RiceBran Technologies (RIBT) 2014 Q1 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the RiceBran Technologies Q1 financial results conference call. (Operator Instructions). As a reminder, this conference is being recorded.

I would now like to introduce our host, Mr. Fred Sommer of Ascendent Partners. Please go ahead, Mr. Sommer.

Thank you, Operator. Good afternoon, listeners. Welcome to the RiceBran Technologies financial results conference call.

With us today are John Short, Chief Executive Officer and President of RiceBran Technologies; Dale Belt, Chief Financial Officer; Dr. Robert Smith, Senior VP of Sales and Business Development; and Mark McKnight, Senior VP of Contract Manufacturing.

Before I turn the call over to John, 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 the 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 filing with the SEC.

In addition, any projections as to the Company's future performance represented by management include estimates today as of May 15, 2014. 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.ricebrantech.com on the investor relations page.

At this time, I would like to turn the call over to John Short, CEO and President of RiceBran Technologies. John, please go ahead.

Thanks, Fred, and thanks to all of our listeners for joining.

As many of you know, we hosted an update conference call for shareholders on April 23 where we provided information regarding our business initiatives for 2014 and beyond. Anyone who did not listen to that call can find the link on our April conference call press release or via our website.

On that call, we outlined a very focused business plan to meet our current 2014 financial guidance for full-year revenues of $59 million and adjusted EBITDA of $6 million, a more than 65% increase in revenues and a $10 million turnaround in adjusted EBITDA compared to 2013.

The three key operating deliverables necessary to produce these results are, first, the ramp-up of our Irgovel rice bran bio-refinery to 9,000 metric tons per month of raw rice bran processing by the third quarter of 2014; second, the completion of the expansion currently underway to double capacity at H&N, also by the third quarter; and third, initiation of the project to double production capacity at our Dillon, Montana, stage II plant by Q1 2015.

While this third project is not expected to produce additional revenue until 2015, it is critical that the Dillon expansion projects stay on schedule and on budget as we push to meet our 2014 targets.

The remainder of this call will be limited to comments on our first-quarter financial results as set forth in the Form 10-Q filed today with the SEC. After prepared comments, we will take questions. I will turn the call over to Dale.

Thanks, John. For the first quarter of 2014, consolidated revenues were $7.7 million. This represents a 12% decline from last year's $8.7 million in the first quarter.

The decline in revenues was a direct result of the planned idling of our Irgovel facility in Brazil for 10 weeks in the first quarter of this year. This planned hiatus was necessary to allow us to finish the installation of equipment required to increase capacity at Irgovel. We expect raw bran processing capacity to increase by at least 50% to 9,000 metric tons per month beginning in the third quarter of 2014.

Idling the Irgovel plant for 10 weeks resulted in revenue from our Brazil segment totaling only $2.7 million in the first quarter of 2014. That is a sharp, but temporary, 54% decline when compared to revenue of $5.8 million recorded in the first quarter of 2013.

Irgovel was restarted at the end of March and we expect Brazil segment revenues to ramp up significantly in the second half of 2014.

The temporary decline in revenues from Brazil was largely offset by a strong performance from our USA segment, where revenues climbed to $5 million. That's a 72% increase from the $2.9 million recorded in last year's first quarter. The strong growth in USA segment revenues was due to integration of the H&N acquisition into our operations.

Our consolidated and USA segment performance improved significantly in many key financial measures. First, our consolidated gross profit increased by 46% to $1.4 million as we continued to convert feed to food, and by that, we mean growing sales of higher-margin nutritional and functional food products at a much faster rate than lower-margin animal nutrition sales.

In our USA segment, revenues grew by a robust 72% and gross profit increased by 130%. That improvement supported consolidated gross profit margin improvement from 9.9% of revenues in Q1 2013 to 18.4% in Q1 2014. We expect improvement in both consolidated and USA segment sales and margins to continue in Q2 and for the remainder of the year.

Operating expenses increased to $4.1 million in the first quarter of 2014, compared to $3.7 million last year. The increase is due, first, to a $500,000 non-cash intangible amortization charge related to the H&N acquisition and, second, to a $250,000 increase in SG&A expenses related to H&N acquisition costs.

On a like-for-like basis, operating expenses were actually down slightly in the first quarter, compared to last year. We will continue to work diligently to keep our expenses aligned with revenues as we go forward.

Interestingly, our operating loss was $2.7 million in both periods, despite the fact that our Brazil segment was not in operation for a large part of the quarter. With those operations back online in the second quarter and hitting full stride in the second half of the year, we believe the positive trends I have highlighted will continue to pick up steam.

For the first quarter of 2014, we recorded a net loss attributable to common shareholders of $1.9 million, or a loss of $0.62 per share, on average shares outstanding of just over 3 million. This compares to a loss of $5.8 million, or $5.57 per share, on just over 1 million shares outstanding in the first quarter of 2013.

