The Woodlands / TX. (rbt) RiceBran Technologies, a global leader in the production and marketing of value added products derived from rice bran, announced the Company’s financial results for the first quarter March 31, 2019.
«First quarter sales increased mainly due to revenue from Golden Ridge Rice Mills, which we acquired in late November, 2018,» said Brent Rystrom, President and Chief Executive Officer. «Earlier this week we received our first purchase order for rice bran for use at one of the world’s largest Companion Animal companies, a segment where we see major growth opportunities this year and beyond. We are working on adding several other major customers over the next 150 days in a variety of customer segments. We are focused on completing our debottlenecking at Golden Ridge Rice Mills and starting to leverage our milling assets at MGI Grain. All of these efforts are focused on driving significant growth and attaining positive adjusted Ebitda by the end of 2019.»
First Quarter Business Highlights
- Revenue of USD 6.4 million in the first quarter of 2019 was up from USD 3.6 million in first quarter of 2018, with the acquisition of Golden Ridge Rice Mills driving most of the growth along with single digit growth in sales of our rice bran products. Gross profit margin narrowed considerably to 5.4 percent from 26.9 percent, with margins in rice bran products down modestly and negative gross margins at Golden Ridge Rice Mills.
- Results at Golden Ridge Rice Mills were weaker than we originally expected for the first quarter of 2019. In the first quarter of 2019, we identified quality and cost issues with a large portion of the rice supply at Golden Ridge Rice Mills which caused the mill to sustain negative gross profit margins and adjusted Ebitda for the month despite sales that were near our expectations. We determined that we had to reject some of our rice supply as it would not yield the quality and quantity of product we needed in an economic fashion and immediately made changes to the operations and management structure at Golden Ridge Rice Mills as a result. Securing sources of higher quality rice supplies took several months to complete, and this caused our monthly sales to drop in February-April. However, our adjusted Ebitda performance improved considerably in those months. We have now secured a robust rice supply chain that provides us high quality and strong milling yields, which we accomplished by building relationships with several regional grain elevators and working directly with an expanding pool of farmers near our plant. This is allowing us to catch up on unfilled contracts in the second quarter of 2019. Late in the first quarter of 2019, we hired Josh Ward as General Manager of Golden Ridge Rice Mills, and we are already pleased with the progress Mr. Ward has made improving operations. Mr. Ward has over 25 years of experience in rice milling in a variety of plant leadership roles. We believe the combination of our debottlenecking efforts, catching up on delayed rice milling contracts, the addition of stabilized rice bran (SRB) sales from this facility, and the strengthening of our leadership team will further markedly grow sales and deliver meaningful adjusted Ebitda at Golden Ridge Rice Mills starting in the third quarter of 2019.
- Sales of our SRB products were also lower than expected because we are experiencing a longer selling cycle than we originally planned, especially at the extremely large, consumer-facing companies we are working with. Margins in our rice bran business were negatively impacted mainly by lower productivity due to Cap Ex projects and higher labor costs.
- SG+A expenses of USD 3.3 million in the first quarter of 2019 increased from USD 2.9 million in the first quarter of 2018, with most of the increase due to one-time acquisition-related fees for Golden Ridge Rice Mills.
- Adjusted Ebitda of USD (1.9) million in first quarter of 2019 was flat with the USD (1.9) million reported in the fourth quarter of 2018 and worse than the USD (1.4) million realized in first quarter of 2018.
- We raised USD 12.1 million through a private placement and nearly another USD 2 million from the exercise of warrants during first quarter of 2019. We ended the quarter with USD 13.3 million of cash and equivalents, less than USD 500,000of debt and finance lease liabilities, and USD 34.5 million of shareholders’ equity. Our Cap Ex during the quarter was USD 1.2 million compared to USD 745,000 last year.
«While we experienced some unexpected margin pressures on rice during the quarter that hurt our results, we quickly identified these issues and lessened their impact. Financing efforts and additional cash warrant exercises in the first quarter of 2019 have greatly strengthened our balance sheet. We are confident that this will provide RBT with the ability to execute on our strategic and financial plans and improved shareholder’s equity as we grow the business in the coming quarters and years,» said Dennis Dykes, Chief Financial Officer.
- Earlier this week we received our first stabilized rice bran order from a new Companion Animal customer, the first of several major new large customer adds we expect in 2019 for our rice bran business. We expect that this single customer will expand our annualized rice bran revenue and tonnage by approximately 6 percent, and we see substantial additional sales opportunities in the Companion Animal segment this year and beyond. Over the next 150 days we are also focused on closing several additional and sizable new rice bran customers in other segments as well.
- We realized revenue from the first cross-over customers for Golden Ridge Rice Mills. Late in the first quarter we shipped our first load of rice to a cross-over customer of our rice bran products, providing early validation of our ability to leverage our sales team to sell additional products. We expect this trend to accelerate as 2019 unfolds, helping to drive sales growth and margin improvement.
- Safe Quality Food (SQF) recertification of Golden Ridge Rice Mills was successfully attained in January 2019.
- The acquisition of MGI Grain completed on April 4, 2019. MGI Grain adds several dozen barley and oat ingredients to our product portfolio and represents our first entry into the markets for ancient grains. MGI presents a substantial leverage opportunity as it currently utilizes about 35 percent of its production capacity.
- We expect gross profit margins to improve modestly at Golden Ridge Rice Mills in the second quarter of 2019 from the first quarter of 2019 levels, and then improve markedly in the second half of 2019 as we benefit from better pricing and the capacity expansion that results from our debottlenecking efforts which we expect to largely complete in the second quarter of 2019. We expect to generate meaningful adjusted Ebitda at Golden Ridge Rice Mills starting in the third quarter of 2019.
- Gross profit margins in our rice bran business should benefit in the second and third quarters of 2019 from favorable freight comparisons, completion of our Cap Ex project at Dillon, MT, and sales growth.
- As we noted in our 2018 press release, MGI Grain presently has annual sales near USD 3 million and positive adjusted Ebitda.
- We continue planning for the expansion of Golden Ridge Rice Mills and the building of a new state-of-the-art bran production facility there that will have innovative new product capabilities. We expect this expansion to be completed in the second quarter of 2020, and we believe the expansion and the new rice bran products produced there will drive substantial incremental long-term revenue and Ebitda growth. We believe that applying current market pricing to the planned production capacity of this expansion would yield incremental annual revenue of USD 67-USD 75 million and adjusted Ebitda of USD 6-USD 10 million once this capacity is fully utilized.
- We remain focused on attaining sales of USD 37-USD 40 million for 2019 and positive adjusted Ebitda by the end of the year.