RiceBran Technologies Q1 2023 Earnings Call
Earnings call and webcast.
Speaker 1: her 2022 earnings call and webcast.
Speaker 1: At this time, all participants have been placed on a listen-only mode and the floor be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Mr Rob Fink, Rob the floor is yours.
Speaker 2: Thank you, operator, and good afternoon and welcome to the race brand technology's third quarter 2022 financial results conference call.
Speaker 2: Both on the call today are Peter Bradley, Executive Chairman, and Todd Mitchell, Vice Prince, Chief Operating Officer, and Chief Financial Officer.
Speaker 2: I want to remind participants of during this call, managements prepared remarks may contain forward-looking statement that are subject to risks and uncertainties.
Speaker 2: Management may also make additional forward-looking statement in response to your questions today.
Speaker 2: Therefore, the company claims protection under the safe harbor for forward-looking statements, contained in the private security litigation reform act of 1995.
Speaker 2: Actual results may differ from results discussed today and therefore we refer you to a more detailed discussion of these risks that uncertain in the company's filings with the SCP.
Speaker 2: In addition, any projections of their company's future performance represented by management include estimates as of today, November 3rd, 2022, and the company assumes no obligation to update these projections in the future as market conditions change.
Speaker 2: This webcast and certain financial information provide on the call, including reconcilation of non- GAAP financial measures to comparable GAAP financial measures are available at rightsbrandtack.com on the Investor Relations page.
Speaker 2: But that said, I'm now like to turn the call over to Peter. Peter, the call is yours.
Speaker 3: Thank you Rob and good afternoon to everyone.
Speaker 3: Right-rank consent continues to seek strong demand for our products.
Speaker 3: That's a...
Speaker 3: In result, we were able to deliver another $10 million revenue quarter with year-over-year revenue up 48%.
Speaker 3: Our specialty milling businesses are running very well and capitalising on strong demand for high quality domestically sourced grains and we saw double-digit growth in our core SRB sales for the third quarter in a row.
Speaker 3: We are pushing hard to get our core SLB to get to our core SLB growth targets.
Speaker 3: and re-excelerator value-add business, that both are underperforming the levels we would like them to be at. To be clear, all of the initiatives we are undertaking and which we discuss last quarter, necessary to get the company to profitability, continue to move forward. It's just taking a little longer than we expected.
Speaker 3: A note significant progress was made in the third quarter at both our meeting businesses.
Speaker 3: A golden ridge we signed in agreement in September that puts sourcing, selling and the day-to-day operations of the mill in the hands of a local agent who owns a very well-run mill-down road.
Speaker 3: With his extensive network of local farmers to buy grain from, ability to drive even further operating efficiencies, and to better segment the sales book, we believe he will be able to generate significantly better spread than we've been able to achieve on our own.
Speaker 3: And importantly, our agreement will give...
Speaker 3: With him is for him to be compensated in common stock on a performance basis, aligning him directly with shareholders.
Speaker 3: And at NGI, which has always generated positive cash flow for us, and which is an experience in strong demand growth this year, we are all but one segment away from completing a major mechanical upgrade to the mill, which will add 50% through-put capacity.
Speaker 3: and significantly result the plant's deferred maintenance issue which we inherited.
Speaker 3: As a result of these initiatives, we expect a significantly improved contribution from both businesses.
Speaker 3: We look for this to begin at Golden Ridge in the fourth quarter with greater impact going into the first quarter of 23 and we expect a very similar dynamic for MGI with our capacity expansion largely already booked through 2023.
Speaker 3: Elsewhere we continue to push forward with the initiative related to our chorus, our B and value R, S, R, B, derivatives, business.
Speaker 3: or be it at a bit slower pace than we'd expected. At our core SLB business, we began shipping to our new pet food custom in the third quarter, but as we highlighted in the pressure lease, overall volumes of fourth quarter will fall short of our expectations.
Speaker 3: This is due to a technical issue that both parties knew had to be resolved when we entered into this agreement, which it turns out needs to be resolved sooner rather than later.
