Q1 Investor Broadcast

Cyanotech Corporation (NASDAQ:CYAN)

Q1 2020 Earnings Broadcast

August 13, 2019; 8:00PM EDT

Gerry Cysewski – Chief Executive Officer
Brian Orlopp – Chief Financial Officer

Gerry Cysewski
Aloha from Kona, Hawaii.  Thank you all for joining us today.  We are pleased to report Cyanotech’s first quarter fiscal year 2020 earnings results.  I am Gerry Cysewski, Chief Executive Officer for Cyanotech and Nutrex. At this stage I would like to introduce our Chief Financial Officer, Brian Orlopp, who will make a Safe Harbor statement and review our financial results for the first quarter.  We will respond to questions after Brian shares the quarter one results.

Brian Orlopp
Thank you Gerry.  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 10Q and 10K filings with the Securities and Exchange Commission.

Gerry Cysewski
Thank you Brian.  Before Brian discusses the details of the quarter, I would like to point out the first quarter achieved sales of $8.1 million, an improvement of $2.0 million or 33% from Quarter 4 2019 and $926,000 improvement from prior year same quarter.

Brian Orlopp
Thanks.  Now let’s go through the results for the first quarter.  As mentioned, total sales revenues improved from the prior quarter last year by $926,000 or 13% to $8.1 million and $2.0 million or 33 % improvement from the 4th quarter 2019.  Overall operating income for the quarter was $49,000, a positive $1.26 million swing from last year which recorded a $1.2 million operating loss.

The net sales increase of 13% was primarily driven by a 76% increase in Spirulina sales as well as the contribution of third party extraction services.  Spirulina sales for the first quarter of last year were significantly affected by production issues and the onset of the re-inoculation process. Since late last year, productivity has returned to normal levels allowing us to fulfill both bulk and Nutrex consumer product orders.  These increases in Spirulina sales were however partially offset by a 11% decrease in Astaxanthin sales, primarily due to the timing purchase from one of our major customers.

Gross profit as a percentage of net sales increased almost 20% to $3.68 million as compared to $1.84 million for the same period last year, largely due to improvements in production for both Spirulina and Astaxanthin resulting in reduced standard cost of goods sold, favorable manufacturing variances, higher sales volumes, higher margin product mix, as well as sales in the contract extraction service operation.

Operating expenses however did increase $623,000 for the current quarter as compared to the same period last year due to increased General and Administrative expenses related to severance.  Both Sales and Marketing and R&D expenses in total dollars remained relatively flat; $15,000 and $21,000 reduction, respectively from the prior year.

Other Expenses increase of $55,000 is due to the additional interest expenses associated with the full utilization of the Line of Credit of $2 million and the loan of $1.5 million from Skywords Family Foundation this past April.

Net income was a loss of $133,000 for the quarter versus a loss of $1.28 million for the same quarter last year.  Diluted earnings were a negative $0.02 in the current quarter compared to a negative $0.22 per share in the prior year.

Now back to Gerry.

Gerry Cysewski
We had one submitted question which was:

Congrats on a returned strong quarter, my question is that the financials failed to move the market. There’s a message in that simple sentence, but there’s also too many good things happening at CYAN to walk away just yet. So could you create a plan to get appropriate valuation for all the good work?

Which I respond:

‘We are focused solely on running a sustainable business, respectful of our environment, culture and employees.

How the financial markets value the company is outside of our control, and over the years we have seen them do so in a wide variety of ways.

If on your own, you would wish to promote the work of the company, we would be most appreciative.

I would like to take this opportunity for concluding comments.

We are pleased with the progress of our most recent quarter performance which reflected positively from our collective organizational efforts during the latter half of the prior fiscal year.  Quarter One showed improvements on multiple levels including: sales and margins, production volume, increasing productivity especially from our ponds, and the implementation of our cost-cutting programs.

We will continue to embrace our strategic focus on four major points

  1.  Stabilizing our production volumes in both Spirulina and Astaxanthin allowing us to balance production with sales demand to improve inventory management resources,
  2. Rationalizing our market channels participation in terms of market spending to contribution ratio performances,
  3. Leveraging our core competencies via utilization of our extraction facility by providing outside services to 3rd parties by utilizing our 1,000 bar super critical CO2 extractor process which serves as an additional income throughout the year,
  4. And executing on the strategic cost cutting programs across the Company.

This fiscal year is off to a good start and we have and will continue to work hard to retain the nation’s top selling consumer brands, BioAstin Hawaiian Astaxanthin and Hawaiian Spirulina Pacific, in their respective marketing category.  We aim to build on this momentum.

We thank you for joining the call today and we thank you for your continued support.

Aloha & Mahalo