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spk00: Good day, ladies and gentlemen, and welcome to your Rice Brand Technologies second quarter 2021 earnings call and webcast. All lines have been placed in a listen-only mode, and the floor will be open for your questions and comments following the presentation. As a reminder, today's call is being recorded. If you should require assistance throughout the conference, please press star, then zero. At this time, it is my pleasure to turn the floor over to your host, Jeff Stanlis. Sir, the floor is yours.
spk02: Thank you, and good afternoon, listeners. Welcome again to Rice Brand Technology's second quarter 2021 financial results conference call. With us today are Peter Bradley, Executive Chairman, and Todd Mitchell, Chief Financial Officer. 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 also make additional forward-looking statements in response to your questions today. Therefore, the company claims the protection under safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from results discussed today, and therefore, we refer you to a more detailed discussion of these risks and uncertainties in the company's filings with the SEC. In addition, any projections as to the company's future performance represented by management include estimates as of today, August 3, 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 www.ricebrandtech.com on the Investor Relations page. At this time, I would like to turn the call over to Peter. Peter, go ahead.
spk01: Thank you, Jeff, and good afternoon, everyone. The second quarter was further confirmation of the major progress we have made in stabilizing the business and eliminating some of the systemic challenges we face. Revenues were up 28% year over year and adjusted EBITDA improved by 71%, providing evidence of this progress. This improved performance is due to continued growth of our SLB derivatives product lines, better operational execution at our milling facilities, and continued reductions in SG&A. These results clearly demonstrate our business is now on the right path. And while we're not immune to challenges in the macro environment from COVID, weather, and market forces, our business now has a significantly higher and more stable floor. This gives us the opportunity to focus now on raising the ceilings. To this point, I am increasingly excited about the progress we have made in our execution evolution into a specialty ingredients business. This transition will significantly expand their addressable market and meaningfully increase our margin profile, raising the ceiling on our business and creating significant shareholder value. Most notably today, we announced a new distribution relationship with AIDP, one of the leading suppliers of specialty ingredients in the supplement and nutraceutical markets. This milestone agreement, our first major sales and distribution arrangement for our specialty ingredients, will significantly increase our sales coverage in the fast-growing health and wellness sector. With stabilized operations and expanded sales organization, We also launched two new product lines in the second quarter. First, we launched new versions of stabilized rice bran for use in powder beverages, tablets, and capsules to complement our existing line of SRB derivatives for these applications. Secondly, we introduced the line of micronized rice soles for use as a natural flow agent and emulsifier. We have also intensified our product development efforts to provide a pipeline of differentiated value ingredients to fuel future growth. We have robust processing capacity and established expertise giving us a solid footing to introduce new products into the specialty ingredient market. Additionally, we've moved to a customer-centric structure with increased responsibility for our key sales leaders to drive a more responsive organization to capture the opportunity that no doubt exists for our current and future product lines. While I have predominantly focused on our specialty rice-derived ingredients, our two milling operations continue to evolve as critical elements of our growth strategy. Our focus on operational improvement has provided the platform to further develop these operations into specialty milling businesses. At Golden Ridge we commence commercial production of SRB and are currently completing installation and new packing capabilities. And at MGI the facility has commenced milling of specialty barley varieties. As we expand demand through our new sales organization and expand our supply with new product introductions, these operations will play an increasingly important role in our overall growth potential. I will provide some further thoughts on our future strategy, but first let's have Todd run you through the second quarter numbers in more detail.
