Good day, ladies and gentlemen, and thank you for standing by. Welcome to the RiceBran Technologies Third Quarter 2020 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorder, Thursday, November 5, 2020. I would now like to introduce our host, Mr. Richard Galterio of Ascendant Partners.

Please, go ahead, Mr. Galterio..

Thank you, operator, and good afternoon, listeners. Welcome again to RiceBran Technologies Third Quarter 2020 Financial Results Conference Call. With us today are Peter Bradley, Executive Chairman of Rice Brand Technologies; and Todd Mitchell, Chief Financial Officer.

Before I turn the call over to Peter, 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 also 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, November 5, 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 the 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 Peter Bradley, Executive Chairman of RiceBran Technologies. Mr.

Bradley, please go ahead..

Thank you, Rich, and good afternoon, everyone. It's been the short time since we last spoke to you last quarter, when I stepped into my new role with the company. However, in this time, we've accomplished a great deal, and I personally have learned a lot about the business.

And I can say that I'm increasingly confident in our ability to reaccelerate growth and transition to positive adjusted EBITDA and ultimately create significant value for our shareholders. If I could, I'd like to share some of my key observations since taking on my new role. First, I want to highlight and compliment the senior leadership team.

This is a really exceptional capable group of people for a company of RiceBran's size and nature.

Since our change in management at the end of last quarter, these people have come together as a cohesive group and made tremendous strides working together to enhance our product offering, reinvigorate our sales efforts and to streamline our corporate and facility operations.

They're also proving to be an invaluable resource in our efforts to review all the options for enhancing the company's strategic position. Second, I want to reaffirm our view that our core SRB and SLB derivatives products offer unique and highly compelling attributes.

In truth, with the trials and tribulations at Golden Ridge over the past year, we probably lost some focus here. But even before the changes in management at the end of the last quarter, we have taken certain steps to refocus our efforts. And as a result, I think that the third quarter marked a turning point for this business.

Most notably, we saw strong results from our core RiceBran business in the quarter, driven by our higher average selling price and higher-margin derivatives products, and we announced price increases for several customers that will come into effect in the fourth quarter and the first quarter of next year, including a double-digit price increase from our largest stabilized RiceBran customer.

Third, I think the rationale for acquisitions of Golden Ridge and MGI remain valid and that both operations have potential to be a source of strong growth in revenue and positive adjusted EBITDA in 2021.

Most notably, we saw close to 50% year-over-year growth in revenue from MGI in the third quarter, driven by the sale of increased capacity to a customer that is now taking products from all 3 of our companies.

And we balanced our commodity exposure, installed new leadership, and we're able to reinvigorate the operations at Golden Ridge, mitigating losses from the mill right at the end of the third quarter. Fourth, I believe we are on a pathway to generate positive EBITDA in the foreseeable future.

Despite the continued drag on profitability from Golden Ridge, adjusted EBITDA losses declined to $1.8 million from $2.9 million in the second quarter, reflecting lower gross losses from operations and the reductions in SG&A.

With our SG&A now running at less than $2 million per quarter and the results of the Golden Ridge expected to improve, adjusted EBITDA losses should narrow even further in the fourth quarter, and we remain on target to achieve positive adjusted EBITDA in 2021. Finally, we continue to explore strategic options for the business.

And while I can't announce anything specific on this call, I will indicate that we were primarily focused on further development of our food ingredient business and utilizing our existing assets and capabilities to provide added value solutions derived from primary grains.

Our expectation is that we'll be in a position to provide further details of the pathway forward early in 2021. I'm now going to pass the call over to Todd for some more details on our financial results.

Todd?.

Thank you, Peter. Well, Golden Ridge continued to weigh on overall results in the third quarter. There were several positive developments worth highlighting. Most notably, growth in our profitable core RiceBran and MGI businesses, reductions in SG&A and improved cash management.

Due to these factors, adjusted EBITDA losses declined to $1.8 million in the quarter compared to $2.9 million in the second quarter and $3.4 million a year ago. And with expectations for further improvements from Golden Ridge, we think adjusted EBITDA losses should narrow still further in the fourth quarter.

Moreover, we're in the midst of a rigorous budgeting process. And while we're not going to discuss our 2021 outlook on this call, I am confident in our ability to maintain sufficient liquidity and to transition the company to positive adjusted EBITDA in 2021. Let's look at the 3Q numbers in a little bit more detail. Revenue.

Revenues of $5.2 million in 3Q '20 decreased 3% from $5.3 million in 3Q '19. The year-over-year decline included a 50% drop in revenues from Golden Ridge in the quarter, which was only partially offset by the combination of mid- single-digit growth in our core rice bran business and mid double-digit growth at MGI.

