RiceBran Technologies (RIBT) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen and thank you for standing by. Welcome to the RiceBran Technologies 2014 full-year financial results conference call. At this time, all participants are in a listen-only mode. (Operator Instructions). As a reminder, this conference is being recorded. I would now like to introduce our host, Mr. Fred Sommer of Ascendant Partners. Please go ahead, Mr. Sommer.

Thank you, operator. Good morning, listeners. Welcome to the RiceBran Technologies full-year 2014 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 Vice President of Operations; and Mark McKnight, Senior Vice President of Sales and Marketing.

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 uncertainty. 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 filings with the SEC.

In addition, any projections as to the Company's future performance represented by management include estimates today as of April 1, 2015 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.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 today. A special thanks to our West Coast shareholders for joining the early start of this call. 2014 was a year of important change at RBT as we positioned our Company to take advantage of growing worldwide demand for healthy and natural products. We made significant strides to expand our ingredient and finished product manufacturing capabilities and capacities in both our US and Brazilian production facilities.

While we successfully deployed capital raised throughout 2014 to increase capacity, expand our customer base and make advances in product development, we also experienced several challenges, including the impact of the ongoing California drought and a major disruption at our Irgovel production facility in August caused by a structural failure in a newly installed piece of equipment.

I'll address our tactical and strategic plans for addressing the drought later in this call, but as we reported earlier this year, repairs have been completed at Irgovel and production is currently running at the target post-expansion production levels established in early 2014.

In laying the foundation for 2014 for sustainable growth in coming years, we achieved several significant milestones. First, we raised approximately $24 million in new capital net of expenses beginning in December of 2013 and throughout the 2014 year. We deployed over 70% of the funds raised in acquisitions, plant expansions and plant upgrades. Projects at Dillon and Irgovel were completed in the second half of 2014. In addition, we acquired Healthy Natural Inc. in January 2014 and immediately launched a project to double production capacity at that location by the third quarter. That successful expansion sets the stage for progressive growth in 2015 and beyond.

At our Dillon, Montana stage II plant, we completed an expansion project in the fourth quarter of 2014 that more than doubled production capacity and gives us sufficient available capacity to begin larger commercial production of our ProRyza protein products in 2015. As you know, our process patented stage II products are key ingredients for the finished products produced at Healthy Naturals, so the increased production from Dillon was necessary to support sales growth based on the increased capacity at Healthy Natural.

In our Brazil segment, we completed a major expansion project to increase the capacity of our biorefinery by 50%. That project was completed in the third quarter, but due to a structural failure in August, we ran at reduced production levels for the majority of the second half of the year and had to make additional investments to complete repairs. We are confident that those issues are now behind us.

During the course of 2014, we also made significant investments in technology to prepare for changes associated with the Food Safety Modernization Act of 2011, otherwise known as FSMA, that came into effect on January 1, 2015. Those investments in systems and technology are necessary not only to ensure ongoing compliance with regulatory requirements, but also to meet the requirements of our global consumer products customers for continuously improving food safety standards.

We've upgraded our ERP systems and invested in new process control software that can track individual product lots throughout our supply chain and allow rapid response times to food safety-related issues. We now have 13 employees across all facilities and upper management who are HACCP, or Hazard Analysis and Critical Control Point, certified practitioners. We believe these significant investments in new systems and personnel training and certification are necessary to position RBT to successfully compete for business from our major consumer products company customers who are increasingly seeking high-quality ingredients and turnkey products that are non-GMO, soy-free, gluten- free, all-natural and minimally processed.

Lastly, we used a portion of the proceeds from last year's capital raise to pay off the balance of an $8 million revolving credit facility where borrowing costs exceeded 30% per annum.

Looking back on our performance in 2014 by segment, while the demand picture for our USA segment remains strong, we experienced supply chain disruptions in the second half of the year largely related to California's now 1000 year drought where rice plantings in the region were down 25%. Reduced rice for milling meant less raw bran availability and higher raw bran prices that resulted in delayed shipment and some canceled orders in the second half of 2014.

