Good day, ladies and gentlemen, and thank you for standing by. Welcome to the RiceBran Technologies 2019 Year-end Financial Results Conference call. At this time all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Mr.

Richard Galterio, of Ascendant Partners. Please go ahead, Mr. Galterio..

Thank you, operator. Good afternoon, listeners. Welcome again to RiceBran Technologies 2019 year-end financial results conference call. With us today are Brent Rystrom, Chief Executive Officer and President of RiceBran Technologies; and Todd Mitchell, 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 include estimates as of today, March 24, 2020, 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..

Thanks, Rich, and good afternoon, everyone. The news changes and challenges due to COVID-19 have been surreal relative to what our normal life and experiences provide. We are witnessing changes in daily routine, governmental functions, and business activity that would have been unimaginable just a few months ago.

Our thoughts and prayers go out to everyone affected by this. As a food processor and manufacturer, RiceBran Technologies must keep moving forward despite the negative impact this has on so much of the economies of the U.S. and the entire world. On March 16 of this year, the cyber security and infrastructure security agency of the U.S.

Department of Homeland Security issued a memorandum regarding responses to COVID-19 and a leading quote in the memorandum is worth sharing.

“If you work in a critical infrastructure industry as defined by the department of Homeland Security such as healthcare services and pharmaceutical and food supply you have a special responsibility to maintain your normal work schedule.” Our RiceBran Technologies team has been adjusting to these challenges of making great efforts to maintain or grow production in all of our businesses given the strong demand for non-perishable foods like those that we produce.

The coming weeks and months will be challenging for all and we are working diligently to function, as well as possible during this humanitarian and economic crisis. As a final note on COVID-19, we would like to highlight and thank all the members of the RiceBran Technologies employee team for their hard work in this difficult environment.

There are a few things that I would like to highlight from our fourth quarter results. First, we completed our debottlenecking at Golden Ridge Rice Mill and our fourth quarter revenue at that business was up nearly 90% from third quarter level.

Second, our adjusted EBITDA loss of $2.7 million in the fourth quarter improved significantly from the adjusted EBITDA loss of $3.4 million we reported in the 2019 third quarter. This was an important first step in improving our adjusted EBITDA towards positive results. Something we plan to attain by the second half of 2020.

We are pleased about how 2020 is progressing for RiceBran Technologies. Following Todd’s comments on our 2019 results and our 2020 guidance, I will close the call with some thoughts and updates on some of these. Todd, please go ahead with your update..

As a result of the successful completion of an equity offering in December 2019, we ended the year with 8.4 million in cash and less than 1.9 million in short-term borrowings from our working capital facility. Given the current uncertainties that surround us everywhere, we’re committed to maintaining a strong balance sheet.

That means we’re closely shepherding our cash and utilizing our working capital facility. With our large cash balance and access to this flexible working capital facility, we believe we are well-positioned to weather the current storm.

As Brent and I both highlighted, as a supplier of nonperishable food, we expect to remain fully operational throughout this crisis. As a result, we’re getting the same guidance we planned on before the crisis. We expect annual revenue in 2020 of approximately $37 million to $40 million.

We anticipate quarterly EBITDA losses will improve sequentially from fourth quarter 2019 level and transition to positive EBITDA in the second half of the year. We expect over 50% of total revenue to be attributable to Golden Ridge and we look for sequential gains in revenue to continue throughout the year.

We anticipate total SG&A for the year of less than 10 million with approximately 2.2 million to 2.4 million in depreciation and amortization and 1.1 million in total non-cash compensation. I will now turn it back over to Brent for closing remarks..

Thanks Todd. The extraordinary demand for nonperishable foods like grain that has been caused by the COVID-19 outbreak is impacting RiceBran Technologies in several ways in 2020. We are seeing strong interest in particular for rice and barley products. We are aggressively working to meet this demand.

We will remain pleased with our progress at Golden Ridge Rice Mills. As I mentioned previously, Golden Ridge saw revenue growth near 90% in the fourth quarter from third quarter levels and growth since then has been strong. We finished our debottlenecking over the New Year's Eve holiday.

Our monthly revenues have been growing sequentially at Golden Ridge and we have hit some important milestones in the first quarter. First, in late January, we saw weekly sales at Golden Ridge hit $250,000. Second, by late February, we had experienced weekly sales near $300,000. Third, we recently had sales of just over $365,000 in one week.