I believe it is important here to make the following point. Our first-quarter loss of this year includes large fluctuations in non-cash items. Most notably, I would point out the $2.1 million of income from the change in fair value of derivatives and the offsetting $1.1 million of financing expense associated with the March private placement.

In addition, I want to refer listeners to the use of non-GAAP financial information that is posted on our website just prior to this call. You can see from that reconciliation the consolidated adjusted EBITDA for the first quarter was a positive $24,000. While this is, obviously, very modest, it is a major turnaround from prior years and it is further indication that we are headed in the right direction.

From a balance-sheet perspective, we have committed a significant percentage of the capital we have raised to launch the critical business initiatives, growth initiatives, described by John at the beginning of this call. On a consolidated basis, we ended the quarter with $4.8 million in cash, as compared to $5.1 million at the end of last year. We continue to believe we have sufficient resources available to us at this time to deliver on our business plan and to generate positive operating cash flow in 2014.

And as we move through 2014, we will continue to focus our attention on controlling costs, while opportunistically growing our business and managing our capacity expansion projects. And with that, I will turn the call back to you, John.

Thanks, Dale. In summary, our first-quarter results are beginning to demonstrate the potential of our business model, and we expect this to become more evident as we execute our business plan in the remainder of 2014 and into 2015.

Our operating results are already showing significant improvement on many key levels, despite the lost revenue from Irgovel during the plant upgrade. We expect to see results at Irgovel improve in Q2 and significantly improve in the second half of 2014. When we couple that with the growth we anticipate out of our USA segment in the coming quarters, we get very excited about the future prospects of RiceBran Technologies.

Before opening the call to questions, I want to remind listeners of the three key initiatives that support our 2014, 2015, and 2016 business plans -- the ramp-up of the expansion at Irgovel, doubling of capacity at H&N, and doubling capacity at Dillon by Q1 2015. When completed, these three projects will give us production capacity and potential to more than triple our 2013 revenues in coming years.

I want to remind listeners that Dr. Robert Smith and Mark McKnight are also with us today to answer any questions you may have. That concludes our prepared comments. Operator, at this time please open the call to questions. Note that we will limit callers to one initial question and one follow-up.

(Operator Instructions). [George Johnson], Private Investor.

Things are looking good, I think. (multiple speakers). I've got a question for Mark McKnight and a follow-up that is related to that question.

Shoot, let's hear it.

Okay. Mark, we have been told -- I can't remember exactly where -- that Zeal For Life was going to be expanding into Asia 2014. I would like to know if that's on track, when it might get going, if we got any money, any sales out of -- in 2014?

I appreciate the question, George, but I am not at liberty to comment on any of our customers for their plans for expansion.

Yes, Zeal For Life is one of our customers, but it is not my place as the Senior Vice President of Contract Packaging for RiceBran Technologies to talk about their expansion plans.

The one thing we can comment on related to Zurvita, the company that owns Zeal For Life, is they have recently scored -- Mark, do you want to share what has happened in the league tables for global MLMs?

Zurvita sent an email announcing that they had just been awarded an award for being in the global top 100 MLM companies around the world, so that was a very exciting milestone that they accomplished.

Yes, and that information we can share because it is published in the league tables, George, but I think you respect the fact that we have to maintain confidentiality of our customers.

George, this is Dale, one thing I would add to that. Obviously, Zurvita has a website like pretty much everyone does these days. You could go to their website and see what they've announced themselves, and that way we are not infringing on any kind of confidentiality agreements we have in place with our customers.

Okay. Then one follow-up question related to this. In the S-1, we had -- you had like $15 million forecast for H&N. Was that based on the then-known sales or was that expecting some sales increase? As I follow the Zeal For Life's Facebook and I see that they can could a double in sales in 2014 on top of their (multiple speakers) fourfold sales increase in 2013. So was that S-1 figure static or was that based on some increase?

George, the S-1 figure that you have is the only published guidance we have provided, and all that we will provide, but it is -- the numbers in the S-1 are our anticipated revenues for 2014.

Okay. Was that based on any increases you might have expected or expected (multiple speakers) to stay the same?

It was not just purely an historical number. It is our forecasted expectation.

Okay, that's (multiple speakers)

And just so you know, George, when we sit down to look at every year, we take what we have, but we start zero based and we build the budget customer by customer.

Okay.

So, as you know, customer businesses go up and down and sideways and that sort of thing during the year. So when we look at our forecast for each year, it is information based, but bottoms-up zero-based financial forecasting.

Okay, that's the information I was looking for. Thank you.

(Operator Instructions). Bruce Galloway, Galloway Capital.

John, did you say you're going to triple the 2014 number -- revenues or 2013 numbers? I didn't catch you.

Neither.

When you said looking out --

Neither did I say. What I said, Bruce, was the completion of those three projects gives us production capacity to more than triple the 2013 revenue numbers.

Okay. And could you give us a little guidance on the ramp-up. You did $7.7 million for the first quarter. You expect to do $59 million, so is the second quarter -- you're going to get Irgovel up and running. It is going to be $10 million, and then it's going to ramp up second and -- third and fourth quarters for $15 million and then $20 million, something like that?