spk03: Thank you, Peter. Good afternoon, everyone. The second quarter was another quarter of strong financial advancement for Rice Brand Technologies. We generated significant year-over-year improvements in every key financial metric, driven by higher sales and improved margin contributions for every one of our major business lines. We experienced some seasonal pressures and saw some volatility in raw material prices, which prompted us to pull our foot off the gas a bit in the second half of the quarter. We've made the necessary adjustments, and we're well positioned for stronger results in the second half of the year. Let's look at the second quarter's numbers in a little greater detail. Revenue. Total revenue grew 28% in the second quarter to $7.6 million from $5.9 million a year ago. Sales for all businesses were up year over year, but growth in the quarter was principally driven by higher sales of SRB derivatives, which were up over 30% year over year, and a 50% plus increase in year over year revenue from both Golden Ridge and MGI. Sequentially, total revenue was down by about $1 million from $8.6 million in the first quarter of 2021. The sequential drop in revenue can be attributed to a seasonal slowdown at both Golden Ridge and MGI, as we moved into the tail end of this year's harvest and begin to look at new year's crop. For the first half of the year, total revenues grew 14% to 16.1 million from 14.2 million in the first half of 2020. Again, underpinned by strong growth of SRB derivatives and year-over-year gains in mill grains. We look for continued strong year-over-year increases in revenue in the second half of the year and to end the year with growth firmly in the double digits. Gross profit. Gross profits were $153,000 in the second quarter compared to gross losses of $1.2 million a year ago. This improvement in gross profit was driven by lower losses at Golden Ridge, improved profitability for our SRB business, both core SRB and SRB derivatives, and revenue growth and margin expansion at MGI. Gross profits declined sequentially from the first quarter levels due to lower revenues and higher raw material costs. Some of this was due to market volatility early in the quarter and some from a seasonal narrowing of spreads in milled grains. Some of this is also due to new supply contracts, which we expect to pay dividends down the road. Gross profit was $825,000 in the first half of 2021 compared to a gross loss of $1.6 million in the first half of 2020, again driven principally by lower losses at Golden Ridge, but with improvements in all of our business lines. We look for positive gross profits in the second half of the year, and we expect our overall gross margin to trend upward from second quarter levels in the third and fourth quarters. Operating losses. Operating losses narrowed to $1.8 million in the first quarter from $3.9 million a year ago. Sorry, in the second quarter. This improvement is due to the transition to positive gross profit and a 26% reduction in SG&A to $1.9 million from $2.9 million a year ago. Caveat, SG&A last year included about $308,000 in asset disposal charges, which we've only recently started breaking out. Excluding these charges, SG&A was down about 16% year over year, and this was despite some hefty increases in large items during the quarter, most notably double-digit increases in insurance premiums across all types of insurance. Operating losses for the first half of the year were $2.9 million compared to $6.8 million last year. With our expectations for gross margin expansion and stable SG&A expenses, we look for continued year-over-year reductions in operating losses in the second half of the year. Net losses and adjusted EBITDA. Due to lower operating losses, net losses were $1.9 million or $0.04 a share in the second quarter compared to net losses of $3.9 or $0.10 a share a year ago. And net losses dropped to $1.3 million or $0.03 a share in the first half of the year from $7 million or $0.17 per share in the first half of 2020. due to the reduction in operating losses in both the first and second quarters and the $1.8 million benefit from the extinguishment of the PPP loan in the first quarter. Importantly, adjusted EBITDA losses narrowed to $828,000 in the second quarter compared to adjusted EBITDA losses of $2.8 million a year ago. And adjusted EBITDA losses were just under $1 million for the first half of 2021 compared to adjusted EBITDA losses of $4.9 million in the first half of 2020. We expect adjusted EBITDA losses to improve from second quarter levels in the third and fourth quarters. However, achieving our goal of quarterly positive adjusted EBITDA before the end of 2021 may prove challenging. Cash and liquidity? Cash at the end of the second quarter was $4 million. Cash dropped from $5.4 million at the end of the first quarter principally due to higher operating losses, lower factored borrowing capacity and a reduction in our commodity payable balance due to seasonality at Golden Ridge and MGI, and outflows to pay for repairs for hurricane damage at Lake Charles in the second quarter versus inflows from insurance advances in the first quarter. We look for a reversal in seasonal momentum to have a more favorable impact on working capital in the second half of the year and believe we have sufficient capital reserves to get us to positive cash flow. I'll turn the call back to Peter to discuss the key elements of our forward strategy.
spk01: Thanks, Todd. Rice, and in particular rice bran, is the most underutilized feedstock for added value ingredients, despite being nutrient-dense, non-allergenic, and GMO-free. Less than 4% of all bran is further processed for food and feed applications. Through our unique processing and fractionation technologies, we can create a broad range of ingredients that meet the nutritional and functional needs of modern-day foods and feeds. As I mentioned, we introduced two new products in the second quarter, but even with these introductions, we are only scratching the surface of the overall commercial potential for these types of products that no doubt exist. As manufacturers increasingly embrace rice-based solutions over traditional, less healthy alternatives, the demand for additional products will grow. With the challenges being faced with other feedstocks, notably soy and corn, which has seen significant price inflation because of increased demand and lower yield as a result of the impact of climate change, the opportunity for rice and other ancient grains has never been higher. To access this tremendous potential, though, rice bran technologies had to change its focus and transition to being a specialty ingredient business. and focus on its added value capabilities. You have seen the initial impact of this with the dramatic growth in our SRB derivatives. In the past, you have heard me refer to the power of partnerships. Our new relationship with AIDP and their extensive sales and technical support capabilities will exponentially increase our market reach in the health and wellness category. We are building up our existing partnerships, and we'll announce other new relationships, which together will strengthen our supply chain, enhance our manufacturing capacity, and provide access to other markets. Specifically, we strengthened our relationship with FRC, the largest rice cooperative in California, with a new long-term supply agreement for SRB, and a further commitment to develop new SRB variants to access new markets and applications. We are expanding our organic SRP supply chain to support the SRP derivatives by increasing capacity with our existing supplier and adding a new manufacturing partner. And we continue to explore distribution relationships for the pet food and feed applications to improve our access to these important market opportunities for perspective just 12 months ago we were a business with numerous operational challenges and declining financial health today we have a specialty ingredients growth platform focused on high potential growth markets driving added value product innovation supported by a manufacturing and supply chain to support this expansion. Our quarterly net losses have narrowed by more than $2 million, and we have line of sight on reaching breakeven with significant upside as these higher margin specialty products grow. In conclusion, I'd like to thank our employees, partners, and investors for their support. And now we'll call up for questions. Operator?
