Good day, ladies and gentlemen, and thank you for standing by. Welcome to the RiceBran Technologies 2018 Year-End 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 our host, Richard Galterio of Ascendant Partners. Please go ahead, Mr. Galterio..

Thank you, Operator. Good morning, listeners. Welcome again to RiceBran Technologies' year-end 2018 financial results conference call. With us today are Brent Rystrom, Chief Executive Officer and President of RiceBran Technologies; and Dennis Dykes, Chief Financial Officer.

Before I turn the call over to Brent, 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 including estimates as of today, April 1, 2019, 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 Brent Rystrom, CEO and President of RiceBran Technologies. Mr.

Rystrom, please go ahead..

Thank you, Rich. Good morning, everyone. I would like to thank all of those participating for joining our 2018 conference call. I will start with some of the key highlights from 2018 and some thoughts on our plans for 2019 and beyond. Then Dennis will follow-up with more specific financial details.

2018 was an active year for us, and I would like to comment on five highlights for the year. First, our balance sheet generally improved during the year, mainly due to warrant exercises for common stock and equity add-in as a result of an acquisition.

Cash was up, and our shareholder’s equity was $23.7 million at the end of the year, compared to $14.7 million at the end of 2017. Second, at the end of May, we moved our corporate headquarters to Houston, Texas. Houston's proximity to Arkansas, Louisiana, and Texas, where the vast majority or the U.S.

rice crop is grown, was the reason for this move, and this office now houses much of our executive team as well as finance, accounting, logistics, and customer service. Third, we completed the acquisition of Golden Ridge Rice Mills in Wynne, Arkansas through a combination of stock, cash, and debt in late-November.

Golden Ridge Rice Mills is located in the heart of the rice industry in the largest rice-producing state in the country. Typically, about half of the rice grown in the U.S. comes from Arkansas, and Cross County, the county in which Golden Ridge Rice Mills is located is typically one of the top three producing counties in Arkansas nearly every year.

We are actively engaged in several de-bottlenecking projects at Golden Ridge that should dramatically improve near-term production and profitability. We have nearly finished one of these projects, but still have several more we're working on and have identified one additional area that we want to improve.

We anticipate having all of these projects completed by the end of the second quarter. We look forward to completing these de-bottlenecking projects and driving higher productivity, sales, and EBITDA from Golden Ridge Rice Mills.

Fourth, we successfully certified our production facilities starting with West Sacramento, California in the third quarter, and our Mermentau, Louisiana, and Dillon, Montana facilities in the fourth quarter. Certification was a critical step in RBT's efforts to become a successful food ingredient company.

Golden Ridge Rice Mills completed its second SQF certification in January of 2019. Fifth, we are pleased to say that RiceBran Technologies realized meaningful 15% plus growth in our rice bran products during the fourth quarter; the strongest sales growth in those products in many years.

Although, early in our process of accelerating revenue growth, this provided some vindication of our plans and efforts following our supply issues in the second and third quarters of 2018. We are confident that we're at the beginning of a major prolonged phase of sales growth for these products.

I would like to next discuss some of our growth plans and initiatives for 2019 and beyond. One of our major areas of focus at RiceBran Technologies is driving sales leverage at all of our production facilities to help us attain positive adjusted EBITDA.

We have favorable margins at these facilities and scale them, we'll start the process of improving our adjusted EBITDA performance. Over several years, we believe the production assets we have now will be positioned to deliver significant positive adjusted EBITDA. Trends remain favorable for our stabilized rice bran and derivative products.

Our non-GMO, gluten-free products are filling historical needs for animals, pets, and humans, and finding new markets for uses like fiber carriers, manufacturing aids, and replacing powdered cellulose and ice cream. Demand for our core rice bran and derivative products is strengthening, and demonstrated by our fourth quarter acceleration in sales.

We are in the midst of what we believe will be a major six to nine-month cycle of adding substantial new customers for our stabilized rice bran and derivative products.

We are learning that lead times are long with many of these targeted customers, but are close enough on several of them to be confident in our prospects for a significant acceleration in sales for these products as 2019 progresses.

We recently won a major new inclusion in a best-of-breed product that will begin production with our product in April of 2019. We are in the planning stages for a large expansion of our production capacity at Golden Ridge Rice Mills, a project we expect to start on or about June 1 and complete in the second quarter of 2020.

This expansion will substantially increase our production of stabilized rice bran and the location will sharply reduce transportation costs, making our overall product cost much more appealing against substitutes like soy-based products from the Midwest, and it should have a major favorable impact on our gross profit margins as it will be our lowest cost source of stabilized rice bran.

