Richard Galterio - IR, Ascendant Partners Dr. Robert Smith - President and CEO Brent Rystrom - COO and CFO Kevin Mosley - President, U.S. Ingredient Dennis Dykes - Chief Accounting Officer.

Paul Sonz - Sonz Partners Joshua Goltry - Maxim Group.

Welcome, good day, ladies and gentlemen, and thank you for standing by. Welcome to the RiceBran Technologies Second Quarter 2018 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce our host, Mr. Richard Galterio of Ascendant Partners. Please go ahead, sir..

Thank you, Operator. And good afternoon, listeners. Welcome to the RiceBran Technologies’ second quarter 2018 financial results conference call. With us today are Dr.

Robert Smith, Chief Executive Officer and President of RiceBran Technologies; Brent Rystrom, Chief Operating and Chief Financial Officer; Dennis Dykes, Chief Accounting Officer, and Kevin Mosley, Chief Revenue Officer.

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 risks and uncertainties. Management may make additional forward-looking statements in response to your questions today.

Therefore, the Company claims protection under Safe Harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from 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 2, 2018, and the Company assumes no obligation to update these projections in the future as market conditions change.

The 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 good afternoon, everyone. I'd like to welcome everyone to the RiceBran Technologies 2018 second quarter conference call. Our second quarter sales - modestly. Our balance sheet benefited from - exercises and we entered into a new supply agreement with a rice mills in Arkansas.

We continue to make progress on various certification efforts, and during the second quarter we received favorable news from the FDA regarding dietary fiber claims that should benefit us in the future.

Despite the brand supply issues in the quarter, we are confident we're making progress on improving our sourcing capabilities, and positioning the Company for sustained growth and improved shareholder returns in the future. I'd like to turn the call over to Brent Rystrom, Chief Operating Officer and Chief Financial Officer, for some more details..

Thank you, Robert, and good afternoon. We're making substantial progress, positioning our business to better deliver growth. We spent much of the second quarter working with Golden Ridge Rice Mills, to help build them build a bran room and negotiating are now complete supply agreement with them.

As Robert, mentioned, we're also making progress in completing our certification efforts, most of which we have forecast to complete by late this year. And we have several large CapEx projects we are undertaking related to both certification and improving production capabilities.

We were disappointed with our revenue growth in the second quarter, given what we see are the sales pipeline development. We came into the quarter with expectations for meaningful growth based on the assumption that we would have several new customers and also build revenue from our existing base.

However, unplanned downtime at our largest mill partner, sharply limited our ability to grow. Our milling partner to this bran room, normally experiences periodic downtime late in the crop year, typically during April to July, as markets for export rights become more difficult and less available.

Usually, these downtimes are intermittent, with individual breaks typically lasting less than six weeks in multiple periods of production in between each of those breaks. In the 2018 second quarter, our down time at this mill started in mid-April and excluding one five day period in June until last Monday, July 23.

And Dennis will discuss later in this call this - impacted RiceBran Technologies in several ways. We decided to delay the addition of larger new customers until we're confident in the strength of our brand supply.

Second, we opted to supply existing customers as best as possible from facilities in California that substantially reduced our profitability as a result of higher transportation costs. This lower rate issue continues to impact our business in the third quarter.

But hopeful that between resume production - supplies from a new mill, we should be ready for more meaningful growth by mid-August. We announced the new supply agreement with Golden Ridge Rice Mills, Arkansas, on July 9, 2018. Golden Ridge is a small but scalable rice - that is the newest operating rice mill in the U.S.

Rice is an important base of supply from the largest rice producing state in the country, a state from which we have not previously sourced stabilized rice bran production or SRB. This added supply will help us - and will provide other benefits like, lower - cost for our customers in the Midwest or Eastern --.

Golden Ridge recently completed the installation of a new bran room at the mill and has begun test production runs. We're pleased with the initial product quality that we're seeing at Golden Ridge, and we look forward to sourcing full-scale SRB production from this location soon.

We have also secured a six month option to purchase Golden Ridge, that expires in January of 2019. We think there are several reasons why only rice mills like Golden Ridge makes sense for our Company in the future. First, it would allow us to fully control the production process in order to maximize bran production when needed.

