Q2 2020 RiceBran Technologies Earnings Call
[music].
Good day, ladies and gentlemen, thank you for standing by welcome to the Ricebran technologies second quarter 2020 financial results Conference call. At this time all participants are they listen only mode. A brief question answer session will follow the formal presentation. If anyone should require operator assistance. During this conference. Please.
Just to start followed by the zero on your telephone keypad. As a reminder, this conference is being recorded I would now like to introduce your host Mr. Richard Gualtieri out of a said it partners. Please go ahead.
Thank you operator, good afternoon unless nurse.
Once again welcome to Rice Bran technologies second quarter 2020 financial results Conference call.
With us today, our Brent Rystrom, Chief Executive Officer, and President of Ricebran Technologies, Todd Mitchell, Chief Financial Officer, and Peter Bradley Executive Chairman.
Before I turn the call over to Brett 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.
These 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 my 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 August 12 to 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 tack dot 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. Rice from.
Please go ahead.
Thank you rich and good afternoon, everyone.
Brand technologies faced several challenges in the second quarter of two on 2020 related to the cobot 19 pandemic.
Initial fears of an adequate food supplies caused a surge in demand for rice as consumers engaged in widespread pantry stocking this demand accelerated milling for several months, which caused shortages in the supply of Patti rice. The race that comes into rice mills, as a raw material, which drove prices from $12.
There's per hundred weight in early 2022 appeal that was over $23 per hundred weight in late May in early June.
The higher prices and reduce supplies impacted our ability to operate at golden rich, especially in the back half of the second quarter.
The shutdown of much of the economy due to cope with 19 restrictions also slowed new customer development as most of the prospective customers, we were pursuing shutdown product development and research labs.
In fact, many of them are still closed in spite of this we were able to add new customers. It equine pet food and human products and the second quarter.
And after weakness in the beginning of the year, we've seen remarkable increases in demand for products from our derivative facility in Dillon, Montana, which should have a favorable impact on results in the second half of 2020 and into 2021.
As a result of these top line challenges financial results for the second quarter were weaker than we expected with adjusted EBITDA losses of 2.9 million compared to losses of 2.8 million in the second quarter of 2019 and losses of 2 million in the first quarter of 2020.
As we move into the second half of 2020, the current rice crop looks excellent Louisiana had completed about 50% of it's rice, how harvest as of last Sunday and the crop looks to be large and of high quality.
This bodes well for our stabilized rice bran facility in Mermentau, Louisiana.
The race harvest will probably started Arkansas in a few weeks.
And the crop there also looks large and up high quality.
This should provide significant benefits to golden Retuned when Arkansas.
Reflecting this large unhealthy crop raise prices are now trending sharply lower with the price for September rough rice futures contracts presently nearer 11 70 per hundred weight.
I would like to close my comments by noting that Friday of this week will be my last day as CEO of Rice Bran technologies and that Peter Bradley will succeed me as executive Chairman of the company.
I will be available to Peter and the rest of the management team for several months to assist in his new role and look forward to watching their progress.
We have built a valuable platform at rice Bran technologies, and Peter is well positioned to lead our company and its efforts to maximize that value.
His strong senior management and sales leadership background in a highly successful in reading companies will be invaluable and helping us expand the opportunities in our heart high margin ingredient business to drive future growth.
Peter joined our board in 2019, and since then I have had the opportunity to see skills and capabilities that I believe will serve rice bran well in the future.
In closing I would like to thank the leadership employees of Ricebran technologies for all their efforts, while I was with the company, especially this year with the economic and Cobot 19 impacts.
Peter will now provide some introductory thoughts and then Todd will give the financial report Peter. Please go ahead.
Thanks, Brian.
Firstly on vehicles for the board of directors myself, particularly like to thing.
For his contribution and commitment to Ricebran technologies in challenging circumstances, no more than the disruption calls to the business by the cobot demick.
We all wish him every success in his future and.
These continued contribution during this transition period.
Having spent the better parts of my career in ingredients business.
I firmly believe Ricebran then is to reduce differences in particular.
