Richard Galterio - Ascendant Partners, IR Robert Smith - President and CEO Brent R. Rystrom - CFO Michael Goose - President, Ingredient Sales and Marketing.

Chris Krueger - Lake Street Capital Markets Anthony Vendetti - Maxim Group Unidentified Analyst -.

Good day, ladies and gentlemen and thank you for standing by. Welcome to the RiceBran Technologies’ 2017 Second Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions].

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Richard Galterio of Ascendant Partners. Please go ahead Mr. Galterio..

Thank you, operator and good afternoon listeners. Welcome to the RiceBran Technologies’ second quarter 2017 financial results conference call. With us today are Dr. Robert Smith, Chief Executive Officer and President of RiceBran Technologies; Brent Rystrom, Chief Financial Officer; and Michael Goose, President of USA Ingredients.

Before I turn the call over to Robert, I want to remind listeners that during this call management’s prepared remarks may contain forward-looking statements that are subject to risk and uncertainties. Management may make additional forward-looking statements in response to your questions today.

Therefore, the company claims protection under 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, August 10, 2017 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, CEO and President of RiceBran Technologies. Dr.

Smith, please go ahead..

Thank you Rich and thanks to our listeners for joining today. During the second quarter we made a number of significant strides in the implementation of our strategic initiatives designed to generate substantial shareholder value for our company.

As we discussed in our first quarter conference call, our strategic focus is primarily in three major areas and we are pleased with our progress.

First, driving down costs and expenses in our operations and repairing our balance sheet; second, focusing on consolidating operations and divesting non-core assets; and third, setting the foundation to deliver accelerating long-term revenue growth and improvements in our EBITDA margins through our food, animal nutrition, and specialty ingredient products.

I'd like to highlight some of these strategic accomplishments we achieved since the end of the first quarter of this year. First, we completed the sale of Healthy Natural our subsidiary in July for $18.3 million.

This sale improved our balance sheet, enables us to repay all of our recourse debt, provided us with significant working capital to fuel our growth plan, and eliminated restrictive covenant associated with this debt.

Second, we regained compliance with NASDAQ’s $1 minimum bid requirement for continued listing closing the NASDAQ listing matter subsequent to the end of the second quarter of 2017. Third, in order to focus solely on our U.S.

based ingredients business we've made the determination in the second quarter of this year to discontinue our Brazil operations and the presentation of our financial results as we plan to divest our investment in Nutra, SA the parent company of our Irgovel operations.

And fourth, we narrowed our operating loss by a million dollars partially to improvements in our cost structure. We spent much of this year focused on repairing our balance sheet. We are now well positioned to shift our focus to growing revenue from our rice bran ingredient that aligned well with current market trends.

We’re confident our company is now well positioned to drive sales growth to enable us to fully unlock the value of our technology for the benefit of our stockholders. At this time I'd like to turn the call over to Brent Rystrom who will discuss our second quarter results in greater detail..

Thank you, Robert. I'm going to speak to three primary topics today. First, I will give an overview of our second quarter results. Second, I will provide an update on our financial condition given our recent sale of Healthy Natural. Third, I will discuss our plans to improve shareholder value by transitioning to positive adjusted EBITDA.

Please note that due to our strategic efforts to maximize growth and shareholder returns, our Healthy Natural and Nutra, SA businesses are reported as discontinued operations in all periods in our consolidated operating results. Our continuing operating results now include only our core business U.S. Ingredients.

Our revenues in the second quarter were relatively consistent at 3.1 million compared to 3.2 million for the same period last year. We experienced strong growth in our animal nutrition product revenues while our food and specially product revenues decreased offsetting the growth in animal nutrition. While we are able to maintain our U.S.

Ingredient revenues at a relatively consistent level, we believe growth in revenue has been suppressed over the past year by our weak financial condition as customers and potential customers were likely concerned by our negative equity, lack of cash, and high levels of debt.

The financial improvements we have executed in the past few months should do much to lessen these concerns and help drive revenue growth. Our strategic focus to reduce expenses and maximize shareholder value remains a high priority.