If you do the math, that is what has to happen. We are not providing that guidance, but what we have said is that when we restart in the second quarter, which we have already done, we expect to be running the plant at the prior levels, starting out at 6,000 [tonnes] per month, working our way up to 9,000 tonnes per month as we get into the third quarter, and we are on track to do that.

But if you did the math and you took an average of that across this quarter and you built it up through the second half of the year, you would come out with numbers very similar to what you described.

So you are looking at possibly by the fourth quarter annualizing it close to $100 million, $80 million to $100 million?

We didn't say that.

You could extrapolate it.

Yes, there is -- I think you probably saw, Bruce, that an analyst firm, SeeThruEquity, initiated coverage on us May 5.

Yes, I saw that.

And very interesting. Obviously, they are making their own forecasts and putting together their estimates of how they see things playing out. We didn't provide them with guidance for those numbers either, and I think everybody has to -- we look at the business and we are very focused on delivering 2014.

We have three big things underway to do that -- four. One of them is done. Obviously, we completed the acquisition of H&N in January.

We are working very, very hard to get the capacity doubled at H&N by the start of the third quarter. We have completed the physical part of the expansion at Irgovel. Now we are in ramp-up. And we have kicked off the project to double capacity at Dillon as we moved into 2015. All of these are big projects.

Yes, yes.

And -- do you know what I mean? So our focus really is to deliver a very aggressive year this year. If we are successful delivering 2014, which we believe we will be as we sit here today, we are very heavily loaded into the second half of the year, in part because you have the Irgovel shutdown, in part because you don't have the additional capacity at H&N, all of that.

So we would be -- the run rate in the last quarter of the year would be pretty interesting. But we are not at this point in time (multiple speakers)

And you still own 51%? You still own 51% of Irgovel, right?

Actually, we own today, Dale --

58.1%.

North of 55%, about 58.1%.

Okay, great.

It's in our footnote in our 10-Q.

Yes.

Great, okay. And at full capacity, what is it, 9,000 tonnes? At full capacity, what does that mean as far as revenues? Does that mean it is like a $50 million revenue rate for the plant itself?

Complicated question; it depends on your product mix, Bruce. And product mix is a function of what the market will do for you. We can sell crude oil, degummed oil, dewaxed oil, neutralized oil, fully refined oil. Each of those has a different market, market characteristic, economic margin structure.

So, depends a little bit on where the market is, and those are all numbers, again, that we haven't forecasted out for folks because it is difficult for us to forecast where each of the individual markets are going.

Bruce, this is Dale. We try to stay diversified in the sales mix down there because market conditions change, and at one moment, degum might be your best price option. Crude might be your best price option a month later or refined might be your best deal (multiple speakers)

So, you could switch it pretty quickly? You have the ability to switch back and forth, depending on margins and prices?

It's a sequential process, so if you sold crude oil, then you wouldn't do the later refining steps to get you all the way to fully refined. So you would -- if that was your -- if you felt like that was the way to go, then you sell more crude and you have less available to make the other items with.

Bruce, the other issue that is related to Brazil, and there is some complexity in it, we have some steady-state exchange rates factored into our forecast for the year. Obviously, the exchange rates are not steady state, and when you get into the oil market, you have some very interesting anomalies. Sometimes it is more attractive to sell oil in the domestic market in Brazil, depending on what the exchange rate is.

So we are constantly looking at the Brazilian market versus the international markets versus the exchange rates, and then across each of the different processing stages of the oil. For the most part, we have moved out of crude. We don't sell crude to anybody anymore.

We do sell some degummed and dewaxed oil that goes principally into the market in Japan now to two large refiners who further refine it for pharmaceutical applications and for very high-end cosmetic applications. But at the moment, the most attractive combination for us is actually the fully refined oil into the export market, and those markets are continuing to develop for us nicely in Europe and in the US.

Okay, great. Thanks.

Appreciate the question. Thank you, Bruce.

(Operator Instructions). It appears we have no further questions. I would like to turn the floor back over to management for any closing remarks.

Thank you, Operator. Before closing, I would remind our listeners that we expect our operations to be firing on all cylinders in both our USA and Brazil operating segments from both a revenue, growth, and an EBITDA perspective in the second half of 2014.

I also want to remind shareholders that we filed a proxy statement, called a special meeting of shareholders for May 30 to vote on an increase in common stock to 25 million authorized shares. We urge all of our shareholders to vote in favor of that proposal. It is an important step to allow us to further clean up our balance sheet and improve financial performance for the benefit of all shareholders.

Finally, I want to thank our shareholders and investors for your continued support. We are gaining momentum and we are committed to producing financial results we can all be proud of. If you have further questions, feel free to contact Dale, me, or the team at Ascendent Partners, and Operator, thank you for your support. That ends our call today.

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time and thank you for your participation.