Solesence Inc (SLSN) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Nanophase Technology's first quarter 2010 financial results conference call. (Operator Instructions.) As a reminder, this program is being recorded.

The words expect, anticipate, plans, forecast, and similar expressions are intended to identify forward-looking statements. Statements contained in this news release that are not historical facts are forward-looking statements that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements reflect the Company's current beliefs, and a number of important factors that could cause actual results for future periods to differ materially from those expressed in the news release.

These important factors include, without limitation, a decision of the customer to cancel a purchase order or supply agreement, demand for and acceptance of the Company's Nanocrystalline materials, changes in development and distribution relationships, the impact of competitive products and technologies, possible disruption in commercial activities occasioned by terrorist activity and armed conflict, and other risks indicated in the Company's filings with the Securities and Exchange Commission. Nanophase undertakes no obligation to update or revise these forward-looking statements to reflect new events or uncertainties.

I would now like to introduce your host for today's program, Mr. Jess Jankowski, President and CEO. Please go ahead, sir.

Thank you, Jonathan. Good afternoon. We're happy that you could join us for our first quarter conference call.

We spoke with you just a few weeks ago when we shared our fourth quarter and year-end 2009 financial results. At that time, we indicated that the first quarter was shaping up to be better than any of our 2009 quarters, and it was. We had a great first quarter, with revenues increasing 40% over the first quarter of 2009, and we're pleased with the significant increase in our gross margin. We're working the plan and are beginning to see some results.

I don't want to steal all of Frank's thunder, so I'll turn the call over to him to provide an overview of the income statement and balance sheet. Here's Frank Cesario, our CFO.

Thanks, Jess, and good afternoon.

I'd like to take a few minutes to provide an overview of our financials disseminated earlier today. Before I begin, let me remind you that all financial results are stated in approximate terms.

For the first quarter ended March 31st, 2010, we reported revenue of $2 million, an increase of 40% compared to revenue of $1.4 million for the first quarter of 2009. We expect this revenue trend to carry through into the second quarter, indicating an even stronger second quarter.

The net loss for the first quarter is $1.1 million, or $0.05 per share, versus a net loss of $2.1 million, or $0.10 per share, of the first quarter of 2009. I should note that 2009 also included restructuring charges of $794,000. As of February, 2010, we completed all payments under those restructuring programs.

Our gross margin improved significantly in the first quarter; 24% this year versus 6% last year. This improvement resulted from revenue growth, which absorbs fixed manufacturing costs, and from operating efficiencies. Our goal is to continue improving those profit margins. And I'll repeat what we've said before. Running leaner is great for the bottom line and it is not affecting our revenue growth.

Our balance sheet is strong. We finished the quarter with $7 million in cash, cash equivalents and investments. After repaying all of our debt during 2009, we have $7 million in the bank and no debt.

I'd like to turn the call back to Jess to provide an overview of the first quarter highlights. Jess?

We began 2010 with the history-making launch of NanoUltra, a breakthrough end user product for window cleaning and polishing. We believe this product launch is a perfect example of how well our new business strategy is working.

This launch, along with our successful auction rate securities settlement and seemingly increased confidence in the equity markets in general, may have been the catalyst for the recently improved trading volumes we've been experiencing in our stock.

Increased liquidity indicates that our shareholders are pleased and that we are acquiring shareholders who may be new to Nanophase. With this in mind, I'd like to briefly reiterate our 2010 business strategy for new shareholders and conference participants.

The Company's business model evolved over the last several years from simply selling nano materials solely through partners such as BASF, Rohm & Haas Electronic Materials, and BYK Chemie. As an adjunct to our business partner program, in late 2008 the Company's business model evolved further to include a focused, customer-direct marketing thrust. This change in our model allowed us to leverage our knowledge of nano material chemistry to develop application-specific products for companies with unmet needs in select markets.

Nano materials can be difficult to integrate effectively into chemical applications unless one has the expertise, and we do. Using this experience and focusing on just a few market segments, we've developed the application expertise that is perceived as extremely valuable by potential customers.

While this customer-direct model is the catalyst for future growth of our company, it's also very important that we have a strong base of business from our existing customers on which to build. This legacy business, and in particular our personal care business with BASF and our semiconductor polishing business with now Dow Electronic Materials, is what drove our revenue increase first quarter over first quarter.

I'd like to add that, during 2010, we expect our well-established partners to continue to be the largest revenue contributors, and expect volume from our customer-direct model and NanoUltra to have more of a growing impact on revenue as 2010 progresses and into next year.

We are deeply engaged in building our Tier 1 exterior coatings market as well. We are particularly focused on growing sales of our Nano Zinc Oxide for UV protection in clear and semi-transparent stains. This represents a $570 million market. Sales in this application area are still in an early development stage, particularly due to long cycle and testing times required for success.

Our in-house testing, along with significant external customer testing of our revolutionary technology, provides evidence that our products extend longevity of clear and semi-transparent stains on wood and wood products up to three times the typical life, and at a competitive cost.

We began aggressively testing our products for this industry less than 18 months ago. Generally, the period from testing to product launch can represent a cycle of one to four, or even five years, and we anticipate many customers developing in this market. We expect to see sales continue to rise as we complete more of these cycles. We're also making substantial inroads in other markets, including hard surfaces and plastics.

Earlier this year we demonstrated our entrepreneurship and flexibility by creating a third revenue stream with the development of an end user product, as opposed to the chemical nano additives we've traditionally supplied.

NanoUltra, a family of products that cleans and protects architectural glass, began shipping commercially at the end of the first quarter, after a late January launch. I invite you to review the information available on our corporate website, www.nanophase.com, and a special NanoUltra website, www.nano-ultra.com. This product family offers a compelling value proposition and opportunity for professional window cleaners and commercial building owners, our initial target market.

While NanoUltra is new and exciting for our company on many levels, I'd like to reiterate that, during 2010, we expect our well-established partners to continue to be the largest revenue contributors, and expect volume from our direct customer model and NanoUltra to have a growing impact on revenue as 2010 progress and into 2011. We are shipping initial quantities of product and are beginning to see increased activities. And we believe NanoUltra is a winner for Nanophase, one of many to come.

We continue to listen to what the market needs and customers want. This feedback is incorporated into product development for our customer-direct platform, as well as our Built-by-Nanophase NanoUltra products. Our goal is to successfully add multiple revenue channels from a mix of partners, customers and end users.

We also feel that the likelihood of success here is increased when we focus on several markets in depth, rather than try to address a broader series of markets without developing enough specific knowledge to be able to leverage effectively.

While we are pushing the envelop, our progress will be affected by the both the economy and the rate of our migration to an aggressive customer-direct model, along with the normal timing of the adoption cycles in the markets and industries we serve.

All in all, we expect 2010 to be a great year for Nanophase.

Jonathan, would you please begin the Q&A session?

(Operator Instructions.) I'm not showing any questions at this time.

Very good. Well, let me summarize. For those of you that are hanging in there, I appreciate it. We began the year with a first for Nanophase, the launch of an end user product. We finished the first quarter with a 40% increase in revenue, significantly improved gross margins, and a much improved bottom line. We're also looking forward to a second quarter that we believe will be another winner.

I appreciate your time today and I look forward to speaking with you all again in a few months. Thank you very much.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.