Delivered excellent nutrition them functional benefits from a wide range of products.
The third human food.
<unk> companion animal or acquiring treats systems.
This is what drove me to draw I joined the board of directors back last year.
What can pose me too.
They can the home with the company this time.
Unlike crops, such as soy corn and wheat rois derivatives of underutilized in food processing.
Which represents a compelling opportunities for the company.
But the older to understand and realize the potential of the platform we feel built.
First old group business is the can duct strategic review of.
All of our business and implement sound action plans to maximize shareholder older value as we work through this process. It's told will expand upon lakes real cool.
Thank you review will ensure we have to growing public technologies produce using the optimum inserts supported by robust supply chain.
This is willing to ultimately enable us to chart the best calls for a company and its shareholders.
I'll now pass the Colo told you will provide you further detail.
Thank you Peter.
That's great highlighted.
The past few months had been very challenging for us.
This covert 19, and then they created dislocations that led to rapidly escalating rice prices and in turn.
Sorted using rough rice supply.
However.
We've built a valuable asset infrastructure over the past several years.
And like so many other companies.
The challenge we faced recently prompted us to look inward to review.
To build upon our strengths.
Striving to mitigate our weaknesses.
This is harden our resolve to transform ricebran technologies into a stronger more nimble more competitive and more profitable but.
And because of this profit process I think you'll see a lot of changes changes for the better in the coming up.
You'll note from our press release that we've identified a host of structural changes, which should reduce our overall cost structure by another 2 million annually and better align costs current operating levels.
You'll also note that we've engaged BMO capital markets to review, our strategic options help maximize the value of our assets and to better pursue opportunities in our higher margin ingredients businesses.
Ultimately.
This is a process of driving to the core values that will make it.
A successful company for all of our stakeholders.
Going forward, we're going to strike the accompany that execute flawlessly.
Well, there being satisfying our customers are running our mills.
We're going to strive to be a company that does less does more with less.
We will strengthen our ability to make and deliver on our customer commitments about streamlining operations will use technology and tools to work smarter and do it with fewer people.
And we'll be a company that generate solid.
The gross margin and ultimately positive EBITDA and free cash flow.
And we do will generate significant value for shareholders.
Now, let me take you through the numbers for the quarter with a little color.
Revenue.
Total revenue in Twoq was 5.9 million down from 8.3 million in one Q and 6.2 million a year ago.
The decline in total revenue in Twoq from one Q, reflecting the significant drop in revenue from gold Ridge, which as we highlighted slowed production for about six weeks due to an inability to acquire rough rice said economical prices.
Results were also impacted by an expected seasonal drop in revenue from Mg.
Lower revenue from Golden Ridge and in JPY into Q. These have been on Q was offset in part by a sequential increase in rice bran revenue.
That being said year over year decline in total revenue reflected the drop in rice bran.
But.
Far lesser degree than in one case.
And once you we saw a few large customers for our products in human consumption pull back to to their own challenge.
In Twoq you, we saw strong demand for animal feed customers and we actually added a few news human grade customers.
Doing great business.
We're still far from strong into Q, but with the addition of new he made great customers, we expected to pick up in the second half the year significant.
Gross profit.
Total gross losses were 1.2 million to to your compared to gross losses of 405000 in one Q.
In gross losses of 244000, a year ago.
Total gross losses increased in Q cuprum, one Q due to lower gross profits from rice bran and in G.I., while gross losses, the gold grades were roughly flat one Q levels.
The year over year, increasing total gross losses due to lower gross process.
Rice bran and a year over year increase in gross losses from Golden Rich.
Versus the prior quarter.
Lower gross profit contribution from in G. I was purely volume metric, while the drop in rice bran gross profits mirrors the shift in mix towards lower margin animal feed customers with a strengthening in demand for products for human consumption expected in the back half the year and strong volumes from Golden Virginian G.
This trend should reverse itself.
He significantly.
S DNA.
Bill asked DNA was 2.6 million into Q.
Up modestly from 2.5 million in one Q, but down from 3.4 million a year ago.
