RiceBran Technologies (RIBT) 2011 Q3 法說會逐字稿

Good day ladies and gentlemen. Welcome to the NutraCea's third quarter 2011 financial results conference call. (Operator Instructions).

I would now like to turn the conference over to Alan Sheinwald of Alliance Advisors, please go ahead.

Thank you very much, operator and good afternoon, everybody. Welcome to NutraCea's 2011 third quarter conference call. With us today are W. John Short, Chief Executive Officer; Mr. Leo Gingras, Chief Operating Officer; and Mr. Dale Belt, Chief Financial Officer.

Before I introduce the speakers, I would like to remind listeners that during the call, management's prepared remarks may contain forward-looking statements which 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 in the Company's filings with the SEC. In addition, any projections as to the Company's future performance represented by management, including estimates today, as of November 15, 2011, and the Company assumes no obligation to update these projections in the future as market conditions change. At this time, I would like to turn the call over to John Short, Chief Executive Officer. John, please go ahead, the floor is yours.

Thanks Allan, and thanks to our share holders and to the investors joining our call. Let me start today by reminding us all of a recent development that emphasizes the scale and scope of the business opportunity we see for NutraCea.

The United Nations estimated that on October 31, 2011, two weeks ago, the population of our planet reached seven billion people. Global population is projected to grow to between nine and ten billion people over the next 20 to 30 years. One of our major challenges as a society will be to develop new sustainable and renewable resources to feed those additional two to three billion people while protecting the environment.

Rice, along with wheat, forms the primary food source for the bulk of the world's population. There are in excess of 600 million metric tons of rice grown annually around the world. Rice bran is about 10% of raw rice by weight, so about 60 million metric tons of raw rice bran are produced globally each year by the milling process, as rice bran is polished or abraded off of the rice kernel, leaving white rice. That raw rice bran is NutraCea's raw material.

Because a lipase enzyme in the raw bran attacks the oil that naturally occurs in the brand, raw rice bran begins to degrade in the milling process and quickly becomes unfit for consumption. As a result, raw rice bran is used predominantly as low grade animal feed in local markets and a few days immediately following milling. NutraCea's proprietary and patented technologies and know how give us the ability to arrest the lipase enzyme reaction that causes the bran to deteriorate, and to convert low quality animal feed to high quality human nutrition products with a one year stable shelf life in a sustainable and renewable way.

That is to say, with little or no additional demand on the scarce resources of arable land and water already used to grow rice, which is the source of this nutrient rich food we call stabilized rice bran. In fact, all of the rice kernel, not just the bran and the white rice nugget can be used, including the hull, which can be burned to produce much of the energy used to operate the manufacturing processes required to convert low quality animal feed to high quality shelf stable human nutrition products. More on that later from Leo.

We are talking about very large numbers, two to three billion new mouths to feed, 60 million metric tons of raw rice bran. This gives you an idea of the magnitude of the business opportunity we have available to us at NutraCea. Our mission is to utilize our patented and proprietary technologies and know how to convert a byproduct of the milling process, raw rice bran, into value added shelf stable human nutrition products in a renewable and sustainable way to help feed the additional two to three billion people who will join us on the planet over the next 20 to 30 years.

A key component of our business strategy is to develop strategic alliances that will help us leverage our competitive strengths to create value for our shareholders, for our business partners, and for all NutraCea stakeholders. To that end, in the third quarter we entered into two significant alliances. In August, we sign a joint development agreement with DSM Innovation Center,a subsidiary of Royal DSMNBV. That alliance is aimed at concentrating protein from rice bran. We have been working with DSM for over a year, and have made significant process in our R&D efforts. We are now turning our attention to the development of an initial fast to market product, based on higher than normal concentrations of rice protein. We expect to have more news on this effort in the first half of 2012.

In September, we signed an exclusive co-branded distribution agreement with BENEO-Remy, a subsidiary of the Südzucker Group,Covering western Europe, Middle East, and Africa, along with Russia, India, Australia, and New Zealand. Remy has exclusive rights to sell our stabilized rice bran, for human food ingredient applications in over 40 countries under their RemyLiVe brand. Their product will be co-branded with the NutraCea logo, and a tag line such as "powered by NutraCea stabilized rice bran". Similar in concept to Intel's "Intel inside" co-branding approach.