Second, it would help to lessen our risk of having all of our operations and facilities that have some sort of lease, where we lack permanence. Third, it would allow us to efficiently position to produce downstream products that we do not currently provide. We plan to evaluate this opportunity quickly and look forward to updating you on our progress.

We are excited where the business is, I know that sounds difficult after a slow quarter, but our balance sheet is very strong, we're improving our brand supply and we're excited about where our sales pipeline is going. We recently promoted Kevin Mosley, to lead our marketing efforts as Chief Revenue Officer.

Kevin possesses a wealth of experience and specialty ingredients - and has demonstrated strong leadership capabilities since joining the Company last summer. Kevin's mentoring skills are clearly driving strong responses from our existing sales team members, he's recruiting and staffing up our impressive and - person.

He also provides our senior management team - and fresh perspectives on things like planning, - and product development. I would like to introduce Kevin, to give a few thoughts from his new role.

Kevin?.

Thank you, Brent. Appreciate it. I want to convey everyone on the phone, that I'm extremely excited to be here at RiceBran Technology. As I look at the opportunities in the marketplace for our rice bran products and derivatives, I'm just overwhelmed with the response we are receiving.

I want to give everyone on the phone, a little peek under the - of our pipeline. About a year ago when I joined the Company, our pipeline was weak at best. In the past 11 months we've been able to 5x the pipeline to over $10 million of new business that we plan on closing within the near future.

You probably asked yourself, how did you go 5 fold? Very simply, we focused on the customer and we focused our efforts on bringing in sales personnel that have the technical expertise to bring us to the next step.

I'm pleased to announce today, that we have two accepted offers from two well seasoned veterans in the food ingredients business that will be joining our team on September the 1st. These two individuals will give us a well-rounded expertise in all the key areas that we focus on, companion animal, protein, and fiber.

At this point in time, I would like to turn it over to Dennis Dykes, Chief Accounting Officer..

Thank you, Kevin. I would like to begin by providing an overview of our financial results for the second quarter. We had revenue growth of 1.7% - second quarter of 2018, with total net revenues of $3.2 million.

This growth in comparison to - period in 2017, was driven by an increase in food products orders, primarily related to our existing customer base, while we achieved modest growth despite the bran supply issues previously mentioned by Brent.

We do not believe this level growth is indicative of the progress and strength that we see in our sales pipeline. Our gross profit results for second quarter of 2018 decreased 470 basis points - when compared to the same period in 2017.

The primary drivers for the decrease in gross -- first, the idling of our Mermentau plant, due to the rice bran supply shortage previously discussed.

Second, the reduction of production at our specialty ingredients plant in Dillon, Montana, related to the drum dryers refurbishment project in additional CapEx investment to obtain plant SQF certification, which resulted in lower plant utilization.

Third, a 37.9% increase in the cost of raw rice bran, and finally, the freight cost related to supplying our animal nutrition customers, located East of the Rockies, with shipments out of our California production facilities instead of Louisiana.

These costs were substantial, but also a necessary business decision to maintain our customers relationships hence for any supply disruptions for their end products. Including depreciation and amortization, our selling general and administrative expenses increased 6% to $2.8 million, when compared with the same period in 2017.

The increase was primarily related to building up our sales team, an increase in quality assurance and operations headcount to obtain SQF certification, and professional consulting fees, along with an increase in warehouse expenses related to the SQF certification.

Our loss from operations increased - to a negative $2.2 million, when compared to the same period in 2017. For second quarter of 2018, our adjusted EBITDA was a negative $1.8 million, compared to a negative $1.3 million in the same period of 2017. Now, on to our balance sheet.

Our cash and cash equivalents balance at the end of the second quarter was $7.7 million. This is up from our first quarter of 2018, ending balance of $5.1 million. We continue to have negative cash flows from operation - the second quarter of 2018, cash used in operating activities was $3 million.

[Indiscernible] were 4.1 million share - at $0.96 per share, we brought in 3.9 million in additional cash. Our shareholders equity balance at the end of the second quarter was $16.8 million, up from $13.9 million at the end of the first quarter of 2018. The increase in equity is primarily related to the exercise of the warrants previously mentioned.

Considering our cash position, shareholders equity, and negligible debt level, we continue to believe we have a strong balance sheet and we are well positioned to successfully execute our strategy. Finally, some thoughts on guidance.

