Fred Sommer - Investor Relations, Ascendant Partners Dale Belt - Chief Financial Officer Robert Smith - Interim Chief Executive Officer Michael Goose - President, USA Ingredients.

Tony Vendetti - Maxim Harry Ghoshal - Private Investor.

Good day, ladies and gentlemen and thank you for standing by. Welcome to the RiceBran Technologies’ 2016 Third Quarter Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host, Mr. Fred Sommer of Ascendant Partners. Please go ahead, Mr. Sommer..

Thank you, operator good afternoon listeners. Welcome to the RiceBran Technologies’ 2016 Q3 financial results conference call. With us today are Dr. Robert Smith, Interim Chief Executive Officer of RiceBran Technologies, Dale Belt, Chief Financial Officer; and Michael Goose, President of USA Ingredients.

Mark McKnight, President of Contract Manufacturing is not with us today as he is traveling internationally on business. Before I turn the call over to Robert, I want to remind listeners that during the call management’s prepared remarks may contain forward-looking statements that are subject to risk and uncertainties.

Management may make additional forward-looking statement in your response to your question today. Therefore, the company claims protection on the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

Actual results may differ from the results discussed today and therefore we refer you to a more detailed discussion of these risks and uncertainties in the Company’s filings with the SEC.

In addition, any projections as to the Company’s future performance represented by management include estimates as of today, November 10, 2016, and the company assumes no obligation to update these projections in the future as market conditions change.

This webcast and certain financial information provided in this call, including reconciliations of non-GAAP financial measures to comparable GAAP financial measures are available at www.ricebrantech.com on the Investor Relations page. At this time, I would like to turn the call over to Dr. Robert Smith, Interim CEO of RiceBran Technologies. Dr.

Smith, please go ahead..

Thanks Fred and thanks to all of our listeners for joining today.

As many of you are aware, there have been a number of significant changes that have taken place at our company in the past several months including a reconstitution of the board of directions, might be [ph] have named interim CEO, and the addition of Michael Goose to head up our ingredients sales efforts.

During that time, management has been working diligently with close support from the board to take a fresh look at our long term business plan and adjust our comprehensive strategic plan. Our guiding principle and goal is to capitalize on the significant value potential of our proprietary technology were deemed appropriate.

Before Dale goes into the numbers and our strong performance in the U.S., I would like to take some time to lay out our strategic vision to transform the future of RBT in order to maximize the value of our company for the benefit of our shareholders.

Let me start by saying that I am very excited to have been given the opportunity to lead this company and that I am committed to building this business for spectacular revenue growth.

I joined RBT in 2012 after spending the better of 20 years working in the agricultural and food industries as a Director of Business Development of HerbalScience Group and directing research and product development at Dekalb Genetic, Monsanto; PhycoGen and Global Protein Products.

My past work related responsibilities were focused primarily on the discovery, development and marketing of plant derived products for applications in the agricultural, food and nutraceutical industry. What attracted me to RBT was that the huge untapped nutritional and marketing potential of rice bran.

Our company is technology rich and has a vast experience in transforming a byproduct of rice milling with marginal value into high value nutritional ingredients for the food and animal nutrition market.

The key for us moving forward is the focus on our core strengths and market differentiation with can be summarized as the production and marketing of stabilized rice bran ingredient and functional derivatives to the food and animal nutrition market.

As you will hear from Michael Goose shortly, these market segments are hungry for innovation and novel ingredient that build a growing voice created by increasing consumer demands for minimally processed, sustainable, nutrition and clean label ingredient.

Our ingredient not only meet these emerging markets trend, but have the additional benefits of providing specific functionalities for various food application because of the rich sources of protein dietary fiber, healthy fats and essential micro nutrient.

As we move forward, it is paramount that our whole team share a uniform set of goals and be dedicated to working together to leverage our strong technology base in order to become the leading producer of rice bran ingredient. We need to be committed to a business model that is focused on efficiency, scalability and quality.

That means working to secure consistent brand supplies in the region where we operate and achieving the highest standards of quality and food safety in a cost-effective manner to build ever increasing value for our shareholders.

As we discussed in our last conference call, management and the board conducted an extensive review of the business that resulted in a department of the focus plan that provides clear market target to drive revenue growth and food ingredients and animal nutrition and reflects our respect and responsibility for handling shareholder dollars, to position RBT as a reliable world class supplier of ingredient, the first phase of our strategic initiatives will be to streamlining of our operation through consolidation.