We expect this exclusive co-branded distribution agreement with BENEO-Remy to significantly boost our sales over the next two to three years. We will launch the new relationship at the food ingredient Europe trade show in Paris at the end of this month, and we expect initial shipments under this new arrangement to begin in the first quarter of 2012.

We continue to have discussions with other potential distributors, licenses and partners, who we believe can provide increased sales, marketing and financial resources for expansion of our SRB and biorefining segments in other major markets around the world. We will announce progress on those efforts in the coming months.

Also in the third quarter our partners from Alothon exercised their right to increase their ownership in NeutraSA the parent company of our Pelotas, Brazil, based rice bran biorefinery Irgovel, from 45% to 49% ownership. Performance at Irgovel continues to trend positively, and our technology and expansion projects remain on schedule and within budget. Leo will bring you up to date on activities at Irgovel a little later in the call.

Our consolidated results for the first three quarters of 2011 demonstrate that we continue to make significant improvements in all areas of the business. Consolidated sales grew 13%, gross profit increased 26%, and operating expenses decreased $3.1 million,yielding an improved loss from operations. Dale will address our financial performance in detail later in this call.

We remain focused on increasing profitable sales, improving profit margins and right sizing operating expenses. While we are pleased with the consolidating results year to date, there still remains much to do as we work to achieve positive cash flow in all business segments.

In the third quarter, we had mixed results. Our Brazilian biorefining operation continued to trend positively in all aspects of the business. More on that from Leo later. In our SRB segment, however, we were surprised by a pull back in demand for high end animal nutrition products coupled with an unprecedented spike in raw rice bran prices. Some of the highest prices in history for corn, wheat, and soybeans caused many farmers in the mid south to plant higher value crops like soy beans, while reducing rice plantings. Rice plantings are down by as much as 30% to 40% in parts of the mid south.

That situation was exacerbated by the drought in Texas that has destroyed the corn and hay crops putting extraordinary upward pressure on alternative feed sources like raw rice bran. While the California market for rice bran not see the same level of increases as the mid south, prices increased significantly in that market too. In the face of the rapid spikes in the raw bran prices we fail to respond quickly enough with price adjustments and felt the negative impact of this major cost increase in our SRB segment in the third quarter. We are responding with necessary price increases and evaluating adjustments in production capacity that we feel can be implemented in the fourth quarter of 2011, and the first quarter of 2012.

Before handing over to Leo, I'll note that we made our third quarter payment to the general unsecured creditors on time in October, and we expect to make the final payment due under our amended plan of reorganization when due, on January 15, 2012. I'll stop here and ask Leo to bring us up to date on our biorefining activities at Irgovel.

Thank you, John. Project work at Irgovel continues at a brisk pace. As previously reported we completed an expansion of our distilled fatty acid plant several months ago. We have also installed laboratory equipment for rapid analysis of raw bran, to improve the quality of our incoming material, which in turn will improve process yields and reduce expenses.

The equipment for the rice lecithin project has been delivered. We are currently installing it. We anticipate completion of this system in January of 2012. The equipment for the remaining projects is under fabrication. Much of it is complete. In anticipation of construction we are building foundations within the plant, and installing support systems such as cooling water, and electrical installations. We anticipate completion of the remain projects in the second quarter 2012.

Once the remaining projects are complete, we will see a capacity increase in oil extraction, from the current 70,000 tons per year, to well in excess of 85,000 tons per year. We will also have capacity with that new oil deodorizing rising system to process all of the crude oil we can produce into edible grade oil. We expect that selling much of our crude oil as fully refined oil, and selling the refined byproducts, including distilled fatty acids and lecithin, will provide further improvement in gross margins at Irgovel.

Our new animal feed blending and pelleting system will allow us to significantly expand our product offerings in this category. The Irgovel marketing and technical teams have already formulated a number of new products and are working on marketing materials. These new product offerings will solidify our position in the premium animal feed market in Brazil, and sales are expected to start in the second quarter of 2012.

All in all, we are very pleased with how our projects are coming along. Business at Irgovel continues to go well, we are running the plant at capacity and selling all output. We are enjoying the new capacity in our distilled fatty acid plant, and selling it out as well. As a final comment, I want to let you know that we have received credit approval from two Brazilian banks to provide long term low interest financing provided under programs offered through BNDES, the national development bank. These funds will be made available at 6.5% per annum interest, an excellent rate in the Brazilian market. And for periods up to ten years.