Despite those supply chain challenges, net sales in our USA segment increased 92% in 2014 compared to 2013. More importantly, gross margins in the USA segment increased to 30.2%, up nearly 6 points from 24.5% in 2013. Gross margin dollars in the USA segment rose by 137% to $7 million in 2014, up from $2.9 million in 2013. The significant margin improvement reflects the potential of our business model as we continue to shift our product mix toward higher value, higher margin human ingredient, functional food ingredient and packaged functional food sales.

In our Brazil segment, the complete shutdown of our plant for most of the first quarter, raw bran availability issues in the summer and the structural failure at Irgovel in August caused a significant decrease in production volumes. This resulted in a 26% decrease in revenue, which fell to $17 million in 2014 compared to $23 million in 2013. Approximately $1.7 million of that decline was related to a devaluation in the Brazilian currency exchange rate against the US dollar.

Despite the difficulties in Brazil last year, demand for our rice bran (inaudible) products remains strong in today's market. Drought conditions in southern Brazil have been mitigated by heavy rains producing a bumper crop of rice that is being harvested as we speak. Based on improvements in rice and therefore raw rice bran availability in the Rio Grande (inaudible) state, coupled with the stable operations at our plant, we are confident that we can now achieve and maintain the significantly improved production levels at Irgovel that were anticipated to begin in the second half of 2014.

As we move into 2015, we expect the investments we made throughout 2014 to begin to bear fruit as our product development and marketing efforts begin to fill our expanded capacity in all locations. We are implementing tactical and strategic growth initiatives on several fronts, which we will discuss in more detail, along with our discussion of California's supply chain strategy in response to the worsening drought. At this time, I'll turn the call over to Dale to comment on our full-year financial results.

Thank you, John. In 2014, consolidated revenues grew to $40.1 million. That's a 14.4% increase compared to 2013 full-year revenues of $35.1 million. We recorded an operating loss of $12.8 million for the full year in 2014 and a net loss of $3.96 per share on 5.18 million weighted average shares. This compares to an operating loss of $10 million and a net loss of $12.95 per share on 1.2 million weighted average shares for 2013.

Non-cash charges of $8 million and cash charges of $2 million both related to capital raises and note conversions in 2014 negatively impacted our P&L and are not expected to recur at these levels in 2015. The increase in consolidated revenues to $40.1 million was the direct result of the strong performance in our US-based segment where revenues increased 92% to $23.1 million compared to $12 million in 2013. That increase is principally attributable to the January 2014 acquisition of Healthy Natural.

Brazil segment revenues were down 26.1% in 2014 totaling $17 million compared to $23 million in 2013. The decrease in revenue was primarily due to the shutdown of the plant in the first quarter of 2014 to complete installation of equipment needed to expand capacity. Operating inefficiencies associated with restarting the plant and the structural failure in August resulted in a reduction in volume and had a significant negative impact on revenues since we simply had less product available for sale. Brazil segment revenues were also negatively impacted by an 8.9% decrease in the average foreign currency translation rate compared to last year.

Gross margins at our USA segment reached 30.2% during the year, a 5.7 percentage point improvement from prior-year margins of 24.5%. That margin improvement is due to the strategic initiative to shift our sales mix towards human nutrition, functional food ingredients and packaged functional food products, or as we like to say here internally, to convert feed to food.

In the Brazil segment, our operations resulted in negative gross profit of $2.5 million due to the effects of closing the plant in the first quarter, restart inefficiencies and the impact of the August structural failure previously discussed. We believe those issues are behind us and we expect to begin to see the benefit of increasing production volumes and associated revenue gains at Irgovel as we move through 2015, all subject to the impact of future currency movement.

From a balance sheet and liquidity perspective, we deployed the majority of the capital raise throughout 2014 to launch our critical business growth initiatives. As John has already noted, our Dillon plant expansion project is complete as is the expansion at our Healthy Natural facility. Both of these projects were completed on time and on budget. We are now completely focused on increasing profitable sales of our highest margin products to fill newly installed capacity and to maximize the returns on those valuable investments we have made. We expect new product development, along with sales projects in the pipeline, to have a significant positive impact on both revenues and gross profit as we begin to benefit from the higher volumes of production and sales supported by minimal increases in fixed operating costs.