We believe we can obtain significant cost reduction and improved efficiency by relocating the majority of our operation to a few strategic locations.

To begin that process, we have been actively engaged and locating a site in the Sacramento area of California in the heart of rice growing territory where our West Coast brand supply is currently obtained.

Our goal is to secure location and to begin relocating our corporate office sometime in the first half of 2071 when I plan to relocate to the area along with certain members of the corporate team.

Apart from being the heart of the rice growing region of California, the Sacramento Valley offers a number of benefits that will help RBT become the leader in this field while at the same time being more responsive to our customers, and reducing supply risk for raw bran from the rice millers.

These benefits include one, proximity to major rice mills that we’ve approached in the past month to secure additional bran; two, proximity to our existing base of West Coast customers for both food and animal nutrition; and last, access to world class scientist and technology at UC Davis.

UC Davis is widely recognized in areas of rice agriculture and processing, food and beverage innovation and animal nutrition research.

This agricultural technology held in the Sacramento Valley generates and supports a strong and well prepared workforce that RBT can draw on as it grows it business, as we consolidate our management, operations, warehousing and distribution into a centralized location, we will realize significant cost savings and improved operational efficiencies.

These changes will also support our continued commitment to achieving the high standards of food quality and safety. We will continue to operate in the mid south region in Louisiana and discussions are currently underway with millers in the region to secure additional sources of raw bran in the coming year.

This will help us achieve continued growth in our animal nutrition business and enable us to prepare for supply in food grade, rice bran ingredients from the Mid-South to our Midwest and East Coast customers in the future.

Now, while there will be significant expenditures needed to accomplish this aggressive and needed plan, part of those expenditures will be mitigated by the following; one, significant cost reductions that we have already begun to implement, reallocation of existing expenditures into new operation, improved efficiency through consolidation of our operation and lastly, the divestiture of non-core assets and business activity.

That said, we may also explore opportunities for key industry players to become strategic investors in the business. To be clear, we will take every possible step to minimize solution my making every effort to ensure that the dollars we invest yield future results that more than justify the expenditures.

In Brazil, we remain committed to our strategy of minimizing the financial impact of our Irgovel operation while exploring strategic alternatives and Dale will provide a more comprehensive discussion of our plans during his discussion of our financial result.

Both management and the board are supportive of this strategy and we intend to be laser focused on cash management as we move through the process. I am also very enthusiastic about how this will position the company with current and future customers.

As I stated earlier, our goal is to maximize shareholder value and by lining up our operations in this manner, we set the stage for the ultimate driver of value, customer and sales growth that translates into free cash flow generation.

If our goal is to be the leading provider or rice bran ingredient in addition to having the facilities to deliver, we need the right sales strategy to achieve success, and Michael Goose will outline that strategy later in this call.

At this time, I would like to turn the call over to Dale Belt who will update us or the listeners on our third-quarter results.

Dale?.

Thanks, Robert. For the third quarter of 2016, consolidated revenues totaled $8.8 million compared $8.9 million recorded in Q3 of 2015. Our consolidated operations resulted in a net loss of $1.5 million in the quarter compared to a net loss of $1.6 million in the prior quarter.

Net loss attributable to RiceBran shareholders, was $1.1 million or $0.11 per share based on 9.4 million weighted average shares outstanding. This compares to a net loss of $524,000 or $0.06 per share last year on 9.2 million weighted average shares outstanding.

The most notable factor of Q3 will clearly be revenue from our USA segment in the quarter reaching $8.3 million. This represents a 64% increase from revenue of 5 million in last year’s third quarter. These results reflect continued strength in both our human ingredient and animal nutrition derived revenues.

Revenues from human ingredient products increased 75% quarter-over-quarter based on positive growth from both existing and new customers. Revenue from animal nutrition products also experienced strong growth with 44% quarter-over-quarter improvement.

The revenue gains in our USA segment were entirely offset by an 86% decline in quarterly Brazil segment revenues which totaled $563,000. The revenue decline in Brazil resulted from significantly reduced raw bran processing levels during the third quarter.

As we have previously stated, we have not deployed any additional capital to Brazil while we explore the strategic alternatives of the business. As a result, our Irgovel operation has insufficient working capital to source adequate amounts of raw bran.