Golden Ridges' decline was due to high levels of downtime as we could not acquire rough rice to mill economically for much of the quarter. RiceBran revenue growth on the other hand, was driven by strong demand for our high ASP, high-margin SRB derivatives product and our organic SRB derivatives, in particular.

And MGI's 50% year or near 50% year-over-year growth reflected our strong - successful sellout of increased capacity production at the mill. Year-to-date revenues grew 8% to $19.4 million from $17.9 million in 2019. Gross losses. Gross losses were $795,000 in Q3 '20 compared to gross losses of $359,000 in 3Q '19.

The increase in gross losses was primarily attributed to Golden Ridge due to the unusually high rough rice prices, almost $500,000 related to contract settlements and negative operating leverage due to excessive downtime. Year-to-date gross losses were $2.6 million, up from gross losses of $260,000 for the same period of 2019.

Well over 100% of gross losses year-to-date are attributable to Golden Ridge.

Given the strong demand that we're seeing for our higher-margin SRB derivatives, price increases across our bulk SRB business, volume leverage at MGI and the mitigation of losses from Golden Ridge, we expect gross profit in 2021 to be firmly in the black, changing the very nature of our P&L. SG&A.

SG&A was $1.8 million in 3Q '20, a $2 million drop from $3.8 million in 3Q '19. There were about $300,000 in nonrecurring expenses in 3Q '19 and about $100,000 in nonrecurring expenses in 3Q '20, which reflects a - hurricane damage to our Lake Charles facility, specifically the insurance deductible.

The rest of this decline or about $1.8 million reflects cost-cutting initiatives that begin in 1Q as well as actions in 3Q to achieve another $2 million in annualized cost savings. We've really accomplished a great deal on this front this year.

We've cut administrative overhead, we've restructured our corporate support and sales teams, and we've materially reduced our expenses for outside consultants, legal and accounting service. In short, we've become a leaner, more flexible and more productive organization.

As a result of these actions, year-to-date, SG&A has dropped 34% to $7 million from $10.4 million in the same period in 2019. And we're confident that in 2021 SG&A will be approximately 50% of 2019 levels. Net income and adjusted EBITDA.

Despite the lower-than-expected revenue, net losses narrowed to $2.8 million in the third quarter from $3.3 million a year ago due to a 50% reduction in SG&A. Year-to-date net losses were $9.8 million compared to $10.2 million in the comparable period.

Net losses in the quarter included about $96,000 in interest and other and about $865,000 in D&A and noncash stock comp. While net losses year-to-date included about $284,000 in interest and other and $2.8 million in D&A and non-cash stock comp.

As a result, adjusted EBITDA losses were $1.8 million in 3Q '20 compared to adjusted EBITDA losses of $3.4 million in 3Q '19. While year-to-date adjusted EBITDA losses were $6.8 million compared to $8.1 million in the comparable period of 2019. As we've said several times on this call, we expect to transition to positive adjusted EBITDA in 2021.

Liquidity. We ended 3Q '20 with $3.9 million in cash and an incremental $1 million in available borrowing capacity. During the quarter, we drew down about $1 million in term loan funding and we raised about $700,000 through our ATM.

We're intensely focused on maintaining adequate liquidity by reducing operating losses, exercising strong cash management practices and utilizing our term loan and ATM facilities as necessary. And through these means, we believe we can fund operations until such time as we transition to positive adjusted EBITDA. That ends our prepared remarks.

Operator, let's open the call for questions..

[Operator Instructions] Now our first question comes from the line of Ryan Meyers with Lake Street Capital Markets. Please continue with your question..

Just wondering if you can give us a little more color on the improvements at MGI, especially the capacity expansion..

We made some rather modest capital investments in MGI at the beginning of the year, which will essentially enable us to run both sides of the mill at the same time. And as a result, we were able to significantly increase capacity with basically the same sort of staffing structure.

And what we did in the second half of the year was basically, we were able to sell out that capacity. And that's where we're getting the growth year-over-year..

And then what are the opportunities to cross-sell the customers' different products from different segments? I wonder what happened with the MGI customer this quarter..

I think that - go ahead. Sorry..

Yes. I was just going to say, the opportunities to cross sell is significant across all the product lines. And MGI customers, we've been able to sell rice to at Golden Ridge or at least secure further volumes.

So certainly, that is a key part of our focus that we've got one major customer have started the MGI that is actually now buying products from 3 operating - 3 of the operating companies, stabilize RiceBran, MGI products and products from Golden Ridge..

And then what are the production rates looking like quarter-to-date at Golden Ridge? Did you guys see any lack of supply issues carrying into the fourth quarter here?.

We - no. I mean, with new crops coming in at the beginning of September, we are in a completely sort of different position in terms of the supply dynamics for rough rice. We've been able to significantly limit our commodity risk there, work down prior commitments that we had to work through.