We are currently working through the documentation with those banks and we expect to be in a position to begin to enter into final loan agreements and to draw funds under these credit facilities before year end. Additional funding that will come from these facilities will allow us to pursue an additional project -- the expansion and upgrading of our boiler system, which is used to burn rice hulls and provide steam to power our expanded plant. I would now like to turn the all over to Dale Belt, our CFO, for review of our financial results.

Thanks, Leo. I'll begin my review of our financial performance with some comments about revenues for the first nine months of the year. Consolidated revenues for the nine months ended September 30, 2011, totaled $26.2 million, an increase of $3.1 million, or 13.4%, as compared to $23.1 million for the nine months ended September 30, 2010. Biorefining segment revenues increased 32.4%, or $4.5 million, to $18.3 million for the first nine months of 2011, this compared to $13.8 million for the same period in the prior year.

Biorefining revenues increased due to a favorable pricing environment and increased volume. Animal feed related revenues benefited from higher prices on other commodity products such as soy and corn. Since rice bran products provide an alternative source of animal feed. Oil revenues continue to benefit from the current higher pricing trend in the premium vegetable oil markets.

SRB segment revenues to date for 2011 decreased from $9.3 million in 2010, to $7.9 million. The decrease is primarily attributable to a $1.3 million decline in infant cereal product revenues due to the March, 2010, sale of the cereal product related assets.

In addition, animal nutrition product revenues declined $0.4 million on lower volume due to continuing competitive pressures. On the good side, human nutrition products increased by $0.3 million, due to increased existing customer sales volume and our first quarter of 2011 price increase.

Consolidated gross profit for the nine months ended September, 2011, totaled $6.7 million. An increase of $1.4 million, or 25.9%,as compared to $5.3 million for the nine months ended September 30, 2010.

Gross profit margin improved to 25.6% during the 2011 nine month period, as compared to 23.1% for the same period in 2010. Bio refining gross profit percentage improved to 21.6% during the first nine months of 2011,as compared to 11.7% for the same period in 2010.

Cost of goods sold in this segment increased 17.6%, while revenues only increased -- actually increased 32.4%. Plant efficiencies associated with a shift in sales mix from fully refined oil to crude oil, and higher plant production volumes contributed to the margin expansion. SRB segment gross profit for the nine months ended September 30, 2011, decreased from $3.7 million at a 40% margin in 2010, to $2.8 million at a 34.9% margin in 2011.

Increased bran cost and depreciation at Dillon, partially offset by a price increase in the first quarter of 2011, were the primary factories affecting gross profit, which I will comment on more fully with remarks on the third quarter period results.

Consolidated operating expenses totaled $12.3 million for the first nine months of 2011 as compared to $15.4 million during the same period in 2010, a decrease of $3.1 million. The overall combination of higher consolidated revenues, better margin, and lower operating expenses, yielded an improved loss from operations of $5.6 million for the first nine months of 2011 as compared to $10 million for the same period in 2010.

Net loss attributed to NutraCea shareholders for the period ended September 30,2011, was $5.6 million, as compared to a net loss of $10.9 million for the same period in 2010. I think it is worth emphasizing that our year to date consolidated loss was reduced by approximately 49%. I would also add that it is important to be mindful of non cash income and expenses when comparing year-over-year. These items are clearly shown in our statement of cash flows as adjustments to net loss to arrive at operating cash flow.

Next I would with like to focus my comments on some of our financial results for the third quarter. Consolidated revenues for the three months ended September 30, 2011, totaled $8.6 million, an increase of 2.2%, as compared to $8.4 million for the three months ended September 30, 2010. On the positive side, bio refining segment revenues increased 7.4%, to $6.1 million as compared to $5.6 million for the same period of the prior year. However, as an offset to a portion of that revenue gain, SRB segment revenues declined by 8.4%, to $2.5 million to the 2011 quarter.

We with continue to face competitive pressure in the animal nutrition markets although we were able to mitigate some of that SRB segment revenue loss with gains in human nutrition revenues. Consolidated gross profit for the three months ended September 30, 2011, totaled $1.9 million as compared to $2.1 million for the three months ended September 30, 2010. Gross profit margin decreased to 22.4%, during the 2011 three months as compared to 25.4% for the same period in 2010.