In addition, we faced increased competition for the purchasing of raw bran from other more creditworthy raw bran buyers. While Brazil remains a challenge for us, we do remain committed to not injecting additional funding into our Brazil operation.

However, it is important to note, the subsequent to the end of this most recent quarter, our minority partner in Irgovel provided a $1.2 million capital infusion to help fund operations at Irgovel and I will discuss the implication of that cash infusion after completing my comments on our quarterly results.

Moving on to gross profit, third quarter consolidated gross profit totaled $1.9 million compared to $2.1 million in Q3 of 2015. Gross profit from our USA segment increased by four percentage points to 30.2% with gross profit dollars increasing 90% to $2.5 million in the current quarter.

The increase in gross profit can be attributed to production efficiencies from higher production volume required to support revenue demand coupled with a 6% quarter-over-quarter decline in raw bran cost, the strong USA segment performance was again offset by our Brazil segment which recorded negative gross profit of $591,000 as compared to positive gross profit of $740,000 in Q3 2015.

The decline in gross profit in Brazil is due to the inefficiencies associated with running the plant at a significantly reduced volume. Consolidated operating expense was $4 million for the quarter compared to $3.4 million last year.

The increase was attributable to a $700,000 increase in SG&A expenses related to employment contract severance cost which were partially offset by $100,000 decrease in depreciation expense. We are looking at our Q3 performance on an adjusted EBITDA basis.

Our corporate and USA segment recorded positive adjusted EBITDA of $325,000 compared to negative EBITDA of $474,000 in the third quarter of last year. In our Brazil segment, the decline in performance previously discussed resulted in quarterly negative adjusted EBITDA of $831,000 compared to positive adjusted EBITDA of $205,000 in Q3 2015.

From a balance sheet and liquidity perspective, we ended the quarter with $2.2 million in consolidated cash and cash equivalents compared to $1.1 million as of December 31, 2015. We ended the quarter with $2.5 million in total liquidity which represents the combined cash on hand and borrowing availability under our senior secured debt facility.

Before I turn the call over to Michael, I would like to go into a little bit more detail regarding our minority partners’ equity contribution of $1.2 million into Irgovel. The cash from this equity infusion should lead to a significant sequential improvement in Brazil segment operating performance in Q4.

As part of the capital infusion, management at Irgovel has negotiated agreements with a number of rice millers to provide for a consistent monthly supply of raw bran, at market prices that should enable the plant to operate at sustainable production levels that will generate positive cash flows.

From a corporate standpoint, we continue to explore strategies to help us maximize the value of Irgovel for our shareholders and we are greatly encouraged by the commitment of our minority partner to help navigate through the current difficulties we’ve been experiencing in our Brazil segment throughout this year.

And with that, I will now turn the call over to Michael for some sales and marketing..

Thank you, Dale. First, I would like to emphasize why rice bran is so on trend with the current trends in food world. Rice bran is a balanced source of both fiber and protein being an ingredient that provides both fiber and protein allows for packaged goods companies to reduce and simplify their ingredient decks.

On top of being a balance source to nutrition, rice bran is also non-GMO, three of our major allergen such as soy, gluten, nuts, milk and eggs entirely plant free and sustainable source of nutrition. By meeting all these key criterias, I have little doubt that our future as a provider of a super ingredient is right.

Now that I have identified how rice bran fits into the ongoing trend of better of you product, let’s discuss the opportunity. As I mentioned in our last conference call, one of the primary focuses of our sales team in Q3 would be to meet with our current existing customers and try to understand how we can meet their needs better.

After some extensive meetings with a number of key customers, I am pleased to say we have made significant progress including regaining some previously lost business and even winning a couple of new contract. This new business is expected to result in incremental revenue beginning in Q1 2017.

Over the last few years, these customers have decided to move away from our ingredients for reasons not related to the quality or functionality of rice bran. Through face to face meetings, we identified an address these reasons.

By doing so, we are able to save, regain and grow business with those key accounts and we are also working on numerous opportunities with these customers. We have also changed our go-to-market strategy, our main goal is to focus on three initiatives; the first initiative is growing our current customer base.

Our sales team is now focused on working with current customers to better serve them. We are now in constant communication with our customers and are working with them on new incremental opportunity.

Gaining business through current customers has its advantages because the customer is already familiar with the benefits of our products and we understand the cost of doing business with these customers. The second initiative is bringing in new customers.

