CYANOTECH : Q4 2018 Earnings Broadcast transcript

Cyanotech Corporation (NASDAQ:CYAN)
Q4 2018 Earnings Broadcast

June 20, 2018; 5:00pm ET

Executives:

Mawae Morton - Chief Executive Officer
Jolé Deal - Chief Financial Officer Investor broadcast

Mawae Morton
Aloha from Kona, Hawaii. Thank you all for joining us today. We're pleased to report Cyanotech Corporation's fiscal year 2018 earnings results. I am Mawae Morton, Chief Executive Officer for Cyanotech and Nutrex. I'd like to start with our corporate mission statement, which is 'Fulfilling the promise of whole health through Hawaiian microalgae.' With that, I'd like to introduce our Chief Financial Officer Jolé Deal who will make a Safe Harbor statement and review our financial results for the year. We will respond to several questions after Jolé shares the financial results.

Jolé Deal
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.

Mawae Morton
Thank you Jolé. Before Jolé discusses the details, I would like to point out that the results for the year were an improvement over last year. Sales increased $2.1 million, gross profit margin increased by 1.1% and we reported net income of $1.0 million compared to a loss of $1.2 million a year ago, so that's an overall improvement of $2.2 million.

Jolé Deal
Thanks, Mawae. Now I'll go through the results for the year. Total revenues for fiscal 2018 were $34.1 million, an increase of 6.5% compared to fiscal 2017. Revenues from our Nutrex Hawaii packaged products increased 13.6%, reflecting growth in our strategic channels.

Revenues from our bulk products for the year decreased 23.3% compared to the same period last year, due to lower spirulina supply.

Gross margin for the year was 39.2%, which is the 1.1 percentage point increase from last year that Mawae mentioned. This was driven by a favorable mix toward higher margin customers and products, along with lower product costs from astaxanthin production, offset by higher abnormal costs for spirulina spirulina.

Our operating expenses for the year decreased 7% compared to last year, primarily due to lower legal costs.

And as Mawae mentioned, net income for the year was $1.0 million compared to a loss of $1.2 million in fiscal 2017. We recognized a tax benefit of $110,000 for the year, representing an effective tax rate of -12%, compared to a tax expense of $5,000 in fiscal 2017. The current period benefit is the result of the release of the valuation allowance related specifically to our Alternative Minimum Tax carry forward, which we now expect to be fully refundable under the new tax act.

Mawae Morton
Thanks, Jolé. I also want to thank everyone who sent in questions and I'll respond to those now.

We had two questions that asked about water restrictions that we'll deal with together, and those were: Firstly, have we looked at ways to use filtration technologies to extend the water cycle, should we encounter future water restrictions, and secondly, can we comment on future water restrictions regarding fresh water supply?

At this point, we have sufficient water to run our operations and don't foresee any restrictions to our water supply. The County of Hawaii Department of Water Supply is still requiring a 10% voluntary water conservation measure that has remained in effect since January. There are still a few County wells that remain offline for repairs, and the County is implementing systems designed to prevent similar equipment and infrastructure problems in the future.

Notwithstanding that, we are also evaluating technologies that will extend the water cycle, and we have already identified alternative sources of fresh water as a backup to County water.

We also were asked 'What are the current capacity constraints for astaxanthin and spirulina production?'

Because we operate natural open pond systems the capacity constraints for production at our current facility include space for ponds; availability of water; limits on processing capacity; and favorable weather conditions such as good light levels, warm temperatures, and low rainfall.

Another question asked, 'What is the current status of your relationships with Costco and Amazon?'

Both Costco and Amazon remain strong partners. Together, these two customers made up 48% of our sales in fiscal 2018, and we expect this trend to continue.

Our final question was, 'What is the status of the patent lawsuit or has it been resolved?'

I'm happy to report that the patent lawsuit was resolved in December 2014.

So that concludes the questions that we have. We want to thank you for joining the call today and for submitting questions and participating.

Aloha.