Q4 2019 Earnings Call
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Good day, ladies and gentlemen, thank you for STEMI bye.
Welcome to the Ricebran technologies 2013 year run financial results Conference call.
As part of all participants really listen only mode.
A brief question answer session will follow the full presentation.
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It's my pleasure in future host, what's richer go to your real other said that Parker.
Oh, absolutely true.
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Thank you operator, good afternoon unless nurse.
Welcome again to Ricebran technologies, 2019, yearend financial results Conference call.
With us today, our Brent Rystrom, Chief Executive Officer, and President 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 and the company's filings with the FCC.
In addition, any projections as to the company's future performance represented by management include estimates as of today March 24th 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 Dot rice bran tact dotcom on the Investor Relations page at this time I would like to turn the call over to Brent Rystrom CEO and President of rights Brent technologies. Mr. Rystrom. Please go ahead.
Thank you rich and good afternoon, everyone.
The news changes and challenges due to covert 19 have been surreal relative to what our normal lives and experiences provide.
We are witnessing changes in daily routines governmental functions in 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 Rice Bran technologies must keep moving forward. Despite the negative impacts. This has done so much of the economies in the U.S. and the entire world.
On March 16th of this year, the cyber security and infrastructure Security agency of the U.S. Department of Homeland Security issued a memorandum regarding responses to cope with 19 any leading quote in the memorandum is worth sharing quote.
If you work any critical infrastructure industry as defined by the department of Homeland security, such as health care services, and pharmaceutical and food supply you have a special responsibility to maintain your normal work schedule close quote.
Our Ricebran technologies team has been adjusting to these challenges the 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.
Coming weeks and months will be challenging for all and we're working diligently to function as well as possible. During this humanitarian and economic crisis as a final note uncovered 19, we would like to highlight them think all the members of the Ricebran technologies employee team for their hard work in this difficult environment.
There are few things that I would like to highlight from our fourth quarter results first we completed our de bottlenecking and gold Ridge Rice Mills, and our fourth quarter revenue at that business was up nearly 90% from third quarter levels.
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 them the 2019 third quarter.
This was an important first out and improving our adjusted EBITDA towards positive result, something we plan to attain by the second half of 2020.
We're pleased about how 2020 is progressing for Ricebran technologies.
Following Todd's comments on our 2019 results and our Twentytwenty guidance I will close the call with some thoughts in updates and some of these Todd. Please go ahead with your update.
Thank you Brett.
It's challenging time for all.
However, if investors take anything away from this call I want to make two point.
First as a producer of non perishable foods.
We are a critical component of this country's food supply chain.
And barring unforeseen circumstances beyond our control.
We intend to do our part and operate at our lowest possible capacity through this crisis.
And second.
Taking the steps, we believe are necessary to protect our operations and our employee through this period.
And we believe not only are well positioned to make it through this period.
We will grow generate significant improvements in profitability in 2020.
As Bret highlighted.
You saw the beginning of a real turnaround gold rich in the fourth quarter.
Revenues for the middle grew sequentially each month of the quarter and nearly doubled in the fourth quarter from third quarter levels.
We also began putting in place initiatives to drive overhead efficiencies both in the field and at corporate.
And as a result, we're able to narrow losses from third quarter levels.
Even though the full effect of these initiatives wont be felt until the first and really the second quarters 2020.
Importantly in the fourth quarter, we also took steps necessary to support this growth by securing a senior lending facility in October finance working capital and by raising 8 million in cash in December through a successful equity offering.
With Golden Ridge, reaching new performance metrics on almost a weekly basis, a strengthening of our SRB business from fourth quarter level and significant improvements I didn't g. I agree we're increasingly confident in our ability to deliver strong growth and superior returns and 2020.
That being said.
Let's look at fourth quarter in 2019 in greater detail.
Revenue.
Fourth quarter revenue with 5.8 million.
20% from the fourth quarter 2018.
Full year revenue was 23.7 million up over 60% from 2018.
Golden Ridge revenues got progressively stronger each month of the fourth quarter.
Much welcome given our flat sales of the prior several months importers.