We ended the year with $3.6 million in cash on hand and our USA segment assets remain available as security for credit line. As we mentioned in the third-quarter call back in November, we have been in discussions with various parties regarding commercial loans and other debt alternatives. We are pleased to report that we've signed a conditional commitment letter for an $8 million credit facility from Full Circle Capital. That facility will replace the high cost $8 million credit facility paid off last summer. The all-in cost of that facility exceeded 30% per annum. The Full Circle commitment is nonbinding and subject to normal closing conditions. However, due diligence is nearly complete and we expect that credit facility to close and fund in April.

I also want to mention that we received an arbitral award from a Brazil arbitration panel related to the 2008 acquisition of Irgovel. Since the date of acquisition, $1.9 million of restricted cash has been held in an escrow account at a US bank pending resolution of a number of prepurchase lawsuits. That arbitration was recently found in our favor and the arbitration panel awarded BRL3.6 million to our Company, to RBT. While there are still some legal issues to overcome, this award in our favor allows us to begin the process of recovering those funds, which will be used at Irgovel to support ongoing operations. And with that, I will stop and turn the call back to you, John.

Thanks, Dale. I will now turn the call over to Dr. Robert Smith to talk about the operating initiatives completed in 2014, as well as key initiatives for 2015, particularly our approach to the California drought. After Robert's comments, Mark McKnight will provide an update on current and future sales activities. Robert.

Thanks, John. As discussed previously by John and Dale, primary operational objectives in 2014 were to, one, source sufficient bran to achieve production and sales targets; two, integrate newly acquired Healthy Natural into USA segment operations while doubling its production capacity by the third quarter; three, double production capacity at our stage 2 facility in Dillon, Montana by the fourth quarter; and four, increase production capacity at our oil facility in Pelotas, Brazil by 50%. As previously discussed, the ongoing California drought caused significant shortages of raw rice bran in our supply chain that negatively impacted production and sales goals set for 2014. As a result, a primary operational goal for 2015 is to derisk our raw rice bran supply chain in the USA segment, which I will discuss momentarily.

Capital improvements to increase production capacities at each of the aforementioned facilities were completed on schedule and actual production has reached and surpassed target production capacity increases at all locations compared with pre-expansion levels in the beginning of 2014. The installation of machinery and equipment during the year necessary to achieve the increased production capacity resulted in numerous disruptions at each of these facilities that negatively impacted revenues in 2014, but positions us for solid future growth. Continuing drought conditions in California require further derisking of our raw rice bran supply chain.

As such, we have planned additional measures to ensure access to sufficient raw rice bran supplies in 2015 and into the coming years based on the following initiatives -- increasing raw rice bran availability from one of our current bran suppliers in California, building of strategic product inventory reserves, securing additional warehouse space in California and Louisiana to support increases in production and inventory; and ongoing discussions with raw rice bran suppliers in California and the Midsouth to take on additional bran supplies and increase stabilization capacity in those regions. We are confident that these efforts will further derisk our USA segment raw rice bran supply chain in 2015 and position RBT to meet increased production and sales targets for 2015 and beyond. I'll stop here and hand the call over to Mark.

Thanks, Robert. During 2014, we talked about three important sales initiatives -- one, leveraging our process patented ingredient into value-added new products and product streams; two, attracting new customers; and three, growing sales with existing customers by offering expanded ranges of product. First, we have leveraged our proprietary and process patented ingredients into new product streams with specific brand names. Earlier this month at the recent Natural Products Expo West in Anaheim, California, we launched three of these products. ProRyza Brew is a group of rice bran ingredients designed to supply the craft brewing industry. ProRyza Platinum is a new rice bran ingredient that functions as a prebiotic nutritional filler for protein powder blend. And three, ProRyza Crisps is a healthy crisp extruded from our patented RiFiber ingredient that will supply the nutritional bar and healthy inclusion market.

