Today's News |
Nanotech Announces Third Quarter Fiscal 2018 Results - Fifth Consecutive Quarter of Positive Adjusted EBITDA
Friday, August 17, 2018Company Profile | Follow Company
Burnaby, BC, August 17, 2018--(T-Net)--Nanotech Security Corp. (TSXV: NTS), a company involved in the research, creation and production of nano-optic structures and colour-shifting materials used in authentication and brand enhancement, today released its financial results for the three and nine months ended June 30, 2018.
Unless otherwise stated, all dollar amounts are expressed in Canadian dollars.
Highlights for the Three Months Ended June 30, 2018
Highlights for the Nine Months Ended June 30, 2018
Recent Developments
CEO Commentary
"Our 2018 targets for revenue growth and Adjusted EBITDA margins continue to be on track. As we anticipated, third quarter revenues were lower year over year due to the timing of a recurring OTF order, but we had modeled this in our 25 to 35% year over year revenue growth guidance," said Doug Blakeway, Nanotech's Chairman and CEO. "Although we cannot disclose sources, potential customers have reacted favourably to M2, Nanotech's new commercial banknote product that we launched this past May. Together with our ongoing paid development contracts, we believe that we are well positioned for further growth in our core banknote market."
Outlook
With a strong balance sheet, including $9,451,015 in cash and no debt, management continues to be on track to deliver strong annual revenue growth and Adjusted EBITDA margins. A further update on the goals that management established for the 2018 fiscal year is as follows:
Select Financial Information
All results are reported in Canadian dollars and are prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board.
|
Three months ended June 30, |
Nine months ended June 30, |
||||
|
|
|
% |
|
% |
|
|
2018 |
2017 |
Change |
2018 |
2017 |
Change |
Revenue |
$ 1,938,248 |
$ 2,569,016 |
(25%) |
$ 6,114,570 |
$ 4,682,131 |
31% |
Gross margin |
1,615,748 |
2,157,873 |
(25%) |
4,730,515 |
3,671,675 |
29% |
Gross margin % |
83% |
84% |
|
77% |
78% |
|
Adjusted EBITDA(1) |
100,344 |
857,590 |
(88%) |
692,944 |
34,369 |
1,916% |
|
|
|
|
|
|
|
Net loss |
(627,462) |
(905,268) |
(31%) |
(816,352) |
(4,453,438) |
(82%) |
Loss per share Basic and diluted |
(0.01) |
(0.02) |
|
(0.01) |
(0.08) |
|
Weighted average number |
|
|
|
|
|
|
Basic and diluted |
68,395,825 |
60,027,320 |
|
68,395,825 |
56,006,062 |
|
(1)Adjusted EBITDA is a non-IFRS measure as described in the Non-IFRS Financial Measures section of this News Release.
Financial Position as at: |
June 30, |
September 30, |
% |
|
2018 |
2017 |
Change |
Cash |
$ 9,451,015 |
$ 10,883,919 |
(13%) |
|
|
|
|
Total assets |
$ 29,501,429 |
$ 30,059,624 |
(2%) |
Total liabilities |
1,514,096 |
1,860,086 |
(19%) |
Total equity |
27,987,333 |
28,199,538 |
(1%) |
Revenue
Revenues for the three months ended June 30, 2018 decreased by $630,768 or 25% to $1,938,248, compared to $2,569,016 in the same period last year. There was a decrease in OTF deliveries in the third quarter of 2018 from our Thurso facility, which is due to the timing of a recurring OTF order that is projected for the fourth quarter of 2018 versus the third quarter of 2017. This decrease in revenue was partially offset by an increase in development contract revenue.
Revenues for the nine months ended June 30, 2018 increased by $1,432,439 or 31% to $6,114,570, compared to $4,682,131 in the same period last year. Revenue growth was primarily due to an increase in paid development activity, partially offset by a reduction in OTF revenue.
Gross Margin
Gross margin for the three months ended June 30, 2018 decreased by $542,125 or 25% to $1,615,748, compared to $2,157,873 in the same period last year. Overall, the gross margin percentage was 83% for the three months ended June 30, 2018, consistent with 84% in the same period last year.
Gross margin for the nine months ended June 30, 2018 increased by $1,058,840 or 29% to $4,730,515, compared to $3,671,675 in the same period last year. Overall, the gross margin percentage was 77% for the nine months ended June 30, 2018, similar to 78% in the same period last year.
