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NT

NANOPHASE TECHNOLOGIES Corp (NANX)·Q2 2024 Earnings Summary

Executive Summary

  • Record quarter: Revenue $13.046M (+10% YoY) and net income $0.856M, with Solésence revenue $11.2M (+44% YoY). Gross margin was ~29% in Q2 (33% excluding a ~$0.5M inventory write-down) .
  • Strong trajectory: H2 revenue expected to exceed H1 by >20%, and management sees potential to achieve >$50M FY revenue, supported by >$50M shipped/confirmed orders YTD .
  • Operational progress: Inventory availability at 100% of target; July was the best revenue month in company history. Throughput still below target and OTIF <50% remain focus areas .
  • Potential stock catalysts: Sustained margin expansion, accelerating Solésence sell-through (Colorescience, Tatcha), H2 >20% revenue uplift, and active uplisting discussions; note external “shareholder investigation” press release (headline risk) .

What Went Well and What Went Wrong

What Went Well

  • Record revenue and profitability: “We had a strong Q2… quarterly revenue of $13 million… potential for us to achieve more than $50 million in revenue for the year” .
  • Solésence momentum: “Solésence revenue was $11.2 million, vs. $7.8 million… a 44% increase” and multiple brand wins (Colorescience sell-through; new launches incl. Tatcha) .
  • Margin resilience and outlook: “We are now demonstrating margin performance above our industry averages” and ~29% Q2 gross margin despite a one-time ~$0.5M write-down (would have been ~33%) .
  • Execution awards and credibility: Third consecutive Cosmopack North America Formulation Award (Lip Oil SPF 40+ featuring Kleair) .

What Went Wrong

  • Fulfillment and throughput: OTIF remained <50% of goal and throughput was 72% of target, necessitating suboptimal production runs to meet launches .
  • One-time inventory write-down: ~$0.5M component obsolescence tied to 2023 decisions and demand/spec changes at two customers reduced Q2 margin by ~4% .
  • Customer concentration and visibility: Dependence on limited key customers and less visibility in non‑Solésence (BASF-led) businesses; management called out lumpy demand and capacity constraints .

Financial Results

Quarterly Performance vs Prior Periods

MetricQ4 2023Q1 2024Q2 2024
Revenue ($USD Millions)$8.011 $9.868 $13.046
Gross Profit ($USD Millions)$0.471 $3.581 $3.740
Gross Margin %~5.9% (computed from )36.0% ~29.0%
Operating Income ($USD Millions)-$1.897 $1.111 $1.047
Net Income ($USD Millions)-$2.122 $0.893 $0.856
EPS Basic ($)-$0.04 $0.02 $0.02
EPS Diluted ($)-$0.04 $0.01 $0.01
Adjusted EBITDA ($USD Millions)-$1.499 $1.505 $1.438

Year-over-Year Q2 Comparison

MetricQ2 2023Q2 2024
Revenue ($USD Millions)$11.872 $13.046
Solésence Revenue ($USD Millions)$7.8 $11.2
Gross Profit ($USD Millions)$3.675 $3.740
Net Income ($USD Millions)$0.333 $0.856
EPS Basic ($)$0.01 $0.02
Adjusted EBITDA ($USD Millions)$0.848 $1.438

Segment/Contribution (latest available)

MetricQ4 2023Q1 2024Q2 2024
Solésence Revenue ($USD Millions)N/A$8.0 $11.2
Total Net Revenue ($USD Millions)$8.011 $9.868 $13.046

KPIs and Operational Metrics

KPIQ4 2023Q1 2024Q2 2024
Inventory AvailabilityN/A≥95% 100% of target (≥95% at 12w; 98% at 4w)
Throughput (vs target)N/A~76% avg (Jan 50% → Mar >90%) 72% (on 158% volume increase vs Q1)
OTIF (On-Time In-Full)N/A<50% of goal <50% of goal; improving uptime (record July)
Order Velocity (YTD vs Plan)N/AN/A125% of plan
Pipeline Value (vs target)N/AN/A>60% of target
Customer Acquisition Cost (YoY)N/AN/A-30%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueH2 2024 vs H1 2024None disclosedH2 expected to exceed H1 by >20% New (raised outlook)
RevenueFY 2024>$40M shipped/open orders as of Apr (context) Potential to achieve >$50M; >$50M shipped/confirmed orders YTD Raised trajectory
Gross Margin %FY 202435–40% target 35–40% reaffirmed Maintained
Capital ExpendituresFY 2024~$2M to execute three projects Fund capex from operations; add capacity and staffing to meet demand Updated funding/scale
OTIF TargetQ2 2024≥90% by end of Q2 (stretch goal) Still <50%; OEE initiatives in progress; record July revenue Delayed execution
Corporate Action (Uplisting)N/ANot discussedActive Board-level discussions; timeline under evaluation New consideration