Second, attracting new customers. During 2014, we developed an unprecedented number of new formulas and new products for customers. We shipped out over 300 sample packs, developed over 50 new customer-specified formulations and added more than four dozen new customers. These new customers come from all over the world and several are already placing their second, third and fourth orders with us. Much of our 2015 growth is expected to come from these new customers. Their orders will of course start at modest levels, but we expect several of them to reach a seven-figure run rate in the second half of the year.

In the past, we needed to increase production capacity by 100% to support a 100% increase in sales revenue. Going forward, by using our patented products as the key ingredients in blended value-added products, we can increase sales by a multiple of the increase in new production capacity. That leaves us well-positioned for additional profitable sales growth.

To further expand our list of new customers, we have an aggressive tradeshow schedule in 2015. We have a total of 28 different tradeshows in which we will be attending and/or exhibiting. That is a 50% increase over 2013 and 2014 in terms of the number of shows.

Third, growing sales with existing customers. Our USA segment boasts almost 300 companies that either use our proprietary and patented ingredients or purchase contract packaged finished goods. During 2015, we have refocused our sales efforts on those existing customer relationships that present the greatest opportunities to use our process patented raw material at high inclusion rates in their respected formulas. Customers that use our raw materials at high inclusion rates not only see a great benefit in the finished product, but also become much more meaningful to RiceBran Technologies. I am extremely optimistic about the positive development of these initiatives and our opportunity for driving strong sales growth for the foreseeable future. Let me stop here and pass the call back to John.

Thanks, Mark. We moved into 2015 with a solid operating platform in both our Brazil and USA segments. Last fall, we provided 2015 guidance of full-year consolidated revenue of $67 million with positive adjusted EBITDA ranging between 10% and 12% of net revenue. In our financial plan, we anticipated a progressive growth in revenues throughout the year. As part of that plan, addressing working capital is very high on our list of priorities. We believe completion of the Full Circle financing will go a long way toward helping us to rapidly accelerate our revenues later in the second quarter and throughout the second half of 2015.

Moving through the rest of 2015, achieving that guidance will depend on a number of macroeconomic challenges. The most significant of those challenges is in our Brazil segment where the Brazilian GDP growth is forecast at less than 1% per annum for 2015. That is in contrast to over a decade of 5% plus average growth. Additionally, the Brazilian currency, the real, has moved from BRL2.40 to the dollar in the third quarter of 2014 to this week's rate of BRL3.2 to the dollar.

This economic and currency weakness resulted in some recently well-publicized labor issues in the last two months, including a trucking strike in February that paralyzed the entire country. The strike precluded us from shipping and receiving at Irgovel for 12 days in the first quarter and disrupted production flow for more than two weeks thereafter. That strike is now resolved and our production has returned to normal levels, but the disruption will impact our Q1 2015 results.

Should Brazil's currency remain at these depressed levels, the impact on our performance will depend on the ratio of domestic sales to exports. Traditionally, about two-thirds of the products we produce in Brazil are sold domestically and one-third is exported. We are making every effort to shift our sales mix to increase exports and mitigate the negative impact of local currency devaluation since our export contracts are denominated in US dollars.

The second important challenge we face is the drought in California. As discussed earlier, this drought reduced rice plantings and therefore availability of our rice bran, which negatively affected our performance in 2014. We have a plan in place to install our stabilization equipment in at least one additional mill prior to the 2015 harvest to enable us access to additional bran for processing. We believe we will be able to implement this plan prior to the 2015 harvest and that this strategy can provide us with sufficient supply of bran to help us reach our increased sales targets. Nevertheless, this is now being called a 1000 year drought and it is unclear how severe the overall impact may ultimately be.

While these factors are being addressed, the demand for Healthy Natural products that are non-GMO and gluten-free continues to grow. Our stepped-up marketing efforts are also generating exciting new opportunities to help us reach our financial goals. We are confident that 2015 will be the year that we reach the inflection point to drive positive EBITDA along with increased revenues as we look forward to delivering on the promise of our technology for the benefit of our Company and shareholders.

While we do not intend to provide quarterly guidance, given the fact that we have just ended the first quarter, we will comment that we see our first-quarter revenues tracking ahead of the comparable period in 2014 despite the negative effects of the Brazilian currency conversion and the previously mentioned trucking strike and we continue to expect to see our operations ramping through 2015.