And now we're operating with a balanced book, both long and short going forward. And at - we've had improvements in the yield. And at this point, we're operating at a firmly double-digit paddy margin for the mill..

[Operator Instructions] Our next question comes from the line of [Mark Cosman with MLK Investment Management]..

Todd, I just had a question about is there anything on the horizon talking about divestitures on the strategic planning that was talked about on your last call?.

We - as I mentioned in my comments is that we're not in a position or nothing very close in. It will be towards the end of the year when we'll outline the strategic plan, and if that means a change in the asset base. So there's not much more I can add today, I'm sorry..

And our next question comes from the line of [Jason Wilson]. Please proceed with your question..

A couple of questions. I guess the first one is just the current stock price and your concern for the 180-day delisting notice. I think January is the time frame.

Any concerns that you guys are not getting the price up above $1?.

So I think January 25 is the specific date. And obviously, we would like to see the stock price above $1 by then. However, I think it is going to be relatively easy for us to get an extension of another 180 days. Most of the issue with delisting in the first stage here would be if we had significant debt or commitments, which we don't have.

So I think we'll get through the first stage. First stage here will reset, hopefully, with our year-end results. You guys will take our stocks above $1. After that, we have 180 days to prepare for whatever actions that we would have to take to keep the stock above $1 and not lose delisting..

And maybe a second question, maybe on - related to the sales. And specifically to, I think, more along the lines of the derivatives.

I've heard, I think, the last call, even a little bit more this call, that it seems like some more sales are being driven from maybe you're more, I guess, value-added products such as your RiSolubles, your fibers, your organic ingredients.

How does that look currently as far as, like, the sales that are coming in? Is that something that you expect to continue with the current customers that are driving that business? And is there a plan of action maybe from a sales side to really drive the increase in sales on those higher-margin ingredients, specifically the solubles and the fiber and the organic products?.

Yes. Without any question those are a key focus of ours. We are - the growth over in the short term is coming from existing customers. And on the organic side, we have been somewhat capacity constrained by availability of raw materials.

And we've done a lot of work to ensure that we now have - we've actually tripled our availability of the feedstock, and we've got demand to sell that out. Certainly, we're very focused on the supplement in health food side and - where we've got good reach.

And as our availability continues to improve, we remain very confident that we can easily sell out any increase in volume. We got a lot of pent-up demand there..

And then I think just one final question to kind of tell it in, tailwind off on the sales side. Obviously, COVID has been a challenge here since February 2020. Moving forward, with the sales guys getting out there and seeing customers and actually driving the pipeline to develop new NPD or new product development.

Do you guys see like a turn on that? Are your sales guys getting out and seeing customers? How does the pipeline look for like new PD?.

I think in terms of a lot of the - a lot of customers are still restricting access on to their site. Unfortunately, I don't expect that to change. I think what's happened, though, over the last 6 months is that customers have worked out a way of working remotely. And we've started to be able to work remotely.

Every one of our salespeople and technical people live on the version of Teams, Zoom, Lifestyles, whichever technology you're using a lot like the rest of us have done. And I think customers are recognizing they can't stop development or they'll have nothing for 2021. So we're starting to see a pickup in activity.

It's just that we're doing a lot of that remotely and virtually. So we are seeing activity, but just in a different way..

And I actually had the sales - just I would add. I just actually had the sales guy talk the other day, and he came to us, he said, I did 4 sales calls today. There's no way I could have done 4 sales calls in a single day before being remote. I think people are just moving quicker..

Yes. Exactly. Okay, guys, just one more quick question, more macro. Kind of looking at pet companion and animal versus human nutrition right now.

Have you guys kind of seen business going one way or another here in the forthcoming future in regards to like maybe where your focus is and/or maybe potential customers that are coming in, what you see as potential drivers, more human, more pet companion or maybe a combination? Again, more of a macro question..

It is more of a blend. But I see on the derivatives and the higher level value, that's certainly human food and supplement. On the bulk SRB, there, I think that will be more focused on pet food and animal feed. So it's a mix in there, but the derivatives have a lot of value for human nutrition. And so that's certainly where we're focusing.

And then the bulk obviously is into pet and animal..

[Operator Instructions] Our next question comes from the line of [Dan Schmidt]. Please proceed with your question. Hello Dan Schmidt, your line is open. Our next question comes from the line of [George Melt with MKH Management]. Please proceed with your question..

Todd? This is a question for Todd. You talked about a little bit about the economics of Golden Ridge, sort of better availability of rice at a better price. Now you have a balanced book. The yield is up and you're operating, you said at a double-digit paddy margin.

Help us - remind us about the economics of Golden Ridge about how - what are the various margins in the business? You have the paddy margins, you have your overhead cost.

Help us - can you remind us of the model?.

