FIRST QUARTER 2018 CONFERENCE CALL
Jess Jankowski, President & CEO
Thank you, Shelby, and Good morning everybody. I appreciate all of you being here, and those choosing to listen later online. We’re happy that you’re able to join us to discuss our first quarter 2018 financial results, along with business updates that I know you’ll find interesting. Joining me on the call today is Jaime Escobar, our new Chief Financial Officer.
During the call, I’ll be giving an update on our progress in new business development, particularly within Solésence, along with updates on our Advanced Materials business, and, of course, first quarter results. As you digest this information, keep in mind that we are headed toward what may be a record in Q2 revenue, driven by our Personal Care ingredients business, and Solésence, leading to what may be a record first half.
Given our ongoing experience with Solésence, I can say that we feel that our current opportunity set is very strong. We’re working as hard as we can to take advantage, both of the strategic position we’ve developed, and the markets that are aligned with our product benefits. We are on track with our Solésence launches, which represent six-figure revenue in Q2 and, more importantly, a major building block for our Solésence finished products going forward.
We had some timing issues in Q1, which I’ll discuss, but your Company looks good. Our first quarter 2018 revenue was $2.9million, down about 17% from the same quarter in 2017. As I mentioned in the press release, there were several factors impacting first quarter results that were timing related, including a lower-margined product mix when compared to Q1 of 2017. We also spent a good deal of time and energy ramping up for our Solésence product launches, two of which occurred April 1st and May 1st, respectively, with one more planned by the end of June. In our Advanced Materials Business, we also saw a dip in architectural coatings revenue in Q1, that may be related to this spring’s weather, and the delays it may have had on outdoor projects.
Throughout 2017, and now this year, we continue to invest in product development for our Solésence suite of fully formulated Skin Care products. Our plan is to shift more of our investment toward market development later this year. This investment reduced last year’s earnings improvement, but has been necessary to establish our Solésence products in the beauty and dermatology markets. We continue to believe that Solésence will be our greatest growth driver over time, having the ability to eclipse our Advanced Materials business in the next several years.
Now I’d like to introduce our new CFO, Jaime Escobar, who will give us a quick overview of our financial results. Jaime?
Jaime Escobar, CFO
Thanks Jess, and Good morning. Before I begin, please remember that all financial information is stated in approximate terms.
Our first quarter revenue was $2.9 million in 2018, compared to $3.5 million in 2017. We had an increase in our losses quarter-over-quarter, resulting in a $924K net loss, or $0.03 per share in 2018, compared to $46K in net income, or $0.00 per share, for the same period in 2017.
This loss was largely a function of lower revenue volume, and a reduction in finished goods inventory, resulting in less overhead absorption, along with a less favorable product mix, production cost increases, and an increase in R&D expenses. Jess will discuss this further in a few minutes.
We ended the first quarter with a $1.2 million cash position and $200,000 drawn on our working capital line of credit. Jess?
Jess Jankowski, President & CEO
Thanks Jaime. While I know we can always improve, we need to look at Q1 in tandem with Q2. We’re looking at a robust first half of 2018 with growth in Q2 revenue from both our Advanced Materials business, and our Solésence business. Demand continues to be strong for our zinc oxide active ingredients, for the Personal Care market, and we expect demand to continue to expand for our Solésence line of products. As I mentioned, we may well see record revenue in Q2, possibly to the extent of creating another record first half.
For those of you that haven’t yet read our annual report, and for any investors new to our calls, I want to better explain the terms I have been using to define our commercial areas. You’ll be hearing more and more about our “Advanced Materials” business, and our Solésence business. It was important to differentiate these two broad areas, in order to help us think about the way we develop our strategy and, very pertinent today, the way we explain our commercial activities.