For the second quarter of 2017, our gross profit margin of 25.4% was up slightly from 24.8% despite the revenue mix shift in the quarter that favored animal nutrition which typically carries lower margins than food or specialty products.

Our selling general and administrative expenses of 2.7 million for the second quarter of 2017 were down 1 million or 27.4% from the 3.7 million in the same period last year. The savings in spending were driven by our focused efforts to manage our resources and expenses in an effort to maximize shareholder value.

The savings included staff reductions, reduced use of outside sales consultants, and a favorable comparison against the heavy fees involved in last year's proxy contest related to the 2016 annual meeting.

In the second quarter of 2017 we made further progress in other cost cutting efforts including substantial reductions in marketing, payroll, and travel and entertainment expenses. We lowered our second quarter 2017 loss from operations to 1.9 million from 2.9 million.

Our discontinued operations earned a positive 304,000 net of tax compared to a loss last year of 3.6 million net of tax. Our net loss attributable to RiceBran Technology shareholders was 1.2 million compared to 6.6 million last year.

Our financial condition remained relatively stable during the quarter and the sale of Healthy Natural will drive further improvements in the third quarter. We ended the second quarter in 2017 with cash at 3.2 million compared to 342,000 on December 31, 2016 and 3.4 million on March 31, 2017.

We have long-term debt of 6 million compared to 5.9 million at December 31, and the face value of our debt was 12.6 million at the end of the second quarter of 2017. Our shareholders' equity at the end of the second quarter of 2017 was 6.9 million up from a negative 632,000 at December 31, 2016.

We are pleased with our successful sale of the Healthy Natural assets that occurred on July 14, 2017 and this will further improve our balance sheet financial position. We sold Healthy Natural for 18.3 million. We're still working through the complicated IRS rules to determine what if any net operating losses we can use.

So some of what I will discuss next is still somewhat fluid. The cash portion of the proceeds enabled us to eliminate the 12.6 million of face value of debt in July and we're pleased to report that our U.S. business is now debt free.

The pretax gain on the sale of 13.3 million should also substantially increase our shareholders' equity as well as our cash or amount of cash and cash equivalents which as a reminder was at 3.2 million at the end of the quarter. We also discontinued our Nutra, SA business during the second quarter of 2017.

A successful exit of this business would provide many benefits to RiceBran Technologies one of them a possible recovery of equity. Nutra, SA has a negative net worth and if we were to exit this business we would possibly recover some of those losses as it increased to our shareholders' equity.

Now for a few thoughts on our strategy to improve our financial results. As a base we assume that our adjusted EBITDA run rate will be near loss of about $2 million on a revenue run rate of about 14 million to 15 million per year.

Again as a reminder we ended the quarter with 3.2 million of cash, we have cash that will be added to that amount as a result of the H&N sale, and given what we've just talked about we think we're in a position to comfortably fund this business for several years without needs for additional capital.

We are focused on achieving breakeven adjusted EBITDA through a combination of growth, production efficiencies, further cost cutting, the realization of savings implemented but not fully visible yet in our reported financials, and better use of working capital.

We believe we can achieve breakeven adjusted EBITDA by adding 5 million to 8 million of incremental revenue and successful implementation of our other initiatives. As a final thought in a relatively new member of management, I remain impressed with the long-term margin opportunity that scale would drive in this business.

I will now turn the call over to Michael Goose to provide an update on sales and marketing.

Michael?.

Thank you, Brent. I would like to begin by highlighting our overall roadmap for driving incremental, profitable, and repeatable revenue in our business. As I have mentioned on previous calls, our team is focused on achieving three goals. One, grow the current customer base. Two, bring in new business. And three, focus on return on investment.

Over the course of the past few quarters we have placed many exciting irons in the fire that I will point out to you later in this call. But first I want to go over our sales strategy and what we are focused on to deliver growth. Essentially our sales team is focused on securing three types of opportunities for incremental growth.

First opportunity is short term with the six month to 12 month sales cycle. These opportunities include entrepreneurial start-up brands, current customers we're selling, and more food service business such as bakeries.

