2017 SECOND QUARTER CONFERENCE CALL
Jess Jankowski, President & CEO
Thanks for the introduction, Bryan and good morning everyone. To those of you on the call live, thank you, and thank you also to the greater group who prefer to listen after the fact online.
Today, we'll discuss our second quarter and six-month 2017 results, along with some business updates. I'm Jess Jankowski and am joined today by our CFO, Frank Cesario. Coming off our historic best-ever annual bottom line results in 2016, I'm happy to say that we have now achieved record six-month numbers, including positive earnings. Our base business is expanding, one of our new Personal Care Intermediates opportunities has been growing and we remain focused on growth in our two main strategic areas:
Personal Care, & Solar Control
Let's have an overview of our current results first, then I'll expand some more on where we are on our strategic path and our outlook for the balance of 2017. Frank, let me hand it over to you.
Frank Cesario, CFO
Thanks Jess. Good morning, this is Frank Cesario. Before I begin today's overview of our financial results for the second quarter of 2017, please remember that all financial results are stated in approximate terms.
Revenue for the second quarter of 2017 was $3.6 million, vs. $3.7 million in 2016. The net profit for the quarter was $22,000, or $0.00 per share, for the second quarter of 2017, vs. a net profit of $0.5 million, or $0.01 per share, during 2016.
For the six months ended June 30, 2017, revenue was $7.1 million, vs. $5.9 million during 2016. The net profit for the first six months of 2017 was $0.1 million, vs. a loss of $0.1 million during 2016. Both round to $0.00 per share.
2017 was the first time we ever posted a profit during consecutive quarters and the first six months of the year. Investments in launching our line of fully formulated skin care products interfered with our ability to drop the revenue increase to the bottom line. We believe these investments will be significant to our company, in a positive way, as we move forward.
We ended the second quarter of 2017 with a $1.1 million cash position and nothing drawn on our working capital credit line.
Jess Jankowski, President & CEO
Thanks Frank. It's definitely been a solid year so far. I'm more confident than I've ever been in our strategy, our products and, most importantly, our people.
The first six months has been great for Nanophase. The two quarters evened out, with Q2 being slightly lower due to some advantageous timing in Q1. We are on track for a good year in terms of revenue growth, although our expectations are that the second half of 2017 will see lower revenue levels than we've seen in the first half. Regardless, we still expect to see solid growth year-over-year in revenue. We're currently running ahead of plan and will have better updates for you by the time we get through Q3. We are investing in the next wave of growth right now.
You may have read our June press release and 8-K announcing the new relationship between Nanophase and Eminess Technologies. This was done in keeping with our strategy to streamline the business and to focus our product- and business-development resources on:
Personal Care, & Solar Control
Our investments in the Surface Finishing markets have resulted in expanded business and good margins for Nanophase, but I don't view this as our best option for rapid growth. That's where our deal with Eminess Technologies fills the gap. By reducing the sales, marketing and technical support load, it allows Nanophase to retain product margins, while offering potential upside. Most importantly, through some organizational streamlining, it will allow us to focus more attention and development resources, on Personal Care and Solar Control.
Eminess is a world-class company with deep roots in Surface Finishing. They support a full line of products in addition to polishing slurries, including; pads, conditioners and other related products. They develop and manufacture many of their own products and distribute those of others. The collaboration with Nanophase will add new products to their line and enhance their value proposition in the marketplace as a result.
In a nutshell, we're licensing dispersion technology to Eminess, to allow them to make some of our particle slurries for the optics polishing markets. They will also become the face of sales and technical support for all of our existing polishing customers. Nanophase will continue to manufacture many of the nanomaterials and slurries for this business, while stepping back from related sales support and development activities, and, of critical importance to our culture AND ME, EVERY DAY, Eminess will offer our customers a continuation of excellent service, which is a hallmark of Nanophase. Additionally, Eminess will leverage their existing relationships in other polishing markets, as well as their much larger sales and support teams across the board. Ultimately, we believe that this should lead to new opportunities to expand the market footprint of both companies.
