Cyanotech Corporation
Q1 2019 Earnings Call Transcript
Published:
- Executives:
- Mawae Morton - CEO Jole Deal - CFO
- Analysts:
- Operator:
- Mawae Morton:
- Aloha from Kona, Hawaii. Thank you all for joining us today on the earnings call regarding Cyanotech Corporation's first quarter results for fiscal year 2019. I am Mawae Morton, Chief Executive Officer for Cyanotech Corporation and Nutrex Hawaii. I'd like to start with our corporate mission statement, which is fulfilling the promise of whole health through Hawaiian microalgae. With that, I will now introduce Chief Financial Officer, Jole Deal, who will make a Safe Harbor statement and review our financial results for the quarter. To conclude the call, we will respond to a few questions we received after Jole shares the financial results.
- Jole Deal:
- Thank you, Mawae. Let me start by saying our discussion today may include forward-looking statements. We do not undertake any obligation to update forward-looking statements either as a result of new information, future events, or otherwise. Our actual results may differ materially from what is described in these forward-looking statements. Some of the factors that may cause results to differ are listed in our publicly filed documents. For additional information, we encourage you to review our 10-Q and 10-K filings with the Securities and Exchange Commission. At this time, I'll go through the results for the quarter. Total revenues for Q1 were $7.1 million, a decrease of 19% compared to Q1 of fiscal 2018. This decrease is made up of a 29% decrease in revenue of our bulk products and a 17% decrease in revenue of our Nutrex Hawaii packaged products. The primary reason for the sales decline was decreased supply of the spirulina after the recent pond re-inoculation, which accounted for 15% of the total 19% sales decrease for the quarter. The remainder of the sales decrease was due to delays with international orders for astaxanthin. Gross margin for the quarter was 25.7% and was a 15 point decrease compared to Q1 of fiscal 2018. This margin decline was the result of higher cost per kilo of spirulina due to production costs that were spread over pure production units. Additionally, spirulina inventory at the end of the quarter include $600,000 of higher per kilo costs that will be amortized into Q2 of fiscal 2019. As a result, we reported a net loss for the quarter of $1.3 million, a $0.22 per share loss compared to net income in Q1 of fiscal 2018 of $501,000, a $0.09 earnings per share outcome.
- Mawae Morton:
- Thank you, Jole. Before I respond to questions, I would like to talk about our spirulina production, in particular what laid up to the recent re-inoculation of our ponds and how the ponds have responded. So, in fiscal 2018, we experienced production decline of the spirulina as a result of water saving strategies adopted in response to county water restrictions. In quarter four of fiscal 2018, we experienced further production disruptions due to environmental factors including unusually high rainfall, lower than normal temperatures and significant reductions in sunlight. The cumulative result was that quarter four financial year 2018 volume was 63% below quarter four of fiscal 2017. In response to those events, in April 2018, we undertook a complete re-inoculation of our spirulina ponds. The re-inoculation, which took longer than previous such co-division adjustments was completed in mid-May. During this time, there was no production of spirulina. And as a result, our fiscal 2019 quarter one production volume was 76% lower than quarter one of fiscal 2018. Our results for this quarter reflect the impact of the low production volume yielded in the last two quarters, both in the way of reduced sales volume and higher production costs as of the end of sales. I'm happy to report that the spirulina culture is growing well and yielding more normal levels of production for this in the year. Demand for our spirulina remained strong, and we are working hard to fill that pent-up demand. We really appreciate the patience of our loyal customers as we brought up our inventory that was to meet their needs. So, the questions that we received are; first relating to R&D. Can you discuss general funding levels for this year as compared to last year or past year, sorry? Our R&D spending for the last few years has been around $600,000 and we expect this year to be consistent with that level of spend. The next and final question also relates to R&D. Can you discuss new products that get you out of being a single market producer? While we can't discuss specific products, we are actively pursuing some exciting new product opportunities that fit with our focus on Hawaiian microalgae and human supplements. This concludes the questions we have, and we want to thank everyone for joining the broadcast today and for submitting questions. Aloha.
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