THIRD QUARTER 2013 CONFERENCE CALL
Jess Jankowski, President & CEO
Good morning everybody. We’re glad you’re able to join us for our third quarter 2013 financial conference call. Frank Cesario, our CFO, has joined me again today. During this call, we’ll be talking a bit about our newer initiatives, as well as updating you on our existing business. At a high level, quarterly revenue this year has ranged from $2.2 million to three million dollars, an improvement over our quarterly revenue last year, which ranged from $2.1 million to $2.8 million. Our net result has likewise improved, as it has consistently, over the past few years. 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 2013.
Frank Cesario, CFO
Good morning, this is Frank Cesario. Before I begin today’s overview of our financial results for the third quarter and first nine months of 2013, please remember that all financial results are stated in approximate terms.
Revenue for the third quarter was $2.2 million, versus revenue of $2.1 million for the comparable 2012 quarter. For the first nine months revenue was $7.8 million this year, up from $7.3 million last year. Gross margins were 24% for the quarter and 29% for the first nine months, versus 25% and 27% for the comparable quarter and nine months of 2012. The net loss for the quarter was $0.6 million, or $0.02 per share, and $1.6 million, or $0.06 per share for the nine months ended September 30, 2013, compared to net losses of $0.7 million and $1.8 million, or $0.02 per share and $0.08 per share, respectively, in the comparable 2012 periods.
We ended the quarter with a $3.3 million cash position. Our company remains debt free.
Jess Jankowski, President & CEO
While I’m happy we’ve seen some growth, particularly in our Personal Care business, everyone who’s been listening knows that our goals don’t stop at 10% growth in quarterly revenue. The overall development of the business, however, does represent another step towards our goals. That said, our full year 2013 numbers will probably be in the $10M range, plus or minus a few %. We at Nanophase 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.
Those are my expectations, which are shared throughout our organization. While we’ve yet to exhibit significant growth, we continue to set ourselves up to succeed in the longer term.
That’s why I’m here and that’s why the team is here.
At this point, we’ve seen our largest customer growing, as well as the expected elimination of some legacy business we’ve talked about in the past. We’ve had mixed results from our other businesses, which are largely stable. All of this forms the backbone from which to grow into our new initiatives. We expect to be able to establish a stronger new business trajectory going in to next year, with new business coming on, in addition to growth in the business that we’ve developed so far. We continue to focus on a few project areas, any one of which will drive significant growth if we succeed.
Our personal care business, which is composed largely of our active ingredients for inorganic sunscreens, continues to perform well. The sunscreen industry as a whole was down in 2013, but our business has increased. We believe that our growth is a reflection of consumer preference for inorganic sunscreens (zinc oxide and titanium dioxide), which are also referred to as “physical sun blockers” in the industry, versus traditional organic sunscreens (like avobenzone). Kevin and I returned yesterday from the top “anti-aging” conference in the U.S., and it was clear that, in addition to many health-conscious consumers, dermatologists prefer zinc oxide, a physical sun blocker, to the organics that are in the market. The variability in downstream demand makes it hard for us to understand the impact of this change in consumer preference on next year’s volume, but things broadly look good for this business going forward. Again, our personal care sales may still fluctuate, particularly during any short period of time, but overall we see a friendly market for our solutions.
We’re also working to build upon our existing surface finishing, or polishing, businesses, but I don’t have much to add to today’s discussion in that regard. We’ve engaged this market space in ways we never have before, and see many opportunities, a number of which are represented by companies that are in the process of evaluating our product suite in this area. We should be able to share more later in Q1 or in Q2.
In terms of some of the new business development that we ultimately expect to contribute significant growth to Nanophase, we continue to make progress in our two energy applications. Recall that one of these is an energy storage application, specifically in batteries, and the other is an energy control application. We shared both our battery (or energy storage) and energy control solutions with targeted industry customers over the summer, got our initial feedback, and believe we offer value to both of these industries.
Regarding energy storage, we are seeing continued positive test results, as well as expanded contact with potential customers. As we mentioned last time, we believe we’ll be able to provide a more economical, and more efficient, material than what is being broadly used commercially today, in some types of consumer batteries. 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 to make changes to reduce future costs in related areas, based on their own product management plans. 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. We expect this application to continue to develop over the next six to twelve months, with some revenue potential for 2014, but the more significant commercial ramp beginning in 2015. As much as we’d like them to embrace a new solution immediately, there are additional steps that we still need to take, and believe we’ll be successful in doing so.
The energy control application is further away from commercialization, but also represents a solution for an existing market that we believe 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. While further away, the ultimate revenue potential may be as high, or higher, than anything in our current business development portfolio, so we are running full speed after this application.
In both energy storage and energy control, we may have some additional market feedback yet this year, with more in 2014, 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.
We’ve been discussing a difference in our approach in terms of how we’re developing new business, and I want to reiterate that, through a tighter focus on fewer, more critical opportunities, we will maximize both our leverage and our ROI on this work. The growth I expect in our new application 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, which encourages speed-to-market, and a better hit rate, is the right one for our company.
With that, I’ll finish 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?
Thank you. We appreciate your continued support. We also appreciate the many new investors that have been getting involved with Nanophase as we clear commercial hurdles and work toward our ultimate goals of becoming an exciting company with significant growth and profitability.
Thanks for joining us and we hope you enjoy the rest of your day.