In closing, I want to emphasize that the demand picture for our products is continuously strengthening and that we now have the installed production capacity to generate sustained profitable sales growth. We have a talented and committed management team that is working hard to deliver on our significant growth plans for both revenue and positive EBITDA performance in 2015. While uncertainties remain, we have well-developed plans to address them. We are confident that our operating plans will allow us to mitigate those risks while we support our aggressive sales plans for the coming year.

That concludes our prepared comments. Operator, at this time, please open the call for questions. Note that we will limit callers to one initial question and one follow-up.

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions). Russell Anmuth, Gotham.

Given the news of the healthcare studies that you have recently made, are there plans to exploit or to commercialize the healthcare benefits of the products, i.e. running clinical trials of some kind or licensing out the different products to, for example, pharmas or players in the healthcare industry?

Russell, as you know, we recently completed and put up on the website, made available of course to all of our key customers, some claims, substantiation analysis that we contracted with Medicus Research. Medicus is one of the leading, if not the leading research company that does clinical trials and the like related to natural products. We asked Medicus to look at two of our products that have the most clinical trial and research work done on them, which is RiSolubles and RiFiber, and we asked them to look at the available literature that runs from clinical trials, published papers, research, etc. related to rice bran and particularly related to our RiSolubles and RiFiber and put together an analysis of what kind of claims we might be able to make, if we were to do that, and we are not, related to health benefits directly related to product.

What we've decided to do is to put the results of that study on our webpage, the RBT webpage, and you will see it on the front page, click on it and take a look. What that study does is it substantiates the claims that are available to make for RiSolubles and RiFiber. Now if you go through those claims, what you will see is our products have, as we know, tremendous benefits that are aimed at cholesterol, lipid level, triglycerides, insulin uptake, etc., etc. That is clear in the literature, it is clear in the clinical trials. We wanted to make sure that that was clear to all of our customers who are looking for and asking for healthy whole food nutrition. So we have certainly done that. We will continue on an ongoing basis as appropriate to do additional research, clinical trials and the like and we don't comment on those, but that is certainly part of our plan going forward.

Okay, thank you. I'm really just interested in understanding if there's a business plan beyond telling the world that this exists, which obviously the substantiation is extremely helpful and these claims are extremely important, but again I am trying to understand if there's a specific plan at some point that you can enact to monetize specifically your technology.

Russell, we certainly have plans to do that. We have discussions underway with a number of customers and partners and we won't comment on those.

Okay, thank you.

Anthony Vendetti, Maxim Group.

I was just wondering if the currency situation doesn't improve and obviously we see the devaluation of the Brazilian real, but just in general, if things don't get better, what do you think the FX impact will be for the whole year assuming things stay this bad? And then just a follow-up on the same thing dealing with the drought conditions in California and I know you're taking steps to deal with that, but assuming things don't get better with the drought conditions, how much is that going to impact your ability to get these -- to meet maybe the demand for these orders?

So Anthony, let me answer those two questions. First, on the exchange rate. My wife tells me that my crystal ball is made of onyx, so I try not to forecast exchange rates. We know a bunch of things about Brazil and the Brazilian economy. As recently as late January, the Brazilian central bank was forecasting the real at BRL2.6 average through 2015, BRL2.6 to the dollar. It is clearly well beyond that. We know that that's a function of the political turmoil related to the Petrobras slush fund scandals and all of that coupled with a significant slowdown in GDP that also was not forecast. So all of this of course -- not all of this -- but much of this, both the Petrobras problem and the GDP problem, are partially related to the Black Swan event of the drop in oil prices in the fall and into this year.

So when we look at the exchange rate, what we tried to do in the prepared remarks is provide guidance so people could do their own math. We are currently two-thirds domestic, one-third export. If the currency stayed where it is today, you could run the math across that. Our $67 million of guidance included a roughly 50/50 split, $34 million from the USA segment, $33 million from Brazil, but based on an exchange rate of BRL2.40 to the dollar. So where we are now if it stayed this way, you can just run the math and figure out what the impact would be with that split between domestic and export sales.