M.G.I. Green added to fourth quarter revenues as well all be at its seasonally slow time of year for that business.
And our core SRB and derivatives business was essentially flat year over year.
Gross margin.
Fourth quarter gross margin was negative 10 per cent compared to a positive 13% the year before.
Full year gross margin was negative 4% versus a positive 20% in 2018.
Golden Ridge was the main caused a shortfall in gross margin in 2019.
As the business was hurt by or delays in delivering a contracted prices.
Oh ramping production that was delayed by completing our de bottlenecking.
And the associated delay in gaining better yield until the first quarter compared to our original plan for the fourth sport.
However.
We're seeing steady improvements in volumes Aneel.
And our success is allowing us to improve the mix of new business at higher prices and better margins.
Our capacity expands considerably.
We've also made significant strides in rationalizing labor costs across all of our facilities.
As a result, we expect to return to positive gross margins in the second quarter and for gross margin trend sequentially higher in 20 Twond.
As DNA.
As to where they were 3.1 million in the fourth quarter.
Which was flat with the fourth quarter 2018.
As DNA with 13.7 million in 2019 of 22% from 11.2 million in 2018.
This is an area, where we have found significant room for improvement.
We started working on initiatives cut SGN name the fourth quarter.
But overall as Ginny remain relatively high in that quarter as we invested in certain projects to streamline operations in 20 Twond.
We're confident that will deliver a significant reduction in its DNA in the first quarter.
And we won't be stopping there.
We're committed to reducing s. DNA for year to under 10 million.
13.7 million in 2019, and we believe that we maybe able to materially improve on that.
Operating losses.
Operating losses were 3.7 million in the fourth quarter versus last years, a 2.5 million in the fourth quarter of 2018.
Fully diluted and basic EPS losses.
Our <unk> 11 cents compared to losses of nine cents in the fourth quarter 2018.
As a result operating losses for the full year were 14.6 million versus losses of 8.2 million to 2018 and fully diluted EPS losses were 42 cents compared to losses, a 37 cents in 2018.
EBITDA and adjusted EBITDA.
Adjusted EBITDA takes our record EBITDA and adds back stock based compensation and any one time expenses associated with the acquisitions of Golden reaching Mg.
Adjusted EBITDA losses were 2.7 million in the fourth quarter versus.
Losses of 1.9 million in 2018.
Adjusted EBITDA losses for the full year were 10.8 million in 2019 versus losses of 6.4 million into Safi.
We look for EBITDA and adjusted EBITDA losses to fall materially in the first quarter and we expect sequential improvements in this metric throughout the year.
And that will transition to positive adjusted EBITDA before the end of the third quarter 2020, and report positive EBITDA and adjusted EBITDA in the fourth quarter 20 Twond.
Cash and liquidity.
As a result of the successful completion of the equity offering in December 2019, we ended the year with 8.4 million in cash.
And less than 1.9 million in short term borrowing from our working capital facility.
Given the current uncertainty that's around this everywhere, we're committed to maintaining a strong balance sheet.
That means we're closely shepherding, our cash and utilizing our working capital for so.
With our large cash balance and access to this flexible working capital silly, we believe we're well positioned to whether the current storm.
As Britain, they both highlighted as a supplier of non perishable foods, 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 levels and transition to positive EBITDA in the second half the year.
We expect over 50% of total revenue to be attributable to Golden Rich and we look for sequential gains in revenue to continue throughout the year.
We anticipate total asked you name for the year of less than 10 million with approximately two point you 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 brand for closing remarks.
Thanks Todd.
The extraordinary demand for non perishable foods like grain that has been caused by the cobot 19 outbreak is impacting ricebran technologies in several ways in 2020.
We're seeing strong interest in particular for rice and barley products, we are aggressively working to meet this demand.
We remain pleased with our progress the Golden Ridge Rice Mills as I mentioned previously Golden Red cell revenue growth near 90% in the fourth quarter from third quarter levels and growth. Since then has been strong we finished our de bottlenecking over the new years Eve holiday.
Our monthly revenues have been growing sequentially, a golden rich and we have hit some important milestones in the first quarter first in late January we sell weekly sales the Golden Rich had $250000.
