partnership combined Arcadia's genetic expertise and resources with Legacy's experience in hemp extraction and sales to grow, extract, and sell hemp products. However, in October 2021, due to regulatory challenges and a saturated hemp market, Arcadia and Legacy mutually agreed to wind down the cultivation activities of Archipelago.
Another significant development in Arcadia's history occurred in February 2012 when the company formed Verdeca, a joint venture equally owned with Bioceres. Verdeca was established to develop and deregulate soybean varieties using both partners' agricultural technologies. In November 2020, Arcadia sold its membership interest in Verdeca to Bioceres in a transaction that provided Arcadia with cash, shares of Bioceres stock, and a royalty stream.
As part of its ongoing strategic evolution, in July 2022, Arcadia entered into an agreement to license Saavy Naturals to Radiance Beauty and Wellness, Inc., further refining its product portfolio and focus.
Financial Overview
Arcadia's financial performance in recent years has been marked by both challenges and transformative developments. In the fiscal year ended December 31, 2023, the company reported total revenue of $5.33 million, a decrease from the prior year's $7.42 million. This decline was primarily driven by a reduction in sales of the company's GLA oil products, as it focused on selling through the remaining inventory.
However, the company's strategic pivot towards the Zola brand has started to bear fruit. In the third quarter of 2024, Arcadia reported total revenues of $1.54 million, representing a year-over-year increase of 18%. This growth was primarily driven by Zola coconut water sales, which grew by an impressive 55% compared to the same period in the previous year. The strong performance was supported by significant gains in Zola's retail distribution, which expanded by 68% compared to the same period in the prior year.
For the nine months ended September 30, 2024, Arcadia's product revenues, which consist primarily of sales of Zola coconut water, increased by 4% to $3.83 million compared to the same period in 2023. This growth was primarily driven by an increase in Zola sales volumes.
The company's shift in focus has also impacted its profitability. In the fiscal year ended December 31, 2023, Arcadia reported a net loss of $13.98 million, compared to a net loss of $15.38 million in the prior year. For the most recent quarter (Q3 2024), the company reported a net loss of $1.61 million. The company's efforts to streamline operations and reduce costs have helped mitigate the financial impact of its strategic transition.
In May 2024, Arcadia sold its GoodWheat brand to Above Food Corp. for net proceeds of $3.7 million. This transaction resulted in a net loss of $1.5 million, which was recorded during the nine months ended September 30, 2024. Prior to the sale, the GoodWheat business had generated $2.69 million in net losses from discontinued operations during the nine-month period.
Additionally, in May 2024, Arcadia sold its non-GMO Resistant Starch (RS) durum wheat trait to Corteva AgriScience for $4 million in cash, further demonstrating the company's ability to monetize its intellectual property.
Liquidity and Cash Flow
As of September 30, 2024, Arcadia reported cash and cash equivalents of $3.94 million, along with short-term investments of $2.64 million and a current note receivable of $1.83 million. The company's total cash and short-term investments amounted to $6.6 million as of Q3 2024.
The company's cash used in operations during the nine months ended September 30, 2024, was $7.42 million, marking a significant improvement from the $11.15 million used in the same period of the previous year. For the fiscal year 2023, Arcadia reported an operating cash flow of -$15.30 million, which was also its free cash flow for the year.
Arcadia's financial position is further characterized by the following metrics as of Q3 2024:
- Debt/Equity Ratio: 0.08
- Current Ratio: 4.60
- Quick Ratio: 4.24
These ratios indicate that Arcadia maintains a relatively strong liquidity position and low leverage, which provides the company with financial flexibility as it continues to execute its growth strategy.
Arcadia's management has highlighted the company's focus on reducing its cost structure, including both cost of goods sold and operating expenses, as a key priority. This, combined with the monetization of its existing wheat portfolio and the continued growth of the Zola brand, is expected to help the company improve its liquidity and cash flow position going forward.
Product Portfolio and Market Position
Zola Coconut Water has become Arcadia's primary product offering following its acquisition in May 2021. Zola is a pure, natural, 100% coconut water sourced exclusively from sustainably grown coconuts in Thailand. The product is Non-GMO Project Verified and contains only 60 calories per serving. It has gained recognition for its crisp, clean taste that is slightly sweet and refreshing, naturally hydrating, and rich in electrolytes.
