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spk01: Good day, ladies and gentlemen, and welcome to the Rice Brand Technologies first quarter 2021 earnings call and webcast. At this time, all participants have been placed on listen-only mode, and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Rob Fink. Sir, the floor is yours.
spk03: Thank you, Operator, and good afternoon. Thank you for joining us today. Welcome to the Rice Brand Technologies First Quarter 2021 Financial Results Conference Call. Hosting the call today are Peter Bradley, Executive Chairman, and Todd Mitchell, Chief Financial Officer. I want to remind everyone listening today 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 contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from those 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 projection as to the company's future performance represented by management includes estimates as of today April 28, 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 on the company's website at Rice Brand Tech on the investor relations page. With all that said, I'd now like to turn the call over to Peter Bradley. Peter, the call is yours.
spk05: Thank you, Rob, and good afternoon, everyone. The first quarter provides evidence that we're on the right path. As discussed in our prior earnings calls, our strategy is to move the business towards specialty ingredients. We will do this by expanding our SRB derivatives business and introducing new high added value high margin ingredients derived from rice and other small and ancient grains, while optimizing our milling assets to support this business with a superior cost structure. Phase one of our transition to this strategy was to turn around operations at Golden Ridge and deliver improved financial performance. And we made significant progress in the first quarter on both fronts, which Todd will address in greater detail in a moment. Phase two of our transition will shift our focus to being a company that delivers differentiated, high value add specialty ingredients. And underneath the improved financials in the first quarter, operating and sales trends validated the initial steps of the second phase. By simply reorienting our sales focus, we drove a 40% year over year increase in our core SRB ingredients business, with sales of SRB derivatives, our highest value ingredient, up over 200%. The progress we have achieved in this transition in the last two quarters gives me confidence that 2021 will be a year of marked financial improvement for Rice Brand. Our strategy aligns us with healthy living trends, our products are compelling, and I believe significantly underperform their market potential. In the coming quarters, you will see us grow these products and introduce new ones, transforming Rice Brand into a high growth, high margin specialty company. I will provide more thoughts on how we're going to execute this transition, but first let's have Todd run you through the first quarter numbers in more detail.
spk02: Thank you, Peter. Good afternoon, everyone. This past quarter was the third quarter in a row of sequential improvements in financial results. Progress is evident in revenue growth, our transition to positive gross margins, and our reduction in adjusted EBITDA losses to close to break even. Results were driven by growth in SRB and SRB derivative sales, continuing improvement at Golden Ridge, and a 32% reduction in SG&A from a year ago. while positive working capital trends allowed for a modest increase in cash without the use of our ATM. We also had our $1.8 million PPP loan completely forgiven in January, strengthening our balance sheet by transitioning us to a net cash position from a net debt position. Looking at these numbers in a little greater detail, revenue. Total revenue grew 3% in the first quarter to $8.6 million from $8.3 million a year ago. As Peter highlighted, this growth was driven by a 40% year-over-year increase in SRV and SRV derivative sales, offset by double-digit year-over-year declines in our milling business. Notably, Golden Ridge revenue was off about 25% year-over-year, principally due to weather-related downtime in February. While MGI sales were also off in the double digits, and this was due to customers' deliveries getting pushed into the second quarter. Considering the changes though in our strategy and our senior leadership in the second half of last year, it's probably a better indication of the state of our business to compare the first quarter to the fourth quarter of last year. Sequentially, total revenue was up 26% in the first quarter. from 6.9 million in the fourth quarter. And it's worth noting that the sequential growth rates were consistent across all of our businesses. Gross profit. We generated 672,000 in gross profits in the first quarter compared to gross losses of 405,000 a year ago and narrowed gross losses of 47,000 in the fourth quarter. This was the first quarter of positive gross profit in seven quarters. This transition was underpinned by improved results at Golden Ridge, where the turnaround in operation continues to progress. In the fourth quarter, we reset our commodity position, diversified our customer base, and dramatically improved milling yields. In the first quarter, absent the weather-related downtimes, we accelerated the pace of operations and achieved our targets for increases in hourly throughput and on-stream rates. With further improvement in operations and commercial SRB production expected in the second half of 2021, Golden Ridge should have an increasingly positive impact on overall results, which, with continuation of current trends in our SRB business, should support further gross margin expansion over the course of the year. Operating losses. Operating losses narrowed to 1.1 million in the first quarter from 3 million a year ago and 1.8 million in the fourth quarter. The sequential improvement was largely due to the transition to gross profits, while the year-over-year improvement was driven by both the transition to gross profits and a 32% reduction in SG&A to 1.7 million from 2.6 million a year ago. We'll likely see some