We have identified a transformational new stabilized rice bran product we plan to produce in the new bran room that we plan to build in the Golden Ridge Rice Mills’ expansion, and we believe this new product could easily be the largest market opportunity we have identified.

Many of our customers have approached us for the product we are developing, and we are confident that we can produce it in our new bran room. We believe annual market demand for this new product could eventually exceed £100 million, and our analysis suggests we can competitively price this product and earn a strong return on investment.

I wanted to add some comments on the 2019 rice crop outlook. On Friday, March 29, The National Agricultural Statistics Service or NASS released its 2019 Prospective Plantings Report, some key takeaways for the rice crop. First, total rice acres planted are forecasted at 2,870,000 acres, down 3%.

As a reminder, rice acres jumped sharply in 2018 as a result of the small crop in 2017. Second, total rice acres planted in Arkansas are forecasted at 1,400,000 acres, down 3%. Third, total rice acres planted in Louisiana are forecasted at 400,000 acres, down 9%. Fourth total rice acres planted in California are forecasted at 485,000, down 4%.

Finally, the overall size of the rice crop in the U.S. is seen as typical this year compared to the five-year average, and we view this as a normal production expectation. We also announced today the acquisition of MGI Grain, based in East Grand Forks, Minnesota. MGI Grain is a specialty milling company producing barley and oat products ingredients.

MGI Grain has sales of about $3 million annually and meaningful EBITDA. The company has been rejuvenated over the past few years, and has substantial capacity for growth, given its 35% utilization of its manufacturing capacity.

Our sales team is excited to sell the MGI Grain product portfolio as it overlaps well with our rice, rice co-products and rice bran ingredients. For example, in many popular pet foods, rice, rice co-products like brewers and brokens, barley and oat ingredients often make up several of the top 10 ingredients in a finished product.

Historically, stabilized rice bran was the only ingredient we can place in one of these finished products.

By adding the MGI Grain products and those of Golden Ridge Mills to our stabilized rice bran portfolio, we now have an excellent chance to sell up to six or more of the top 10 ingredients and finished products that we're targeting instead of just one.

Interestingly, there was literally no customer overlap between RiceBran Technologies, Golden Ridge Rice Mills, and MGI Grain. The opportunity for cross-selling the now broader product line is large, and we are starting to see our first cross-sale successes both in terms of sales and margin improvement.

In addition the combination of these three businesses significantly reduces the customer concentration risks that each of the independent businesses had.

For example, our largest customer at RiceBran Technologies historically provided about 20% of our sales, but now post the combination of the three businesses that share drops to just under 7% of our combined sales.

Clearly, we're excited by the transformation of RiceBran Technologies, and we look forward to delivering meaningful growth, and are focusing on attaining positive adjusted EBITDA and other improvements in 2019 and beyond. I will now turn the call over to Dennis Dykes, our CFO.

Dennis?.

Thank you, Brent. Revenue in our bran business grew over 4% for the year with most of the growth concentrated in the fourth quarter due to the raw bran supply issues we experienced in the second and third quarters of 2018. Our gross profit margins were pressured in 2018 for two reasons.

First, raw bran prices were above year earlier levels in the first three quarters of 2018. Second, we experienced a difficult supply issue at our Louisiana facility in the second and third quarters, and we made the decision to support customers from our California facilities despite massively higher transportation and production costs.

This also limited our ability to grow our business in the second and third quarters. SG&A expenses expanded to $11.2 million from $9.9 million with an expanded sales team, increased staffing to meet our certification needs, and the costs of our relocation and cost fare [ph] offices in Houston. Our balance sheet remains strong.

We finished the year with cash and cash equivalents of $7 million, increased from $6.2 million last year. Our plant and equipment net increased to $15 million from $7.9 million due to the addition of Golden Ridge Rice Mills and ongoing CapEx projects at our other facilities.

Total assets increased to $30.7 million from $17.4 million, mainly driven by the acquisition of Golden Ridge Rice Mill. Debt increased to $0.8 million from $16,000 as a result of the Golden Ridge Rice Mills acquisition, and shareholders equity increased to $23.7 million from $14.7 million in 2017.

We are pleased to realize mid-teen sales growth for our stabilized rice bran and derivative products in the 2018 fourth quarter, the strongest growth for these products in many years. This growth was driven by new customer demand and growth from several of our largest customers.

Sales momentum for our stabilized rice bran and derivative products has remained strong into 2019. Golden Ridge Rice Mills contributed $0.9 million to our fourth quarter sales of 2018.