Fourth, this week we are targeting sales of over $425,000 and as a result we are on track to grow first quarter revenue at Golden Ridge by nearly 70% from fourth quarter level. This after growing the fourth quarter nearly 90% from third quarter level. Fifth, we are seeing cross-selling leverage from our system.

For example, one fast-growing customer at Golden Ridge is the company that was a traditional RiceBran Technologies SRB derivative customer that sold packaged finished rice prior to us buying Golden Ridge, and our finished rice sales are now growing extremely rapidly with this company.

We plan to keep building revenues and improve improving EBITDA at Golden Ridge in the second quarter.

As we continue to build and diversify customer activity there, we expect further substantial revenue growth, plan on shipping large volumes of stabilized RiceBran starting in May, and expect significant improvements and profitability through the end of 2020.

We are also excited by the growth potential on our oats and barley business at MGI Grain and are working to build our stabilized RiceBran and derivatives business from our Louisiana, California, and Montano locations. We’re focused on controlling cost and expenses.

Finally, we want to maintain a healthy balance sheet in this environment, especially since we are confident that our financial results are going to improve markedly as 2020 unfolds. All of this is part of our effort to drive RiceBran Technologies to positive EBITDA by the second half of 2020.

We look forward to updating you on our progress as the year unfolds. Operator, we are now ready for our question-and-answer session..

Thank you. [Operator Instructions] Our first question today is coming from Mark Smith from Lake Street Capital. Your line is now live..

Hi, good afternoon guys.

First off, Brent can you give us a little more color today just as we look at an update with the current environment on color into new customers, as well as what you're seeing in kind of pricing of your products today?.

Sure. Thanks Mark and hope you well. We’ve been excited by what we’re seeing with both customer development and customer pricing. So, during the first quarter here, we’ve really got involved with several new customers that are delivering large volumes and much, much higher pricing.

So when you think of this business last year at Golden Ridge, a lot of the pricing we are working off was at [$0.195, $0.19], $0.20 and recently we’ve been seeing pricing in the $0.24, $0.25, $0.26, $0.27, $0.28 range. So, we’re diversifying the customers in getting much higher pricing. We’ve had a couple of very large customers come in.

Our products are now showing up in a couple of the largest retailers in the U.S. and we’ve also got involved with some of the biggest rice packagers in the U.S. So, we're pleased with the progress..

Okay. Great. And then at the end of your comments here, you were talking a little bit about MGI and kind of the – managing grains and oat business.

Can you just give us more update on MGI and kind of where that business is today and especially as we look at coming off of a seasonally weak, kind of quarter and fourth quarter and as we move into may be a better time of year seasonally here especially as we look at kind of March to April?.

Sure, Mark. From our reference perspective, this business has a large customer that impacts at mostly in the first and second quarter. And we’ve had a good season with that customer.

It is a little unusual use for our product, it’s a little outside of the normal mainstream use, but it is at a relatively large customer and we’re working through that customer pretty aggressively right now. We’ve done most of the business that we anticipate doing with them.

We did just get another order for about 20 more truckloads of products which we’re working through right now, and we feel pretty confident about wrapping that up and having that be a favorable impact on our first and second quarter.

The bigger theme here is when you look at what’s happening for lot of the food groups is partially what else this company does.

And when you think about the types of food that people are buying right now, nonperishable foods, one important one is soup and this company is a major manufacturer of pearled barley that goes into all the different soups out there in the U.S. So, we’re seeing some nice activity in those products because of those two big trends..

Okay. Excellent.

And I think the last one from me, your press release talks a little bit about stabilized RiceBran and kind of a ramp up, it looks like in Q2 coming off Golden Ridge can you just give us any more inside into that?.

Yes. We’re making a great progress in getting Golden Ridge to become a major producer of stabilized RiceBran for us. Our target right now is to target large-scale shipments from Golden Ridge starting in May. We're hoping to kind of get into the middle of summer and be shipping 20, 25, 30 trucks a month of SRB from Golden Ridge.

We’re confident we can do it. We’re looking forward to doing it. We think it’s going to have a big impact on revenue and profitability for Golden Ridge and for RiceBran..

Okay. Excellent. Thank you..

Thanks Mark..

Thank you. Our next question today is coming from Brett Levy from Arrowsight. Your line is now live..

Hi guys. From Arrowsight. Let's start with Golden Ridge.

