THIRD QUARTER 2015 CONFERENCE CALL
Jess Jankowski, President & CEO
Thank you, Andrea. Good morning everybody. We’re glad you’re able to join us to discuss our third quarter 2015 financial results and business updates. Frank Cesario, our CFO, has joined me again today. During this call, we’ll be talking about some new products, as well as updating you on our existing business, and 2015 third quarter results.
We talked about growing revenue as we entered 2015. And then we took a hit from our largest customer, and discussed how our other new revenue was filling a good bit of that shortfall, as opposed to helping us expand our topline. That business has returned and we have caught up with last year, which means that we once again expect full year revenue growth. Although sales to our largest customer were still down nearly $1 million through nine months, this shortfall has been reduced to the point that other revenue has covered the gap, and the fourth quarter looks stronger than last year. The current state of our business has stabilized and, even given the change in volume from our largest customer, we expect some year-over-year revenue growth in 2015.
We live in, and manage to, a highly variable business climate as we operate Nanophase. Even with the ups and downs, as Frank will share, we continue to control the cost side of the business very well, even as we see more growth coming. On the contribution side, this sort of variability reinforces our strategy to develop new customers and new products, whether in existing markets, adjacent markets, or in wholly new markets for Nanophase. This is something we’ll talk more about after Frank provides a short overview of our financial results. 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 third quarter and first nine months of 2015, please remember that all financial results are stated in approximate terms.
Revenue for the third quarter of 2015 was $2.8 million, vs. $2.7 million in 2014, with gross margins of 32% and 30%, respectively. The net loss for the quarter was $0.2 million, or $0.01 per share, for 2015 and $0.3 million, or $0.01 per share, for 2014.
On a year to date basis revenue was $8.0 million in 2015 vs. $8.1 million in 2014, with margins of 30% and 31%, respectively, and net losses of $0.9 million or $0.03 per share and $0.8 million or $0.03 per share, respectively. I note that our business generated net cash during three of the past six quarters as measured by adjusted EBITDA, including the second and third quarters of 2015.
We ended the third quarter 2015 with a $1.2 million cash position and $200,000 drawn on our working capital credit line. Many of you are aware that we have a $1 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 to focus on small amount and short period vehicles, such as this credit line facility, on an as needed basis. During September, we borrowed on this credit line strictly as a precaution to meet contractual covenants, then repaid this borrowing in early October. 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. Again, should we seek additional capital, we do not expect that it would be a significant amount.
Jess Jankowski, President & CEO
In the past I’ve reviewed all of our major areas of focus, but today’s emphasis will be on new revenue traction.
In Personal Care, which is composed largely of our active ingredients for inorganic sunscreens, we continue to sell a significant amount of zinc oxide into the marketplace. In addition, as we’ve announced, we received a patent on a new coating that we refer to as “C-3.” We don’t normally talk about patent issuances in much detail, but I think this one is especially important. C-3 is a new type of coating that we believe will both enhance the aesthetics of a sunscreen, in terms of better skin feel and reduced whitening, and also address a hot-button topic in the industry by aiding photostability, which inhibits the formation of free radicals. We’ve proven the value from C-3 in our first two titanium dioxide sunscreen products, both being dispersions this time, versus dry coated powders. We understand that the efficacy of these products has been demonstrated to a large number of potential customers in North America and Asia. We’re currently preparing to convert sample fulfillment into commercial revenue. We’ve now successfully applied C-3 to zinc oxide, and plan to develop additional new products that we believe will have a competitive advantage over those already in the Personal Care market.
To enable us to better serve this market, we’ve added a full-time formulator to our team, the first ever at Nanophase. They will allow us to better build products that will perform in their end-use formulations than we could have in the past. This not only adds to our depth in Personal Care, but also allows us to respond more quickly to changing market demands. We become more market-facing all the time. Essentially, we’ve positioned ourselves to move further up the value chain.
Going forward, we don’t expect C-3 to be used solely for Personal Care, nor do we expect to only enable solutions involving titanium dioxide and zinc oxide. We view it as a coating platform that we expect to be applicable across many product areas. We look forward to continuing to exploit this competitive advantage in the marketplace as we further develop this technology.
On the Energy front, specifically in the Solar Control area, which refers to several applications involved with improving energy conservation (think of the films used on vehicles and buildings), we now have growing revenue that has quickly moved from five figures to six figures. We’re seeing customers and applications expand through this year, and we see what could be some significant products coming down the line as we enter 2016. This is becoming commercially real, and not simply a development project. We expect growth here going forward.
As far as our base business goes, as we discussed last time, we’ve also seen existing customers and applications expand during 2015. We think some of this is due to increased demand for existing products, some is due to cyclicality which can be challenging, and some is due to new applications development on the part of some of our customers. This last piece, the new applications development, which (in these cases) we are often not directly involved in, reinforces our view that lead times may be far longer than we like, but that customers see value in formulating with our materials nonetheless. This affirms our belief that our technologies provide benefits that are not achievable through other means.
As I’ve shared, being conservative, we’ve seen meaningful new business revenue in 2015, and we expect more in 2016. We’ve seen ourselves climbing out of an early hole during 2015, to a point where we’re posting better numbers than the previous year, despite a decrease from our largest customer. This growth is due to revenue from sources that were not in play last year. Finally, we see 2016 as being stronger than 2015. While we always want to swing for the fences when we can, we are still hitting singles and advancing our company.
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.
Andrea, would you please begin the Q&A session?
Thank you Andrea.
In terms of the direction of the Company, the quality of our pipeline, and the potential commercial value of our technology, I am a strong believer in what we can achieve at Nanophase. Our leverage remains good. Thanks again, all of you, for joining us today.