spk00: Thank you. The floor is now open for questions. If you do have a question, please press star, then 1 on your telephone keypad to join the queue. If you're using a speakerphone, please pick up your handset to provide the best sound quality. Again, ladies and gentlemen, if you do have a question or comment, please press star, then 1 on your telephone keypad at this time. And first, we go to the line of Ryan Myers with the Lake Street Capital. Please go ahead.
spk04: Hi, guys. Thanks for taking my questions. First one for me, can you give us some additional color on the gross profit contribution from Golden Bridge? It looks like the results were a little bit lower than kind of what we were expecting. I'm wondering if this is all just from a lower revenue base or if there was something else going on there that we should be aware of.
spk03: No, I don't think so. You know, I think that the – Contribution from Golden Ridge is neutral to slightly negative still. We've managed to cut the losses there pretty significantly, but with the trail down in the volume that we saw sort of in June, we didn't quite cover OpEx there on a gap basis.
spk04: Okay, that's helpful. And then when we look at the outlook for adjusted EBITDA, what's the big change here? Because last quarter, you know, you guys were guiding to positive adjusted EBITDA exiting the year. Just wondering what some of those headwinds are and what caused you guys to change your mind there.
spk03: I think that, you know, we saw a fair amount of volatility in our raw market, our raw materials pricing this quarter. which gave us a little bit of pause. It's calmed down significantly, and I think it's on trend actually to stabilize lower, although we haven't seen that yet. But we've sort of factored that into our look, our forward look. And then we also saw sort of a narrowing of the demand in some of our milled grains business as well. So we sort of factored in a little bit of that. I think we're taking a conservative outlook here, but I think that's the best way to look at it right now.
spk04: Okay. And then some of the new supply contracts that you guys called out in the press release, just wondering if you can give us a little bit more detail on, you know, what those are, how it's going to exactly impact the manufacturing footprint.
spk01: Well, I think in terms of, you know, the FRC are – you know, an existing provider of SRB for us. So, we're going to expand the volume and focus and really concentrate our SRB sourcing from California into FRC. We don't see it will make a major change to our relationships in the Delta. So, we'll have two primary partners one in California one in the Delta and then we'll have albeit relatively small our own SRB conventional SRB production coming out of Golden Ridge.
spk04: Okay and this is kind of a follow-up to that what's your current capacity right now to make the SRB products and then would you need any additional capital spend to kind of launch new products or sort of increase the capacity there?
spk01: well increasing srb capacity um no um we have plenty of capacity because as i i said in my prepared remarks so little of the brand is actually converted into added value products so um so no we can we can run and support significantly higher volumes for srb From the derivatives perspective, we've still got 50%, 75% headroom to go before we're into major capital. So the net is we can basically double the size of the business without major capex. Todd, do you have anything to add?
spk03: Yeah, I mean, the only thing I would add there is, you know, I think that what we're focusing in is driving the business upmarket, right? And so looking at these agreements and, you know, focusing in on FRC, part of that strategy is, you know, the best rice comes from California. The best rice brand comes from California. We're increasingly focused in on the quality of our product as a means for differentiating it and building know also using organic as a means for differentiating it and so you know that's what we're doing with these partnerships is not necessarily looking for raw capacity so much as looking to partner with the best but that's it for me thanks guys thank you ladies and gentlemen i apologize ladies and gentlemen if you do have a question or comment please press star then one
spk00: And we'll pause briefly to assemble the queue if there are any other questions. At this time, there are no further signals. We turn back to management for closing remarks.
spk01: Well, thank you, everyone, for your attention. My closing remark is we're on the right track. we've got significant upside over the next two to three years to deliver some real, a real change in the value of this company. Thank you very much for your attention.
spk00: Ladies and gentlemen, this concludes today's conference. We thank you for your participation. You may disconnect your lines at this time. Have a great day.
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