Cyanotech Corporation (NASDAQ:CYAN) Q4 and Fiscal Year 2020 Earnings Broadcast
June 24, 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 fourth quarter and fiscal year 2020 earnings results. I am Gerry Cysewski, Chief Executive Officer for Cyanotech and Nutrex. Joining me in today’s discussion is Brian Orlopp, our Chief Financial Officer. I hope that you had a chance to review the press release that was issued yesterday morning. You may also visit the company’s website at Cyanotech.com for a copy of the release. This conference call is being webcast on our website and will be available after this call. I would like to remind you that much of the information we will be speaking about, including the answers we give in response to your questions, may include forward-looking statements within the provisions of the Federal Securities Safe Harbor laws. We ask that you review the statements included in the press release we issued yesterday and, in the company’s most recent filings with the SEC.
So first and foremost, I want to acknowledge each of you for joining Cyanotech’s 4th Quarter and full year Fiscal 2020 earnings call. It has been a very difficult last few months for the world and I want to extend my best wishes to you and your families that you stay safe and healthy.
Before we begin with the financial results, I would like to take a few minutes on the impact of the COVID-19 pandemic and the actions we have taken to support our team members and their families, customers, suppliers and our local communities. At the outbreak of the pandemic, we immediately activated our executive crisis management teams to respond accordingly. At our production facilities where food safety has always been a top priority, we introduced additional operating procedures and safety protocols to include social distancing and increase cleaning cycles to protect our production teams. We activated our supply chain contingency plans to mitigate any disruptions in our ability to service our customers.
Other preventive actions included having as many employees as possible working remotely. Our team members have rallied around maintaining business continuity during this critical time especially our frontline teams that have kept our farms, processing plants, and distribution centers running, allowing us to maintain our commitment to Cyanotech and Nutrex branded products around the world.
We are also collaborating in a number of ways with our local communities, adding support wherever we can.
Also, our Company has been declared an essential business in Hawaii, and we have remained open at full operations. However, the extent of the pandemic on our financial performance will depend on future developments including the duration and spread of the pandemic and related government restrictions, all of which are uncertain at this time.
So while we did experience a number of challenges in the quarter and for the fiscal year, we took several actions to fortify our business and increase liquidity, including stabilizing production, postponing non-critical capital investments and establishing cost controls to reduce spending in selling and general and administrative going forward.
Our performance in 2020 highlights these actions and decisions we made in the beginning of this fiscal year to steer us back to positive cash flows and profitability.
Now I would like to turn over the call to Brian to talk about the fourth quarter and full year financial results. Brian, please?
Thank you Gerry, and good morning everyone. I want to begin with a few words regarding the confidence we have in our cash and other balance sheet positions. Our ending cash balance was $2.4 million, an increase of $1.6 million from last year-end, our accounts payable was reduced by $2.8 over the same time frame and in addition all three of our loan and debt covenants with the bank were in compliance. As of March 31, 2020, the Company has outstanding borrowings of $2.0 million on the line of credit. The line of credit is subject to renewal on August 30, 2020.
In the 4th quarter this fiscal year we achieve $8.6 million in net sales as compared to $6.1 million last year, a positive swing of $2.5 million or 41%. Total sales reached $31.9 million for the fiscal year 2020 as compared to $30.2 million last year, a growth of $1.7 million or 5.6%.
Our full year operating expenses decreased by $1.8 million or 13.5% compared to fiscal year 2019, primarily due to the strategic cost cutting initiatives Gerry mentioned earlier. These included decreases across the spectrum of general and administrative, sales and marketing, and research and development areas.
Operating income was $228,000 compared to an operating loss of $1,321,000 in the fourth quarter fiscal year 2019. For the full year, operating income was $1,053,000 compared to operating loss of $2,997,000, an improvement of $4.0 million.
Adjusted earnings per diluted share for the 4th quarter was $0.01 compared with an adjusted loss per diluted share of ($0.25) in 2019. Adjusted earnings per diluted share for the full year was $0.06 comparted with an adjusted loss per diluted share of ($0.62) in 2019.
Now back to Gerry.
We did receive some questions from investors and shareholders which I will respond to now.
One shareholder wanted more details on our astaxanthin production strategy.
We have made significant improvements to our astaxanthin production which I cannot discuss in detail. These improvements allow us to produce all of our required astaxanthin supply within the best growing seasons and then to drastically curtail production. This reduces the overall astaxanthin production costs and conserves cash. Astaxanthin remains an extremely important product for the Company and with these cultivation improvements we now have the ability in increase production as demand increases.
There was an investor question as to what drove the sizable increase in Spirulina bulk sales.
The Increase in bulk sales was primarily due to availability of Spirulina product. Last year’s Spirulina sales were deeply affected by the re-inoculation of our ponds over an extended period which decrease product availability. In FY 2020, with the return of stabilization to our ponds to historical outputs and yields, our customers renewed purchases.
There were two questions concerning the increase in bulk sales, but a decline in package sales.
Spirulina bulk sales increased due to a lack of availability in the prior year. The decrease in Astaxanthin sales was the result of a non-recurring large inventory purchase in late FY 2019 by a major customer, subsequently followed by inventory tightening across all our buyer channels.
Higher margin package sales remain a priority to the Company and we are launching some new initiatives in this area. The new Farm Grown Seal program is one of these initiatives that was just announced
An investor asked for further explanation on Contract Extraction Services.
As a result of capacity improvements that we made to our “best-in-class”, supercritical co2 extraction system, in late FY 2019 we began offering contract extraction services to third party producers of astaxanthin biomass. This revenue more than double in FY 2020.
I would now like to take this opportunity for concluding comments.
We are pleased with our most recent quarter and full year financial performances which reflects positively on our efforts during the past year. The realignment of our business strategy to increase focus on production stabilization, efficient promotional spending and controlling costs have delivered margin improvements in the year. Our balance sheet stands stronger today as well.
We generated positive cash this year, so this speaks to the strength of our business strategic plans. We will continue to focus on reducing our debt while we invest in critical high margin capital projects to drive efficiency in our operations and expand our value-added product lines.
We thank you for joining the call today. Aloha