Second by late February we had experienced weekly sales near $300000.
Third we recently had sales of just over $365000 in one week.
For this week, we are targeting sales of over $425000 and as a result, we're on track to grow first quarter revenue at Golden Rich by nearly 70% from fourth quarter levels. This after growing the fourth quarter nearly 90% from third quarter levels.
Fifth we're seeing cross selling leverage from our system. For example, one fast growing customer Golden Ridge as a company that was a traditional rice bran technologies SRB derivative customer that's sold package finish rice prior to us buying Golden rich and our finish rice sales are now growing extreme.
We rapidly with this company.
We plan to keep building revenues and improving EBITDA Golden Ridge in the second quarter as we continue to build and diversified customer activity. There. We expect further substantial revenue growth.
Plan on shipping large volumes of stabilized rice bran starting in May.
And expect significant improvements in profitability through the end of 2020.
We're also excited by the growth potential and are owed in barley business at M.G.I. Green.
And are working to build our stabilized rice bran and derivative business from our Louisiana, California, and Montana locations.
We are focused on controlling cost and expenses.
Finally, we want to maintain a healthy balance sheet in this environment, especially since we're confident that our financial results revenue improved markedly as 2020 unfolds.
All 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're now ready for a question and answer session.
Thank you went up and go to your question answer session, if you'd like to be placing the question Q. Please press star one under telephone keypad, a confirmation code will indicate your line is in the question Q you make prestart too if you like to move your question for the Q for participants using speaker equipment, maybe necessary to pick up ahead.
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One moment, please what we pull for questions.
Our first question today is coming from Mark Smith from Lake Street Capital Your line is alive.
Good afternoon, guys [noise] 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 and to new customers as well is what you're seeing in kind of pricing of your products today.
Sure, Thanks, Mark and I hope, you're well we've been excited by what we're seeing with both customer development then customer pricing. So during the first quarter here a 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, a Golden Ridge a lot of the pricing. We're working off was that 19 and a half 1920 cents in recently, we've been seen pricing in the 24 25, 26, 27 28 cents range. So we're diversifying the customers and getting much higher pricing. We've had a couple of very large customers come in or pro.
Thanks 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 there you were talking little bit about M.G. I am kind of the ancient grains no business can it can do just give us more update on M.G.I. in kind of where that business is today and and especially as we like coming off of the seasonally weak kind of quarter and fourth quarter and as we move into maybe up a better time of year.
Recently here, especially as we look at kind of March to April.
Sure Mark.
You know from a reference perspective. This this business has a large customer that impacts it mostly in the first and second quarter and we've had a good season with that customer. It's a it's a little unusual used for our product, it's a little outside the normal a mainstream use.
But it is a relatively large customer and we're we're working through that customer pretty aggressively right. Now we've done most of the business that we anticipate doing a with them.
We did just get another order for about 20, more truckloads of product, which we're working through right now and we feel pretty confident about wrapping that up and having that'd be a favorable impact on our first and second quarter. The bigger theme here is when you look at what's happening a lot of the food groups is partially what.
Now this company Duff and when do you think about.
The types of foods that people are buying right now a non perishable foods. One important one is sue and this company is a major manufacturer of paroled 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.
[laughter] excellent and I think the last one from me.
Your press release talks a little bit about stabilized rice, bran and kind of a ramp up it looks like in Q2 coming out of Golden Rich can you just give us anymore insight into that.
Yeah, we're making great progress in getting Golden Ridge Ah to become a major producer of up stabilized rice bran for us our target right now is to target large scale shipments from Golden Red starting to me, a we're hoping to kind of get into the middle of summer and a it'd be shipping 2025 30.
Trucks, a month of SRB from Golden Bridge, a 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 Rice Bran.
Okay excellent. Thank you.
Thanks Mark.
Thank you. Our next question today is coming from Brett Levy from arrows, how your line is alive.
Hey, guys Amerisafe.
Let's start with Golden Bridge.
It sounds like there's good volume news there.
The you know the profit margin on ice acknowledge the [noise].