The coconut water industry in which Zola competes has seen generally positive trends, with the category growing 15% over the past 52 weeks according to Nielsen data. Arcadia believes that Zola has a competitive advantage in taste over other leading coconut water brands based on consumer research.
In addition to Zola, Arcadia has developed a portfolio of proprietary, non-GMO wheat traits that provide functional benefits to consumers. These include the RG Wheat variety, which has reduced allergenic glutens and increased essential amino acids like lysine, as well as improved fiber content compared to traditional wheat. The company also has developed wheat lines that significantly extend the shelf life and flavor stability of whole grain flour.
While these wheat trait technologies were previously commercialized under the GoodWheat brand, Arcadia retained certain rights to continue using the underlying wheat trait technologies after the sale of the brand to Above Food. The company is now evaluating ways to further monetize these wheat trait innovations, which it views as valuable intellectual property.
Strategic Initiatives and Outlook
Arcadia's growth strategy is centered around three key pillars: scaling the Zola brand through retail expansion, monetizing its proprietary wheat trait portfolio, and evaluating potential merger and acquisition opportunities.
The company's success in expanding Zola's retail distribution, combined with strong consumer demand for the brand, positions Arcadia well to capitalize on the growing popularity of coconut water and other plant-based health beverages. In Q3 2024, Arcadia added a significant amount of new distribution for Zola, representing about one-third of the brand's total retail distribution. However, approximately 95% of this new distribution did not start shipping until the end of the quarter, which has made near-term forecast accuracy challenging for the company.
Arcadia plans to invest in marketing activities to drive trial and distribution of Zola through mass market retailers and grocery store chains. The company's plans to introduce new Zola flavors and product innovations are expected to further drive category growth and market share gains.
Regarding its wheat trait technologies, Arcadia has demonstrated its ability to extract value from its proprietary intellectual property, as evidenced by the recent sale of its RS durum wheat trait to long-time partner Corteva AgriScience. The company will continue to explore ways to monetize its wheat portfolio and leverage its scientific expertise to develop products that cater to evolving consumer preferences.
While Arcadia has faced its share of challenges in recent years, the company's strategic pivot and focus on execution have positioned it well for future growth. The successful integration of the Zola brand, the ongoing optimization of its cost structure, and the potential for value-enhancing M&A opportunities all suggest that Arcadia Biosciences is poised to transform the landscape of plant-based health and wellness products.
Risks and Uncertainties
As with any emerging company, Arcadia Biosciences faces a range of risks and uncertainties that investors should carefully consider. These include the highly competitive nature of the beverage and agricultural biotechnology industries, the potential for regulatory changes or shifts in consumer preferences, and the company's ability to efficiently manage its supply chain and manufacturing operations.
Additionally, Arcadia's historical financial performance, including its net losses and fluctuating cash flow, highlight the need for the company to continue executing its strategic initiatives effectively and efficiently. Investors should closely monitor the company's progress in reducing costs, driving Zola's growth, and unlocking value from its wheat trait portfolio.
The company's recent significant expansion in Zola's retail distribution, while positive for long-term growth, introduces short-term challenges in forecasting and managing inventory. This uncertainty is reflected in the company's decision not to provide forward-looking guidance in its most recent earnings call.
Conclusion
Arcadia Biosciences has demonstrated its ability to adapt and transform itself in the face of industry challenges. The company's strategic pivot towards the Zola brand and its continued efforts to monetize its wheat trait technologies suggest that Arcadia is well-positioned to capitalize on the growing consumer demand for plant-based health and wellness products.
While the company's historical financial performance has been uneven, Arcadia's focus on execution and its plans to optimize its cost structure and drive growth in its core business lines indicate that the company may be turning a corner. The recent strong performance of Zola coconut water, coupled with the successful monetization of certain wheat traits, provides encouraging signs for the company's future prospects.
Investors who are willing to take on the risks associated with an emerging company in a dynamic industry may find Arcadia Biosciences an intriguing opportunity to watch in the coming years. However, they should remain mindful of the challenges the company faces in achieving consistent profitability and managing its growth effectively in a competitive market landscape.