RiceBran Technologies (RIBT) 2021 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the RiceBran Technologies Third Quarter 2021 Earnings Call and Webcast. (Operator Instructions) It is now my pleasure to turn the floor over to your host, Rob Fink. Sir, the floor is yours.

Thank you, operator. Good afternoon, and welcome to the RiceBran Technologies Third Quarter 2021 Financial Results Conference Call. Hosting the call today are Peter Bradley, Executive Chairman; Todd Mitchell, Chief Financial Officer.

I want to remind all participants that during the call, management's prepared remarks may contain forward-looking statements that are subject to risks and uncertainties. Management may also make additional forward-looking statements in response to your questions today. Therefore, the company claims protection under the safe harbor for forward-looking statements that's contained in the Private Securities Litigation Act of 1995. Actual results may differ from results discussed today, and therefore, we will refer you to a more detailed discussion of these risks and uncertainties, the company's filings with the SEC.

In addition, any projections as to the company's future performance represented by management, including estimates as of today, October 27, 2021, and the company assumes no obligation to update these projections in the future as market conditions change. This webcast and certain financial information provided on the call, including reconciliations of non-GAAP financial measures to comparable GAAP financial measures, are available at ricebrantech.com on the Investor Relations page.

At this time, I'd like to turn the call over to Peter. Peter, the call is yours.

Thank you, Rob, and good afternoon, everyone. Over the past year, we have streamlined operations and improved execution, eliminating most of the systemic challenges we have faced and providing a solid base from which we can focus on developing higher margin, higher added value ingredients.

The third quarter results demonstrate the importance of this strategy and our success in implementing it. We grew our revenue by 34% year-over-year in the quarter and narrowed EBITDA losses materially in one of the most challenging environments I have seen in my 35-year career in the food and food ingredient industry.

Supply chain disruptions and labor shortages are impacting us and our customers. Todd will give you the details, but we estimate related issues cost us over $600,000 in revenue in the third quarter and almost nearly as much in gross margin. These challenges will not go away overnight, but we are executing better and taking specific actions to mitigate their impact where we can. We are also pressing forward with new product developments and achieved important milestones in the third quarter.

I will give you some more detail on our progress on this front in a minute. But first, let's have Todd run you through the quarter in more detail.

Thank you, Peter. Good afternoon, everyone. As Peter indicated, we demonstrated meaningful progress in the third quarter towards our goal of reaching profitability with continued year-over-year improvements in every key financial metric. Let's look at the third quarter's numbers in a little greater detail.

Revenue. Total revenue grew 34% in the third quarter to $6.9 million from $5.2 million a year ago. Year-over-year growth in the quarter was driven principally by higher revenue from Golden Ridge, with total sales from our other businesses in aggregate relatively flat. Sequentially, total revenue was down by $665,000 from $7.6 million in the second quarter.

The sequential drop in revenue can be attributed to 2 key issues: first, logistics challenge in our core SRB business, the inability to secure transportation cost us at least $400,000 in revenue in the quarter; and second, we had over 2 weeks of unplanned downtime at MGI due to equipment failure that we were unable to remediate in a timely manner, again, due to supply chain disruption. This likely cost us another $200,000 in revenue in the quarter.

For the 9 months of the year -- for the first 9 months of the year, though, total revenue has grown 19% to $23.1 million from $19.4 million in the first 9 months of 2020 with growth in all businesses, but particularly strong at Golden Ridge and in the sale of SRB derivatives.

Gross profit. After 2 quarters of gross profits, we saw a gross loss of $276,000 in the third quarter, which compares to a gross loss of $795,000 a year ago. Year-over-year, the reduction in gross loss was driven by improved results at Golden Ridge and a higher contribution from SRB derivative sales. However, this was not enough to keep us in the red as poor results at MGI and lower volumes and higher raw material and freight costs for our core SRB business weighed on our results for this quarter.

We've seen upward pressure on raw material and freight costs all year. Raw material costs jumped earlier in the year and seemed to actually be mitigating in the third quarter, only to be replaced by a spike in freight cost, accompanied by a shortage of available carriers. We've been responding to the volatility and input costs by raising our own prices, and we expect to benefit from a customer-wide increase in the fourth quarter for our core SRB business. We're also working with our customers and our logistic partners to secure adequate freight capacity for the fourth quarter and beyond. Year-to-date, gross profit was $549,000 compared to a gross loss of $2.4 million in the first 9 months of 2020, driven principally by lower losses at Golden Ridge supplanted by year-to-date improvements in all of our other businesses.