Now one of the things we are doing is certainly pushing hard to increase the share of export because those of course are US dollar-based. And that will have a positive benefit, but, at the end of the day, the split today is two-thirds/one-third. So even if we get to 60/40, there will still be a significant impact on US dollar translated consolidated sales. Does that answer your question about currency?

Yes, that is good. Thanks, John. And then on the California situation?

Yes, and let me -- so the California drought of course is very troubling. I think everybody probably saw the deal that the NASA guy put out a week or 10 days ago that, if you read it with a negative spin, you could go, oh, my God, the end of civilization in California. I don't think anybody in California, including us, is going to sit around and let those conditions at least in the short term put us out of business.

So if you think about our current operational structure and the way the business works in California, we have facilities established in two mills, one, Farmers Rice Cooperative and the other one at ADM in Arbuckle. Each of those mills has a captive catchment of growers. So take the example of one mill that has 800 growers and in 2014, each of those 800 growers got 25% less water. So it's the equivalent of only having 600 growers with the reduction in water available to those millers.

Across the valley, that resulted in rice acreage planted, some differences in numbers from different sources, but reduced from roughly 620,000 acres to 450,000 acres in 2014. There was less bran available and quite frankly that caught us a little bit by surprise in August, September, October of 2014 when the harvest came in and we had difficulty getting additional bran from the two mills where we operate today.

What we did in response to that, of course, was change the way we work with those mills to increase the amount of bran we can get from them. Additionally, we started negotiations immediately with other mills to look at the possibility of putting our extruders into a third and possibly a fourth mill in the Sacramento Valley and we are having similar discussions in the Midsouth.

But if we stick on the California question, the California drought question, we are working with very large mills in those areas. If we add, as we expect, a third mill in the Valley that deals with the large number of growers, we will be very well-positioned to have enough bran to support our sales plans. Now can things get worse and can a quake hit in California fall into the ocean left of the San Andreas Fault? Yes, bad stuff can happen, but we don't believe we are going to be dealing with that kind of scenario and we think the plan we have in place to get access to additional bran, coupled with changes that Robert has made in the operational aspects of relationships with our existing mills, we feel like we're going to have the bran that we need to support a significant increase in sales growth. Anthony, does that answer your question, or would you like more flavor on that one?

Just a little bit on the negotiation to add a third mill. Is that something that you think is likely to happen in 2015 or is it too early to say at this point?

We are targeting to make that -- so if you think about rice, I mentioned earlier that we are right in the middle of a bumper crop harvest in Brazil. We have reversed seasons. So as we are harvesting in Brazil, we are getting ready to plant in California. So a March, April planting in California, which by the way is delayed a bit by the negotiations over what water people are going to get in California, but a planting in March, April will result in a harvest in August, September. So until August, September, we are milling bran off of last year's plantings.

We are positioned between now and August, September to take advantage of that bran availability and have enough bran available to support our sales plans through that period. When we get to September, October, November, December, we are then looking at this year's plantings. Nobody knows yet if those plantings are going to be same level, down 5%, 10%, 15%, 20% or a maximum of 25%, but everybody expects them to be down pretty significantly. The estimates we get from the rice millers and from the co-op guys who work with the growers is they are thinking 15% to 25% down. That would mean plantings going from 450,000 acres to 330,000 acres and less total rice and therefore our rice bran availability in the Valley.

But we have a negotiation well underway with a I'll describe it as a favored milling partner, as well as a discussion with a second milling partner. So we have two options for installing new stabilization capacity. Our target is to have that in place by late August, early September so that we pick up the 2015 milling season. We believe that is on track for that timing and with that on track, we should have enough bran available to meet our projected sales increases. So the simple answer is yes in 2015.

Okay, great. Thanks.

Gregg Hillman, First Wilshire Securities.

That leading brand of rice protein powder, RAW Meals, do you supply them?

No, we don't. RAW -- I do not know RAW Meals. Who is the -- is that [Gerald]?