Friends and just.
Regular processing Weiss.
Our very different numbers can you talk about whether it's you know in Arkansas, or Montana or wherever it is.
Let the progress on getting into those really high margin S.K. use and kind of where one view and to you and even for Q of this year will will progress as you try to get from you know 15 S.J. used to.
30, plus but the incremental 15 are much higher margin.
Sure I'll start with that and then Todd if he'd like and then Todd and I are both remote here. So we'll tag team on it but Todd will likely finish so couple of a 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.
The easiest way to think about it is as we go forward wrote the business. We think the traditional million part of the business will be the majority of the profitability and that what we're able to deal with stabilized rice bran will be large minority of the profitability of the mill so that the.
The core milling part of the business is not something that we do you know as charity just to get into the SRB business. It's something that we're really trying to do become good at and make some good margins on itself.
As far as getting into the higher margin business. Most of that is gonna be into areas, it's going to be in a any of our stabilized rice bran or derivative related products and then frankly, we have some fairly healthy margins on a lot of the business that we do it empty I agree.
What do you think about location, a we make stabilized rice, bran and California, Wheezy, Hannah and no Arkansas, Arkansas by far is gonna be our lowest cost. So it's gonna have light largest margin, we make our derivative products in Montana, which are very good margin products and then a the skews.
<unk> related to a MJ green come out of Minnesota, So it's going to be across the system margins are.
Two to three times higher.
On bran and derivative products than they are on a milling, but theres much much larger scale on milling.
Todd anything you like yeah.
No I think that's I think that.
Pretty concise in terms of of what we're thinking I think if we if you go back what we were may be referring though is also within the mill and I think we'd make comments about this in our prepared remarks, it's not just about getting higher throughput. It's about our it's about our yield and what we're seeing is also tremendous improvement in the yields which means.
Out of 100 pounds of rough rice, what do we turn it into it it's consistently not only more going through the system, but more larger percentage of its turning into the higher E.S.P. components out of the of the milling process.
And then the second question and this last one is it relates to liquidity.
I know you guys.
While on a credit line you know.
Receivables based credit line factoring whatever you I call it.
I think you guys have kind of change your mind about whether or not you want to go into it.
What do you see a as the.
You know moment and even in the context of its own Parana virus, then the moment, where you were just into the line.
And will that be enough.
And you know do you have a path out of that.
As you look at.
Your your 2020 plan.
So if you don't want all responded that you know it is a factory.
Yeah.
Right right. So we're borrowing against our are a our it's not like we just take out alone and then decide when we can pay back you know, we take it out and as our customers pay acetate itself down. So you know I think that where you'll see us draw on the line. The most is.
You know kind of now frankly, because what we're seeing is the volumes in the velocity at the mill is increasing right and so revenues are going up.
Ah, that's giving me more a arda borrow against and I'm also needing to buy more commodity.
Go into the mill to get mill. 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 lie.
And then you know once.
Golden Ridge is running at you know call it two X.
What it's doing now or two X you know.
You know then we'll scale out of the line because the line will just pay itself down as our customers pay it off.
So you know it really is a working capital.
And I think that's what we'll use it for.
But you will you finish the line as best as you can tell even in Corona virus world.
Well you finish line Undrawn.
This year will.
Well, we finished the line undrawn.
No 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 too.
We could is there another source of capital it.
Well, we have a significant amount of cash sitting on the balance sheet. After operating in December two.
Yeah, Yeah, Yeah, I mean, what's your what's your trough cat.
What's my trough cash.
Hi, My trough cash would be kind of inversely related to the levels of cash profitability I had.
If I'm profitable and I'm throwing off free cash flow I would take cash down lower than it is but I'm not going to do that in the interim.
Okay.
Hi, I promise that was done on them.
[laughter].
Okay.
Thank you. My next question is coming from Michael Sullivan from Maxim. Your line is not a lot.
Hey, guys I apologize I've been in it out a little bit sounds like things are going.
As well as they they can be under the circumstances. So just to clarify it sounds like you're catching up on the contracts and Golden Ridge.
And then.
