FIRST QUARTER 2010 CONFERENCE CALL
Jess Jankowski, President & CEO
We’re happy that you could join us for our first quarter conference call.
We spoke with you just a few weeks ago when we shared our fourth quarter and year-end 2009 financial results. At that time, we indicated that the first quarter was shaping up to be better than any of our 2009 quarters, and it was.
We had a great first quarter –with revenues increasing 40% over the first quarter of 2009, and we’re pleased with the significant increase in our gross margin. We’re working the plan and are beginning to see some results! I don’t want to steal all of Frank’s thunder, so I’ll turn the call over to him to provide an overview of the income statement and balance sheet. Let me hand things over to Frank Cesario, our CFO.
Frank Cesario, CFO
Thanks, Jess. Good afternoon, this is Frank Cesario.
Now, I would like to take a few minutes to provide an overview of our financials disseminated earlier today. Before I begin, let me remind you that all financial results are stated in approximate terms.
For the first quarter ended March 31, 2010, we reported revenue of $2 million, an increase of 40% when compared to revenue of $1.4 million for the first quarter of 2009. We expect this revenue trend to carry through into the second quarter, indicating an even stronger second quarter. Jess will speak to the drivers of this growth later in the call.
The net loss for the first quarter was $1.1 million or $0.05 per share vs. a net loss of $2.1 million or $0.10 per share for the comparable quarter. I should note that the 2009 loss included restructuring charges of $794,000. As of February 2010 we completed all payments under the restructuring programs.
Our gross margins improved significantly in the first quarter, 24% vs. 6% reported for the first quarter in 2009. This improvement resulted from revenue growth, which absorbs fixed manufacturing costs, and from operating efficiencies. Our goal is to continue improving these profit margins. And I’ll repeat what we have said before, “running leaner is great for the bottom line and isn’t affecting our revenue growth.”
Our balance sheet is strong, as we finished the quarter with $7 million in cash and cash equivalents, and investments. After repaying all of our debt during 2009 we have a balance sheet with no debt.
I would like to turn the call back to Jess to provide an overview of the first quarter highlights.
Jess Jankowski, President & CEO
We began 2010 with the history-making launch of NanoUltra™, a breakthrough end-user product for window cleaning and polishing. We believe this product launch is a perfect example of how well our new business strategy is working. This launch, along with our successful ARS settlement, and seemingly increased confidence in the equity markets in general, may have been the catalyst for the recently improved trading volumes we’ve been experiencing in our stock. Increased liquidity indicates that our shareholders are pleased, and that we are acquiring shareholders who may be new to Nanophase. With this in mind, I would like to briefly reiterate our 2010 business strategy for new shareholders and conference participants.
The company’s business model evolved over the last several years from simply selling nanomaterials solely through partners, such as BASF, Rohm & Haas Electronic Materials and BYK Chemie. As an adjunct to our business partner program, in late 2008 the company’s business model evolved further to include a focused customer direct marketing thrust. This change in our model allowed us to leverage our knowledge of nanomaterial chemistry to develop application-specific products for companies with unmet needs in select markets.
Nanomaterials can be difficult to integrate effectively into chemical applications unless one has the expertise – and we do. Using this experience, and focusing on just a few market segments, we’ve developed application expertise that is perceived as extremely valuable by potential customers.
While this customer direct model is the catalyst for future growth of our company, it is also very important that we have a strong base of business from our existing customers on which to build. This legacy business, in particular our personal care business with BASF, and our semiconductor polishing business with now Dow Electronic Materials, is what drove our revenue increase first quarter over first quarter.
I’d like to add that during 2010 we expect our well-established partners to continue to be the largest revenue contributors, and expect volume from our customer direct model and NanoUltra™ to have more of a growing impact on revenue as 2010 progresses, and into next year.
We are also deeply engaged in building our Tier 1 exterior coatings market. We are particularly focused on growing sales of our Nano Zinc Oxide for UV protection in clear and semi transparent stains. This represents a $570 million market. Sales in this application area are still at an early development stage, particularly due to the long cycle and testing times required for success. Our in-house testing, along with significant external customer testing, of our revolutionary technology provides evidence that our products extend longevity of clear and semi- transparent stains on wood, and wood products, up to three times the typical life, and at a competitive cost. We began aggressively testing our products for this industry less than 18 months ago. Generally, the period from testing to launch can represent a cycle of 1 to 4, or even 5 years, and we anticipate many customers developing in this market. We expect to see sales continue to rise as we complete more of these cycles. We are also making substantial inroads in other markets, including hard surfaces and plastics.
Early this year we demonstrated our entrepreneurship and flexibility, by creating a third revenue stream with the development of an end-user product, as opposed to the chemical nano-additives we’ve traditionally supplied. NanoUltra™, a family of products that cleans and protects architectural glass, began shipping commercially at the end of the first quarter after a late January launch. I invite you to review the information available on our corporate website, www.nanophase.com, and a special NanoUltra website, www.nano-ultra.com. This product family offers a compelling value proposition and opportunity for professional window cleaners and commercial building owners, our initial target market.
While NanoUltra™ is new and exciting for our company on many levels, I’d like to reiterate that during 2010 we expect our well-established partners to continue to be the largest revenue contributors, and expect volume from our customer direct model and, NanoUltra™, to have a growing impact on revenue as 2010 progresses and into 2011. We are shipping initial quantities of product and are beginning to see increased activities. We believe NanoUltra™ is a winner for Nanophase – one of many to come.
We continue to listen to what the market needs and customers want. This feedback is incorporated into product development for our customer direct platform, as well as our “built by Nanophase” NanoUltra™ products. Our goal is to successfully have multiple revenue channels from a mix of partners, customers and end users. We also feel that the likelihood of success here is increased when we focus on several markets in-depth, rather than try to address a broader series of markets, without developing enough specific knowledge to be able to leverage effectively.
While we are pushing the envelope, our progress will be affected by both the economy and the rate of our migration to an aggressive customer-direct model, along with the normal timing of the adoption cycles in the markets and industries we serve. All in all, we expect 2010 to be a great year for Nanophase.
Operator, please begin the Q&A session.
We began the year with a first for Nanophase – the launch of an end-user product. We finished the first quarter with a 40% increase in revenue, significantly improved gross margins, and a much improved bottom line. We’re also looking forward to a second quarter that we believe will be another winner.
I appreciate your time today, and I look forward to speaking with you again in a few months.