Our supply shortage these past months limited our ability - with our Mermentau plant now producing again - supply is starting soon from Golden Ridge. We're now in a strong position to pursue growth. We expect modest revenue growth in the second half of the third quarter and substantial growth in the fourth quarter.

For the full year of 2018, we see revenue of $14 million to $15 million. Our third quarter adjusted EBITDA losses should modestly improve sequentially from the second quarter. And we expect a more substantial improvement in the fourth quarter compared to the third. We remain focused on attaining breakeven adjusted EBITDA by mid-2019.

I will now turn the call back to Robert..

Thank you, Dennis. As most of you know, I'll be retiring from my position as President and CEO, and as a Board Member at the end of September. So, this will be my last earnings conference call, addressing our shareholders.

-- Company in the very capable hands of Brent Rystrom - who will assume the role of President and CEO; and Dennis Dykes, who will become our new CFO, confident that they will lead our Company towards its very promising future, delivering long term business success and value for our stockholders.

I'm proud to have RiceBran Technologies through a significant corporate transformation over the past two years, and would like to thank the Board, each and every employee, and all of our shareholders for their support. After I step down as CEO in September, I will remain with the Company in product development through the end of the year.

And, I intend to continue to assist the Company wherever possible, after my departure, and perhaps even work together on some future project development efforts. Once again, I'd like to thank our shareholders for entrusting a portion of their investment dollars to our Company. Operator, this concludes our prepared remarks.

And you can now open the call to questions..

[Operator Instructions] The first question will be from [Harry Goldsholl], a Private Investor. Please go ahead..

As you may know, I've been an investor in this Company from many years, and I'm yet again astonished that we still have a supply issue after all these years, and we continue to shutdown facilities to update them instead of working in tandem.

I'm also quite surprised that we've moved our corporate headquarters for the third time in virtually as many years, and we continue to burn money, and - I'm also wondering what you would have to say to investors who bought your tradable warrants years ago, which are about to expire at the end of the year, virtually worthless? Thank you..

Can't really speak to the warrants. The warrants - that are trading whether in the market. As far as - company, the reason we moved to Houston, to get the Company some place close to where the rice industry is. But about half of the U.S.

rice industry is in Arkansas, almost 15% to 20% is in Louisiana, about 10% is in Texas, and being in Phoenix, where 0% of the rice industry was, was not really conducive for us to oversee what we think the growth of the Company is going to be.

So, - to move the Company headquarters from suburban - Houston area, this gives us great access - our existing facilities in Louisiana, it's easy for us to get on a 45 minute flight up to Arkansas, as we're starting to work more with Golden Ridge and we think from a location perspective, this is going to work very well.

As far as the cash burn, we're fully confident that we're in pretty solid financial shape to execute our plans as we see them now.

Dennis noted in his comments that we see adjusted EBITDA - some of the third quarter substantially in the fourth, our CapEx will come down considerably - exit the year, there's a lot of stuff we're spending money on this year, that we had to for certification, and as we exit the year, that investment level will come down considerably, and we have other things that we're working on that we think will be favorable for cash.

So, we think we're in very solid shape to transition from cash burn and no growth to growth with cash generation over the next four quarters..

The next question will be from Paul Sonz of Sonz Partners. Please go ahead..

I wondered if one of you gentlemen could comment on the price of the bran and why - I was very surprised it was up so substantially especially because I saw that - when I look at the futures for rough rice out of the [CGOT] they were down pretty sharply from April into May.

So, could someone sort of enlighten us to why that was up so much?.

Yes, it's my opinion, I don't know Paul, if this is a completely - this is the way I look at it, this is the way that our - so, the rice crop in 2017 was a small crop. It was down roughly 20% from prior year levels and that has been roughly typical levels. And the bran business is an offshoot to the rice crop.

Obviously, the bran comes up as part of the milling process, and there are various markets for bran. Over the last year, our market has developed for bran that had really been a significant market before. And that is an export market for bran, particularly to China.

And so, at the same time, we had a smaller crop with less bran supply, it had a new use for raw bran, which we'd put in the containers and shipping it to China. So, those things combine for a shortage of bran out there.

It's my belief, personal belief, that as new crop comes in, we'll see bran - it may take a little bit but I think - bran supply slows, that you'll see some --. Long term, the bran pricing is all the more reason to focus on expansion at Arkansas.