Excluding approximately 300000 in noncash asset write downs SGN, even for the quarter was 2.3 million inline with our target for cost cuts for the quarter.
In Twoq, you, we challenge ourselves to rethink the structure of the company at its core.
As a result, we believe we have a path, which will allow us to take another.
2 million in cost out of the business.
As much of this running through asked today.
If we're successful with these initiatives, we should see screening and 2021, that's roughly half of 2019 levels.
Net income in EBITDA.
Net loss for two Q was 3.9 million compared to a net loss of 3.7 million in Twoq 90.
EBITDA losses were 3.2 million into Q flat with a year ago as reductions in as Ginny I've been offset by higher gross losses from operations.
After adding back.
394000 in stock comp and other expenses adjusted EBITDA losses were 2.9 million into Q, compared with 2.8 million a year ago.
Liquidity.
Finally, I want to assure you that capital resources and operating with liquidity remain adequate.
We ended the quarter with over 3.3 million in cash and we added an incremental 2 million in Bali capacity. After the ended the quarter.
And importantly.
As Golden Ridge rebound in a more stable environment, we should be able to find significant additional liquidity now higher borrowing base them are factoring facility and the ability to reinflate, our commodity payable about.
In closing.
As we move through the second half of 2020, we know we have significant opportunities to drive growth in our ingredient business, well, we'd better align costs with operating.
The challenges we faced the Golden Ridge are moderating and we expect a new rice crop to help us put things on the right tracking for Q.
We're also confident that the strategic evaluation of our business and the subsequent opportunity there will be identified from this analysis will help to maximize values for our shareholders moving forward.
Operator that concludes our prepared remarks.
You May now open the call for questioning.
Thank you we will now be conducting a question and answer session. If he would like to ask your question. Please press star one on your telephone keypad. They confirmation towable indicate your line is in the question Q.
You May press star to if he would like to remove your question from the Q.
For participants using a speaker equipment it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Our first question comes from Martin Mac.
Hello.
Hello.
Hello.
Hi.
Body, Max Beacon, who my speaking to.
This is Todd Mitchell.
This is Martin Matt.
Well I spoke to Brent previously and I've spoken to Richard a few times over the years and they're familiar with who I am [noise].
Hum along suffering stockholder being with the company 16 years.
And I've listened to more conference calls and you will hear is on your head.
And I cannot tell you how absolutely disappointing this call is I.
I mean, I don't want to talk about colleges, but the first thing I've learned in Washington, when we do dealt with manufacturing and production, which you better habit damn good supply on hand in case things go bad why didn't we haven't supply rice bran.
I think that our ability to source rice in the quarter.
Was.
Determined by the macro.
As much as our lineup of having the future supply I.
I think when when you saw the surge in demand.
Basically the market froze up and it had been a lean clot.
Lean crop and the ended the quarter, we came up short on our supply and the and the prices that were aligned.
We're not economical for US we have subsequently moved into a strategy.
Putting a futures contract then.
That will give us.
A regulated price that we will go into every two months futures period. So it will have.
Right lined up and we'll know our price for on the short and on the alongside going forward.
Thank you. Our next question comes or Mark Kaufmann Third day Associates. Please go ahead.
I was just wondering if you can comment about how the a golden mill is actually.
Running now.
I know it's had some issues in the past its.
Up and running again any comments on that.
Hey, Mark this is that there's Brent rystrom.
So we're we're starting to Mel more actively and a you know we're working through some of the late in season Rice I'd say, so far we're seeing some encouraging signs on how the mills running but but we need some more data we need we need to higher volume of rice, which were hoping to see over the next couple of weeks.
Is that or is that the new price price I guess, just one way to describe it.
Well you know that no not really it's kind of in between priced rice. If if you think about it. So the next tranche of rice pricing is based off the September contract, which basically is rice that comes due in mid September or becomes available and so we're kind of right now in a market that in between.
And where that futures contract is and where rice was say.
30, 40, 50 60 days ago.
How's the how's the mix then between [noise].
The better rice in let's say the lower quality, if you have any comments on that.
So one more time sorry.