We have begun focus on marketing rice bran to numerous on trend CPG brands with the goal to make rice bran the hero. Our objective is to have rice bran become the star of these new products and be called out on the front of the package.

We are currently focused in on working with the leaders in the following categories; snacks and bakery, beverage, animal and pet and we believe a focused selling strategies and selling stories will result in traction and success. Our third initiative is to focus on the return of investment of the cost of gaining new business.

This focus has allowed us to reduce our sales headcount by 20% with a more focused sales force. We have also been to able reduce our dependency on consultant and consulting fees. The new focus on ROI and being fiscally responsible has led us to making the decision to reduce the number of trade shows we will attend next year by 70%.

Reducing our shows and tenets [ph] has been driven by our success and securing appointments with key decision makers at targeted customers. Freeing up this capital allows us to invest in other means to grow the business. All of the customers we have met with so far have a clear understanding of our stories and several have begun testing our products.

We are very happy to begin the sale cycle of these customers especially some large scale PVG [ph] companies by recognized those opportunities represent long sales cycles and further, it requires we meet all capacity and specification requirements. I need to be clear about this last strategic point.

We cannot revenue to the levels we want with large customers unless we can demonstrate that we have the necessary raw bran supply and can meet customer’s specifications needs. I look forward to reporting back to you on our progress over the next couple of quarters. I will now turn the call over to Robert for his concluding remarks..

Thank you, Michael. As we head into 2017, we have already begun to take the steps necessary to realize significant cost savings in our business and have developed a focused consolidation and growth plan with the commitment of our team from the board to our machine operators.

As we implement this plan, we will methodically transition towards those end market and customers that we believe represent the best long-term growth opportunities to build lasting value for shareholders. We cannot be all things to all people. The food industry product spectrum is simply too diverse. It is paramount that we focus.

During this process, we anticipate some longer sales cycle that are historically associated with much larger, more predictable customers. From a near-term perspective, we expect to see continued year-over-year growth in animal nutrition and human ingredients in the U.S. based segment.

We anticipate a slight sequential quarterly revenue decline similar to the fourth quarter of 2015 as one of our large customers makes a yearend inventory adjustment in contract manufacturing. In our Brazil segment, we anticipate a significant turnaround in revenue and operating performance beginning in the fourth quarter.

Before I open the call to questions, I would again like to emphasize that we are excited about the future of RiceBran Technologies and we believe our strategy will result in significant customer expansion and diversification.

We expect that our plan, as our plan unfold, it will lead to a progressive acceleration of growth in our financial performance in 2017 and beyond.

We have put the initial phase of our consolidation plan into motion including site location efforts and discussions with mills in Louisiana and California to secure more sources of bran and we have fine tuned our sales strategy to focus on major players in the food and animal nutrition market.

The organization is dedicated to this plan that we believe will place RBT on the path of strong and sustained growth with the singular goal of increasing shareholder value. We are committed to that goal and thank each and every one of our stockholders with entrusting us to deliver that value.

We look forward to updating shareholders on our progress and the quarters to come and we thank you all for your support and for allocating some of your investment dollars into RBT. That concludes our prepared comment. Operator, at this time please open the call for questions. Note that we will limit callers to one limit question and a follow-up..

Thank you, sir. We will now begin the question-and-answer session. Please note that callers will be limited to one or two question and a follow-up if necessary. [Operator Instructions] Our first question comes from the line of Tony Vendetti with Maxim. Please go ahead..

Hi, guys. Thanks. It’s Anthony Vendetti. Just some [ph] question, Dale.

Just, I missed the part on the credit facilities, can you just go over where you are right now with your balance sheet, the current cash investments that you have on there and then your access to capital through credit lines?.

Well we currently have, hi Anthony, how are you doing?.

Good, good..

We currently have our existing secure credit facility in place that’s a working capital revolver as well as the term loan and we have adequate cash right now, as you can see from our positive EBITDA, we’re in the USA, here we are holding our own.

We are looking at replacement financing I think anyone who has been reading our filings and so on understands that we have a modified agreement in place with our secured lenders that carries us through the end of the year. So, we are, we’re looking at replacing that facility.

So, from a cash flow standpoint, we feel like we’re in a pretty decent place for the moment.

But as Robert has alluded to his comments, as we begin to deploy in 2017 the strategy that we’ve laid out here, we will be looking at how to fund that and that’s going to be a function of precisely the timing of how we do what we are doing on the strategy [ph]..