Speaker 3: And, the at a value lead. Hope.
Speaker 3: SRB derivatives business, production issues have been fixed and we are rebuilding sales momentum with our core customers.
Speaker 3: but sales to our distribution partner fell short of expectations for the third quarter and we're still having issues with imported feedstock.
Speaker 3: We're addressing both issues but both the way on our sales and contribution margin. Notably problems with obtaining imported feedstock could delay the initial ramp and use at SKUs which we are expected in the fall quarter.
Speaker 3: These factors temper our near-term outlook for sales and profitability for both these business, although we continue to expect to generate sales in the fourth.
Speaker 3: quarter that are on par with the prior quarters of 2022. And we look for incremental improvement in overall profitability as evidence of real movement forward on all of our initiatives to achieve profitability.
Speaker 4: Peter, good afternoon everyone.
Speaker 4: To reiterate the point, Peter made, there's very strong demand for our products. We've delivered another quarter of revenue and excessive 10 million with year-over-year growth of 48%.
Speaker 4: Both Golden Ridge and MGR are executing very well in generating strong top line growth, and we thought double digit growth and chorus are B sales for the third quarter in a row.
Speaker 4: With that, let's look at the third quarter's numbers in greater detail. Revenue. Total revenue was 10.3 million in the third quarter, up 48% from 6.9 million a year ago. As I mentioned, strong growth in the quarter was underpinned by Golden Ridge and MGI, as well as the third quarter in a row of double digit growth in chorus RB sales. Gross losses. Gross losses were 697,000 in the third quarter compared to a gross loss of 276,000 a year ago.
Speaker 4: We fell short on this metric for two reasons. First, after several quarters of progressive improvement, golden ridge swung hard in the other direction and was responsible for a significant portion of gross losses in the third quarter.
Speaker 4: In short, we ran the mill hard in the quarter to prove that we could execute on the sort of volumes our new operating partner is looking for.
Speaker 4: But we did it at a pretty narrow patty margin.
Speaker 4: And we spent a significant amount to address some deferred maintenance issues in order to get the mill in top shape before handling it off to our new operating partner. We feel pretty good about this relationship and from where we're sitting we think it will be transformative to this part of our business.
Speaker 4: Second, our value-add SRB derivatives business, while resolving the production issues we saw in the second quarter and beginning to catch up on its sales backlog, generated another quarter of negative contribution margin for the reasons Keith highlighted in his remarks. This is a business we know well.
Speaker 4: And one, which we think will be transformative to the company, wants to back up and running strong, and we can fully execute on our plans for new product introductions.
Speaker 4: SGA. Okay. Okay.
Speaker 4: S-GNA was 1.8 million in the third quarter down 2% from a year ago.
Speaker 4: We are running lean at corporate and the team continues to find efficiency.
Speaker 4: We're seeing inflationary pressures on virtually everything, but we're holding our own through careful expense management.
Speaker 4: Notably, during the quarter, our non-executive directors took an overall reduction in compensation and shifted the composition of their compensation to all stock, mitigating cash outlite.
Speaker 4: We were also finally able to execute a sublet of our corporate headquarters, which will also have a materially positive impact on both expenses and cash outlets going forward.
Speaker 4: These are just two items out of a number of things we've been doing to increase our efficiencies and watch our costs.
Speaker 4: just two items out of a number of things we've been doing to increase our efficiencies and watch our costs. Operating losses.
Speaker 4: The increase in operating losses in the quarter was a result of the increase in gross losses. Net losses. Net losses for the third quarter were $2 million, or $0.38 per share, compared to net losses of $2.2 million, or $0.47 per share a year ago. Net losses in the second quarter included a $600,000 non-cash benefit from the revaluation of a warrant liability. Adjusted EBITDA. Adjusted EBITDA losses were $1.4 million in the third quarter, compared to adjusted EBITDA losses of $1.1 million a year ago.
Speaker 4: This decline reflected the increase in gross losses due to the negative contributions from Golden Ridge and our value add SRB to room in this business during the quarter. Cash and liquidity.
