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Edited Transcript of RIBT.OQ earnings conference call or presentation 25-Feb-21 9:30pm GMT

·18 min read

Q4 2020 RiceBran Technologies Earnings Call SCOTTSDALE Feb 26, 2021 (Thomson StreetEvents) -- Edited Transcript of RiceBran Technologies earnings conference call or presentation Thursday, February 25, 2021 at 9:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Peter G. Bradley RiceBran Technologies - Executive Chairman & Acting Principal Executive Officer * Todd Travis Mitchell RiceBran Technologies - CFO & Secretary ================================================================================ Conference Call Participants ================================================================================ * Mark Eric Smith Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst * Matthew Chesler ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good afternoon, ladies and gentlemen, and welcome to the RiceBran Technologies Fourth Quarter and Full Year 2020 Earnings Call and Webcast. (Operator Instructions) It is now my pleasure to turn the floor over to your host, Matt Chesler, with FNK IR. Sir, the floor is yours. -------------------------------------------------------------------------------- Matthew Chesler, [2] -------------------------------------------------------------------------------- Thank you, Catherine, and good afternoon, everyone. Welcome again to the RiceBran Technologies Fourth Quarter 2020 Financial Results Conference Call. With us today are Peter Bradley, Executive Chairman; and Todd Mitchell, Chief Financial Officer. I want to remind listeners that during the call today, 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 the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from those discussed today, and therefore, we refer you to a more detailed discussion of these results 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, February 25, 2021, and the company assumes no obligation to update these projections in the future as market conditions change. This webcast and certain financial information provided on the call today, 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. Peter, please go ahead. -------------------------------------------------------------------------------- Peter G. Bradley, RiceBran Technologies - Executive Chairman & Acting Principal Executive Officer [3] -------------------------------------------------------------------------------- Thank you, Matt, and we welcome you and Rob Fink to the RiceBran team. Good afternoon, everyone. The fourth quarter was a productive one for RiceBran. The notable improvements in our financial results underscore the meaningful transition within the company, which reinforces my confidence in our emerging strategy to transfer RiceBran into a high-growth, high-margin specialty ingredient company. Over the past 6 months, we've successfully implemented what I refer to as Phase 1 of this transition. This required tackling the immediate imperative to improve financial performance and initiating a broader change in our mindset to become the value-added supplier of specialty food ingredients. As we've discussed before, Golden Ridge created a significant drag on our business through 2020. However, towards the end of the third quarter, we installed new management at the mill and implemented a better structure for rice sales and procurement, and this drove significant improvements in the mill's operating and financial performance in the fourth quarter. And as important is to have our milling operations at Golden Ridge and MGI operate more effectively.,, We also reinvigorated our special ingredient focus by revitalizing our core stabilized rice brand, or as we refer to as SRB, and the SRB derivatives businesses, successfully accelerating growth and enhancing margins for these businesses in the fourth quarter. And this momentum will continue into 2021, and, we believe, beyond. So how do we achieve this? Simply put, it is the mindset transition to specialty ingredients. The word specialty is often used in the food ingredients world, but let me explain what it means in practical terms to a company like RiceBran. Simply put, it's a change of emphasis to margin from volume. Higher margins come from differentiated ingredients that provide higher value to customers. We transitioned to this mindset of specialty ingredients in the fourth quarter by expanding the availability of our higher-margin SRB derivatives, greenlighting new higher added value, product introductions and implementing a customer-focused sales structure supported by a margin-based incentive program. And as I said, it was this change in mindset, along with the improved performance of both our milling operations, which drove the significant improvement in our financial performance in the fourth quarter. And now with Phase 1 of our turnaround complete, we've set the stage for the next phase, which we'll see as rolling out a series of initiatives to accelerate growth and transition to profitability in 2021. I will highlight some of our Phase 2 initiatives in a minute. But first, let me have Todd run you some -- run you through the numbers in more detail. -------------------------------------------------------------------------------- Todd Travis Mitchell, RiceBran Technologies - CFO & Secretary [4] -------------------------------------------------------------------------------- Good afternoon, everybody, and thank you for taking the time to join us. Positive revenue trends in all of our businesses, lower losses from Golden Ridge and a structural reduction in SG&A, came together to drive significantly improved financial results for us in the fourth quarter. Importantly, we took significant steps towards transitioning to profitability, narrowing our adjusted EBITDA losses to $932,000 in the fourth quarter. That's down from losses of $1.8 million in the third quarter and $2.9 million in the second quarter. Looking at the numbers in a little bit of greater detail. Revenue. Total revenue grew 17% in the fourth