Operating Costs
Research and development expenditures for the three months ended June 30, 2018 were $456,241, an increase of $40,727 or 10%, compared to $415,514 in the same period last year. This increase was mainly related to the timing of OTF deliveries from our Thurso facility, as lower OTF deliveries in the current quarter allowed for more research and development activity compared to the prior year.
Research and development expenditures for the nine months ended June 30, 2018 increased by $15,604 or 1% to $1,194,917, which was consistent with $1,179,313 in the same period last year.
General and administration expenditures for the three months ended June 30, 2018 were $702,377, an increase of $23,926 or 4% compared to $678,451 in the same period last year. The increase was primarily due to salaries and other expenses associated with staff hired in the second quarter of 2018, along with increased rent and other expenditures related to the expansion of our head office.
General and administration expenditures for the nine months ended June 30, 2018 were $1,934,490, an increase of $70,503 or 4% compared to $1,863,987 in the same period last year, due to additional staff hired in the second quarter of 2018, head office expansion expenditures and higher utilities costs at our Thurso operation.
Sales and marketing expenditures for the three months ended June 30, 2018 were $569,274, an increase of $66,061 or 13%, compared to $503,213 in the same period last year. This mainly relates to increased marketing expenses, such as market research, industry tradeshows and new marketing staff.
Sales and marketing expenditures for the nine months ended June 30, 2018 were $1,515,791, an increase of $67,442 or 5% compared with $1,448,349 in the same period last year. This mainly relates to increased salaries, travel, marketing and investor relations expenditures in the current period.
Depreciation and amortization expenditures for the three and nine months ended June 30, 2018 were $395,336 and $1,114,034, respectively, compared to $663,543 and $2,077,569 in the same periods last year, respectively. The decrease in both periods reflects the Company's declining balance depreciation policy and the intangible assets being completely amortized as at September 30, 2017.
Other income for the three months ended June 30, 2018 was $51,560, an increase of $697,507, compared to other expenses of $645,947 in the same period last year. The increase was primarily due to the repayment of the convertible debentures and long-term debt in 2017, which reduced interest expense by $571,341 in the current quarter compared to the same period last year, while increased cash on hand in the current quarter resulted in a $10,573 increase in interest income. In addition, foreign exchange gains recorded during the quarter were $115,456 higher than in the second quarter of 2017.
Other income for the nine months ended June 30, 2018 was $335,687, an increase of $1,418,580, compared to other expenses of $1,082,893 in the same period last year. The increase was primarily due to the repayment of the convertible debentures and long-term debt in 2017, which reduced interest expense by $1,036,479 for the year to date compared to the same period last year, while increased cash on hand resulted in a $69,710 increase in interest income for the year to date. In addition, foreign exchange gains recorded for the year to date were $312,134 higher than in the same period last year.
Adjusted EBITDA
Adjusted EBITDA for the three months ended June 30, 2018 was $100,344 compared to $857,590 in the same period last year. The $757,246 decrease in Adjusted EBITDA was primarily due to reduced revenue in the current quarter, in combination with increases in sales and marketing and research and development expenditures.
Adjusted EBITDA for the year to date was $692,944 compared to $34,369 in the same period last year. The improvement for the year to date reflects an increase in development contract revenue.
Net Loss from Discontinued Operations
Net loss from discontinued operations for the three months ended June 30, 2018 was $171,542, consistent with a net loss of $156,473 during the same period last year. However, the net loss from discontinued operations in the current quarter was primarily due to the disposal of assets and the reclassification adjustment of foreign exchange on disposal of the foreign operation of $167,813, whereas the loss from discontinued operations in the same period last year was generated by business activities.
Net loss from discontinued operations for the nine months ended June 30, 2018 was $123,322, compared to a net loss of $473,002 during the same period last year. The decrease in net loss was primarily due to an increase in revenue associated with the delivery of surveillance vans during the year to date, which did not occur in the same period last year. In addition, there was a reduction in overall expenses for the year to date as Tactical was restructured following the Company's decision to sell the business. These reductions were offset by the loss on disposal of assets and the reclassification adjustment of foreign exchange on disposal of the foreign operation of $167,813 in 2018.
Net Loss
Net loss for the three months ended June 30, 2018 was $627,462, compared to $905,268 during the same period last year. The decrease in net loss reflects lower interest expense, reduced depreciation and amortization expense, and higher foreign exchange gains, partially offset by lower Adjusted EBITDA.
