NANOPHASE TECHNOLOGIES Corp (NANX)·Q1 2024 Earnings Summary

Executive Summary

• Record Q1 with $9.868M revenue (+4% YoY), gross margin expanding to 36% (from 23%) and a swing to $0.893M net income; Solésence drove mix and margin gains, while BASF litigation resolution removes a key overhang .
• Operational KPIs improved: inventory availability >95%, throughput ramped during the quarter (March = 40% of Q1 shipments), though OTIF remained <50% of target with an explicit plan to reach >90% by end of Q2 .
• Order book supports near-term visibility: “$40M+ shipped and open orders,” with ~$30M+ open orders entering Q2; management targets 35%-40% gross margin for 2024 and >30% QoQ throughput increase in Q2 .
• Estimate context: S&P Global consensus EPS and revenue estimates were unavailable for NANX at Q1 2024, so beat/miss vs Street cannot be assessed (SPGI consensus unavailable).

What Went Well and What Went Wrong

• What Went Well

  • Mix-led margin expansion: Gross margin reached 36% vs 23% YoY, driven by Solésence product mix and manufacturing efficiency improvements .
  • Profitability and cash flow: Three consecutive profitable months and positive Q1 cash flow, aided by operational improvements and lower litigation expenses; SG&A down to $1.559M from $2.150M, with ~$(505)k lower legal costs YoY .
  • Strategic de-risking: Successful settlement with BASF, including clarified exclusivity, operational planning, and rights that allow Solésence finished products to be sold globally; management called it “successful and amicable,” enabling full focus on the business .

• What Went Wrong

  • Service levels: OTIF was less than 50% of target in Q1, reflecting lingering execution bottlenecks in secondary packaging; plan to push OTIF to >90% by end of Q2 is a key execution swing factor .
  • Category headwinds outside Solésence: Personal Care Ingredients and Advanced Materials declined YoY as focus and demand shifted; international revenue also down YoY .
  • Working capital intensity: Inventories rose to $13.281M (from $10.031M at year-end), contributing to net operating cash outflow even as P&L improved; company leaned on new financing (Series X preferred, equity) to support growth and capex .

Financial Results

Sequential performance (oldest → newest):

YoY comparison (oldest → newest):

Segment/product mix (oldest → newest):

KPI snapshot (Q1 2024):

• Inventory availability >95%
• Throughput averaged ~76% of target for Q1; March accounted for ~40% of Q1 output; upstream bulk at 100% of plan by end of March
• OTIF <50% of target; goal >90% by end of Q2

Note on EPS: The preliminary press release showed diluted EPS of $0.01, but the subsequently filed 10-Q reports diluted EPS of $0.02 for Q1 2024; use the 10-Q figure for final comparison .

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• CEO on quarter and outlook: “We had good results in Q1, generating a 36% gross margin on $9.9 million in total revenue… We also generated almost $1 million in net profit… Our margins were driven largely by a favorable Q1 product mix and… improved production efficiencies… Generally, the 35% to 40% gross margin range follows our 2024 plan.”
• COO on KPIs: “Inventory availability… over 95%… throughput… increased each month… March alone represented 40% of our total production and revenue for Q1… Our goal remains to significantly improve OTIF into >90% by the end of Q2.”
• CEO on strategic milestone: “We are pleased to have had a successful start… and a profitable first quarter… a successful and amicable resolution of all ongoing litigation with BASF, which will support the further growth of our business.”
• CEO on demand/visibility: “We have more than $40 million in shipped and confirmed sales orders… Demand has not been our issue. Our struggle to supply that demand… has been our biggest limiting factor… We expect to overcome that last hurdle this year.”

Q&A Highlights

• BASF settlement terms/practical impact: Management emphasized continued development of Solésence and clarified supply expectations and transparency; characterized the settlement as “successful” for both parties -.
• Litigation costs and SG&A: CEO quantified legal fees of ~$1.3M in 2023 and ~$0.4M in 2022; noted two-thirds of Q1 SG&A decline ($400k) came from lower legal expense .
• Backlog/open orders definition: ~$30M+ open orders at Q1-end with orders spanning Q2–Q4 (not purely late shipments); Solésence expected at ~80–90% of mix .
• Margin cadence: Targeting 35%–40% GM for 2024 but acknowledged potential lumpiness from inventory/cost absorption dynamics and demand timing .

Estimates Context

• S&P Global consensus for Q1 2024 EPS and revenue was unavailable for NANX; therefore, we cannot assess a beat/miss vs Street for the quarter (SPGI consensus unavailable).
• Implication: Given the micro-cap OTC listing and limited coverage, investor recalibration will likely rely on company-reported results, margin framework (35%–40%), and order book execution rather than Street models .

Key Takeaways for Investors

• Mix and execution inflection: Solésence-driven mix and manufacturing efficiencies expanded GM to 36% and returned NANX to profitability; sustaining 35%–40% GM through variable volumes is the critical watch item .
• Visibility improving: $40M+ shipped/open orders and $30M+ open orders entering Q2 support near-term growth; cadence depends on removing packaging bottlenecks and achieving OTIF >90% by end-Q2 .
• Legal overhang removed: BASF settlement clarifies rights, maintains BASF exclusivity on specified ingredients while permitting Solésence finished product sales globally—reducing SG&A/legal drag and strategic uncertainty - .
• Capacity expansion with fast paybacks: ~$2M in targeted projects (lab, consolidation, automation) expected to enable ~$100M Solésence capacity with 15–30 month paybacks; this underpins multi-year scale-up potential .
• Category divergence: Solésence +60% YoY in Q1 while Personal Care Ingredients and Advanced Materials declined; the investment case increasingly hinges on Solésence execution and brand partner momentum .
• Balance sheet/liquidity: New $6M Series X preferred and equity raises support working capital and capex; inventory build weighed on operating cash in Q1 even as P&L improved—monitor working capital turns .
• Stock catalysts: Sustained GM in target band, OTIF normalization, throughput ramp (>30% QoQ in Q2), and continued brand wins/awards at Solésence are likely to drive narrative and multiple expansion .