quarter to $6.8 million from $5.8 million a year ago for a 10% increase for the full year to $26.2 million. As Peter highlighted, the refocus of sales and operations on our core SRB and SRB derivatives business paid off, delivering another quarter of double-digit revenue growth driven by SRB price increases and strong demand for higher ASP, higher-margin SRB derivatives. We also turned around operations at Golden Ridge, installing a new management team that was able to deliver higher productivity in each month of the quarter with progressive improvement in onstream rate, milling yield and hourly throughput. And last, but not least, we saw MGI generate over 50% growth in the fourth quarter. Gross losses. Gross losses narrowed to $47,000 in the fourth quarter from $600,000 a year ago. Gross losses for the year totaled $2.5 million, up from $861,000 in 2019. So this drop in the fourth quarter was a significant reversal in trend. This reversal happened because the losses at narrow -- at Golden Ridge narrowed in the fourth quarter to about half of what they were in the prior quarters of the year, with progressive improvements in each month of the quarter almost hitting breakeven in December. This increases our confidence that we will see positive gross margins going forward. Period. Operating losses. Operating losses narrowed to $1.8 million in the fourth quarter from $3.7 million a year ago. This was the second consecutive quarter of improvement, supported by lower gross losses and a reduction in SG&A and other items to $1.8 million in the fourth quarter from $3.1 million ago. We've been able to reduce SG&A by about 40% from 2019 levels through the actions taken throughout 2020 to eliminate corporate overhead. And yet, we emerged a smaller but smarter organization. For the full year, SG&A and other items were $8.8 million versus $13.7 million in 2019. As a result, total operating losses in 2020 were $11.6 million, down from $14.6 million in 2019. Net losses and adjusted EBITDA. Net losses were just under $2 million, or $0.05 per share, in the quarter versus net losses of $3.7 million, or $0.11 per share, a year ago. And for the full year, net losses were $11.7 million, or $0.29 per share, down from net losses of $14 million, or $0.43 per share, in 2019. And as I highlighted, and we'll repeat, adjusted EBITDA losses fell to $932,000 in the fourth quarter, down from $1.8 million -- I'm sorry, in the fourth quarter, down from $1.8 million in the third quarter and $2.9 million in the second quarter. And for the year, adjusted EBITDA losses were $7.6 million, down from $10.8 million in 2019. Cash and liquidity. We ended 2020 with $5.3 million in cash and cash equivalents. Operating and investing outflows of $8.6 million in 2020 were offset by inflows of $5.7 million, which included $1.8 million for a PPP loan, $2 million for a term loan secured by a mortgage on Golden Ridge and $2.3 million raised from the sale of shares under our ATM program. In January, the PPP loan was completely forgiven. I'll turn the call back to Peter to discuss the key elements of our forward strategy. -------------------------------------------------------------------------------- Peter G. Bradley, RiceBran Technologies - Executive Chairman & Acting Principal Executive Officer [5] -------------------------------------------------------------------------------- Thanks, Todd. As Todd has highlighted the financial impact of the successful information of Phase 1, and now to turn to -- our attention to Phase 2. Before I take you through the key elements, I wanted to comment on the critical piece of any strategy, and that's execution. The success of Phase 1 came down to the leadership team executing on both their individual and collective goals with precision and a sense of urgency. Maintaining this high level of execution will be critical as we move forward. And to support this, we've implemented specific objectives for 2021 throughout the company, with that -- with the achievement being tied to both short- and long-term compensation. The next phase we're embarking on focus on 3 key areas: First, accelerating margin growth through further expanding our differentiated product offering; secondly, enhancing our sales efforts and go-to-market strategy; and third, building mutually beneficial partnerships throughout our supply chain. Regarding the first area, we see significant opportunity to expand our product offering and accelerate growth of SRB and SRB derivatives, particularly in the dietary supplement and wellness product categories. We've already seen a strong uptick in consumer demand for RiSolubles, and we believe there is emerging demand for RiFiber. Both deliver compelling nutritional and functional benefits in a range of applications, and we will continue to increase capacity to meet the demand for these products. We also expect to launch new variants of both SRB and SRB derivatives. This will expand the potential applications for these products by enabling them to be more easily incorporated into a wider range of products, allowing the replacement of chemically-derived ingredients to meet the consume -- customer demand for reflective clean-label products. I'm not going to go, obviously, into a lot more detail for competitive reasons. We will also begin producing SRB at Golden Ridge in commercial volumes, which will strengthen our own supply chain by providing an internal source of SRB and positively impact the profitability of the mill. This is the initial stage of integrating our milling operations into our value-add at an ingredient strategy. Over time, we will incorporate feedstock from both Golden Ridge and MGI into our supply chain. By combining our milling expertise with our processing capabilities, we can develop an exciting range of differentiated value-added specialty ingredients, derived not only from rice, but also other small and ancient grains. Regarding the second area or enhancing our sales efforts, we've implemented new sales structure to ensure our primary focus is on putting the customer first. The 2 new