Solesence Inc (SLSN) 2010 Q2 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Nanophase Technologies Second-Quarter 2010 Financial Conference Call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session, instructions will follow at that time. (Operator Instructions) As a reminder, this conference 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 this 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, Mr. Jess Jankowski, President and CEO. Sir, please go ahead.

Thank you, Karen. Good afternoon. We're glad that you could join us today for our second-quarter conference call.

We had another solid performance in Q2, with revenue increasing 100% over last year's second quarter. And we feel confident by the end of the third quarter, our cumulative revenue will exceed what we posted for all of last year leading to a much better 2010 than 2009. Our gross margin rose from approximately $200,000 for the second quarter of 2009 to $1.2 million this quarter, leading us to achieve a positive cash flow for the quarter.

Before I share some more of the highlights with you, I'd like our CFO, Frank Cesario, to provide a financial overview. Frank?

Thanks, Jess. This is Frank Cesario and I'd also like to thank you for participating in today's call. As a reminder, all financial results I'll discuss with you today are stated in approximate terms.

For the second quarter ended June 30, 2010, we reported revenue of $3.3 million, an increase of 100% compared to revenue of $1.6 million for the second quarter of 2009. As Jess said, we expect to see continued revenue growth on a comparable quarter basis, which will allow us to surpass 2009 revenue on a cumulative basis during the third quarter of this year. Jess will discuss our revenue drivers later in the call.

Our gross profit margins rose from 11% for the second quarter of 2009 to 36% for this year's second quarter. We're very pleased with this improved performance.

The net loss for the quarter was approximately $100,000 or $0.005 per share. This is a significant improvement over the second quarter of 2009 when we announced the net loss of $1.2 million or $0.06 per share.

As of February 2010, we completed all payments under the 2008 and 2009 restructuring programs. Going forward, our overhead is much lower than it had been and the results are starting to show.

Our balance sheet remains strong, as we finished the second quarter with no debt and more than $7 million in cash and equivalents and investments.

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

So far in 2010, we've announced two much stronger quarters, and expect our third quarter when compared to last year's third quarter to continue to demonstrate revenue growth. The measures we've taken to reduce cost and increase efficiency along with increased capacity utilization have contributed to an improved bottom line and positive EBITDA for the second quarter, that's earnings before interest, taxes, depreciation and amortization.

We're certainly pleased with the results we've been able to share with you for this quarter and six-month period, but the economy continues to be challenging for our customers, which in turn affects Nanophase's revenue. These last two quarters have seen orders begin to increase primarily from our partner in the personal care market, as well as through sales to the healthcare and electronics markets. We're maintaining a close relationship with these customers as they set their inventories to meet demand.

During 2010, we expect these markets to continue to be the largest revenue contributors, while revenue from our customer direct model and NanoUltra's should have more of a growing impact on the topline as we move into next year. We still see, however, that many of our customers and potential customers are keeping their R&D organizations lean. They're not adding staff and tend to be focused less on longer-term projects where we typically fit than in years past. This surely has been driven by residual uncertainty about the economy. For the same reasons, few customers are excited about adding cost to their products even if this brings improved performance.

Fortunately, as a result of our application knowledge and our excellent full-scale operational efficiencies, we can often deliver improved performance with cost being similar to or lower than those of conventional solutions. Further, we can be competitive here, while still creating a very attractive business for Nanophase. Because of this, we rarely have trouble gaining the interest of potential customers to work with, and this allows us to keep the sales development pipeline full.

As you may remember, the largest customer direct market in our pipeline has been exterior stains and coatings. We've identified and have been working with a number of potential exterior coatings manufacturers for the last 18 months, as they test and evaluate our products. This has required some heavy lifting, but in a number of these pilot programs we're at the stage where revenue generation should be signaled by the end of this year with more significant revenue beginning in 2011 and more following in 2012.

Historically, in the specialty chemical industry, whether it'd be for inorganic nanomaterials or traditional organic chemicals, this process generally takes one to five years depending on the segment application and customer. Because we've little direct nanomaterial competition in the marketplace, the manufacturers of materials, including exterior coatings, often require an educational process to understand the benefits of our inorganic ingredients versus the organic ingredients that they've traditionally deployed. Once the process is complete, the demonstration period begins culminating if successful in future revenue.

The in-house and customer testing of our revolutionary technology continues to provide solid evidence that our products can extend the longevity of clear and semitransparent stains for wood and wood products beyond what many organics can and at a competitive cost. We're confident that after our first larger customers are marketing coatings that incorporate our technology, the time to market for future products for these customers will be significantly reduced.

In addition to exterior coatings, we're making substantial inroads in other markets such as hard services, which mainly refers to transparent abrasion-resistant coatings and plastics. Also, our NanoUltra family of architectural glass products began shipping at the end of the first quarter. While launching a new product in an unpredictable economy can be challenging, we're pleased with the progress made so far.

We've begun to demonstrate the benefits of NanoUltra in resort settings, in several desirable commercial properties and in several other applications. We also have a growing number of distributor partners that we expect to contribute to future growth.

We've yet to see significant revenue from these products, but they're working their way into the market and we expect revenues to grow. It's clear that our customer direct model remains the catalyst for future growth of our Company. While this business develops, it's also very important that we maintain a strong business base with our existing customers on which to build. This year, we've seen a nice rebound in sales of ingredients into the personal care markets, particularly for sunscreens.

We may also get some help from the government in this market, as new chemical regulatory disclosure on full-spectrum UV products will benefit Nanophase's materials in a naturally effective UVA and UVB blocking attributes.

In addition to our all-natural nanomaterials, organic chemicals commonly used would require increased testing, scrutiny and disclosures by the FDA. This could lead to positive exposure for our safe, natural and effective materials. As many of our long-term investors know, Nanophase has maintained compliance with FDA standards for years and has an excellent regulatory track record. Given this, we welcome these opportunities to differentiate our materials in our Company.

I'll reiterate that during 2010, we expect our well-established partners and customers to continue to be the largest revenue contributors, and expect sales from our customer direct model and NanoUltra to have a growing impact on revenue as 2010 progresses into 2011. This is the plan and we're pleased to see it moving in the right direction.

Our goal is to have multiple successful revenue channels from a mix of partners, customers and end users. All in all, we expect 2010 to be a much stronger year for Nanophase.

Before we begin the Q&A session, I'd like to add that during the second quarter, we regained compliance with NASDAQ Rule 5450, the $1 bid rule, and we've also been added to the Russell Microcap Index.

Over the past several months, our stock price has stabilized to a degree, and our daily trading volume has increased during a roller-coaster market. While we don't distribute a large number of news releases, we've been participating in industry conferences, meeting with potential and current customers, and we've been more active in sharing our story with members of the financial community.

As our Company fundamentals continue to improve, we've made it our goal to attend more financial conferences than to increase our meetings with the financial community in the fall.

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

Certainly. (Operator Instructions) And I see no questions in the queue at this time.

Okay. Well, I realize that attendants in this call have been late due to the time of year. We've had several people calling in saying they wouldn't be able to make it, but they would catch it afterwards and I would make that available for everybody on the call that you can listen to this via the web.

In summary, the economic recovery remains shaky, but over the course of the year we see a positive outlook for Nanophase, as we look to the third quarter to be another winner. I appreciate your time today and look forward to speaking with you after Q3 results are in. Thank you very much.

Karen, it's all yours.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may now disconnect. Everyone have a good day.