Earnings Call Themes & Trends

TopicQ4 2023 (Prev)Q1 2024 (Prev)Q2 2024 (Current)Trend
Supply chainIssues hurt profitability in H2’23 Inventory availability ≥95%; vendor diversification Availability at 100% of target; OEE rolled out; record July revenue Improving
Throughput/capacityN/AThroughput improved to >90% by Mar; average ~76% 72% of target on 158% higher volume vs Q1; aiming for further 150% throughput improvement Scaling, still behind target
Gross marginsN/A36% gross margin; 35–40% FY plan ~29% including $0.5M write-down; ~33% ex-write-down; 35–40% FY affirmed Solid, near plan ex one-time
Backlog/ordersN/A>$40M shipped/open orders >$50M shipped/confirmed; H2 >20% vs H1 Strengthening
Brand performanceN/ASolésence now largest customer share Strong Colorescience sell-through; new launches incl. Tatcha; three-peat Cosmopack win Accelerating
Regulatory/legalN/ABASF litigation resolved; ~$1.3M 2023 legal spend context BASF business visibility lower but improving normalization expected H2 Positive resolution
Capital marketsN/AN/AActive uplisting discussion to expand investability New
R&D/OperationsN/AThree capex projects (~$2M) to boost capacity to ~$100M Solésence finished products Hiring ops planning/engineering; proactive capex ahead of demand Capacity build-out

Management Commentary

  • “We believe that second half revenue will exceed the first half with the potential for us to achieve more than $50 million in revenue for the year.” — Jess Jankowski .
  • “We are now demonstrating margin performance above our industry averages enabled by… operational improvements and financial management to lower costs and contain expenses.” — Jess Jankowski .
  • “Our growth in Q2 significantly outstripped our improvements in output… we had to make tough production decisions… implementing OEE to improve operating uptime.” — Kevin Cureton .
  • “Order velocity is running at 125% of plan… pipeline value over 60% of target… while lowering our customer acquisition costs by 30%.” — Kevin Cureton .
  • “We took home our third consecutive Cosmopack North America Award for Formulation… Lip Oil SPF 40+ featuring Solésence Kleair.” — Kevin Cureton .

Q&A Highlights

  • Working capital dynamics: AR $5.9M with mostly 60-day terms; receivables viewed as healthy amid growth .
  • Capacity and capex funding: Aim to fund 2024 growth from operations; Board prioritizes profitable growth with proactive capital ahead of demand .
  • Backlog/visibility: >$50M shipped/confirmed 2024 orders; BASF-related non‑Solésence visibility lower but normalization expected H2 .
  • Margin guidance: Management affirmed 35–40% FY gross margin target, acknowledging timing/lumpiness and one-time Q2 write-down impact .
  • Uplisting: Active Board-level discussion to broaden investor access; weighing timing and dilution considerations .

Estimates Context

  • Wall Street consensus (S&P Global Capital IQ) for Q2 2024 EPS and revenue was unavailable for NANX due to missing SPGI mapping at time of request. As a result, estimate-based beat/miss analysis cannot be provided for this quarter [SpgiEstimatesError: Missing CIQ mapping for ticker 'NANX'].
  • Implication: With limited sell-side coverage, internal KPIs, backlog, and margin trajectory are likely to drive narrative and investor expectations near term .

Key Takeaways for Investors

  • Demand strength and execution: Record Q2 and record July revenue with H2 revenue guided >20% above H1; >$50M shipped/confirmed orders support >$50M FY potential .
  • Margin outlook intact: Despite a ~$0.5M inventory write-down, Q2 gross margin ~29% and ~33% ex-write-down; FY gross margin target 35–40% reaffirmed .
  • Solésence-led growth: 44% YoY Solésence revenue in Q2, with strong brand partner momentum (Colorescience sell-through; Tatcha launches) underpinning 2024 growth .
  • Operational KPIs improving: Inventory availability at target; OEE implementation underway to lift throughput and OTIF, the latter still <50% (execution watch item) .
  • Capital discipline: 2024 capex funded from operations; prior ~$2M projects expected to lift capacity towards ~$100M in Solésence finished products, supporting scalable growth .
  • Corporate optionality: Active uplisting discussions could expand investor base and liquidity; monitor for timing and any associated capital actions .
  • Risk monitor: Customer concentration/lumpy demand and external “shareholder investigation” press release present headline and execution risks; BASF business visibility lower, but expected to normalize in H2 .