The Advanced Materials business is composed of our personal care ingredients business, and the materials businesses related to coatings, solar control, a diverse grouping of customers buying higher value specialties, and, the polishing business where we have partnered with Eminess. The products we sell in to these varied customers and markets are essentially enabling ingredients, or in the case of the Personal Care markets, "Active Ingredients." They may be in the form of an uncoated-, coated-, or dispersed-particle, but they all share similar features:
1) They represent only a portion of someone else's finished product;
2) We either sell them to the ultimate manufacturer of the final product, or, more frequently, we rely on our partners and customers to sell them for us, to the ultimate manufacturer; and in either case,
3) We remain a few critical steps removed, from both the marketing and sales processes, to the end users, many of which use the finished products in industrial applications.
We expect our Advanced Materials business to remain solid, and we see opportunity for growth in several areas. The main area where we're investing our product development time in Advanced Materials in now in Personal Care. In the Personal Care, Skin Care, and Cosmetics markets, demand for more and better minerals-based products continues to grow. This has been good for our Advanced Materials business, as we supply quantities of coated zinc oxide to various manufacturers through our largest customer, and it may be even better for our Solésence business.
We created our Solésence subsidiary to maximize the value of our patented technologies, as well as to take advantage of our strong historical position as a premier ingredient supplier. To support the finished product business, we’ve added people with experience in formulating and product development, as well as internally developing these strengths within our existing team. This strategic investment is starting to pay off.
Through Solésence, we’re developing and manufacturing fully formulated beauty products for Brands, using what we refer to as our Active Stress Defense technology.
All of our formulations are created using minerals-based active ingredients as their backbone, which is where the demand is. Consumers and dermatologists generally want minerals, for best health benefits, but have been limited by many of the existing technologies in the market.
To enhance our ability to market our finished products, we continue to expand our portfolio of consumer claim test data, to provide proofs… for product features and consumer claims.
Some of the key benefits we have proven are:
· Comprehensive environmental protection, including protection against pollution;
· Full spectrum UV protection; and,
· Stopping the release of free radicals, which contribute to signs of premature aging, such as wrinkle formation and skin discoloration.
These claims for Solésence products help the Brands to provide evidence of being able to prevent the signs of premature aging, which continues to be one of the biggest drivers of consumer demand.
We often refer to our Solésence customers as “Brands.” That’s because they’ll be marketing these products, with their names on them, using their distribution channels, enabled by our Solésence technology, our formulating expertise, marketing support, and regulatory and production backbone. Our Solésence customers will sell the products we create to consumers through specialty retail stores like Sephora or Ulta, through professional channels, like spas and dermatologist’s offices, and through their websites and other online venues. While we’re not selling products directly to consumers, we are helping brands to produce better products to capitalize on growing market demand.
This is our time, and we are pushing hard to commercialize more Personal Care and Solésence products.
I suggest that any of you who haven’t been on our Solésence website recently, visit us at: www.solesence.com. We continue to update and improve our site, which includes some videos, and an abundance of compelling information.
While I’m unable to disclose the exact details of our product launches, everybody should be able to start seeing these products in the marketplace. We’ll have more information to share, both on the products, and sales volumes, over the next few quarterly calls, but we are in the market, right now. We believe that Nanophase and Solésence are in the right place at the right time, right now.
Due to some internal scheduling issues, we had to have this call on a Friday, which seems to have kept the numbers on the live call down. Although most 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.
Shelby, would you please begin the Q&A session?
Thank you, Shelby. And thanks to all of you, for taking the time to listen, and to support Nanophase and Solésence. Given the work we’ve done in commercializing Solésence, even at this early stage, I can reiterate that we feel that our current opportunity set is very strong. We’re pushing as hard as we can to take advantage of our current momentum, and we are in an excellent spot.
As 2018 unfolds, we’ll have more to share and I expect our outlook to continue to improve.
Our second quarter looks good, and we’re working on locking in more Solésence product launches for the fall of this year and spring of 2019.
I’m looking forward to the opportunity to discuss the business with all of you again soon. Enjoy the sunshine responsibly and have a great day everybody.