It sounds like there is some good volumes there, but the profit margin on high-technology RiceBran’s and just like regular processing rice are very different numbers, can you talk about whether it’s in Arkansas or Montana or wherever it is, can you talk about the progress on getting into those really high margin SKUs and kind of where 1Q and 2Q and even 4Q of this year will progress as you try to get from 15 SKUs, 30 plus, but the incremental 15 are much higher margin?.

Sure. I’ll start with that and then Todd if you would like, and then Todd and I are both from – we're here. So, we will [take team] on it, but Todd will likely finish. So, couple of thoughts there that I have. First of all, we think we can make actually very healthy margins in the milling side of this business.

When you look at Golden Ridge I think the easiest way to think about it is, as we go forward with the business, we think the traditional milling part of the business will be the majority of the profitability and that what we’re able to do with stabilized RiceBran will be a large minority of the profitability of the mill.

So, the core milling part of the business is not something that we do as charity just to get into the SRB business at something that we’re really trying to do become good at and make some good margins on it itself. As far as getting into the higher margin business, most of that is going to be in two areas.

It’s going to be in any of our stabilized RiceBran or derivative related products, and then frankly we have some fairly healthy margins on a lot of the business that we do at MGI Gain. So, when you think about location, we make stabilized RiceBran in California, Louisiana, and now Arkansas. Arkansas by far is going to be our lowest cost.

So, it’s going to have largest margin. We make our derivative products in Montano, which are very good margin products and then the SKUs that are related to MGI Grain come out of Minnesota. So, it’s going to be across the system.

Margins are 2 times to 3 times higher on brand and derivative products then they are in milling, but there is much, much larger scale on milling.

Todd, anything you would like to add?.

No, I think that is pretty concise in terms of what we’re thinking. I think, if you go back to what you were may be referring though is also within the mill and I think we’ve made comments about this in our prepared remarks.

It’s not just about getting higher throughput, it’s about our yield, and what we’re seeing is also tremendous improvement in the yield, which means out of 100 pounds of rough rice, what do we turn it into? It's consistently not only more going through the system, but more larger percentage of it turning into the higher ASP components of the milling process..

And then the second question, and this is the last one, it relates to liquidity. I know you guys brought on a credit line, receivables based credit line factoring, whatever you want to call it.

I think you guys have kind of changed your mind about whether or not you want to go into it, what do you see as the moment, even in the context of this whole coronavirus thing.

The moment we were deepest into the line and will that be enough and do you have a path out of that as you look at your 2020 plan?.

So, if you don't mind, I’ll refer to that. It is a factoring sort of line, right? So, we're borrowing against our AR. It's not like we just take out a loan and then decide when we can pay it back. We take it out and as our customers pay us, it pays itself down.

So I think that where you will see us draw on the line the most is kind of now frankly because what we're seeing is the volumes in the velocity of the mill is increasing, right. And so revenues are going up. That’s giving me more AR to borrow again, and I’m also needing to buy more commodity to go into the mills to get mills.

So, I think as you see that arc of that business scaling, that's when we'll use the line. It’s truly a working capital line. And then once Golden Ridge is running at, you now call it, 2X what it's doing or 2X then we will scale out of the line because the line will just pay itself down as our customers pay it all.

So, it really is a working capital line and I think that’s what we’ll use it for..

And, I mean will you finish the line as best as you can tell, even in coronavirus world; will you finish the line undrawn this year?.

Will be finish the line and drawn? You know, I don't know. Probably not, but we could. It really kind of depends on what the back half of the year looks like and what we want to allocate capital to..

Is there another source of capital?.

Well, we have a significant amount of cash sitting on the balance sheet after our offering in December too?.

I mean what’s your trough cash?.

What is my trough cash? My trough cash would be kind of inversely related to the levels of cash profitability I have. If I’m profitable and I’m selling of free cash flow I would take cash down lower than it is, but I'm not going to do that in the interim..

Alright. I promised that I was done on that..

Nice talking to you..

Thank you. The next question is coming from Michael Solomon from Maxim. Your line is now live..

Hi guys. I apologize, I have been in and out a little bit, but it sounds like things are going as well as they can be under the circumstances. So, just to clarify it sounds like you're catching up on the contract to Golden Ridge and then other favorable impacts on your gross margin would you say? Thanks..

Yes. Thank you, Michael. I think that’s an important question. So, as we work through debottlenecking last year one of the negative issues that we experienced was that we fell behind on a lot of our contracts.

It was a problem that we had, not a problem with our customers, but we just didn't keep up with them, and it caused some issues as rice prices worked higher, it hurt our margin. We are rapidly working through and retiring old contracts.