Our midterm opportunities with a 12 month to 18 month sales cycle consists of smaller CPG companies that are looking to substitute other ingredients for high value ingredients. An example of this includes a company that is working on replacing contagion [ph] carriers in their beverages. Long term opportunities is an 18 month to 24 months sales cycle.

These are our largest opportunities that will include companies looking to introduce RiceBran in high volume established brands. With our strategy set and focused, we are positioned to ride the trend of higher demand for simple, natural, and less process ingredients.

In December whole foods markets announced trends in the marketplace and their number two trend was using byproducts from foods. The trend continues to be our friend. The increased consumer demand for cleaner labels is creating a major interest in our ingredients and as a result we are gaining major traction in the sales process.

It is no secret that non-GMO, gluten free protein and fiber have become key interviews that are driving growth in the food industries. And these trends are now starting to emerge in the pet food world. That is why our sales teams looked to apply our success in the equine category and use it to leverage into a contagion pet space a few quarters back.

I am happy to announce that as a result of that effort we have secured the business of a major pet food company with its first shipment occurring at the end of our third quarter. This is a great example of a successful delivery in the six to 12 month time frame. I am also excited about the traction we are seeing with long-term accounts.

We have started many exciting initiatives over the past year that we expect to have a positive future impact on our revenue. In many cases we have initiated numerous long-term tests of our ingredients with several CPG companies. These companies believe that RiceBran is a product that could create greater value for their products.

They have allocated numerous resources such as a key food scientists and we are excited to have gone into testing on many of these as the result of this. We are also continuing our marketing efforts and will be telling our great story at the Supply Side West Show next month and as always we hope to see many of you there.

With so many market opportunities available for us we plan on adding new sales people over the next couple of quarters to help get them over the finish line. These are exciting times for RiceBran Technologies and I look forward to the next conference call to report on our progress. I will now turn the call back over to Robert. .

Thank you, Michael. We have spent the better part of a year focused on taking the necessary steps to position RBT for long term success. During that time we've made tremendous progress in strengthening our balance sheet, aligning the cost structure of our operations, focusing our sales efforts and implementing a long-term plan for the future.

With the sale of Healthy Natural we're now in a solid financial footing and with our cost cutting efforts we have also right sized our cost structure. We enter the second half of 2017 ready to achieve one single goal, the profitable growth of our ingredient business to drive shareholder value.

In order to achieve that goal we intend to add several key high level marketing and sales professionals. We also intend to make some selective expenditures in the business that will achieve a high return on capital, as well as maintain the highest level of food safety standards that are essential in today's market.

As we move forward we will also look to actively engage in exploring strategic partnerships and other relationships that can help us expand our distribution and supply chain capabilities.

In closing we are more excited than ever about the future of RiceBran Technologies and believe that we are at the right place at the right time to capitalize on our proprietary technology. We’re confident that our strategy will result in a significantly more profitable company and drive better stock performance.

We’re committed to delivering values to our stockholders and thank them for allocating some of their capital to RiceBran Technologies. We would also like to thank our employees for their dedication and effort in helping us to continue our corporate transformation.

We look forward to updating shareholders on our progress again in November as we report third quarter results. That concludes our prepared comments. Operator, at this time please open the call for questions. Please note that we plan to limit callers to one initial question and one follow-up..

[Operator Instructions]. Our first question today is coming from Chris Krueger from Lake Street Capital Markets. Please proceed with your question..

Sure, you talked about that you're hiring industry veteran sales people going forward, have you done any of that yet in the last few months or is that yet to come as the year plays out?.

Let me just answer quickly and then I’ll turn it over to Michael. We’re very active in that process. We're right in middle of that. I think we'll be reporting on some of those activities shortly. But, Michael please bring in on your strategy there and where that's going to help us..

We have begun the search about two months ago and has zoned in on numerous candidates that we are very excited about to really drive us.

The new positioning of our company now going forward has allowed us to ramp up these types of confidence that the more we will be able to maintain this and this is the best way for us to reach our goal of driving profitable, repeatable and sustainable revenue..

Alright, second question, are you guys still in discussions with potential rice mill partners and if so would that require investments as well?.