sales leaders will drive both our product and go-to-market strategy and attach with margin growth through delivering enhanced value to our customers. You will also see our go-to-market strategy enhanced through complementary partnerships to deliver more complete and higher value-added business solutions to our customers. Further, but no less important, we expect to enhance our supply chain partnerships. RiceBran's business model is built on low-standing manufacturing relationships with major rice mills, and we will seek to strengthen these relationships to deliver greater benefit, not only to ourselves, but also for our partners. We believe our manufacturing partners can be more than just suppliers. We think it'll also be a source of new products, and we'll seek to deepen these relationships through our enhanced supply chain. I'll now turn the call back over to Todd to give you a brief outline of what this should mean for our financial performance moving forward. -------------------------------------------------------------------------------- Todd Travis Mitchell, RiceBran Technologies - CFO & Secretary [6] -------------------------------------------------------------------------------- Thank you, Peter. As Peter outlined, with the successful completion of Phase 1 of our turnaround plan, we're now implementing a series of initiatives to accelerate growth and enhance profitability by transitioning RiceBran to a supplier of higher-value differentiated ingredients. This transition will be an ongoing process over the next couple of years, but I want to give you a sense of where we see financial performance heading in 2021. We expect revenue trends in 2021 to be strong for all businesses. And in particular, for Golden Ridge and MGI. By quarter, growth is likely to be strongest in the second and third quarters and lowest in the first, given the relative comparisons versus a year ago. With the improved performance of Golden Ridge, we expect positive gross profits throughout the year. As gross profit expand, we look to leverage our lower SG&A in base and to generate the same sort of sequel improvements in adjusted EBITDA in 1Q and beyond that we saw in the past 2 quarters. And importantly, we expect to have positive adjusted EBITDA in 2021 for the entire year. Now back to Peter for some closing remarks. -------------------------------------------------------------------------------- Peter G. Bradley, RiceBran Technologies - Executive Chairman & Acting Principal Executive Officer [7] -------------------------------------------------------------------------------- My key message is that we're well on the way to transforming the business into a supplier of highly differentiated ingredients with an attractive financial profile. We have successfully completed the first phase of our turnaround by fixing Golden Ridge, restructuring and cutting our corporate overhead and revitalizing our SRB and SRB derivatives businesses, and as you saw, that results in significant improvements in financial performance in the fourth quarter. And while that was an important first step, it was just the first step. There is so much more to accomplish. Our focus now is building on this initial progress to accelerate growth and generate sustainable profitability. As underscored by our financial guidance for 2021, we are confident that we are on the right track to build a differentiated ingredients company that will generate significant shareholder value. Lastly, I'd like to thank our employees, our partners and our investors for their support and now open up the call for questions. Catherine? ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Your first question is coming from Mark Smith. -------------------------------------------------------------------------------- Mark Eric Smith, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [2] -------------------------------------------------------------------------------- First question for me is just looking at the price increases. I don't know if you guys can quantify it at all kind of the price increases within the core SRB business or how impactful it was for this quarter? Or if it really impacts go-forward more? -------------------------------------------------------------------------------- Todd Travis Mitchell, RiceBran Technologies - CFO & Secretary [3] -------------------------------------------------------------------------------- Mark, we took price increases in the fourth quarter beginning in October, so there was some impact in the fourth quarter, but not -- I wouldn't say not the bulk of it. Most of them will come in January, and we expect to also get further sub prices increases over the course of this year. In terms of quantifying them for our largest customers, they were in the double-digit range. -------------------------------------------------------------------------------- Mark Eric Smith, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [4] -------------------------------------------------------------------------------- Perfect. And then I want to just -- Todd, while I've got you, on SG&A cuts. As we look at this in dollars, it sounds like there's some good leverage that you can get going forward in -- as we look at absolute dollars, is this $1.7 million, $1.8 million level, pretty solid? Or are there more cuts? Or are there some places where you feel like you'll need to invest back into the business this year as far as the operating expenses? -------------------------------------------------------------------------------- Todd Travis Mitchell, RiceBran Technologies - CFO & Secretary [5] -------------------------------------------------------------------------------- I think in 2020, SG&A for the whole year should run, let's call it, $8 million, sub $8 million maybe. I think we -- it will probably pop up a little bit in 1Q from 4Q. But by and large, I think the number that we printed for 2020, I think, was $8.9 million, will be below that in 2021. -------------------------------------------------------------------------------- Mark Eric