Cyanotech Corporation (NASDAQ:CYAN)
Q3 2020 Earnings Broadcast
February 11, 2020; 8:00PM EDT
Gerry Cysewski – Chief Executive Officer
Brian Orlopp – Chief Financial Officer
Aloha from Kona, Hawaii. Thank you all for joining us today. We are pleased to report Cyanotech’s third 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 third quarter. We will respond to questions after Brian shares the quarter three results.
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.
Thank you Brian. Before Brian discusses the details of the quarter, I would like to point out the third quarter achieved sales of $7.5 million, a decrease of $2.5 million or 25% from Quarter 3 2019. While the results are below last year’s unusual level, on a nine months basis our sales volume and profit margins appear to be normalizing. We continue to focus on our primary core areas of production stabilization, efficiencies with marketing spending, and cost control across all functionalities.
Thanks. Now let’s go through the results for the third quarter. As mentioned, total sales revenues decreased from the prior quarter last year by $2.5 million or 25% to $7.5 million. Overall operating income for the quarter was $367,000, a decrease of $128,000 from the same period last year. On a YTD basis, our operating income is $825,000 versus last year which recorded a $1.7 million operating loss.
The net sales decrease of 25% was primarily attributable to inventory build last year with our main customers and the non-recurring replenishment orders related to the re-inoculation of the spirulina ponds. Additionally, we had an increase in orders at the end of the quarter that will roll-over into the 4th quarter. These decreases were partially offset by an increase in spirulina bulk sales as well as contract extraction sales.
The YTD net sales decrease of $858,000 or 3.6% compared to last year was driven by a 9.9% and 11% decrease in astaxanthin and spirulina packaged sales, respectively. The decreases were partially offset by a 56% increase in spirulina bulk sales as well as contract extraction sales.
Gross profit as a percentage of net sales decreased 2.7% compared to the same period last year. Inclement and cooler weather impacted production which affected our gross margins.
Operating expenses decrease $1.1 million for the current quarter as compared to the same period last year. Overall costs in all three key areas were down to cost cutting initiatives with a $662,000 decrease in sales and marketing and $447,000 collectively in General and Administrative and R&D expenses.
Interest expense increase of $30,000 and $114,000 this quarter and YTD, respectively as compared to last year same time periods is due to the additional interest expenses incurred associated with the Line of Credit and the loan from the Skywords Family Foundation.
Net income was $171,000 for the quarter versus a gain of $288,000 for the same quarter last year. Diluted earnings were $0.03 in the current quarter compared to a $0.05 per share in the prior year. Net income on a YTD basis was $266,000 versus a loss last year of $2.1 million, a positive swing of $2.4 million.
Now back to Gerry.
We had a few questions from shareholders and investors which we will now address.
The first question: Liabilities have increased by 1 mUSD and liabilities from a lease agreement by 3 m$ vs March 31. Can you please give a bit more background how the proceeds from the lendings were used and by when these liabilities will be paid back?
Brian will you take this one?
The loan infusion was exclusively used to address our account payables.
On the balance sheet assets listing “Operating Lease Right of Use” the increase of $3.9 million is newly recognized on our books beginning April 1, 2019 in compliance with the Accounting Standards Codification (ASC 842) requirements where leases are now capitalized on the balance sheet. This is wholly offset in the liabilities section of short-term and long-term obligations.
With continued attention to our strategic goals we look to further generate internal cash and reduce our payables and debt obligations accordingly.
Thanks Brian. The second question: Could you explain what is driving the 25% revenue drop of $2.54 million? Has the Company lost a major customer?
I will take this question Brian.
The high revenue for the 3rd quarter last year was driven by a large inventory build by our two largest customers. This led to low revenue in the 4th quarter of last year as these customers purchased very little in Q4 of FY19.
An inventory buildup by these customers did not happen the 3rd quarter of this fiscal year leading to the 25% lower revenue. But, I should point out we expect sustaining sales from these customers through our 4th quarter as it occurred in the 3rd quarter. We did not lose any major customers, just a shift in buying patterns.
We did receive three questions on future revenue guidance and future profit guidance. I cannot answer these questions as it is the Company’s policy not to provide any future guidance.
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 earlier half of the fiscal year. Through three quarters it appears sales and profits are normalizing. With continued attention and commitment to our strategic goals in the months ahead we look to further generate internal cash, reduce our payables, and increase profitability.
We thank you for joining the call today and we thank you for your continued support.
Aloha & Mahalo,