upward pressure on SG&A, but $1.8 to $1.9 million per quarter should be sustainable for the remainder of the year. So, higher gross profits should support further reductions in operating losses. Net income and adjusted EBITDA. Due to the lower operating losses and a $1.6 million gain on having our PPP loan forgiven, net income was a positive 591,000 or one cent per share in the first quarter compared to net losses of 3 million or eight cents per share a year ago. Absent this one-time gain, net losses would have been about 1.2 million. Importantly, adjusted EBITDA losses, which do not include this gain, were 159,000 in the first quarter compared to adjusted EBITDA losses of 2 million a year ago And adjusted EBITDA losses of $921,000 in the fourth quarter. Cash and liquidity. Cash at the end of the quarter, first quarter was $5.4 million compared to $5.3 million at the end of 2020. Underpending this increase in cash was our ability to generate neutral cash flow from operations. This was due to strong working capital management and an increase in factored borrowings. which was supported by the 26% sequential increase in quarterly revenue. And in January, as I mentioned, our $1.8 million PPP loan was completely forgiven, strengthening our balance sheet and transitioning us to a net cash position of 1.1 million at the end of the first quarter compared to net debt of 327 at the end of 2020. I'll turn the call back to Peter to discuss the key elements of our forward strategy.
spk05: Thanks, Todd. With the successful execution of phase one in our turnaround strategy, phase two is really starting to gather steam. I believe Ricebrand is well positioned to generate further improvement in financial results in the coming quarters while accelerating this transition to a specialty ingredient business. It is clear there is a significant unmet market demand for SRB derivatives across a range of human food applications. We see strong demand from existing and new customers in the health and wellness and supplement categories proving the value of these ingredients. However, given the sheer scale of this market, the compelling nature of our products, and the wide range of applications, it is absolutely clear we have barely scratched the surface of the overall opportunity. SRB and the derivatives we produce from SRB provide both nutritional and functional benefits, particularly in the production of plant-based and vegan products. From a nutritional perspective, given the complementary amino acid profile, SRB enhances protein quality and delivers omega-6 and omega-9 with well-known health benefits, as well as bioactive micronutrients particularly erazanol, which have positive impact on the immune system, which is why consumers seeking healthy alternatives are gravitating toward rice-based solutions from yeast and corn-based alternatives. From a functional perspective, SRB and the derivatives we produce improve flavor and mouthfeel when added to increasingly popular popular plant-based and vegan greens and vegetable protein banded powders. By mouthfeel I mean it's smoother and it's creamier versus the grittiness normally associated with such products which will improve both the taste and make it easier for formulators of these products versus other alternatives. In the coming months, we will continue to enhance our capacity to produce SRB derivative products, and we will launch a new SRB variant specifically designed for supplement applications. This will be supported by initiatives for improved customer communication and support, including the development of consumer-ready concept products, major brand outreach program, and updated research on the clinical efficacy of SLB and its derivatives. We believe these initiatives will help grow our customer base and accelerate sales with our initial focus on the $50 billion supplement market and points to an ultimately addressable market that's even larger. This is just the beginning of our specialty ingredients expansion. From the initial acceleration in our conventional and organic rice soluble products, which we've already seen, we look to grow sales in the near term for our rye balance product and our dietary fiber product, rye fiber, which delivers both soluble and insoluble dietary fiber, both of which are a major deficiency in the American diet. And over the long term, we believe there is an opportunity to further fractionate SRB into still higher value ingredients and to use our fractionation capabilities with other small and ancient grains. Our Dillon, Montana facility is a key asset for the company and at the cornerstone of the strategy. We're working hard to optimize this facility where we still have untapped capacity. However, if our plans for sales expansion play out as we believe they can, it is highly likely that over the next 24 to 36 months, we will look to expand both in terms of capacity and range of capabilities, which will lead to further enhancement in our supplier partnership, which will support a We say significant, but a fundamental expansion of this business. Golden Ridge and MGI are also key to our specialty ingredient strategy. We will use these assets as strategic and cost-efficient sources of feedstock for specialty ingredients, and we will orient them to milling to a special customer base for the rest of our output. whether that be organically grown grains or specialty varieties such as high fiber grain or low moisture products. With this focus, they will be valuable contributors to sustainable growth in both revenue and profitability. In summary, the first quarter was one of significant and continued progress, both in operating and financial performance and in strategy development and execution. and I believe we are on track to deliver significant improvements over the next 24 to 36 months. This really will be a special business once the strategy is fully implemented, with positive long-term growth trajectory and potential upside returns for those investors who stay the course with us. In closing, I'd like to thank our employees, our partners, and investors for their support, and now open up the call for questions. Operator?