Speaker 4: Total cash was 4.4 million at the end of the third quarter, down from 5.1 million at the end of the second quarter.
Speaker 4: Cash reserves were $3.6 million while total borrowing, excluding our factory agreement was $4.3 million.
Speaker 4: Cash reserves and total borrowing included 900,000 in liquidity that was provided in advance of a restructuring of our tone loan under Golden Ridge, which should be completed this month.
Speaker 3: With these two items, we believe we've created the security of a liquidity bridge to profitability in an increasingly insecure capital market environment. With that, I'll turn the call back to Peter, with some closing comments. Thanks Todd. We continue to believe we have successfully put the company on the pathway to sustainable success. Progress is taking longer than we anticipated, but all the pieces are in place and we're moving forward. Demand for our products are strong, and in the past two years we have nearly doubled revenue organically.
Speaker 3: by operating better, bolstering ourselves channels for Core-SRBM-Nilling.
Speaker 3: It's been a long haul, the continuous improvements in operations, the completion of capital upgrades, and most notably the installation of the new operating partners. For Golden Ridge, you can exit.
Speaker 3: that was envisaged when they were acquired. And while we have say sets, but setbacks, we have been successful in opening new high-energy markets for both core SRB and value added derivatives. And we are progressing with the introduction of new rights derived products, which will expand our value added business and accelerate our shift to a higher value ad-speciting gradient company. We continue to be optimistic about the future and we appreciate your patience and your support. Without we will be happy to answer your questions.
Speaker 1: Thank you very much, Peter. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star one on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on a speaker phone to provide optimum sound quality. Please hold whilst we pull for questions. Thank you.
Speaker 1: Okay, our first question is coming from...
Speaker 1: Joe, racing felt from Kensington Capital Court. Joe, your mind is light. Yeah.
Speaker 5: Yes, high creatures.
Speaker 5: I'm listening to the conference call. I'm a fairly, you know, I'm basically following the conference for the past year, year and a half.
Speaker 5: I, the she-holders I believe are not sleeping well at night.
Speaker 5: The directors, you know, I really appreciate the fact that you put them on stack only based compensation, but somehow the compensation compared to how the company is doing earnings-wise.
Speaker 5: not sales-wise, they seem to be turning around, hopefully, but the past 20 years, we've gone promises and promises and promises, and then after everything is said and done, the rug gets pulled out, and we do a heavily diluted offering to raise $1.2 million. Something is —
Speaker 5: I don't know, explaining what's going on here. I mean, it looks very strange to me. Sure, this is Todd. I give you...
Speaker 4: three years or so when it's been under the current management, we've made progress. I think we've had some setbacks here in the last couple of quarters, but we want to complete what we've started. I think we felt that there was a need to have a liquidity bridge to ensure that we could complete what we started and get through to the next phase of this company. I think that given where we're at right now, we're going to have to make progress.
Speaker 4: The capital market is gone. Decisions were made that was costly, but gives the security to complete what we've started.
Speaker 1: Thank you very much Todd. Your next question is coming from David Call. David, your line is live.
Speaker 4: agreement began at the end of the September . He has become very much engaged. I would tell you though that it's going to take a couple of months to fully transfer as complex of a book as a mill has. You know you have extended arrangements with people that you buy from and extended arrangements that you sell from. That has to be transitioned. I can tell you from where I sit that he's engaged in both addressing.
Speaker 4: better ways to buy and better ways to sell rights and also better ways to operate the mill. And I feel very positive about that and I think we will see transition and improvement in the coming months and certainly in the coming quarters. Is he going to be milling?
Speaker 6: at nonprofits.
Speaker 6: Is he going to be milling at nonprofits? Yes, margins. I mean, what's the stop in it from just milling? It's not his pocket.
Speaker 3: It is his pocket. The one thing here is this compensation is tied to the margin. You know, a big issue with Golden Ridge when we, you know, Tub and I first got involved. There's, we had three issues. The first issue was we didn't know how to operate it now.
Speaker 3: The second issue was we didn't have to buy rush effectively.