So, just to follow-up on that, so on the current line that you have out there, what interest rate is that at and how much do you have left on that line, is it fully tapped?.

The line is at 11.5% currently. It is a variable rate but that’s what it is, that’s the floor. And it is comprised of working capital facility that floats up and down as we borrow and the term loan there is a – the term loan is $1.5 million..

$1.5 million, okay great, okay that’s good for now, thank you..

Sure..

Thank you..

Thank you [Operator Instructions] Our next question comes from the line of Harry Ghoshal, a Private Investor. Please go ahead..

Hi, interesting results. Certainly not the results I was looking for given that we are down 98% since I have been involved in the company but some curious things appear to be going on. One thing that I don’t find from you folks at all on any kind of a basis is any updates between conference calls, any PR, nothing.

You guys are a mystery in the marketplace. And also we’ve heard about a lot of different products that you were embarking on like craft beer, coatings for fried foods, RBO, and nothing ever happens with any of that.

So I am wondering how are we going to get more current updates?.

Hi, thank you for your question. This is Robert. First of all, since we’re making a lot of changes and lot of changes have taken place, we’ve really been focused on the development and implementation of this plan.

We now believe we have the right strategy and as we push forward with that plan, we expect to be more communicative to be much more active in approaching investment community as we move forward into next year.

Now, let me address specifically you asked about some of the areas we initiated in the past and I can tell you on some of them like the beer we continue to examine that area and I can tell you that global beer manufacturers are in the process of evaluating our products.

It’s correct that in the past we’ve looked at our ingredients and how they prepare [ph] that uptick and find, that is an area still of interest to us. Again, our focus going forward is everything you can think of in terms of rice bran. We want to be the leader in developing the technologies and applications.

We believe there’s a very positive outlook at the use of our ingredients across the board. So while we perhaps haven’t been giving you full updates on all of those particular projects, I think as some of these come to fruition, we certainly will be very positive about reporting on those in the future. Michael, do you want to….

Hi Harry, it’s Michael Goose here. I just want to add one more thing to you is, and I know you brought up a lot of projects there and everything else is, our number one goal right now and we have a balls juggling in there right now too as well, a lot of them are achievable but our number one goal is to really fix our base business overall.

We found and I have been there for about six months. So we found our biggest success has been working on current distribution that we have that doesn’t mean that we are going to highlight that in my script that I just went through, that doesn’t mean that we haven’t given up on the long term shots. It just has to deal with the further sales lead time.

A perfect example of that is the true opportunity, while a great opportunity and a huge opportunity and very innovative. We are reinventing the way that people would look at brewing beer.

So obviously as you know the lead time on that would take a lot more time to do that and as people are testing it and making sure the signs does work which we’re seeing some positive feedback from that but nothing really to get you guys excited about in the short term as we move along in the selling cycle..

And I am very pleased that you are doing or embarking on some kind of consolidation of way too many locations. I have been asking that question on every conference call for the last 4 years and getting no answer at all.

But I am concerned about how much you are going to have to dilute what’s left of stockholder value to accomplish that especially in an environment where you’re still losing a lot of money in fact you are losing more money than you probably, well then this is certainly going to cost?.

Well, that’s a fair question to ask and as we stated on the call, we are exploring a number of ways to implement this strategy in a way that minimizes dilution, you know such as the same of some non-core asset, we are also exploring strategic investments from industry players and other forms of capital infusion but it really is too early to say at this time we also expect to free up significant cash through cost take outs and spending reallocations related to our consolidation plan.

So, while I wish I could give you and exact answer today, we’re implementing the plan, we are discovering a lot of areas where we have cost saving but we are exploring all avenues and again first and foremost we want to minimize shareholder dilution in all cost..

And finally, we didn’t hear anything about the packaging side of things and I am wondering whether that’s still significant business or part of your business plan or whether it’s going to be disposable?.

We have had really good revenues coming in our manufacturing, contract manufacturing this past quarter. We are excited about where that is. As I said, we are putting the plans together right now for consolidation.

We are exploring all avenues that allow us to consolidate, focus on our core technology and we’ll explore all opportunities to make that happen..

Okay, good luck..

Thank you very much..

Thank you. [Operator Instructions] Dr. Smith, there are no further questions in queue at this time. Please continue with your closing remarks..

Thank you, operator and thanks to our shareholders and investors for joining our call. This ends today’s call..