Yes. I think that you can run - the paddy margin is obviously the cost of the rice and the sales price of the products that it generates. We are now seeing a paddy margin in the high teens, sometimes even higher than that with relatively modest SRB sales. So I think we have a potential to drive that up, and then that sits on top of all of the OpEx.

As I said, right now, we've limited our commodity exposure. We have a much better milling yield, which means the rough rice is turning into more of the higher price components. And that's generating a solid double-digit paddy margin. Where we - below that, you have the operating expense, which is labor, utilities, maintenance and supplies.

Right now, we are not at the point where we're doing volumes that we're completely covering our OpEx with that paddy margin. But I would say that, that comes down to basically throughput, and that can be looked at in terms of the speed at which we're running the mill, the amount of downtime, how well we're managing the inbound and outbound logistics.

I think we see a visible path to improve all 3 of those things. And at a efficiency level of what I would call, let's call it, 3 quarters of the mill's capacity, 75%, you're generating a firm, solid single-digit margin to the bottom line than with D&A, that goes slightly low double digits.

At 100% efficiency, you probably pick 300 or 400 basis points up on that.

Is that the question you wanted addressed?.

Yes, yes, very much..

If I could just add to that is that we did some upgrades while rice was not available right at the end of the third quarter.

Subsequently as well, we've made some management changes, which when you put - get the right process in place, managed by the right people, we're expecting to see a steady improvement in both throughput and in yield through the fourth quarter..

And so what is the path to getting to a level of efficiency of sort of - no, I mean, of the plant of capacity utilization, that's, let's say, 75% or higher? What - is it a matter of sort of ramping up sort of in a progressive way, just get success after success and getting sort of increasing capacity? Or is there a specific external hurdle?.

I think from my perspective, it's crawl, walk run. The first thing to do is that you need to mill rice at a high yield. You need to mill it well. We're past that point. And now what we need to do is to basically increase the velocity of how we're moving that commodity through that process.

And I think that, as I said, there's sort of 3 components at the speed at which we're running the mill, we have gradually brought that up. I think next week, we will take another step forward in bringing that. That's just the rate at which we're running the machines.

And then two is the amount of downtime that you have and because of you are repairing something or because you're - you don't have rice. And that's cutting those away. And getting the right - the mill up to this productivity level is just - it's a dance of managing all of those things at the same time.

And I think that our strategy here was, once we got the book balance so that we were buying and selling at the right, once we were milling well is to now manage that - those processes perfect and then gradually increase the velocity.

And I think we have a clear plan of improving those processes over the next couple of months with a new team in place that's working better and then - and that's - it's simple blocking and tackling..

Okay.

And you have the feedstock then to sort of support this pickup in volume?.

Yes..

Yes, we do..

Another quick question on Dillon. Dillon seems to be sort of one of the sort of the pearls of the company. And I understand that you have 4 drums there, sort of, and the 4 drums were all refurbished in the last couple of years.

Are they all in operations right now? And what is the revenue capacity of Dillon if you sell both the liquid and the fiber part of the business?.

Right now, we're running 3 out of 4 drums. We have a plan to bring the fourth one online. It's hard to quantify the revenue-generating capacity of that at this stage of the game, but I think that overall production could certainly - I think overall production could - I don't think it could be double, but I think it'd be pretty close to doubling.

And then I think we can do better at selling out large component of it, most notably the fiber component. So just roughly a 3-quarter - 75% increase in capacity could turn into a larger increase in revenue..

And how is the Dillon operations working with the new drums? Are there any operational - I don't want to ask the operational issues.

On the whole, how is it operating?.

I think that facility is operating very well. I think in general, all of our facilities are operating very well..

And our next question comes from the line of [Dan Smith]. Please proceed with your question. Your line is open..

I apologize for being muted earlier. My question is for Mr. Bradley, I've been listening to these calls for about a dozen years now. I've lost count to the number of CEOs I listened to.

I'm just wondering, sir, with your background in mergers and acquisitions, were you brought on board to look at selling the company?.

No, I was here to do a strategic review of how we move the business forward. And as I said in my remarks that in my only really 90 days that I'm increasingly confident that the core assets of the business could be better utilized. And I think we can move this business forward.

As I said, very much in a food ingredient focus, and you've seen that, obviously, with the improvement in the SRB and derivatives business we saw in the third quarter. And I think that MGI and Golden Ridge, MGI has done well in the third quarter, and I think will continue to do so.

And then the Golden Ridge rice mill, which has been more than challenging over the last 12 months, I think we've put the right fixes in there. So I think the overall business is in good shape, and I think it will - you will see again a sequential improvement as we moved into 2021..

There are no further questions at this time. I'll now turn the call back to you..

This is Todd. I'd like to thank all of our shareholders for your support. We look forward to updating you next year when we report our year-end results..

Thanks very much for everyone..

That does conclude our conference call for today. We thank you for your participation, and I ask that you please disconnect your line..