Arcadia Biosciences, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Arcadia develops and commercializes crop traits and products, primarily in hemp, wheat and soy, through seed and grain sales, extracts, licensing and royalties.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Total revenue | $0.828 million | $0.309 million; up 168% |
| Operating loss | $5.326 million | $5.790 million loss |
| Net income | $1.681 million | $2.423 million |
| Net income attributable to common stockholders | $2.058 million; $0.11 per diluted share | $2.525 million; $0.29 per diluted share |
| Cash used in operating activities | $4.707 million | $9.270 million |
| Cash and cash equivalents | $32.848 million at March 31 | $14.042 million at December 31, 2020 |
| Short-term investments | $19.088 million at March 31 | $11.625 million at December 31, 2020 |
| Total debt | $1.237 million at March 31 | $3.246 million at December 31, 2020 |
Product revenue was $0.803 million, while product cost was $0.856 million, a gross loss of $0.053 million (approximately negative 6.6% of product revenue). The filing attributes part of product cost to a $0.160 million hemp-seed inventory write-down. No operating margin was reported as positive: operating expenses totaled $6.154 million.
Reported net income was substantially affected by a $7.463 million unrealized gain on Bioceres Crop Solutions (BIOX) shares, recorded in other income. The shares had a six-month trading restriction expiring May 12, 2021. Net income therefore did not reflect positive operating performance; cash from operations remained negative.
Changes versus the prior period
- Revenue increased $0.519 million, principally as product revenue rose $0.649 million on GoodWheat sales and additional SONOVA pet-food orders. License revenue fell from $0.100 million to zero, and contract research and grant revenue fell from $0.025 million to zero.
- Research and development expense declined 48% to $1.159 million as the company shifted toward commercialization and reduced research staffing. Selling, general and administrative expense rose 9% to $4.069 million, reflecting employee costs and commercial and marketing activity.
- Operating cash use improved from $9.270 million to $4.707 million. Financing provided $21.997 million, mainly from the January private placement; the company also repaid $2.0 million on its bank note and closed the line of credit.
- Common shares outstanding increased from 13.451 million at year-end to 21.336 million at March 31, following issuance of 7.877 million shares in the private placement. The transaction also issued warrants for up to 3.938 million shares.
Outlook, risks and notable items
- Management said existing cash, cash equivalents and investments were expected to cover anticipated cash requirements at least through May 2022; the MD&A also describes coverage for at least the next 12 months. The company may pursue additional debt, equity or partnerships, which could dilute shareholders or add debt obligations. No specific revenue or earnings guidance was provided.
- Management is prioritizing commercialization of GoodWheat and GoodHemp and does not intend to continue pursuing contract research and government-grant projects. Agricultural seasonality, weather, market demand and timing of milestones may cause results to fluctuate.
- Hawaii deferred consideration of a CBD-processing bill until at least 2022, with effectiveness potentially delayed until 2023. Arcadia consequently recorded a $0.210 million impairment of Archipelago CBD-processing fixed assets; further changes in legislative expectations could affect recoverability.
- The filing reports a $0.160 million hemp-seed inventory write-down and cautions that changes in demand or market conditions could require additional write-downs. Routine audits of government-grant revenues were ongoing; management anticipated no adverse result, but repayment or other consequences could arise if costs are found improperly allocated.
- The company had an accumulated deficit of $209.8 million and used $4.7 million of operating cash in the quarter. Management warns that inability to obtain additional funds, if needed, could require spending cuts, asset sales or curtailment of development programs.
- The $1.1 million Paycheck Protection Program note remained outstanding; the company intended to apply for forgiveness, but gave no assurance of full or partial forgiveness. No material litigation was reported. Disclosure controls were deemed effective.
- Subsequent events: Arcadia acquired Agrasys assets for approximately $0.250 million, and on May 17, 2021 closed an acquisition of wellness and beverage brands for $4.0 million cash plus 827,400 shares. The company also reported elimination of its chief technology officer position, effective May 21, 2021.
Most important facts for investors to verify
- Whether the BIOX share gain is realized, the shares’ value after the trading restriction, and how much future reported earnings depend on investment-price changes.
- Cash burn and liquidity runway against the stated May 2022 estimate, including cash needs following the post-quarter acquisitions.
- Potential dilution from the January 2021 shares and warrants, existing warrants and the shares issued in the Soul Spring-related acquisition.
- GoodWheat and GoodHemp sales growth, product-level economics, inventory demand and any further write-downs.
- Hawaii CBD-processing regulatory developments and the recoverability of Archipelago assets; outcome of government-grant audits and PPP forgiveness.