It's that Canadian company. I'm drawing a blank on it, but it's a leading brand in Whole Foods I believe in the United States. But just my general question is is how is your rice bran differentiated from other rice brands that go into rice-based protein powders?

So a couple of things, Gregg. Just to be clear, we completed our project with DSM to develop the technology to produce rice protein. Until we completed the expansion up at our Dillon, Montana plant, that plant was sold and we had no ability to increase production, hence no ability to produce significant quantities of rice protein. So we have produced some rice protein product. We have distributed to customers. We have nice acceptance and interest in that product, but only now are we moving to a position where we have production capacity to support it.

So when you go out and you look at the rice protein market in the US or anywhere around the world, to our knowledge, there is no rice protein coming from the US. The rice protein that is out there is coming from Asia and there is some small amounts of rice protein available through our distribution partner in Europe, Beneo. Much of the rice protein that is in beverages that we see on the shelves in the US is coming from Asia and that protein has its challenges from the point of view of compliance, that sort of thing. There are some people who are concerned about stuff coming out of the Asian supply chain, that sort of thing.

One of the advantages we will have as we bring our protein products to market is that they are coming out of California, which is perceived to be the highest quality rice, the highest quality bran and subject to the most stringent regulation from the point of view of quality control and compliance, that sort of thing. But to be clear, we are not a significant player in the rice protein market at this point in time.

Okay. And then continuing along the same line, what would be the health benefits of rice bran over like soy or whey?

That's a complicated question and fairly broad, but let me just say this, that rice bran just in general is a unique botanical ingredient in that it contains certain vital nutrients that are not found in other major crops and I will just give you an example and that would be gamma oryzanols. Those are very potent antioxidants that have a number of health benefits. So just rice bran just by the sake of coming from the species of plant that it comes from has unique chemistries that you are not going to find in other plants.

Beyond that, if you think of the major crops that feed the world, which is soy, corn, wheat and rice, rice is really one of the four major crops that has a very clean label, if you will. It doesn't contain any of the major allergens that are callouts that need to be on the front of the package. The rice that we source is non-GMO and so for all practical purposes, you have a very clean label and it is very highly favored among companies that are looking for clean labeled ingredients that have a fairly good evidenced-based support for health benefit. So in that respect, I think that rice bran really is a favorable ingredient in the marketplace today.

Gregg, you can also see if you click on the stuff on our website that rice bran does have a number of identifiable health benefits that sort of aim at two major families of things, which is blood chemistries and the kinds of things that people see as precursors to diabetes and stuff like that and to inflammation and joint health. So there's a bunch of stuff that naturally occurs in the rice bran with very identifiable health benefits in addition to the clean label. And you see a lot of folks putting up on their products these days not only non-GMO and gluten-free, but soy-free is a big one because the FDA requires soy to be called out as an allergen and as Robert said, rice generally in our rice bran products at that whole litany of clean label stuff, non-GMO, gluten-free, soy-free, minimally processed, all-natural, vegetarian, vegan, etc., etc.

So it really opens up a couple of things. It opens up the opportunity to add additional business with new and existing customers. We see in the press all the time that everybody and his brother is looking to add healthy whole food nutrition into their product family. Most recently, there was a big article about Hershey adding a whole bunch of healthy snacks and I just don't want them to stop making dark chocolate, personally. But I think healthy snacks are good.

So we have a lot of opportunities in the market. We have a lot of people coming to us for ingredients. It also opens up the possibility of using Mark's talents and the H&N capabilities to formulate for customers that want non-GMO, hypoallergenic-free, gluten-free, non-soy, non-lactose, etc., etc., etc. kinds of products. And Mark mentioned earlier that we have added a whole bunch of new customers with a whole bunch of new formulations that are starting to get traction and that is exactly the space that those customers are playing in. They are coming to us to provide them those kinds of products and we think the opportunity for growth there is very significant.

And then finally in terms of the rice supply problem, I take it you consume a very small percentage of the world's rice production or even the high quality rice production? So I take it you should be able to get a handle on the supply problems at some point?