Bio refining gross profit percentage increased to 19.5% for the third quarter of 2011, as compared to 15.5% for the same period in 2010, as a result of better pricing and plant efficiency gains, which I've already discussed. The SRB segment gross profit percentage suffered a 35.5% decline to 29.4% for 2011, from the comparable 2010 margin of 45.6%.

The decrease is attributable to two primary factors. First, as John has already mentioned, raw bran prices in California and Louisiana have increased dramatically. Not only for the whole year, but in particular for the third quarter. The second contributing factor was depreciation on the Dillon plant and equipment. In 2010, the Dillon facility was carried on our balance sheet as an asset held for sale. In accordance with the relevant accounting rules we did not record depreciation on that asset while it was held for sale.

We ceased actively marketing the Dillon facility in the first quarter of 2011, and we are currently producing product there as well as using it as a research and development facility in conjunction with our DSM joint development agreement. So far this year, we have recorded approximately $0.3 million of depreciation in cost of goods sold. And I want to mention that while we are not actively marketing the Dillon facility at this time, we continue to receive inquiries regarding a possible sale.

Consolidated operating expenses totaled $4.3 million for the third quarter of 2011,as compared to $5.1 million during the same period in 2010,a decrease of $0.9 million. SG&A expenses were down year over year, and we incurred a $0.5 million loss on disposal in 2010, associated with selling the Phoenix facility, which we did not have in 2011.

The combination of all of the factors I have noted yielded an improved loss from operations to $2.4 million for the third quarter of 2011, as compared to $3 million for the same period in 2010. Net loss attributed to the NutraCea shareholders for the third quarter ending September 30, 2011, totaled $1.5 million as compared to a net loss of $3.1 million for the same period in 2010.

To conclude, I'll mention quickly a couple of balance sheet and cash items. Cash and cash equivalents for the period ended September 30, 2011, totaled $0.2 million. Total current assets and total assets were $13 million and $52 million respectively. Total current liabilities and total liabilities were $14 million and $23.6 million respectively. Total equity was $17.2 million as of September, 30, 2011. And with that I will turn the call back over to John for some closing commends.

Thanks, Dale. Many of you on the call know that rice bran is one of the most nutrient dense food sources on the planet. It is an excellent source of vitamins, minerals, amino acids, omega three and six fatty acids, and an array of antioxidants. I strongly believe that the stabilized rice bran, rice bran oil, and downstream products have tremendous opportunities in the marketplace.

While food ingredient sales have a long sell in period, we are starting to get traction in the market for a wide range of human ingredient applications including meat extenders, baked goods, pastas, gluten free products, whole grain cereals and other categories. We are very excited about where that business is and the opportunities available to us. We believe the exclusive co-branded market arrangement with Remy will be a very nice add on for our SRB business. We also see opportunities to grow our biorefinery segment in the US and around the world. Although we will not make announcements until we with have definitive agreements in place, discussions continue and we are confident we will find the right partner who can help us take advantage of what we think is a significant market opportunity.

In conclusion, I am pleased with both business segments. Cash generation continues to improve in the biorefining segment, and our cost structure and cash burn are both trending in the right direction in the SRB segment. I want to thank the entire team at NutraCea for all the hard work and for making the sacrifices necessary to continue building our Business.

This concludes our formal comments and presentation. At this time we would like to open the call for questions, operator, if you can please start the Q & A portion of the call?

Yes, thank you. (Operator Instructions) Our first line is from the line of Allen [Nemeh] a private investor. Please go ahead.

My question is are the plants in Louisiana in operation at this time or are they moth balled and what is the intent over the next couple of quarters for them?

Leo, do you want to take that one?

Sure, John. Allen, the plant in Mermentau, Louisiana, has continued to operate right along. The facility in Lake Charles, Louisiana, is currently idle. And of course with regard to the second part of your question, future, when sales are sufficient to warrant, we can always restart the idle facility.

I have one more question. And the availability of the rice bran, is that going to be a problem going forward, next couple of quarters?