Because bran pricing in Arkansas compared to the other two large states, Louisiana and Arkansas, is $40-$50 typically, lower than those two states. So, Arkansas is a - affordable bran supply..

When you talk about raw bran, it is ramping within a couple of hours, so what would be the use for raw bran in China?.

We're not entirely sure. And you're generally right. It would go bran's and probably within about 10 hours. People that work at export facilities, that we have talked to, have told us that they're using a very potent preservative to attempt to keep those from spoiling. But we have a joke that we do not want to be around when these containers are open..

Once we have the facility in Arkansas, with potential for this continuing should be - is it that Arkansas can't export because of where they're physically located which is why they wouldn't be - why they won’t have that excess demand for export?.

Yes, so the cost to export from Arkansas is more expensive because you to truck it, put them in a rail car or put it in a barge and ship it down to a port, it's going to some place like Mexico, you might keep it on the barge, but typically for the overseas, we’d have to trainload into ocean going vessel like a Panamax or something like that..

The way I would look at it is that we're essentially adding a minimum of 9.6 million pounds of supply from Golden Ridge, and sub would take us much as much as 19.2 million pounds. And last year we sourced about 32 million pounds. So as we expand in Arkansas, I would look at that proportion of our supply and derisking this price issue..

The next question will be from Joshua Goltry of Maxim Group. Please go ahead..

Just to clarify, you don't expect this level of CapEx to remain as it is, right?.

Given the current form of the business, so looking at just RiceBran Technologies, and not making any assumptions about acquiring Golden Ridge, CapEx should probably drop by more than 50% - 3 million it should drop considerably below that..

Now, have you - has the production at your Louisiana supplier resumed it or not?.

It has. Production started on Monday, March 23. They are going into a planned shutdown essentially this weekend. And then they plan to resume production on Monday, August 13. And from that point on, they plan to be producing pretty much solid through next rank..

Now, I understand that the deal that you arranged with Golden Ridge, allowed you to get discounted rice bran prices.

Is there any positive impact from that on cost-to-goods at all?.

The Golden Ridge, the supply agreement is priced at a price per pound. And that price of per pound is similar to what we produced the bran for in our facilities. We have one that produces a little bit cheaper, and we have two that actually produce at a little higher cost per pound than that.

So, on average, this will be - kind of in the second, where our production costs are. If we were to consummate the acquisition of Golden Ridge, then we would not be paying that margin to Golden Ridge to manufacture the bran for us. And we would pick up considerable margin in doing that..

So, are you expecting more revenue contribution from food or animal?.

As we look at the segments, we're growing equally amongst them. Our nutritional product segment is showing some accelerated growth with the FDA announcement on dietary fibers. Our equine business is continuing to show good growth and couple of the new segments that we're participating heavily in, are starting to pick up, that being companion animal.

So we're - it's crossed all of our major segments..

And the LA facility, what have been the production issues there this quarter?.

So, the Louisiana is Mermentau, so that's the facility that shutdown in April, and only operated five days between mid-April and July 23rd..

[Operator Instructions] The next question will be from [Gary Bradley] a Private Investor. Please go ahead...

Appreciate your information, I've been a owner of RiceBran since about 2004, 2005, and I have a - possibly point in question. Are there plans to increase the - invest equity in the form of a company buyback of stocks to negate the negative impact of previous 201 reverse split in number and what would be your spec, appreciate it..

I'm sorry. Could you repeat the question? You were breaking up a little on our phone..

Excuse me, I'm going to move a little bit, is there plans or do the RiceBran have plans to increase, invest the equity in the form of the stock buyback to negative impact of the previously [indiscernible]..

Yes, and I would say at this point, given our focus in growing the business, we do not plan to buy back stock. We intend to invest in the business, make a transition to strong growth and to profitable operations. And we think that's the best use of our capital..

Well, I appreciate, and hopefully that will increase the investor equity, correct?.

Yes, sir..

And ladies and gentlemen, this will conclude our question-and-answer session. I would like to hand the conference back over to Dr. Robert Smith for his closing remarks..

Thank you, thank you all - time today, and I'm looking forward to being on the other side of the - Dennis and company give reports in the future. I thank you all for your time today, and your investment in the Company. Good bye..

Thank you, sir. Ladies and gentlemen, the conference has concluded. Thank you for attending today's presentation. You may now disconnect your line..