Speaker 3: And the third issue is we didn't have to sell last effectively, which is not a recipe for success. What we've done and done is fixed.
Speaker 3: Operating the mill.
Speaker 3: And then we brought this agreement in place really.
Speaker 3: to accentuate that further, but also to cover the two issues. And the way it is compensated, which is just through stock, you know, it's all about.
Speaker 4: So, yes, two things. The, first of all, his incentive is tied to Adjusted EBITDAF for golden rich as we measure it. So he is only going to be compensated if there is positive adjusted EBITDAF and we will be compensated as a percentage of that. So it's not only increasing the commodity spread between buying and selling. It's covering all of his operating expense underneath it as well.
Speaker 6: But he's running another mill, what's the stop him from like giving us the bad contract and taking the better ones for his mill. This went from pilots on the hatch bag of ex sahab. Is it okay to wait in those? you see how their
Speaker 4: agreement is there's a strong reason why two smaller mills would want to get together and operate as a bigger entity. There is significant advantages to scale to both parties and the way it is structured is such that you know he already operates a very good mill. He's not going to give us the bad business and take the good business. What he's going to do is use the scale of both mills to get better business for both mills.
Speaker 6: Okay, and next question, if you'll allow me. The rice you're importing for the derivatives.
Speaker 6: I guess that's coming from Thailand or India or something. This is, uh...
Speaker 6: specialty rice, you're not able to...
Speaker 6: rice you're not able to buy it cheaper
Speaker 4: than you're selling it currently? The issue there is that we've had is that we've had, frankly.
Speaker 4: it currently. The issue there that we've had is that we've had, frankly, Thailand had a drought.
Speaker 4: And the rice that we're getting does not produce products that is acceptable from our perspective to sell to our customers. And it comes down to the fact that the crop was stressed, so it's not being processed as we would like it. And then as we highlighted that.
Speaker 4: You know, that was exacerbated by the fact that what we're doing with it is fractionating it in an enzyme process and we had to swap out and find a new enzyme at the same time. We have a large unit. What's different this quarter? We're still importing the same bad rice. We are working with this importer on some of our new skews.
Speaker 4: and we're finding that
We're having sort of similar feedstock issues as a result of that. It's not.
disabling our production process, but it's causing us to pause before we get aggressive in terms of taking it to market.
Is there no way I should point out as well isn't the crop change in Thailand
You know, we can't change the climatic conditions in Thailand or anywhere else. And they will start processing. We don't buy rice from them. We buy an organic SRB.
They will start moving to new crop and so we'll see that new crop come through probably because of shipping transit times probably in the first quarter. So at the moment we've We've learned how to to use what we can in a very bad crop year
There isn't enough organic rice available, an organic SRB available to support our facility.
I wish there was, but there isn't at the moment. But we're not able to sample the rice before we buy it from Thailand, that's the problem? We have implemented a pre-shipment sample program.
to make sure we can test them, but obviously that does delay the shipping time. Remember, this is the play we've dealt with for over a decade. You know, this is the first time we've had, you know, a major issue. But we're coming to the end of it as they switch over to new crop. But you are. We have put... ... um...
Re-shipment samples. Now it's not just a question that tastes here, it's a question of how it works through our fractionation process in Dellin.
Not difficult to predict. So most of the losses came from this bad rice derivative you're getting from Thailand and from...
Golden Ridge. In the quarter, yes, most of the losses were isolated to those two facilities. So we can look forward to this quarter to breaking even with Golden Ridge with this guy Ferguson running it. I would imagine that what do you expect? I would expect significantly better results.
Okay, well thanks guys. Okay, there appears to be no further questions in the queue. I'll now hand back over to the management for any closing remarks.
Well thank you again I just want to reiterate you know we are on the pathway forward you know moving this business towards positive performance yeah we get some bumps in the road along the way but I think with Golden Ridge we have high hopes for that new agreement I think we're getting our hands around the operating
issues of raw material, feedstock issues we've had at Dillon. So I reiterate that we continue to be on the pathway forward to success. Thank you everyone.
Thank you ladies and gentlemen, this does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.