This is Leo again. No, no problem with availability. It is there. The story in the mid south is a little bit complex. The shortage of rice bran is really up in the Arkansas region more so than south Louisiana, where we are located. However, that -- so the supply, to answer your question, the supply is there. Hour, on the pricing side, the whole region is affected largely by the drought in Texas, and I live in south Louisiana, I can tell you that the drought there is very severe, and the people who have cattle are doing everything they can to keep them alive, buying lots of rice bran. There's a short term -- what I believe is a short term price increase as a result of that.

That's the only questions I have, and thank you, gentlemen, for the work you have done, and the quality of the employees of NutraCea. Appreciate the progress you are making.

Thanks, Allen.

(Operator Instructions.)The next question is from the line of [Gus Masry], private investor. Please go ahead.

My question is -- do you feel you have enough cash to fund operations for a while? It seems like there's $200,000, right?

As always, we are always looking at our funding and meeting our future obligations, and as you can see from our past performance, you know we've done a number of things to meet those requirements and we fully expect to be able to meet them going forward. I mean, yes, we have $200,000 of cash as of September 30, 2011, but we are managing cash every day here to meet our needs.

Excellent.

Gus, I would say also a couple of things. I think we have virtually all of the ability under our [factoring] agreements, for the most part. And secondly, the comment I would make to our shareholders is there are a lot of ways to fund a business, and one of the things we did as we moved this business into and out of Chapter 11 is we have worked very hard to try to keep our shareholders and stakeholders intact.

Right.

Through this process, everybody is getting paid 100 cents on the dollar of what they were pre Chapter 11, but in addition, I think those of you who have observed Chapter 11s before understand that usually, a company goes into Chapter 11, the company that goes in is not the company that emerges. The starting shareholders get crammed down, or out, and the debt holders end up owning the company, or at least a large portion of the company, and that would be a pretty normal process. We were able to navigate the Chapter 11 with the Company entering Chapter 11, being the same Company that exited Chapter 11, and without cramming down the shareholders.

We've continued that approach, of trying to protect shareholder value, as we have moved through our restructuring and we have sold certain assets that we believe to be non core and non strategic, and to this point, we have not taken on large amounts of funding that might otherwise be highly dilutive to shareholders, preferring to take what I'll describe as a little more measured approach.

And yes, we are going step by step, and yes, cash has been closely managed through the entire process. But as you can see, we have been able to navigate to this point as Dale was describing, all of our cash needs and been able to take the Business forward. We continue to improve on all fronts. And it's our intention to continue to move in that direction. To do our best to protect the value in the Business for the shareholders as we move the Business forward. And that's always a tough balance. Would we be more comfortable as a management team if we went out and raised $10 million or $20 million and diluted everybody in the Business, sure. But do we think that's the best way to deal with the Business and all of our stakeholders? Not at this point in time.

Excellent, thank you.

Thank you. (Operator Instructions.) We do have a question from the line of Bernard Schmitt with Market Plus, please go ahead.

Yes. John, hi, John.

Hi, Bernard.

Hi. Nice job so far. Just kind of expanding a little bit on what you just said, I pretty much got the gist of it, is there -- can you comment anything further on any potential reverse stock splits or not at this time?

Bernard, we have commented on this on some previous calls. Per our by laws we would need to get shareholder approval for a reverse split.

Right, I'm aware of that.

And we did not ask for shareholder approval in the proxy prior to the last shareholders meeting in June.

Right.

As we get the Business more stable, financially, is it one of the tools that we would consider as part of the tool box, sure. I think the point in time when we would recommend that to the shareholders and to the board is when we feel that the Business is trending cash and P&L positive, has a good growth story to tell,and at that point in time when a reverse split would be a tool that would give us access to larger capital markets to fund growth in the business, and at the point in time when a reverse split and that additional funding becomes accretive, we might well recommend it.

Right.

Today we don't think is the time and that's why it wasn't on the proxy prior to the last shareholders.

Right. So the bottom line is down the road a little bit, if it might make sense, you might do it, if it doesn't make sense then you're not going to do it or something like that?

Yes. That's fair.

All right. Okay. Good job, I appreciate it, thanks.

Thank you, there are no further questions at this time.

All right, well, we thank everyone for joining the call. And we appreciate the support, and we'll talk to you again next time around. Thanks to everybody for joining us today.

Ladies and gentlemen, this does conclude can the conference call, you may now disconnect, and thank you for your participation.