THIRD QUARTER 2014 CONFERENCE CALL
Jess Jankowski, President & CEO
Thank you, Andrew.
Good morning everybody, I’m glad you’re here! Thanks for being with us today for our third quarter 2014 financial conference call. I’m joined again today by our CFO, Frank Cesario.
We had stronger financial results this quarter, and we continue to see success in our ongoing business development efforts. At a high level, as we discussed briefly in the press release, our Q3 2014 revenue came in 20% above that of the same quarter in 2013, and again, we were ahead of the average quarterly revenue rate of last year. Additionally, our Q3 and nine-month bottom line was significantly improved over last year’s. As I’ve said, this is a direct result of focusing on our top opportunities, as well as running our business as efficiently as possible.
Even though this was a “good” quarter, I don’t like to get caught up in incremental quarterly changes. Our business doesn’t run quarter-to-quarter, and our business development cycle is measured in months-to-years. We need to focus on year-over-year progress, both in financial results and in plan execution.
Our top goals will lead us to building a sustainable business, over the typically drawn-out times-to-market companies experience in advanced materials applications. I also believe the path from “sustainable” to “exciting” will be much shorter than the path from “struggling” to “sustainable” has been.
We’re all focused on increasing our revenue, and our margins, in a material way over the near term. We believe we’ve identified a number of markets that make our growth expectations sensible, and, as I keep saying, the goal we’re ALL after is to significantly increase the equity value of Nanophase. That’s when the “exciting” part will come in!
After Frank provides a short overview of our financial results, I’ll talk about our key business development goals for the near- and mid-terms. These are focused on these main areas:
-Personal Care Technologies;
-Surface Finishing Technologies; and
-Energy Technologies; including
-Energy Storage & Solar Control
Frank Cesario, CFO
Good morning, this is Frank Cesario. Before I begin today’s overview of our financial results for the third quarter 2014, please remember that all financial results are stated in approximate terms.
Revenue for the third quarter was $2.7 million, versus revenue of $2.2 million for the comparable 2013 quarter. Gross margins were 30% for the quarter versus 24% for the comparable period of 2013. The net loss for the quarter was $0.3 million, or $0.01 per share, compared to a net loss of $0.6 million, or $0.02 per share, during the comparable 2013 period.
The nine months ended September 30, 2014 saw revenue of $8.1 million, versus $7.8 million for 2013. Gross margins were 31% in 2014 versus 29% in 2013. Net loss for the 2014 nine month period was $0.8 million, or $0.03 per share, versus $1.6 million and $0.06 per share in 2013.
Many will recall that we had virtually no receivables at the end of 2013. We have rebuilt our working capital position to normal levels, and ended the third quarter 2014 with a $2 million cash position. Our company remains debt free.
Jess Jankowski, President & CEO
I’m happy with our financial performance for Q3, and I expect it to continue to improve over time. Since the financial results speak for themselves, I’d like to offer updates on our main business development areas.
These areas are our top focus as we continue to build Nanophase to achieve the highest sustainable value possible. Again, they are:
-Surface Finishing; &
-Energy Technologies; which include;
-Energy Storage; & Solar Control
We expect these to make a meaningful difference in the near- and mid-terms.
Relative to Personal Care, which is composed largely of our active ingredients for inorganic sunscreens, we’re continuing to see a good market for our engineered zinc oxide. We’re on track for a record year in terms of zinc oxide volume and we believe there are positive indications that, within a range of normal fluctuations, this is a sustainable-to-growing business for Nanophase. In addition to existing demand, which is primarily based in the U.S., regulatory changes in the EU are in the pipeline, which should present opportunities for growth in new markets. We’re also working to develop new products for this market and, broadly, we expect to see revenues keep growing incrementally (or better) over time. We expect this market to continue to be a strong one for Nanophase.
I like to cover Personal Care Technologies 1st, because it currently contributes the most to our bottom line among our top areas of focus. That said, this is the most mature of our current business development areas and, although a great financial foundation, this is not what will propel us “over the top.”
In terms of the surest near-term growth, that would be in the Surface Finishing Technologies market. This area is very different from any other area that Nanophase is currently developing, in terms of how we approach it, and the customer and market profiles involved.
This is a market that includes many medium-sized companies that may each ultimately buy low-six-figure amounts of our polishing slurries. To reach these customers, we have to do more technical support, and we have to develop greater applications data to support the selling process than we do in our other markets. This is why we invested in our polishing lab earlier this year. Our buyer is typically an engineer, which in some ways makes for an easier sale (although none are truly easy). This is the market where we have the greatest near-term upside and where we can have the greatest direct impact in accelerating commercial adoption and building sales.
We still expect our 2014 Surface Finishing revenue to roughly double 2013 volume and be in the mid-six-figure range. For 2015, we expect our Surface Finishing volume to roughly double again, with upside potential beyond that. At that rate, we should crack in to seven figures in volume next year and have room to grow. Of the four key areas we are focusing our business development efforts on, we expect this market to have the greatest impact on 2015 growth.
Our two new Energy Technologies have a time-to-market which puts them in the near-to-mid-term commercialization group, versus the near-term Surface Finishing, or polishing, activities. We are moving forward both in the Energy Storage application (referring to batteries) and in the Solar Control area, which refers to several applications involved with improving energy conservation.
For the battery work, since the last call, we’ve had a large battery manufacturer duplicate the results we used to validate our value proposition, along with another large manufacturer that is now going down the path of manufacturing their batteries on a small-scale production basis, incorporating our materials, to test our value proposition further. While due to confidentiality restrictions we can’t share more details, we have active projects going with several companies where we hope to see one or more move past the test phase, in to the commercialization phase in 2015. We still have a way to go prior to commercialization decisions, but we expect commercial revenue in 2015 followed by larger volumes in 2016.
As I mentioned last time, we’re further along in the battery application than in Solar Control, but based on test results and market feedback in both areas, we see opportunity for very large, profitable volume across our energy portfolio. I’ll repeat also, that ultimate commercial success remains to be seen here, particularly given our limited past exposure to these markets, but we’re making progress, and both markets are demanding improvements that we believe Nanophase can deliver.
While it’s difficult today, to determine the revenue that will come from the first year of a product’s future commercialization, we’re pursuing these energy applications because we believe they can both contribute seven figure revenue in the near-to-mid-term. In both of our Energy businesses, we’re making good headway toward commercialization.
To summarize, right now, our top focus is in these areas. We see all of them;
And the two Energy applications,
as the markets that can improve Nanophase significantly in the near- and mid-term, and that’s where we’re devoting our time and money. We are in a good spot today! On that note, 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.
Andrew, would you please begin the Q&A session?
Thank you Andrew.
We’re glad that all of you are along with us on this exciting ride. I keep saying it, because I keep thinking it, and we keep approaching the business this way. We are working hard to build a sustainable company that becomes an exciting company with exciting returns to all of our stakeholders. Our hard work continues to pay off, and we expect our success to accelerate next year.
Thanks again for joining us today.