Liquidity continued to improve in the first quarter of 2019 with the proceeds from a $12.1 million share offering in March and $2 million from the exercise of warrants more than offsetting negative cash flows from operations and ongoing CapEx.

The additional liquidity further increases our flexibility for future CapEx expenditures and the continued execution of our growth plan. I would close now with some updates on our 2019 guidance. Our guidance for 2019 now provides sales of $37 million to $40 million.

We're assuming meaningful growth in sales of our stabilized rice bran and derivative products and we are including approximately $2 million for MGI Grain. Our assumptions for Golden Ridge Rice Mills are being adjusted slightly lower to account for the addition of toll milling as part of our sales mix.

With Toll milling, we get paid a fee to mill for others but we do not buy or sell the actual underlying grain being processed. Toll milling will provide earnings that are at least comparable to a traditional milling but will reduce sales and cost of goods sold compared to traditional milling.

We remain focused on realizing positive adjusted EBITDA in 2019. Given our de-bottlenecking efforts at Golden Ridge Rice Mills, we're now targeting to attain positive adjusted EBITDA in the second half of 2019 versus our previous target of the second or third quarter of 2019. We look forward to releasing our first quarter 2019 results in early May.

Operator, we're now ready for a question-and-answer session..

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question today is coming from Chris Krueger from Lake Street Capital Markets. Your line is now live..

Hi, good morning, guys..

Hi Chris, how are you?.

Good.

With this MGI Grain acquisition, it looks like barley and oats products, I know you talked a little bit about how it complements your product portfolio, but I mean, is it who are the end-users, is it the animal, equine or human or all three?.

It's going to be all three. I mean, the clearest examples that we've seen in the past would be in a bag of dog food, you know would be going into a can of soup. It would be going into an equine product. So it's going to really hit all three of our product segments..

Okay. I think you mentioned about the rice crop planting acres and all that.

In general, how is the rice crop as far as just actual progress this year as far as the growing season goes?.

Yes, good question, Chris. So it's probably running a couple of weeks later than normal.

I'm heading up to Arkansas this afternoon, so I'll get a fresh look at it, but when I was up there last week, they were generally getting some pretty good fieldwork done, but I think they started about two weeks late because it had been a very damp -- lots of rainfall, kind of over winter.

So I think they're just getting into the thick of planting the crop in Arkansas right now. I think you can make the same argument for Louisiana, and California typically plants a little bit later. They are not really in their planting season yet..

Got it. Okay.

So, also you guys have -- you moved your headquarters a couple of times in recent years, made a couple of acquisitions now, as far as you like facilities, is everything kind of in place and where you wanted to be or is there more work to do there?.

Well, I think in general, we're in pretty good shape. I mean we did announce and just talked about on this call a major expansion that we're looking at doing in Golden Ridge. And so, there will be a substantial CapEx cycle to expand that facility over the next year and three months.

And with that CapEx cycle, we believe we're developing a next-generation stabilized rice bran product that is without really any peer in the market either in rice bran or any other comparable product. So that's a significant action for us. Outside of that, I would say that generally we are in pretty good shape with the rest of the facilities we have.

We are in our third and final year of what I would call, "Catch-up CapEx." So when the company had been under severe financial pressure, up and through the early part of 2017, starting in late '17, '18, and finishing in '19, we're going through a series of CapEx investments to kind of catch everything back up to make it optimally perform.

That cycles has probably got three, four months left in it, and then we'll be largely through it..

Okay.

Last question, I know you talked about the three markets being equine, pet, human pet companion, and CPG, I know CPG takes the longest, but can you give us an update on progress in that area?.

Sure. So we're very proud and pleased with the efforts being made by our sales team led by Kevin Mosley. They've developed a very strong pipeline of activity. We have dozens and dozens of companies now actively working through the pipeline. We have between five and 10 that I would count as significant. One of those came on in the fourth quarter.

One of those basically is completing its testing right now, it’s a production testing, it's not a product acceptance; it's already going to be used. That will actually start shipping in April. And then there's probably another five or six between now and June, where we have a lot of confidence in our approval and inclusion process.

Those as they work through should sharply accelerate our revenue build second, third, fourth quarter as the year progresses; each of those is pretty substantial..

All right, got it. Thank you..

Thanks, Chris..

Thank you. [Operator Instructions] We have reached the end of our question-and-answer session. I would like to turn the floor back over to management for any further closing comments..

We'd like to thank everybody for joining us on the 2018 conference call today. We appreciate everybody's interest and the interest in us going forward. We look forward to talking to everybody in the early part of May to discuss first quarter results. Thank you..

Thank you. That does conclude today's teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today..