What I was trying to explain earlier is the supply challenge is directly related to the number of farmers that grow for a mill. Even if we see what people believe would be the maximum reduction in water availability in California, 25%, and hence a reduction in planted acres from 450,000 to 330,000 this year, the plan we have in place to add a footprint with another large mill in the Sacramento Valley would give us a nice increase in our bran availability that would more than support our 2015 plan and actually position us well for 2016.

So even though the total pie is shrinking, we are getting more bran from our two existing mills by virtue of operational changes. One of those mills connected us -- each of those mills that we work with has two mills on-site. Previously, we were connected to only one mill in each location. Robert and his team have organized the connection already to a second mill in one of those locations, so that gives us a certain amount of increased supply and the negotiations we have underway to have a third location in place by the time this year's harvest comes in I think position us well to deal with what is a real serious challenge. The California drought is a serious deal. Nobody should underestimate it, but we have a game plan in place to deal with it to ensure we can support the business and we feel good about being able to do that at this point in time.

Okay. Thanks for your comments.

[Alan Nemeth], Private Investor.

I am wondering about H&N expansion. Part of my understanding was nutricosmetics and personal care products and that was to be completed by the second quarter of 2015. Is that on schedule or is that already completed?

Yes, that is completed and we have seen a dramatic increase in our nutricosmetics business. So we have launched about seven new products into the marketplace through various customers and we have seen growth that is significant for us for that market. So I believe that the future for nutricosmetics, particularly because of the nutrient-rich rice bran oil that is full of ceramides and all types of other nutrients that are good for the skin, I believe that that has a very strong future for us. We have seen nice things in terms of new customers, new products and significant revenue growth since last September, October when we first started shipping those products.

Al, we expect that -- that's a business that like anything else is going to ramp. We have a whole bunch of new customers that we deliver product to. They start with small orders. As they reorder, we start to see those orders build, but we like where we are in that space and we think that space is a great space to be in. We think that over time that can turn out to be a very significant portion of the business.

That would be probably the highest margin product that you would have, I would imagine, the way the --.

It is high margin.

Next question, with Brazil, the possibility of importing stage I from Irgovel to the US for further processing, is that possible with -- or is it certification problems with bringing that product into the US?

Yes, complicated story. I'll make two -- first of all, not practical shipping heavy materials around the world is a challenge. Secondly, remember the process down in Brazil is different than the process in the US. So down in Brazil, we separate the oil first and then we process defatted bran. Here in the US, we stabilize full fat bran, so it's not exactly a crossover.

However, one of the things that we are doing -- I am going to be down in Brazil again on April 12 with our head engineer and we have shipped a couple of our extruders down to Irgovel. We will be installing those extruders in rice mills in the state of Rio Grande do Sul. That will give us a couple of advantages as we move forward. One will be stabilizing bran remotely keeps the FFAs down and allows us to be more efficient in our extraction, so we will -- we are testing these. One of these will be installed in a remote mill in a place called [El Egrete], which is about 500 kilometers north of Pelotas, where our plant sits.

The second one will be installed in a mill that is 5 kilometers away from us. That will allow us to stabilize bran. What that will do is two things. First of all, it gives us another large pool of stabilized bran that allows us to manage the flow of raw materials through our extractor. Secondly, it creates the initial base that can allow Irgovel to get into human ingredient sales with stabilized rice bran.

So we're in the process. As we have said previously, one of the opportunities for the business is to cross over technologies, cross over our North American technologies into Brazil and at some point in time in the future to cross over our Brazilian technologies into the US. We believe there is absolutely ample market and opportunity for both of those things and we have started that process. Shipping the bran or the downstream derivative products from the US to Brazil or from Brazil to the US for further processing is less attractive economically. Not impossible, but less attractive. Al, I don't know if that answered your question or not?

Yes, it does and wish you a prosperous 2015 for all concerned.

Thank you. We appreciate the support. Operator, I think we need to cut the call off now. I think the market opened in New York and it's time to stop. We want to thank everybody for joining us and again special thanks to our shareholders and investors on the West Coast who dialed in at a very early hour. Thanks to everyone. Thank you, operator.

Thank you. Ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time. Thank you all and have a good day.