Jess Jankowski, President & CEO 

Thank you, Mallory.  Good morning everybody.  We’re glad you’re able to join us to discuss our outlook for this year, beginning with our first quarter 2015 financial updates. Frank Cesario, our CFO, has joined me again today.  During this call, we’ll be talking about the outlook for our four major growth initiatives, as well as updating you on our existing business, and of course, 2015 first quarter results.  As we discussed two months ago, I see our progress moving Nanophase from doing the “heavy lifting” behind the scenes that is always required to develop business in our growth areas, to a place where we expect to see tangible commercial results.” We expect to see these in the form of significant revenue from new sources, beginning this year.  2014 results showed slight improvement over 2013, and we expect a bigger improvement during 2015.  Top line.  Bottom line.  Cash flow.  New business.  We expect growth in all of these areas.  

We continue toward achieving our top goals of first building a sustainable business, then an exciting one.  Of course, we are still subject to the typically drawn-out times-to-market companies like Nanophase experience in advanced materials applications.  Fortunately, we are seeing plenty of positive movement.  As we discussed last time, I also believe the path from “sustainable” to “exciting” will be much shorter than the journey from “struggling” to “sustainable” has been.  I can see the path directly in front of us to significant revenue growth, which I believe offers the potential of increased equity value for Nanophase, for all of us.  That’s when it starts to get good!  To get there, we do need to ride out some fluctuations in the business, particularly in personal care.  That is our top business today and has seen the most fluctuation this year, which certainly impacted our first quarter financials.  

After Frank provides a short overview of our financial results, I’ll talk about all of our key business development initiatives for 2015 and 2016. 

These are focused on our four main areas:

With that, I’ll hand things over to Frank.


Frank Cesario, CFO

Thanks Jess.  Good morning, this is Frank Cesario.  Before I begin today’s overview of our financial results for the first quarter and full year 2015, please remember that all financial results are stated in approximate terms.

Revenue for the first quarter 2015 was $2.3 million, with a gross margin of 24%, and a net loss for the quarter was $0.6 million, or $0.02 per share.  During the first quarter of 2014 revenue was $2.6 million, with a gross margin of 27%, and a net loss for the quarter of $0.4 million, also at $0.02 per share.   

We ended the first quarter 2015 with a $1.2 million cash position and no debt.  Many of you are aware that we have a $1.0 million cash covenant related to the exclusive supply relationship with our largest customer that we disclose in more detail in our SEC filings.  It remains our intention not to raise “permanent” capital, opting instead for implementing and utilizing temporary borrowing vehicles on an as needed basis.  The credit line facility we announced was one example of this strategy.  Things could certainly change at any time and we may conclude it best to seek a small amount of additional capital, but this is the way that our Company approached 2015 and remains so today.  Again, should we seek additional capital, we do not expect that it would be a significant amount.    



Jess Jankowski, President & CEO 

Thanks Frank.      

While the financial results were impacted by the fluctuations in our Personal Care business, we continued to move forward in other areas in Q1.  

I’d like to key-in now on our main business development initiatives.  These areas are our top focus as we continue to build Nanophase to achieve the highest sustainable value possible.  

Again, these are:

We expect revenue from these areas to make a meaningful difference, beginning this year.  

In Personal Care, which is composed largely of our active ingredients for inorganic sunscreens, we’re coming off of another record year in terms of 2014 zinc oxide volume.  Notwithstanding quarter-to-quarter fluctuations, we expect this to remain a solid business for us.  Dermatologists have long preferred zinc oxide as a full-spectrum UV blocker, and movement in consumer preferences has helped in this area.  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 applications there.  We expect this market to continue to be a good one for Nanophase.  This is clearly the most mature of our current initiatives and, while being a strong P&L driver for us, Personal Care is not what we’re relying on to drive the bulk of our 2015 and 2016 growth.  Personal Care has also caused us the most difficulty so far this year, as forecasts have changed and total shipments during Q1 were down from prior years.  The upshot is a reminder of why we need to add new revenue streams to buffer any negative fluctuations in personal care volume, specifically, from our largest customer.  We also expect to launch new solutions, developed by Nanophase, in this area that will be taken to the market later during 2015.  More on these to come in future discussions.  

In terms of the surest near-term growth, that remains in the Surface Finishing market.  This area is different from any other market that Nanophase is currently developing.  Surface Finishing differs in the sense that we are deep in the applications testing prior to our approaching customers, and we have developed the expertise to help those new customers maximize the benefits of using our slurries.  Remember that our buyer here is typically an engineer and the actual end-user of our products.  This gives us a greater ability to influence the results.  It’s 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 continue 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 mid-last year.  This dynamic makes this a performance-driven sale, which matches our technology-focused culture very well. We continue to build on to our technical and developmental know-how, which we believe is world-class.  We also now have the proper metrology, and the proper application-level production equipment, to allow us to pursue this business aggressively, and with credibility.

Our 2014 Surface Finishing revenue approached double the 2013 volume, in the mid-six-figure range.  For 2015, we expect our Surface Finishing volume to more than double 2014 levels, with upside potential beyond that, and we already have more orders for this year than for all of 2014.  

Of the four key areas we’re focusing our business development efforts on, we expect this market to have the greatest impact on 2015 growth, beginning later this quarter. 

Our two new Energy Technologies have a time-to-market which puts them in the near-to-mid-term commercialization group, a little further out than our Surface Finishing activities.  We’re 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, during 2014 we saw multiple large battery manufacturers duplicate the results we used to validate our value proposition, with entities actually manufacturing their batteries on a small-scale production basis, with our materials being incorporated, to test the value proposition further.  Although we originally expected some battery business to materialize in late 2014, we now look for the commercialization phase to begin with more than one customer during 2015, to be followed by more significant revenue volume in 2016.  As I mentioned last time, generally, we’re further along in the battery application than we are in Solar Control.  

Based on test results and market feedback in both areas, we see opportunity for very large, profitable volume across our energy portfolio.   Specifically, we’ve engaged some of the largest players in the industry, along with some smaller players, and believe we offer a significant value proposition, with both applications, in their respective markets.  As a matter of fact, we enjoyed our first commercial revenue shipment of energy materials during April.  While modest in terms of dollars, it is worth noting, as it represents a change in business development status from developmental to commercial scale-up.  This shipment was of materials for Solar Control that represent a 1st commercial production run.  Ultimately, this customer may purchase low-to-mid-six figure volumes from Nanophase, but that is dependent upon consumer acceptance and demand of the final product.  We’ll have more to share about this opportunity next quarter. 

Given the proximity of this call to our year-end call, I don’t have much more to cover today.  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.  

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

Thank you Mallory.  

In terms of the direction of the Company, the quality of our pipeline, and the potential commercial value of our technology, we are in a good spot.  We have been doing a good job of managing our assets to maximize our reach while minimizing our spending.  Our leverage remains good.

I appreciate all of you being here, and those of you that will listen after the call.  I’m looking forward to achieving and enjoying great returns together.    

Thanks again for joining us today.