spk01: Certainly. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star 1 on your phone at this time. We ask that while posing your question, you please pick up your handset, if listening on speakerphone, to provide optimum sound quality. Once again, if you have a question from the lines, please press star 1 on your phone at this time. And we do have a question coming from Mark Smith from Lake Street Capital Markets. Mark, your line is live.
spk04: Hi, guys. Great job on the quarter. Nice to see the improvements there. First question for me is just looking at Golden Ridge. Can you quantify at all the weather impact and how much that hurts you in this quarter?
spk02: This is Todd. We were offline because of weather for 11 days in February. And so, you know, I would put that at easily half a million, maybe a little bit more.
spk04: Perfect. And then looking at the sales initiatives and the growth that you guys have had in SRB, two parts. Can you talk about kind of have you added new salespeople or has it just been kind of having a more efficient sales process and looking at the right customers. And then second on that, you know, how much of the growth has come from new customers versus maybe growth in existing customers?
spk05: I think in terms of the growth as a split, we have brought some new customers on board, but, uh, our existing customers are also using more, uh, in terms of your first question. No, we haven't added sales resources. We've just improved our sales process and focused on the right opportunities.
spk04: Excellent. And then, you know, Dillon's obviously an important asset, as you said. Talk about the operations and how things ran in Dillon with, you know, maybe higher volumes running during the quarter.
spk05: Yeah, the biggest issue, which we are very grateful to our supply partners, was to get organic raw material in there. So having the feedstock obviously helps. You can't produce without raw material. So we have the feedstock. And then also the team up there has done a great job in terms of balancing out what we produce. You know, when you fractionate any product, you end up with, more than one stream. So they just got better in terms of optimizing both the right soluble stream and the right fiber stream. And that's really what's driven, uh, operational improvements. Okay. Now we're not finished. Um, I think there's another stage to go. Um, but certainly they, that team up there has done a great job.
spk04: Okay. Perfect. And then as we look at the SG&A, you know, great job on reducing that. Todd, it sounds like you feel like this is pretty sustainable. You know, I think, did you, I just want to confirm, did you say kind of this $1.8, $1.9 million maybe quarterly as you feel like is a sustainable level on SG&A?
spk02: I would think that this was a pretty good quarter for what we're going to spend money on in terms of SG&A. I do think the 1.8 to 1.9 is a little bit better number than the 1.7 we did this quarter. And I would, you know, I put that up to big increases in a couple of big items, most notably insurance. But, yeah, I think this is sustainable, certainly, for the foreseeable future.
spk04: Okay. Excellent. And then the last one for me, just, you know, you've done a good job driving, you know, positive gross profit, you know, getting closer to positive EBITDA. Any updated thoughts on, you know, capital that you may need as you look to expand capacity for SRB? You know, any capital needs, you know, to sustain this growth as we look over the next 12 plus months? Or do you feel pretty good now as you've moved to this kind of net cash position?
spk02: You know, I think our plan – yeah, one over the other of us. The plan first, you know, is to operate this year at sort of a cash flow neutral except for our capital expenditures and hold capital expenditures at sort of a very reasonable level this year. So to be kind of fully funded. Um, that being said, um, I think we are identifying parts of the business where the return on investment would be very high. Um, but certainly there is no need for capital to fund operations. It only would be to fund opportunities.
spk05: Just to add to that, I think over the next 12 months, um, you know, CapEx will be relatively modest. Um, as we head into 2022, towards the end of 2022 into 2023, if we start to tap into this opportunity, you know, then it will be, you know, we will need more capital. But as Todd rightly pointed out, the ROI on that capital will be significant.
spk04: Okay. Excellent. Thank you, guys. Thank you. Thank you.
spk01: Thank you.
spk00: And there were no other questions from the lines at this time. Would you like to make any closing remarks?
spk02: Well, thank you, everybody, for joining us. Peter and I look forward to reporting to you guys next quarter. And, you know, we have a very positive outlook for this year and hope that you'll continue to support us.
spk05: We thank you for your attention and your support for the business.
spk01: Thank you, ladies and gentlemen. This does conclude today's conference call and webcast. You may disconnect at this time and have a wonderful day. Thank you for your participation.
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