Yeah with the different qualities of rice or that you get in as far as what you'd expect the yields debate, how how's that looking.
Well the crop this year it looks very good so the the size of the crop in particular in Arkansas looks like it's going to be up someplace in the high twentys to maybe the low 30% year over year growth in volume.
So so.
Size looks good quality generally looks good there's still some time, yet before Arkansas gets harvested and there's some things that can happen in the last few weeks, but it looks like it's going to be a large and healthy crop.
I'm not sure if that's quite what you're asking Mark I think the I think that is say I understand you know different Ah different shipments that you get in from on the raw Rice you know the a quality varies so it's good to hear.
Thank you.
Thanks Mark.
Next question comes or Mark Smith with Lake Street Capital markets. Please go ahead.
Hi, guys. Thanks for the update on the crops.
Can you guys talk at all about you know the last handful of weeks really since the quarter ended through today well volumes have been like a Golden Ridge.
They have been relatively you know minor mark essentially as as rice supplies got tighter and tighter it became tougher and tougher to mill as we're getting closer to the new crop being harvested.
The grain companies and the farmers, who are still holding rain are now actually starting to let some rain go and we're seeing more and more green bean offered to the pricing still a little bit high.
And there's there's you know its old rice, it's it's not only is it ended the season from last year, but it's also you know, possibly a race that could be two seasons old.
But we are definitely seeing more rice being offered and a the mills been more active the last couple of weeks than it had been earlier.
Okay, and then maybe for Todd can you quantify at all I think you guys talked little bit about some fees on some unfulfilled contracts can you quantify how big that number was.
In the second quarter, we paid about $200000 to satisfy on.
Delivery penalties on contracts, we couldn't fulfill.
And is it safe to say that Theres. Some continued penalties are continued into Q3.
Yes, we will probably increase in what's going on piece as we go into Q3.
Okay.
And then just as we look at customers sounds like there was some delays.
With current customers as well as potential customers just as people kind of work from home weren't able to kind of kick tires and see facilities and rice is that fair assessment and then how is how is that kind of new lead business looking today, maybe versus during the quarter.
I think part of this Brent.
Yeah, he's going to say Mark I it from a customer perspective.
We had a lot of things that we're working on January into February and by March most of the customers or that we're working with a certain most of the corporate staff home and shuttered their R&D in their product development facilities or at least minimized activity there.
Some of them are coming back and getting active but others are still out and.
It could be it could be months or longer before we see that fully returned to normal level of activity.
Okay and then the last one from me I don't know Peter if you want to take this or if you can or want to comment on it at all but just as as we look at this strategic review process can you tell US is there anything that's really not on the table here I'm, including asset sales are you.
In a sale of the entire company.
I think you know, we're really early into the process and would not come to any conclusions, but that's where you stand today, there's nothing that's not on the table.
Okay, great. Thank you.
Next question comes or Paul Sonz Partners. Please go ahead.
Hi, This is a variation on what was just ask personal how much you're going to paid BMO for this a strategic review.
I think that our engagement is based upon outcomes.
Oh, I see and.
In terms of the business is relatively simple straightforward business.
So my question is.
What can be other outcomes, besides selling the whole business.
Cause I mean.
It's all kind of stitch together.
I think what we would like to do is is emphasize and.
Possibly grow our higher margin.
Ingredient business I think there's a number ways that we could do that.
It doesn't just mean selling off the in higher business I don't know thats, even selling up part of the business.
So I think we're going we're looking at all the opportunities that are out there for us.
So this would be sort of a a really shuffling of the deck, where you might sell off in California, but.
But keep mermentau and Oh Gee or.
Well I'm I'm, just trying to get a sense of what the potential upside can be at this point I wouldn't want to speculate on the outcomes.
Right well listen thank you very much best of luck to you.
Thank you.
Thank you I like I would like to turn the floor over to Todd for closing comments.
Thank you everybody.
Well, we look forward to getting back to you next quarter, if there's any updates in the interim we'll make sure that we are they in front of view. Thank you for your time.
This concludes today's teleconference. You may disconnect your lines at this time.