FIRST QUARTER 2014 CONFERENCE CALL
Jess Jankowski, President & CEO
Thank you, Sam. Good morning everybody. And welcome aboard to our new shareholders. We’re glad you’ve been able to join us for our first quarter 2014 financial conference call. Frank Cesario, our CFO, has joined me again today. During this call, we’ll continue to discuss our newer initiatives, as well as results and trends involved in our existing business. Things are looking up.
At a high level, and as we discussed briefly in the press release, our Q1 2014 revenue came in below that of the same quarter in 2013, but ahead of the average quarterly rate of last year, and well ahead of the fourth quarter. Keep in mind that Q1 of 2013 proved to be the highest revenue quarter Nanophase had last year, and was then followed by a downward trend throughout the year. We don’t expect that same dynamic in 2014. Additionally, despite the year-over-year decrease in Q1 revenue, our bottom line improved. This is a direct result of qualifying only the top opportunities, as well as running our business as efficiently as possible.
As I mentioned last time, incremental quarterly changes are little more than a distraction. Finishing a little higher or a little lower than the prior year has no bearing on our focus. We know that we need to significantly increase revenue to get to where we want to be, and we believe the new markets we’re working in will allow us to do just that. After Frank provides a short overview of our financial results, I’ll go into more detail about our position at this point in 2014.
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 2014, please remember that all financial results are stated in approximate terms.
Revenue for the quarter was $2.6 million, versus revenue of $3.0 million for the comparable 2013 quarter. Gross margins were 27% for the quarter versus 30% for the comparable period of 2013. The net loss for the quarter was $0.4 million, or $0.02 per share, compared to a net loss of $0.5 million, or $0.02 per share, during the comparable 2013 periods.
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 first quarter 2014 with a $2.2 million cash position. Our company remains debt free.
Jess?
Jess Jankowski, President & CEO
Thanks Frank.
Our singular goal and vision is set on accruing high value to our shareholders and stakeholders. Those are my expectations, which are shared throughout our organization. For now, that means focusing intently on those business areas that can make a real difference in the near- and medium-terms. So, how are we going to do this?
First, we’ll continue to excel at the most successful legacy businesses we’ve already developed, such as our personal care business, which is composed largely of our active ingredients for inorganic sunscreens. The market pull for minerals-based full-spectrum UV blockers continues to move our business forward. In our view, an indication of this was that, in 2013, the sunscreen industry contracted as a whole, during which time our business grew to an all-time high. In a few weeks, I’ll attend the New York Society of Cosmetic Chemists Supplier’s Day exposition, along with Kevin Cureton, our VP of Sales, Marketing & Business Development. BASF will be prominently displaying and promoting the Z-COTE line of products at this show. As many know, all of BASF’s Z-COTE products are supplied by Nanophase. We’ll have a better gauge of the current market in a few weeks, but my expectations are that it will continue to grow.
In near-term business development, we’ve also been working hard to build upon our existing surface finishing, or polishing, businesses. We refer to this business broadly as Surface Finishing Technologies. We’ve engaged this marketplace aggressively and have been received very well. Precision surface finishing, and especially very high end optics polishing, continues to grow as a strategic market for Nanophase. Advances in photonic devices and related lenses, mirrors, prisms and other optics are increasingly being driven by the demand for finer and finer surface finishes, which are achieved via precision polishing. Finer finishes can lead to reduced signal loss and light scattering, the improvements to which are being demanded by the market, in order to allow various optics producers to continue to move their technologies forward.
We’re applying greater technical marketing, sales and business development resources in this area, as we see it as fertile ground for expansion. To this end, we’re expanding our capability in direct application support for this market in a number of ways. As a follow-up from our February call, we’ve completed the construction of the small polishing laboratory in Romeoville I previously referenced. This lab is being used to help support our growing business development activities in Surface Finishing Technologies. Given our outlook thus far, we expect to expand this capability even further later in the year.
Our polishing revenue in total for 2013 was just a few hundred thousand dollars. We expect to roughly double that volume in 2014, then expand upon it further in 2015. Currently, we have purchase commitments extending through year-end that well exceed 2013’s full year polishing volume. This backlog is an encouraging sign and we expect to continue to build upon this growth.
Following a successful Q4 exhibition and technical presentation at Optifab 2013 in Rochester, New York, and Photonics West in San Francisco earlier this year, we will exhibit at the Optatec show in Frankfurt, Germany, next month during the week of May 17th. Optatec in Germany is similar to the Optifab show in the U.S. Just like Rochester in the U.S., Frankfurt is an optics hub for Europe. I will be attending this show, along with senior representatives of our sales and technical teams. We expect this trip to result in many new contacts in this space that may well lead to expanded 2015 revenue.
Currently, we’re focused on a relatively narrow area of optics polishing, which includes certain types of glass in certain applications. We believe we’ll be able to broaden our scope here over time, and that additional customer demand is out there for our existing slurries and for our product development expertise. In an effort to continue expanding our reach, I’ll also be attending the 2014 SPIE DSS exhibition with part of our sales team next week in Baltimore. This exhibition focuses directly on the defense and security industries, both of which are large optics consumers.
The momentum is building here. We believe that Surface Finishing Technologies will develop in to a nice seven-figure business for Nanophase. You’ll be hearing much more about our progress in the coming months.
In business development for the mid-term, we have our Energy Storage, or battery application, and our Energy Control application, which we expect to become commercial and yield modest revenues in 2015, then develop more fully in 2016. While we’re further along in the battery application, based on test results and market feedback in both areas, we see opportunity for very large, profitable volume here. While I expect Energy Storage to come in before Energy Control, both of these areas have the potential to create game-changing revenue streams. There are still plenty of variables, as we’re a new entrant in these two markets, but we’ve taken what we know how to do very well, and applied it in a manner that offers significant value. At this point, I’d be disappointed if customers don’t embrace at least one, if not both of these solutions, on a commercial basis in 2014. This should also result in modest sampling and ramp-up revenue in late 2014, heading into more significant levels in 2015.
Our focus is very sharp on these areas. We see all of them; Personal Care, Surface Finishing Technologies, and the two Energy Solutions, as the markets where we can win in the near- and mid-term, and we’re going after them aggressively.
With that, I’ll finish 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.
Sam, would you please begin the Q&A session?
Thank you Sam. We appreciate the continued support of our longer-term investors, and we appreciate the enthusiasm and support of our new shareholders, as we continue to clear commercial hurdles and work toward our ultimate goals, of becoming an exciting company with significant growth and profitability.
Thanks again for joining us today.
