2017 FIRST QUARTER CONFERENCE CALL
Jess Jankowski, President & CEO
Thanks for the introduction, Amanda and good morning everyone! I appreciate all of you here live and the larger group of you, who prefer to listen after the fact online.
You are with us as we discuss our first quarter 2017 results and a few business updates. I'm Jess Jankowski, and our CFO, Frank Cesario, has joined me again today.
Coming off a record year in 2016, we came out of the blocks in 2017 with a record quarter! We saw our base business expand, and we continue to make inroads in to our two strategic areas of focus:
Personal Care, &
To start, I'd like to invite Frank to give you an overview of our 1st quarter results, then I'll tie things up, with a little more about where we're at, and where we expect to be by the end of this year. 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 of 2017, please remember that all financial results are stated in approximate terms.
Revenue for the first quarter of 2017 was $3.5 million, vs. $2.2 million in 2016. The net profit for the quarter was $47,000, or $0.00 per share, for the first quarter of 2017, vs. a net loss of $0.6 million, or $0.02 per share, during 2016. We ended the first quarter of 2017 with a $1.5 million cash position and nothing drawn on our working capital credit line. Jess?
Jess Jankowski, President & CEO
Thank you, Frank!
As I mentioned in the press release, we had a few things swing our way in Q1 timing-wise, these basically piled on to what would have already been good results. That said, I believe our business has grown stronger and will continue to grow through 2017.
Our base business enjoyed some growth, particularly in our Personal Care Ingredients business and through what we believe is the expansion of a new product launch by one of our coatings customers.
Both of these businesses are a core part of our cash flow and have been expanding. As I've mentioned, Coatings, outside of the kind that are applied to human skin, is not where our Business Development efforts are focused. That said, we continue to bring performance advantages to some Industrial and Architectural Coatings applications.
The reason that we've de-focused our Business & Product Development in these, and other areas, all of which we consider outside of Personal Care and Solar Control, is that these two key areas have advantages associated with them, that clearly make them the best choices for continued investment. Due to our alignment with market demand, we can see that the benefits that we can now bring to market are significant. we expect to see much better than incremental growth in both of these key areas. We also expect this rapid growth to yield strong margins as well. These variables are what drove our development in this direction in the first place. We are in a good spot!
It's worth noting that we see both of these key areas as giving Nanophase, and its Solesence subsidiary, the opportunity to move much closer to the end-use customer and consequently, to a place further up the value chain than we've traditionally been. There are other factors that make these two key areas more attractive to us as well. Since I just gave an expansive overview of these areas last month in the year-end call, I've decided to wait until the Q2 call to spend a little more time describing the advantages that these areas offer in greater depth. I try to balance these discussions, so that newer investors can develop a better understanding of how we plan to win, while those of you who are regular call attendees don't get bogged down.
As our results continue to indicate, we are persisting in effectively balancing the management of cash and expenses, against the need for ongoing investment in the development of our suite of fully formulated skin care products.
To follow on in Personal Care, we are close to having externally validated our C-3 technology, the driver of many of the consumer benefits our White Label Personal Care products will enable. Our next investments will be more focused on developing clinical data, using our actual finished products, not just the discrete ingredients. The best way to think about this is that we're moving from validating our ingredient technology, to developing clinical data to support our consumer claims, within our specific White Label finished products. While these products are enabled by our technology, the sales cycle will move more swiftly when we can present specific product testing to our customers, essentially helping them sell the benefits of our products to the consumer. We're building a consumer claims set here. This is new for us and is in contrast to our ingredients businesses, where technical results tend to drive customer adoption.
During the last half of this year, our goal is to have some White Label products scaling up for full 2018 launches. The volume for 2017 may be small, but, depending upon specific customers and products, the 2018 revenue should be in the six-figure plus range. It's still too early to pinpoint volumes.
Regarding our Solar Control business, which we are marketing under the NanoShield trademark, there are fewer moving parts, so there is less to talk about today. We continue to make inroads and continue to work on commercializing additional materials from those we began with last year. I expect to have more to share later in the year, as it remains to be seen whether we see significant revenue from this area in 2017. We do expect this area to be a significant revenue driver over the next several years, but are currently awaiting further internal development, and further customer feedback.
In terms of our revenue expectations for the business more broadly, at a high level, we expected 2016 revenue to exceed 2015's and it did, and we expect 2017 revenue to exceed 2016's. The extent of our 2017 year-over-year growth will become clearer as we get well in to Q3 and Q4.
Given our experience and developed knowledge in various personal care markets, along with the historical success and broad acceptance of our ingredients in some of these markets, we can see our Personal Care business continuing to grow, but more rapidly, as we ramp to commercialization of our White Label products business later in the year. Currently, Personal care is roughly a $7M annual business for Nanophase. Based mainly upon our new product and business development focus, which is within our Solesence subsidiary, we see Personal Care having the potential to double of the next 3-4 years.
In terms of our financial results, our added investment in building our skin care product line was the only thing that stood between us and positive Adjusted EBITDA for ALL of 2016. As it was, we hit it for eleven of the twelve months last year. We use Adj. EBITDA as a near-proxy for positive operating cash flow. We have also just enjoyed another quarter of GAAP profitability in Q1 of this year. This follows GAAP profitability in Q2 of 2016. These quarters mark the first and second profitable quarters in the long history of Nanophase.
Our annual results have been steadily improving and I expect this to continue through 2017. As you may have heard me mention in the past:
Revenue growth, cash generation and new business growth remain our top priorities.
Although the largest group of our investors either listen to the webcast, or review the transcript, after the live call, I'd like to invite those participating in today's call to ask any questions you may have, or to share your comments.
Amanda, would you please begin the Q&A session?
Thank you, Amanda. I'd also like to thank all of you who have taken the time to listen live, and on the web, for your interest in Nanophase.
I expect 2017 to be a year of stronger growth, accompanied by stronger results. Frank and I are looking forward to our next opportunity to discuss our business with you.
Let's all make it a great day!