FOURTH QUARTER 2013 CONFERENCE CALL
Jess Jankowski, President & CEO
Thank you, Shannon. Good morning everybody, and welcome aboard to our new shareholders. We’re glad you’re able to join us for our fourth 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, and as we discussed briefly in the press release, in terms of revenue, we ran ahead of last year through November, but final delivery timing put us slightly behind 2012’s number. While this was disappointing, and I won’t tell you otherwise, it also indicates that the better part of $1 million in lost revenue related, to the sun setting of the original CIK license agreement, and our old CMP polishing business, was replaced by new and expanded revenue during 2013, which is good news.
My feeling and the feeling of all of us here at Nanophase, is that finishing a little higher or a little lower than the prior year has no bearing on our focus. We know that we need to significantly increase revenue to get to where we want to be, and the new markets we’ve discussed and continue to pursue offer us the ability to do just that. If anything, the final 2013 revenue figures serve as a reminder that flat-to-moderate growth is not acceptable, and doesn’t serve any of our best interests. We are all here for much more, we are positioned for it, and we are expected to deliver it. More on this later.
After Frank provides a short overview of our financial results, I’ll go into more detail about our position as we enter 2014.
Frank Cesario, CFO
Good morning, this is Frank Cesario. Before I begin today’s overview of our financial results for the fourth quarter and fiscal year 2013, please remember that all financial results are stated in approximate terms.
Revenue for the fourth quarter was $1.8 million, versus revenue of $2.7 million for the comparable 2012 quarter. For the year, revenue was $9.6 million this year, versus $10.0 million last year. Gross margins were 16% for the quarter and 27% for the year, versus 25% and 26% for the comparable periods of 2012. The net loss for the quarter was $0.9 million, or $0.03 per share, and $2.5 million, or $0.09 per share for the fiscal year ended December 31, 2013, compared to net losses of $0.6 million and $2.4 million, or $0.02 per share and $0.10 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
We previously shared our view that full year 2013 numbers would be in the $10M range, plus or minus. While revenue was at that level, you should know that we don’t see this company staying at that level, nor do we see GDP-type growth as acceptable. Our singular goal and vision is set on accruing high value to our shareholders and stakeholders. That means continuing with the cost management work we’ve been doing, while still affording ourselves the resources to achieve our growth potential, and focusing on those business areas that can make a real difference. Those are my expectations, which are shared throughout our organization. So, how are we going to do this?
First, we’ll continue to excel at the most successful legacy businesses we’ve already developed, such as our personal care business, which is composed largely of our active ingredients for inorganic sunscreens. The sunscreen industry as a whole was down in 2013, but our business increased to an all-time high. We believe that our growth is a reflection of a growing consumer preference for full-spectrum 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). Dermatologists have long preferred zinc oxide as a full-spectrum UV blocker, and movement in consumer preferences, along with regulation of competing solutions that seem to favor us, converge to help in this area. As we stated last quarter, our personal care sales may still fluctuate, particularly during any short period of time, but overall we see a friendly market for our solutions.
Second, we’ve been working hard to build upon our existing surface finishing, or polishing, businesses. We refer to this business generally as Surface Finishing Technologies. We’ve engaged this marketplace aggressively and have been received very well. We can apply what we’ve learned in this market over the past several years in a way that appears to offer significant value, and we’re starting to see that being validated in the marketplace.
Precision surface finishing, and especially very high end optics polishing, will become more of a strategic growth area for Nanophase going forward. Advances in photonic devices and related lenses, mirrors, prisms and other optics are increasingly being driven by the demand for finer and finer surface finishes, via precision polishing, which can lead to reduced signal loss and light scattering, the improvement of which is being demanded by the market. In other words, we’re about solving important commercial problems, not inventing “neat products” first, then seeing if there’s a market for them.
Building on a successful Q4 exhibition and technical presentation at Optifab 2013 in New York, the largest optical fabrication trade event in the world, we featured our products at Photonics West several weeks ago in San Francisco. Photonics West is the premier North American trade show for the optics and photonics industry broadly, and it gave Nanophase the opportunity to get our name out there and meet with several current and prospective customers during the show.
Our highly engineered nanocrystalline ceria and alumina particle slurries are positioned to become the super-polish abrasives of choice in these demanding applications. Moreover, since the company’s customers in this area, in contrast to other markets in which we participate, are the actual end users of the products that are being sold, we gain greater customer intimacy, which helps us to better understand their requirements. To this end, we’re expanding our capability in direct application support for this market in a number of ways, including construction of a polishing laboratory in Romeoville to help support our growing business development activities.
We also plan to attend and exhibit at the Optatec show in Frankfurt, Germany, in May of this year, which is similar to the Optifab show in the U.S. They alternate every other year, and Optatec will represent the 1st time Nanophase will exhibit as a more or less “consistent player” in this market.
The momentum is building here. Small amounts of new revenue have already begun to come in, and we see this pipeline as being significant, with revenue streams beginning in 2014, and growing nicely thereafter. We think that this will develop in to a nice seven-figure business over time.
Third, we’ve gone to the marketplace with both our battery (or energy storage) and our energy control solutions with targeted industry customers. While we’re further along in the battery applications, based on test results and market feedback in both areas, we see opportunity for profitable volume here. We were right to attack these areas, and have the potential to create game-changing revenue streams. There are still plenty of variables, as we’re a new entrant in these two market spaces, but we’ve taken what we know how to do very well, and applied it in a manner that offers significant value.
At this point, there are too many moving parts to guess at timing, but I would be disappointed if customers don’t embrace at least one, if not both solutions, on a commercial basis in 2014, which should result in 2015 commercial revenue. We may also see modest sampling and ramp-up revenue in 2014.
You will be hearing much more about our progress in Surface Finishing Technologies in the coming months.
Our focus is razor sharp. We see these as the areas where we can win in the near-term, and we’re going after them.
Shifting gears, I also wanted to address something that comes up frequently regarding Company news, namely, that we don’t issue enough of it. In the coming year, you’ll probably notice more marketing pieces, particularly around various Surface Finishing Technologies activities, like the ones I discussed above in optics polishing. The purpose of these will be to establish Nanophase in the markets we serve, or would like to serve, by reaching out to various customer constituencies.
I’m not a fan of investor press releases for their own sake, particularly when they don’t include material financial growth, contracts being signed, patents being granted, or things of that nature. We’re in a business that must be built over extended selling cycles. These cycles typically don’t result in steady flows of news. As we grow and achieve critical mass, become a self-sustaining company, and achieve a more rapid growth trajectory, all of which I expect us to achieve over the next few years, we’ll begin to engage in more purely investor-related outreach. Until we get nearer to that point, the lack of material financial and commercial substance we would have to share, if we chose to begin to highlight them in additional press releases, could serve to undermine our market value and reduce the potential impact of more substantial news.
Results matter, and until we can speak more directly about them, we’ll continue to follow our current approach. With all that said: Let me be very clear, I believe that Nanophase has an excellent investor value proposition today, as does my executive team, and the energetic technical and business development teams we’ve built here, or none of us would be at Nanophase. We are all highly incentivized based upon growth in our stock market value, and we have our eyes on that prize. We are very well-aligned with our shareholders, as people running entrepreneurial companies should be.
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.
Shannon, 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, and you’re all there with us.
Thanks again for joining us today. Everybody have a great day and please keep warm if you can.