Smith, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [6] -------------------------------------------------------------------------------- Okay. Perfect. And then I want to look back for just a second before we look forward. But can you just walk through in any more detail kind of the steps that you guys have taken to avoid some of the rice supply and pricing issues that we saw really in Q3 and maybe a little bit into early Q4, and primarily at Golden Ridge? -------------------------------------------------------------------------------- Todd Travis Mitchell, RiceBran Technologies - CFO & Secretary [7] -------------------------------------------------------------------------------- We have a new professional heading up that group, who has several decades of experience in commodities, purchasing and selling, first of all. And second of all, I think the guiding principle is just managing a balanced position. Wherever we're short, we're long, both in terms of time and in terms of scale. So the book is always balanced, and therefore, you don't get into a situation where you have a commitment you cannot honor. -------------------------------------------------------------------------------- Mark Eric Smith, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [8] -------------------------------------------------------------------------------- Okay. And then the last one from me. Peter, I don't know if you want to take it. I know that you said that there's not much else that you can or want to really talk about new products right now. But it's safe to assume that we're very early first inning as far as kind of new product opportunities. And is there any of that that is prepared and ready to go-to-market today? -------------------------------------------------------------------------------- Peter G. Bradley, RiceBran Technologies - Executive Chairman & Acting Principal Executive Officer [9] -------------------------------------------------------------------------------- It's not all first innings. We've certainly got one product that we expect to roll out in the first quarter, which will open up new applications for us. But you will -- this will be something you will see constantly from us as we increase our capability. So it's now -- it's going through where we want to go. We've got one, which we're ready to go on. Others will come later in 2021 and in 2022 as our capabilities, our supply chain gets better, and our manufacturing capability. The one thing I will tell you, a lot of those will be SRB derivatives rather than commodities. -------------------------------------------------------------------------------- Mark Eric Smith, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [10] -------------------------------------------------------------------------------- Okay. So safe to assume that most of these new products would be coming kind of out of the Dillon facility? Is there anything out of MGI potentially for new product opportunities? -------------------------------------------------------------------------------- Peter G. Bradley, RiceBran Technologies - Executive Chairman & Acting Principal Executive Officer [11] -------------------------------------------------------------------------------- There are potentially -- and really, that's an area of a little bit further down the line that I'm not quite sure we're ready to talk about it in any more detail now. -------------------------------------------------------------------------------- Operator [12] -------------------------------------------------------------------------------- Your next question is coming from Bill Peters. -------------------------------------------------------------------------------- Unidentified Analyst, [13] -------------------------------------------------------------------------------- In the last conference call, you had mentioned you might be doing a strategic review by year's end. Was everything that you mentioned during this conference call in reference to that strategic review? Or was there -- is there anything else that should be mentioned? -------------------------------------------------------------------------------- Peter G. Bradley, RiceBran Technologies - Executive Chairman & Acting Principal Executive Officer [14] -------------------------------------------------------------------------------- I think in terms of the strategic review, we looked at a number of options. I think as I mentioned in my comments, that the core business here, if it's operated correctly with the right mindset, is a solid business. So there are things we didn't need to fix. We needed to get the cost base right and then looking at our supply chain. And I think we've done most of that. We'll continue to review our strategy and look where there are other opportunities. But I think now as we move into 2021, I think we've got a solid plan with a solid base for forward growth. -------------------------------------------------------------------------------- Operator [15] -------------------------------------------------------------------------------- There are no further questions from the lines at this time. I'd now like to turn the floor back to Peter for closing remarks. -------------------------------------------------------------------------------- Peter G. Bradley, RiceBran Technologies - Executive Chairman & Acting Principal Executive Officer [16] -------------------------------------------------------------------------------- Thank you, everyone, and I appreciate your attention. We've started down a path. We've made some of the initial steps. We've got some more steps to come. And we look forward to the opportunity of being able to talk you through how we've -- what we've achieved and what we plan to do in the future. Thanks, everyone, for their attention. -------------------------------------------------------------------------------- Operator [17] -------------------------------------------------------------------------------- Thank you, ladies and gentlemen. This does conclude today's call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.