Moving on, our results thus far in 2017 have been driven by consistent demand for zinc oxide in our Personal Care Ingredients markets and growth related to our coatings business via European customers, who appear to be enjoying a stronger local economy.
As our financial results continue to show, our attention to balancing the management of cash and expenses, against the investment in the development of our suite of fully formulated skin care-, or beauty science- products, is bearing fruit. We are currently focusing more of our work on formulating and developing clinical data to support our marketing efforts.
We have objective technical evidence, mostly via in-vitro and ex-vivo testing, that our products offer benefits that are high in demand by skin care cosmetics consumers. These benefits include:
- - Good broad band UV absorption
- - A minerals-based solution, AND
- - Reduction of free radicals formed through photo-instability, among other benefits
Now, these are technical advantages that ingredients buyers and formulators find interesting, but they don't "build a consumer story". To put these advantages in "sexier" terms, we now need to design and complete in-vivo clinical studies, on consumer panels, showing advantages like:
- - Wrinkle masking
- - Environmental protection, AND
- - UV protection
These all add up to being able to show "anti-aging" benefits, which are the biggest driver on the consumer demand side. By rounding out our marketing support package with a "Consumer Claims Set", we will offer our White Label Product customers a much easier-to-communicate consumer value proposition.
We often refer to our White Label customers as "Brands". They will be marketing these products, with their names on them, using their distribution channels, enabled by our Solesence technology, formulating expertise and regulatory and production backbone.
Between the product benefits we add, many falling in to the growing category referred to as "Beauty Science" AND the growing demand for minerals-based UV absorbers in cosmetics, we're well-aligned to take advantage of market trends that are becoming more prevalent.
Unlike almost all of our historical products, skin care products, particularly White Label products, cannot be sold on a technical basis. Many of our past Ingredients customers have been more engineering- or science-focused, whereas our typical White Label customers are focused on consumer claims, with an end-use product marketing orientation. Developing a "Consumer Claims Set" for our products is something that we started doing last year, in concert with the establishment of our Solesence subsidiary.
Our goal has been to have a few White Label products scaling up by the end of this year for launches in 2018. If we reach our goal, the volume for 2017 will be relatively small, with more significant volumes expected for 2018.
With respect to our Solar Control business, we have customers engaged in testing, with some in the process of determining whether they will begin scale-up this year or not. Given the nature of the products in this area, there is less to report on today. To a degree, this is a function of a smaller universe of potential customers, coupled with longer-duration testing cycles. We should know more later in the year, as to whether or not we see six-figure revenue in this area for 2017. Our expectation remains that Solar Control should be a significant revenue driver over the next several years.
In terms of our revenue and earnings expectations for the business more broadly, we expected 2016 revenue and bottom line to exceed 2015's and they did. We now have similar expectations for 2017, while we are consciously limiting our bottom line growth, only in the near term, by continuing to invest in developing our two key business areas. Currently, between the two, the bulk of this investment is going into developing our fully formulated product line for Personal Care.
Regarding the second half of any of our calendar years, we may always have to contend with the seasonality factor in our business. While I expect the second half of 2017's results to be less than in the first half, I do expect them to be better than 2016's second half.
The extent to which we will see year-over-year growth from 2016 to 2017 will become clearer as we get well in to Q3, then Q4, but we are ahead of plan. In order to build the enterprise value of Nanophase most effectively, revenue growth, cash generation and new business growth remain our top priorities.
Although the largest group of our investors 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.
Bryan, would you please begin the Q&A session?
Thank you, Bryan. Thank you, also, to all of you who have taken the time to listen live and on the web. We appreciate your interest and support. So far, so good, for 2017 and we're just getting started. We're looking forward to our next opportunity to discuss the business with you.
Have a good rest of your day everybody.