Operating loss. Operating loss narrowed to $2.1 million in the third quarter from $2.7 million a year ago. This improvement was due to reduced gross loss as SG&A was flat. Not a lot to say on this front other than our corporate costs have stabilized and our productivity is vastly enhanced from a year ago. I'm very pleased with how the team has executed. Year-to-date, Operating loss was $5.5 million compared to $6.6 million in the first 9 months of 2020.

Net income and adjusted EBITDA. Due to lower operating loss, net loss was $2.2 million or $0.05 per share in the third quarter compared to a net loss of $2.8 million or $0.07 per share a year ago. Year-to-date, net loss was $3.5 million or $0.08 per share compared to $9.8 million or $0.24 per share in the first 9 months of 2020. And adjusted EBITDA loss was $1.1 million in the third quarter compared to an adjusted EBITDA loss of $1.8 million a year ago. Year-to-date, adjusted EBITDA loss was $2.1 million, compared to a loss of $6.7 million in the first 9 months of 2020.

Lastly, cash and liquidity. Cash at the end of the third quarter was $6.2 million, up from $4 million at the end of the second quarter due to a $3.6 million in gross equity financing completed in the third quarter. As a result, we ended the quarter with $2.3 million in net cash compared to net debt of $198,000 at the end of the second quarter.

That concludes my remarks on financial results. So I'll turn the call back to Peter to discuss the key elements of our strategic shift to specialty ingredients. Peter?

Thanks, Todd. Sorry. We have referred to our strategy of transitioning to a higher-margin specialty ingredient business, but let me take a few minutes to provide more granularity on what this means in our key forward actions.

First, we are growing our revenue in the here and now by enhancing our sales and distribution partnerships. We are confident AIDP will help us continue to grow sales for our higher added value SRB products in the supplement and wellness markets. Sales of these products are already up significantly from last year, but we believe they remain significantly underdeveloped, and partnering with AIDP should allow us to better capitalize on this opportunity. We have completed the sales training with the AIDP team and already started to see prospects in the pipeline.

We expect SupplySide West, which is this week in Las Vegas, to kick off our relationship and open other avenues of interest. We're also working with our partner in horse feed, the Kentucky Equine Research or KER, to enhance our position in equine nutrition. Performance -- performance horse feed is a well-established market for our core SRB. But we and KER believe there is an opportunity to expand this market by introducing new SRB-based products targeting specific equine health applications. We will be meeting in November to discuss this opportunity in new product development.

Second, our new product development efforts remain on track, and we remain confident that our ability to develop new higher level value ingredients and expand the addressable market significantly. The stabilized rice bran we produced is a nutrient-dense feedstock which contains many valuable compounds that enhance nutrition and improve the functionality of other ingredients. Through our proprietary processes and technology, we can unlock the value of these components, enhancing the value of SRB.

In the third quarter, we successfully completed plant-scale of trials with new enzyme technology that we think will deliver products with better flavor and better nutritional profiles. This is a major step forward in commercialization, new higher added value ingredients for SRB, which will underpin our transition to a specialty ingredients business.

However, we are going to remain circumspect on commenting on these developments in the time for the understandable competitive reasons. I will turn the call back to Todd to provide a view of the forward outlook for the company. Todd?

Thank you again, Peter. Our Dillon, Montana SRB derivative facility is currently offline for a couple of weeks to complete some capacity enhancements. And I think it's safe to say that logistics are likely to remain challenging in the foreseeable future. As such, and against a tougher quarterly comparison, we expect year-over-year growth in the fourth quarter to moderate from second and third quarter levels.

Nevertheless, underlying trends improved throughout the third quarter. September was a far stronger month than July or August, and October looks to be shaping up to be a pretty solid month as well. If these trends remain in place and we can improve on our logistics execution, fourth quarter results will be better than third quarter results. We are working with our customers to address logistic challenges. The proposition is relatively simple: Give us a committed and steady order pattern and we can lock in carriers. We both derisk our business.

We also look to return to positive gross margins in the fourth quarter, aided by better results from MGI and broad-based increases in our core SRB business and, frankly, improving -- ever improving results from Golden Ridge where we're now shipping SRB on a regular basis. With SG&A expected to remain stable, our return to gross profit would imply lower adjusted EBITDA losses in the fourth quarter than the third. We're in the process of budgeting for 2022, and we'll be prepared to give greater details on our fourth quarter call. Thank you. Back to you, Peter.

