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spk04: Good afternoon, ladies and gentlemen, and welcome to the Rice Brand Technology Third Quarter 2021 Learning Call and Podcast. At this time, all participants have been placed on a listening mode. We will open the floor for questions and comments after the presentation. It is now my pleasure to turn the floor over to Joe. Sir, the floor is yours.
spk00: Thank you, Operator. Good afternoon, and welcome to the Rice Brand Technology's 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 It's contained in the Private Securities Litigation Act, 1995. Actual results may differ from results discussed today, and therefore, we would refer you to 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, 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 ricebrandstats.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.
spk01: 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 a 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 development 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.
spk03: Thank you, Peter. Good afternoon, everyone. As Peter indicated, we demonstrated meaningful progress in the third quarter towards our goal of reaching profitability. We've 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 two 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 two 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 nine months of the year, for the first nine months of the year, though, Total revenue has grown 19% to $23.1 million from $19.4 million in the first nine months of 2020, with growth in all businesses, but particularly strong at Golden Ridge and in the sale of SRB derivatives. Gross profit. After two 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 seem to actually be mitigating in the third quarter, only to be replaced by a spike in freight costs accompanied by a shortage of available carriers. We've been responding to the volatility in 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 nine 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 cost of stabilized and our productivity is vastly enhanced from a year ago. I'm very pleased with how the team is executing. Year-to-date, operating loss was $5.5 million compared to $6.6 million in the first nine months of 2021. Net income and adjusted EBITDA. Due to lower operating loss, net loss was 2.2 million or 5 cents per share in the third quarter compared to a net loss of 2.8 or 7 cents per share a year ago. Year to date, net loss was 3.5 million or 8 cents per share compared to 9.8 million or 24 cents per share in the first nine 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 nine 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 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.
spk02: Peter? Thanks, Todd. Sorry.
spk01: 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 and 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 a 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 Supply Side 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, Kentucky Equine Research, or KER, to enhance our position in equine nutrition. Performance horse feed is a well-established market for our core FOB, but we and KER believe there is an opportunity to expand this market by introducing new SLB-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 in our ability to develop new higher-value ingredients and expand the addressable market significance. The stabilized rice bran we produce is a nutrient-dense feedstock that 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 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 SRP, which will underpin our transition to a specialty ingredients business. However, we are going to remain circumspect on commenting on these developments at this time. understandable competitive reasons. I will turn the call back to Todd to provide a view of a forward outlook for the company. Todd.
spk03: 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 de-risk 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, ever-improving results from Golden Ridge, where we're now shipping SRB on a regular basis. With SG&A expected to remain stable, a 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, Todd.
spk01: 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. I'd like to take the opportunity to thank our employees, partners, and investors for their support and now open the call up for questions. Operator?
spk04: Thank you. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please indicate so by pressing star 1. Pressing star 2 will remove you from the queue should your question be answered. Lastly, while posing your question, please pick up your handset if listening on speakerphone to provide optimum sound quality. Please hold while we poll for questions. Once again, that's star 1 if you have a question or a comment. The first question is coming from Mark Smith from Lake Street Capital Markets. Mark, your line is live.
spk06: Hey, thanks, guys. 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.
spk03: We saw very, very strong growth from Golden Ridge year-over-year. I think you're right. 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 the results were flat year over year and down sequentially.
spk06: And that's pretty typical for a timing basis, right? Q2 to Q3 for MGI?
spk03: 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. 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 a a replacement part within 48 hours, and it took a better part of two weeks. Okay.
spk06: And you said that impact from the equipment failure there was, best estimate, about $200,000 from MGI? Yes.
spk03: Perfect.
spk06: 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 – you know, 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 costs you?
spk03: I commented that it costs 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.
spk06: Okay. Perfect. And then I just wanted to ask, Peter, you gave some updates on new products. Can you talk about kind of where we are in a timeline for new product introductions, anything that maybe is out now or kind of expectations for launches on new products?
spk01: Well, we've got a couple of them. 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 the new flavor-enhanced products I'm looking My plan is to have them ready for Q3 2022. Okay. Great.
spk02: Thank you.
spk04: Okay. We have an additional question coming from Charles Robinson from Dawson James Securities. Your line is live.
spk05: Hey, guys. Could you give us a little bit more color on the AIDP partnership and when we could start to see that meaningfully start to bear fruit?
spk01: I think the big launch, which is why my line's not being very good, I apologize. I'm on my way to Vegas. But the kickoff, the commercial kickoff, that really comes tomorrow. I would say that what we're seeing already in the pipeline, we're probably 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 customer's evaluation time is much shorter than you would find in normal food. We know the propositions in that market are very strong, which is why we chose to start there.
spk05: 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?
spk01: You know, I think operationally we've done a lot to, you know, mitigate the issues. But to be honest, you know, this quarter and it will still follow in into the fourth quarter is that the supply chain issues, you know, this is not a rice bran 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 as I mentioned in my comments, I've never seen a situation like this. You know, when it will get resolved, I don't know. To mitigate it, you know, yes, we're doing some innovative things on the supply chain, but, you know, company of our science can't fix what is a nationwide or worldwide logistics crisis.
spk02: Good enough. Thank you. I'd now like to turn the floor back to Peter Bradley for closing remarks.
spk01: Well, thank you for everyone's attention. You know, 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 pie margin, specialty ingredient business. We thank you for your attention. Goodbye.
spk04: Excuse me, Peter. Do we have time for one more question?
spk01: We always have time for one more question.
spk04: Okay, just one moment. Let me see if I can... It looks like he left the conference.
spk02: Okay.
spk04: I'll send you an email.
spk02: Thank you.
spk04: All right. That's great. 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.
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