Targeting the right not to have most of the oldest contracts retired in April and as that happens it’s going to have a significant impact, favorable impact on our gross profit margins..

That’s great. Well, keep it going and I know it’s a hard time so deeply appreciate it. Thank you..

Thanks Michael..

Thank you. [Operator Instructions] Our next question is coming from Paul Sonz with Sonz Partners. Your line is now live..

Hi. Brent, this is a question for you.

What I would like is, you had given a good picture of what 2020 looks like, but I'm kind of looking forward past that into 2021, and how we get from here to not just cash breakeven, but to something that the market sees as changes to viewing the company as a milling company into more of a growth special products ingredient company.

I think that’s where you're going. I wondered if you could address that and specifically in talking about where you see that you might be able to increase the demand for SRB, and change the profitability from, you know a little bit more than 50/50 from milling to more profitability is coming from the SRB..

Alright. Thank you. Paul. Couple of quick thoughts. I’ll actually start with the second half of that and then kind of come back to a sense of what we could do with the assets in Arkansas Golden Ridge over the next couple of years.

So, one of the competitive disadvantages we’ve had as a structure of a business is that we have been in a structure where we didn't really control our manufacturing and so we are a company that focuses very heavily on warehousing and a lot of inventory.

What Golden Ridge allows is an ability to focus our assets more on production assets and turning raw materials into revenue and cash. So as that unfolds over the next couple of quarters and scales over the next couple of years that’s a significant change in the business. More importantly for that scale is where it’s located.

Arkansas is at the southern end of what most people would call the people would call the Corn Belt. The Corn Belt when you think of it is Ohio in the east spreading now to Nebraska in the west, Minnesota in the north, coming down to basically Arkansas is in the south.

And when you look at that region, 80 some percent of the corn, 80 some percent of the soybean are grown in that area and because of that mass majority of the food operations in the U.S., food manufacturing are located near that region because people want to keep their freight cost low.

Historically, we’ve been in Louisiana, California, trying to ship into that region and at the price points we’re at that’s very expensive.

By getting a significant physical location in Arkansas we significantly reduced the freight cost and we will be able to very cost effectively compete with soy, with corn, with wheat, yeast, and other products in that region and that will make this business much more scalable than it has in the past.

As far as the physical facility itself, we’ve got a number of smaller things that we can do now over the next couple of months to keep tweaking the production higher, and then over the next year, year and a half there are some small, but little more invasive things that we could do to really push the volume up.

We could take the volume considerably from where we’re at by making some modest investments in a couple of areas. One would be, really on the front inbound side of the business where we could put inbound tanks to give us better raw material storage, greater flexibility and how we mill.

The second is to take the existing footprint of the mill and add basically more models to the production process to more shellers, more whiteners, more water polishers, more length graters, and basically the things that help us make the rice.

And then the big step, but not necessarily overwhelming is to build a food grade only brand facility at that location, which is something we would like to do between now and the 2021 timeframe. Those combined it makes us a much, much bigger business than what we are planning to do this year..

From the – aside from the manufacturing side and what could control it at Golden Ridge, how do you see the demand for SRB growing and what can you do, how is the sales cycle going, how are your sales guys are doing on generating more incremental demand for SRB?.

The demand profile is pretty substantial. The biggest roadblock that we’ve had over the couple of years is we’ve been trying to price against soy, you know at $0.27, $0.28 a pound for soy meal, we’ve been trying to price against yeast in $0.40 $0.50 and $0.60.

We’ve been trying to add price against wheat and the wheat flour in the 2020, and so the demand is big. Our problem is our cost has been too high to go after those markets. We don't have to be at those prices, but we need to be close. We’re talking and looking right now at applications where single application opportunities can be 3 million, 5 million.

We had a discussion today about an application that could be at upwards of 50 million pounds. So, we are seeing large markets, this is critical to get us there and get us positioned. The sales cycle is coming along. I have said this before, it’s always there. It’s a long cycle.

Even though we’re a product that’s been around for a long time there is a lot of education, there is a lot of missionary work that has to go into basically converting somebody who doesn't know anything about RiceBran to becoming a customer. I feel like that cycle is starting to compress some, but again pricing will help us compress that..

Good. Alright. Thank you..

Thanks, Paul..

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

Thank you, operator. We appreciate everybody's intention and involvement today. We thank you for attending our conference call and we look forward to updating you on our first quarter results, which will be in early May. We hope you and yours stay healthy and look forward to talking to you in the future. 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..