The answer to the first part of the question is absolutely we are and that’s two in both California and in various states in the mid south. And there are different ways that we can approach this without getting into details. In some cases we might be able to capture some additional brand without significant investment.

Another case is it may require more capital expenditures so we’re exploring all opportunities.

Brent?.

Chris, real quick to we're looking at different ways that we can run existing facilities or new facilities much more efficiently. So what was done in the past isn't necessarily what we've done in the future. I think it would be safe to say that we’re going to look for much more efficient investments and higher rates of return on our assets. .

Yes I might just also add that within our existing facilities today we have built-in capacity that can drive further brand extrusion and stabilization. So we're looking to explore how we basically scale up that production at our existing facilities..

Alright, it looks like you guys made a lot of progress this year that's it for me. .

Thanks Chris. .

[Operator Instructions]. Our next question today is coming from Anthony Vendetti from Maxim Group. Please proceed with your question..

Thanks, just wanted to just discuss the second quarter revenues. So we removed the Healthy Natural and Nutra, SA and put it into discontinued operations.

Revenues of 3.1 million were flat or down a little bit from 3.2 million in Q2 and I was just wondering to the food product revenues decreased 13%, how much of that was attributable to the decreased buying from one of the largest contract manufacturing accounts and is that account expected to come back and increase their buying or the decrease buying a one quarter phenomenon or is this, you have to make up for that somewhere else?.

Thanks for the question Anthony. I think the easiest way to answer the question is that absent that one customer our revenue actually would have been up in the other areas. So it was a significant shift from that customer and we knew that it is just the vagaries of timing for that particular customer.

We expect them to be a very good customer, very healthy customer going forward. It was just a matter of how orders were realized. .

Okay, great, thank you. .

You're welcome. .

[Operator Instructions]. Our next question today is coming from Paul Sans [ph] from Sans Partners [ph]. Please proceed with your question..

Thank you.

Could you talk a little bit more about the new pet food customer that you got?.

Absolutely, do you have a question directly about it or just overall..

I think that maybe I missed something but is this customer that you haven't had before?.

This is a customer we have had in the past, that we've brought back and we're also working with them on actually launching more items with RiceBran products and RiceBran derivatives as well. .

And I'm sorry, I may have missed it did you say this is a -- did you give a number for how big the contract was?.

No, we didn't disclose that. .

Okay and is the -- the pet food is it for dog food or can you tell us what specifically it's for?.

Yes, it would be for dog food and we're very excited about this because we believe that if we can somehow repeat the success that we've had in equine. You know the dog food category is a lot bigger than equine category and if this can remain being a successful and value added item that people are going to continue to feed their dogs.

You know we see this as a huge opportunity and a great wide space of revenue for us in the future..

A question, this may sound stupid but let’s say a five pound bag of dog food, I'm assuming this is going into dry food as opposed to wet.

What percentage of the weight by weight would RiceBran be let's say five pound dry bag of dog food?.

This is Robert Smith. We don't always get the total information from the customers we work with because of their proprietary blend. So it’s not always rebilled to us.

I can tell you that in various applications and this goes for meat applications all the way up to cereals and bakers and everything, we at the very low end of inclusion rates we might be in the 2% to 3% and something like comment to that meat product..

Right.

That would increase significantly as you go into some of the pelleted foods for animal and well it can go to very high levels in bake type or snacks, we use in the whole grain type application.

So it really varies a lot but in many cases our customers are not going to be willing to share their formulation so we can't speak specifically to that amount in this case. .

Yeah, I understand that. I was just trying to get a sense of order of magnitude of how the product is used and trying to see how much volume you know because dog food you’re right it's just a huge category and if it's -- obviously you know 2% in meat, it takes a little while longer to use up your volume.

But, in a dog food it sounds like that could very quickly become a very large customer so. That’s all I had thank you. .

Thank you. .

Thank you. We’ve reached the end of our question-answer-session. I’d like to turn the floor back over to management for any further or closing comments..

Thank you, operator. I thank all shareholders and investors for joining our call today. This ends the call. Thank you very much. .

Thank you that does conclude today’s teleconference. You may disconnect your lines at this and have a wonderful day. We thank you for your participation today..