Thanks. Thanks, Todd. We are operating in a challenging environment, but we have actions in place to mitigate the impact from the logistics and other supply chain disruptions so that we can maintain focus on our transition to a profitable specialty ingredient company.

We're not there yet, but we have made major strides in achieving our longer-term objectives. And I'd like to take the opportunity to thank our employees, partners and investors for their support. I now open the call up for questions. Operator?

(Operator Instructions) The first question is coming from Mark Smith from Lake Street Capital Markets.

Can you walk through, Todd, I think I missed a little bit in your commentary, just results from each of the businesses, primarily MGI and Golden Ridge, how they did maybe on a year-over-year or sequential basis?

We saw very, very strong growth from Golden Ridge year-over-year. I think you're cognizant of the challenges we faced last year in that business at this time. And sequentially, results were relatively flat as that business stabilizes. For MGI, I would say that results were flat year-over-year and down sequentially.

And that's pretty typical for a timing basis, right, Q2 to Q3 for MGI. Any seasonality built in there?

It's typical for the seasonality. I think that we've been working hard to build a book of business to mitigate some of that seasonality. And as I said in my comments, the real issue at MGI was we had a key piece of machinery go down, which normally we should be able to get it -- a replacement part within 48 hours and it took a better part of 2 weeks.

Okay. And you said that impact from the equipment failure there was, the best estimate, about $200,000 from MGI?

Yes.

And then I just want to check the transportation kind of issues that you faced in headwinds, you feel like that cost you about $400,000? And would that be primarily in the kind of SRB or derivatives business where you feel like you lost sales? And is that just not being able to get product from, primarily, California up to Dillon? Or walk us through kind of what the issues were with transportation and where it cost you.

I commented that it cost us at least $400,000 and it is primarily in our bulk or core SRB business, and it is primarily coming out of the delta.

Okay. Perfect. And then I just wanted to ask just -- Peter, you gave some updates on new products. Can you talk about kind of where we are in a time line for new product introductions, anything that maybe is out now or kind of expectations for launches on new products?

Well, we've got a couple of varieties out now that will sell through AIDP. So they're new, we talked about those last quarter. In terms of the developments we're doing now, we will introduce a new enzyme-treated derivative, which will be Q1 of 2022. And then a new flavor-enhanced products I'm looking, my plan is to have them ready for Q3 2022.

Okay. We have an additional question coming from Charles Robinson from Dawson James Securities.

Could you give us a little bit more color on the AIDP partnership and when we could start to see that meaningfully, fully start to bear fruit?

I think the big launch, which is why my line has not been very good. I apologize, I'm on my way to Vegas, and -- for the kickoff, the commercial kickoff, that really comes tomorrow. And I would see that -- what we're seeing already in the pipeline, we're probably either next quarter a little bit and then really start to kick in, in the first and second quarter next year.

The beauty with the supplement world is that the customers' evaluation time is much shorter than you would find in novel food. We know the propositions in that markets are very strong, which is why we chose to start there.

Sounds good. One other question. It seems like every quarter, something comes up with maybe a supply chain, or something that affects the business. Is there a way to permanently mitigate some of those issues that seem to invariably come up every single quarter?

I think operationally, we've done a lot to mitigate the issues. But to be honest, this quarter, it will still follow in into the fourth quarter, is that the supply chain issues, this is not a RiceBran Technologies issue, right? This is a whole industry.

You literally cannot get a truck, right? You literally, for certain customers, don't have labor to process them into products. And I just -- as I mentioned in my comments, I've never seen a situation like this. It's -- when it will get resolved, I don't know. To mitigate it, yes, we're doing some innovative things on the supply chain. But, like -- a company of [any sound needs] can't fix what is a nationwide or worldwide logistics crisis.

I'd now like to turn the floor back to Peter Bradley for closing remarks.

Well, thank you for everyone's attention. It's been -- it's a tough environment, as I said, the toughest I've seen. But I remain confident we're on the right track, and moving towards having a profitable, special high-margin, specialty ingredient business. We thank you for your attention. Goodbye.

Excuse me, Peter, do we have time for one more question?

We always have time for one more question.

Okay, let me see if I can -- all right, looks like he left the conference. I'll send an email if you want to go ahead.

Okay, Thank you, operator.

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.