Jess Jankowski - President and CEO Frank Cesario - CFO

Good day, ladies and gentlemen, and welcome to the Nanophase Third Quarter 2016 Financial Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. The words expect, anticipates, plans, forecasts 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 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 a 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 turn the conference over to your President and CEO, Jess Jankowski. You may begin.

Thank you, David and good morning, everybody. I’m glad that all of you could be here. We’re happy that you’ve joined us to discuss our third quarter 2016 financial results and business update. Frank Cesario, our CFO, has joined me again today. We had an active quarter, partially clouded by revenue timing, driven to a great extent by growth in our existing personal care business and through sales within our diversified technologies customer base. The third quarter of 2016 represented yet another milestone as we posted a positive adjusted EBITDA for the first nine months of this year. Adjusted EBITDA is our proxy for positive operating cash flow and we’re getting close. We’re still focused on new business development as our main metric, but by managing our costs effectively, we’re working hard to apply our business development resources to achieve their greatest impact. We’re doing this while generating as many dollars of margin as we can, as we focus on building new business. As we’ve recently shared, our business development is being focused on two key markets, personal care and solar control. We’re continuing to deliver world class materials and support to our existing customers in other markets, but our business development focus has been narrowed to increase our effectiveness. As regular callers will notice, the timing of this call keeps moving around. This is probably along with my call today, the function of our active and expanding business development effort and we still aren’t finished. We will keep expanding our marketing efforts as new products come online. Our goal is to continue to market our new product lines and build related revenue streams while we support our existing customers more efficiently. I plan on covering all of these things in further detail after Frank provides a short overview of our financial results. With that, I’d like to introduce our CFO, Frank Cesario.

Thanks, Jess. Good morning. This is Frank Cesario. Before I begin today’s overview of our financial results for the third quarter 2016, please remember that all financial results are stated in approximate terms. Revenue for the third quarter 2016 was 2.5 million versus 2.8 million in 2015. Net loss for the third quarter of 2016 was 0.4 million versus 0.2 million in 2015, both periods posting a loss of a penny per share For the first nine months 2016, revenue was 8.4 million versus 8.0 million during 2015. Our net loss for the nine month period was 0.6 million in 2016 or $0.02 per share compared to 0.9 million or $0.03 per share in 2015. We ended the third quarter 2016 with $1.7 million cash position and nothing drawn on our working capital credit line. Jess?

Thanks, Frank. We continue to expect this year to show overall growth. 2016 should exceed 2015 in revenue although second half 2016 volume will be lower than first half volume was. The bulk of our markets, particularly when dollar-weighted, are seasonal. Q4 should get a benefit from some Q3 volume slipping into Q4, but it still won’t approach the level of our second quarter performance. I continue to expect 2016 revenue and margins to exceed 2015. Due to our conservative approach to the budgeting, we’re seeing nice pickups in cash flows and earnings as volumes increase. Nanophase has posted a series of record financial results and we look for that trend to continue in 2017. As I mentioned earlier, we’re focusing our business development resources on two main areas; personal care and solar control. It’s been a strong quarter in terms of products development particularly toward our white-label product offerings through our Celessence subsidiary for personal. Our Celessence technology can both enhance the aesthetics of the sunscreen from skin feel to reducing whitening while also addressing a growing concern in the industry by aiding in photostability and free-radical quenching. In addition to adding a formulation of the full spectrum UV protection with our base zinc oxide particle. Our new quoted materials bring the added benefit of allowing other ingredients to perform better by remaining stable and producing free-radical formation. Recall that white-label products refers to a finished product built to market driven specifications that will be sold and marketed by another company. Celessence will complete the entire development and production cycle delivering a product in our custom packaging. The customer will then be responsible for marketing, promoting and selling the product. Our goal is to have a series of ready-to-go products that can be marketed either as they are or with the addition of some specific ingredients or features that are desired by the company that will be consumer-facing. The white-labeled finished products business is practically brand-new to us and it's still difficult to predict. We expect it to begin with a serious of smaller customers, in this case each with annualized dollar volumes in the high five to low six figure range. We’re still early-stage with expected revenues to begin in Q2 to Q3 of 2017 with volumes becoming more significant over time. Regarding our solar control business, we have a customer that will be launching our product this quarter that should result in first half 2017 revenue. While I don't expect this volume to be high initially, it has a potential to be high six figure revenue and we expect it to be repeatable with other customers as we continue to develop this market and our products for it. To summarize, we’re moving forward and expect to close 2016 ahead of 2015 in all important respect. We will have higher revenue, we will be closer to positive cash, our base business is strong and growing, our two key areas of focus solar control and personal care have seen some new business in 2016 with more coming in 2017. We have formed our first subsidiary Celessence based upon new technology and new formulating capability, market conditions for our products compared to be good and we have the track record, internal experience and skills in our two main areas of focus particularly in personal care to allow us to be competitive much more quickly than with past initiative. While I know that most people catch the matinee version of our call online. At this time, I’d like to open it up to any questions those listening may have. David, will you please begin the Q&A.

[Operator Instructions] I'm showing no further questions at this time. I would like to turn the call back over to Jess Jankowski. : :

Thank you David. I’ll leave you all with this; your company is doing well and moving forward. We will have a markedly stronger year in 2016 than in 2015 and we expect 2017 to be stronger yet. I look forward to speaking with all of you during the year-end call. Thank you again and let's make it a good day.

Ladies and gentlemen thank you for participating in today's conference, this does conclude today’s program, you may all disconnect. Everyone have a great day.