Jess Jankowski, President & CEO 

Good morning everybody!  We’re glad you’ve been able to join us for our second quarter 2013 financial conference call. Frank Cesario, our CFO, is here with me.  Today, we’ll be talking a bit about our new initiatives, as well as updating you on our existing business.  At a high level,   quarterly revenue this year has ranged from $2.7 million to $3 million, an improvement over our quarterly revenue last year, which ranged from $2.1 million to $2.8 million.  

After Frank provides a short overview of our financial results, I’ll go into a little more detail about our position as we keep rolling in to 2013.


Frank Cesario, CFO

Thanks Jess.

Good morning, this is Frank Cesario.  Before I begin today’s overview of our financial results for the second quarter and first half of 2013, please remember that all financial results are stated in approximate terms.  

Revenue for the second quarter was $2.7 million, versus revenue of $2.8 million for the comparable 2012 quarter.  For the first six months revenue was $5.7 million this year, up from $5.2 million last year.  

Gross margins were 32% for the quarter and 31% for the first half, versus 31% and 27% for the comparable quarter and six months of 2012. 

The net loss for the quarter was $0.5 million, or $0.02 per share, and $0.9 million, or $0.03 per share for the six months ended June 30, 2013, compared to net losses of $0.4 million and $1.2 million, or $0.02 per share and $0.04 per share, respectively, in the comparable 2012 periods.  

We ended the quarter with a $3.2 million cash position.  Our company remains debt free.   I will note that we invested $0.5 million in working capital during the first six months of 2013, which is a reversal of working capital benefit during 2012.  


Jess Jankowski, President & CEO 

Thanks Frank.

Well, we’re sure off to a solid start.  Everyone who’s been listening knows that our goals don’t stop at achieving $3 million in quarterly revenue, but the overall development of the business does represent another step towards our next milestone, achieving positive cash-flows on a consistent basis.   I have said it before, and this has been internalized at Nanophase, we fully understand there are real challenges ahead of us, and our goal and vision is firmly set on accruing high value to our shareholders and stakeholders.  That’s why I’m here and that’s why the team is here.  Those are my expectations, which are shared throughout our organization.  Nobody’s looking forward to saying “We made it!” more than I am, and my sights are set much higher than only achieving positive cash flow.  

At this point, we’re not sure about our second half volume, but we expect 2013 revenue to be close to that of 2012.  The reason that the number hasn’t been higher yet is due to the greatly reduced revenue from two legacy customers.  Now, this was a reduction that we fully expected, and have discussed in the past.  We’ve seen a decline in CMP polishing revenue from Dow that, even though we knew it had been coming, was difficult to absorb.  We’ve also seen the sun-setting of our long-term exclusive licensing arrangement with CIK NanoTek, which saw the last licensing fee revenues in 2012.  These two changes will result in a year-over-year reduction in full year revenue of $1.1M.  On the other hand, and here’s the bright spot, we’ve seen growth in other areas that has absorbed this loss.  The growth we’ve seen should be sustainable going forward, and has replaced some long-declining revenue streams.  We expect to be able to establish a stronger trajectory going in to next year, with new business coming on, in addition to growth in the business that we’ve developed so far to replace the legacy business we just discussed.  All in all, we’re in good shape here.

I mentioned in our last call that we’ve further expanded our franchise by developing products in a few new areas related to energy management.   In particular, we’ve begun to market both of our energy solutions.  As we’ve made some good progress, today, I’ll paint a clearer picture than I’ve felt comfortable doing in the past.  We’re always a little cautious in talking about these efforts, because our goal is to be the first to the commercial space with new technology, and we’re still in the commercial development process.  Working to alleviate the annoyance investors may feel through not getting complete information, for now, is outweighed by the need to control these products as they roll out.  Feedback may be this year, or maybe in to next, but one way or another we expect to get solid commercial feedback quickly, and are prepared to transfer both solutions to revenue as soon as possible.

The first is in the energy storage space, and will allow us, potentially, to leverage our technology and products in a more valuable way.  As many have speculated, it is indeed a battery application, and simply put, we look to replace materials, being used commercially today, with materials we believe offer superior functionality and an attractive cost.  We’re not relying on a new industry being developed.  We aren’t forcing existing players to change their processes, but expect to provide them with both an immediate replacement solution, and a mechanism for them to make changes to reduce costs in related areas, if they choose to, for their future benefit.  We believe this to be a powerful value proposition.  We think this solution should deliver cost savings and performance gains today, with a roadmap toward additional savings down the line.

The second is an energy control solution for an existing market that is slightly behind the battery application in terms of expected timing, so we’ll hold off on a more discrete explanation for now.  

Here, too, we believe we’ve found a material solution that provides significant performance benefits, versus our competition, at an attractive price point.  The commercial rollout here will look different than with the battery application, but again, we’ve targeted an existing market, and a more straightforward replacement of existing materials.

One change to our business growth process has been in the tightening of the management of our projects.  We’ll only resource a few projects at a time, as opposed to working on many things at once, in order to maximize our leverage.  This enhancement of focus and expertise has been an evolving initiative over the past two years, and I expect it to continue.  We believe focus will bring speed, and allow us to more quickly identify winning ideas, or replace struggling projects, with the next potentially big opportunity from the list.  I expect a solid ROI from our investments in this development work, and we’re all on the same page here at Nanophase.  This expected growth in new areas, will be in addition to expected growth in our existing business, including in our traditional personal care applications, and, potentially, in several polishing applications.  We’re looking both to lock in incremental (or better) improvement in our existing markets, while targeting more dramatic results in some newer markets.  We believe that this balanced approach, that encourages speed-to-market, and a better hit rate, is the right one for our company.

With that, I’ll tie things up.  Although most of our investors listen to the webcast, or review the transcript after the live call, we’d like to invite those participating in today’s call to ask any questions you may have, or to share your comments.  

Nova, would you please begin the Q&A session?

We’re fully confident that we have the team, the know-how, the products, the business strategy, and more than enough potential, to achieve our goals.  

We appreciate your continued support, and, as always, we try to be available for any follow-up questions you may have.  Thanks for your participation and we hope you enjoy the rest of your day!