Other favorable impacts on your gross margin did you Sir.
Right.
Yes. Thank you Michael I I think that's an important question so.
All right as we work through de Bottlenecking last year, one of the negative issues that we experienced was that we fell behind on a a lot of our contracts. It was a a problem that we had not a problem with their customers, but we just didn't keep up with them and it caused some issues as rice prices were tire it hurt our margins we are we.
Rapidly working through and retiring old contracts.
Targeting right now they have most of the oldest contracts retired in April and as that happens, it's gonna have a significant impact favorable impact on our gross profit margins.
That's great.
Well it could go in and I know, it's a hard time. So we appreciate it thank you.
Thanks, Michael.
Thank you as a reminder, that star one to be please and the question Q. Our next question is coming from Paul songs from Sonz partners, who aren't a lot.
Hi, Oh, Brent this is a question for you.
What I'd like is that we use given a good picture of what 2020 looks like but I'm kind of looking forward pass that into 2021 and how we.
How we get from here to not just cash breakeven or something that the market fees ads and so it's too.
Changes.
During the company, it's a million company into orbit growth special product ingredient company, I think that's where you're going and I wondered if you could address that.
Specifically and talking about.
Where you see that you may be able to increase the the demand for SRB and change the profitability from you know a little bit more than 50 50 from from milling two more you know profitability is coming from the SRP.
Hi, Thank you Paul a couple of quick thoughts I'll actually start with the the second half of that and and then kind of come back to a sense of what we could do with the assets in Arkansas Golden Rich over the last couple of years.
So one of the.
Competitive disadvantage as we've had as a structure of a business is that we have been infrastructure will we didnt really control our manufacturing and so we're a company that focus very healthy heavily on warehousing and a lot of inventory.
What Golden Ridge allows this is an ability to focus our assets more on production assets and intoning raw materials into into revenue and cash so is that unfolds over.
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 as at the southern end of what most people would call the corn belt. The corn belt. When you think of it is Ohio in the east spreading out in Nebraska in the West, Minnesota in the north coming down to basically Arkansas on the south and when you look at that.
Region, 87% of the corn, 87% other soybeans are growing in that area because of that math majority of the food operations. The U.S. food manufacturing are located near that region, because people want to keep the freight cost low.
Historically, we've been in Louisiana, California, trying to ship into that region and the price points were 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 we east 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 can take the volume of considerably from where we're out by making some modest investments in a couple of areas.
One would be really on the front inbound side of the business, we're where we can put inbound tanks to give us better raw material storage greater flexibility in how we mill.
The second is to take the existing footprint of the mill and add basically more modules to the production process. Some more shellers more whiners more water polishers more linked graders and basically the things that help us make the rice.
And then the big step, but not necessarily overwhelming is to build of food grade only brand facility at that location, which is something we'd like to do between now and the 2021 time frame.
[noise] those come online could make this a much much bigger business than what we're planning to do this year.
Hum the from the aside from the manufacturing side and what control it it's cold and rich how do you see the demand CREZ heartbeat growing and what do.
How is the sales cycle going how your sales guys don't count doing aren't generating more incremental demand.
Oh for SRP.
The demand profile is pretty substantial the biggest roadblocks that we've had over the last couple of years is we've been trying to price against soy.
You know a 27 28 cents a pound for soy meal, we've been trying to price against East and 40, 50, 60 cents, we've been trying to price against Wheaton, They a wheat flour and the 20.
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 what applications, where you know single application opportunities can be 3 million 5 million. A we had a discussion today about an application that could be the upwards of 50 million pounds. So we're seeing large markets. This is critical to get us there and get us positioned the sales cycles coming.
Along I've said this before it's always there it's a long cycle, we're even though we're a product it's been around for a long time, there's a lot of education. There's a lot of missionary work that has to go into to basically converting.
Somebody who doesn't know anything about race brand 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 reach of our question answer session always a turn the floor back room management for any further closing comments.
Well. Thank you operator, we appreciate everybody's attention 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 your stay healthy and look forward to talking to you in the future. Thank you.
Thank you that does conclude todays teleconference. You may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.
[noise].