Net loss for the nine months ended June 30, 2018 was $816,352, compared to $4,453,438 during the same period last year. The decrease in net loss reflects an increase in Adjusted EBITDA in combination with lower interest expense and reduced depreciation and amortization expense.
Non-IFRS Financial Measures
In addition to results reported in accordance with IFRS, the Company discloses Adjusted EBITDA as a supplemental indicator of its financial performance.
The Company defines Adjusted EBITDA as net income (loss) excluding the impact of interest and financing costs (net of interest income), foreign exchange gain (loss), income taxes, depreciation and amortization, share-based compensation, and net income (loss) from discontinued operations. The Company believes Adjusted EBITDA is a useful measure as it provides information to management about the operating and financial performance of the Company and its ability to generate operating cash flow to fund future working capital needs, as well as future growth. Adjusted EBITDA may also be used by investors and analysts for the purpose of valuing the Company.
Readers are cautioned that these non-IFRS definitions are not recognized measures under IFRS, do not have standardized meanings prescribed by IFRS, and should not be construed to be alternatives to net earnings determined in accordance with IFRS or as indicators of performance or liquidity or cash flows. The Company's method of calculating these measures may differ from methods used by other entities and accordingly our measures may not be comparable to similarly titled measures used by other entities or in other jurisdictions. The Company uses these measures because it believes they provide useful information to both management and investors with respect to the operating and financial performance of the Company.
|
Three months ended |
Nine months ended |
||
|
2018 |
2017 |
2018 |
2017 |
|
|
|
|
|
Net loss |
$ (627,462) |
$ (905,268) |
$ (816,352) |
$ (4,453,438) |
Finance (income) expense |
(20,126) |
561,925 |
(80,394) |
1,026,052 |
Foreign exchange (gain) loss |
(31,434) |
84,022 |
(255,293) |
56,841 |
Depreciation and amortization |
406,021 |
730,022 |
1,186,419 |
2,187,249 |
Share-based compensation |
201,803 |
230,416 |
535,242 |
744,663 |
Net loss from discontinued |
171,542 |
156,473 |
123,322 |
473,002 |
Adjusted EBITDA |
$ 100,344 |
$ 857,590 |
$ 692,944 |
$ 34,369 |
Nanotech Security Corp. |
|||||
Condensed Consolidated Interim Statements of Operations and Comprehensive Loss |
|||||
(Unaudited) |
|||||
|
|||||
Three and nine months ended June 30, 2018 and 2017 |
|||||
(In Canadian dollars) |
|||||
|
Three months ended |
Nine months ended |
|
||
|
June 30, |
June 30, |
|
||
|
2018 |
2017 |
2018 |
2017 |
|
|
|
|
|
|
|
Revenue |
$ 1,938,248 |
$ 2,569,016 |
$ 6,114,570 |
$ 4,682,131 |
|
Cost of sales |
322,500 |
411,143 |
1,384,055 |
1,010,456 |
|
|
1,615,748 |
2,157,873 |
4,730,515 |
3,671,675 |
|
|
|
|
|
|
|
Expenses |
|||||
Research and development |
456,241 |
415,514 |
1,194,917 |
1,179,313 |
|
General and administration |
702,377 |
678,451 |
1,934,490 |
1,863,987 |
|
Sales and marketing |
569,274 |
503,213 |
1,515,791 |
1,448,349 |
|
Depreciation and amortization |
395,336 |
663,543 |
1,114,034 |
2,077,569 |
|
|
2,123,228 |
2,260,721 |
5,759,232 |
6,569,218 |
|
|
|
|
|
|
|
Loss from continuing operations before other expenses |
(507,480) |
(102,848) |
(1,028,717) |
(2,897,543) |
|
|
|
|
|
|
|
Other (income) expenses |
|||||
Foreign exchange (gain) loss |
(31,434) |
84,022 |
(255,293) |
56,841 |
|
Finance (income) expense |
(20,126) |
561,925 |
(80,394) |
1,026,052 |
|
|
(51,560) |
645,947 |
(335,687) |
1,082,893 |
|
|
|
|
|
|
|
Net loss from continuing operations |
(455,920) |
(748,795) |
(693,030) |
(3,980,436) |
|
|
|
|
|
|
|
Net loss from discontinued operations |
(171,542) |
(156,473) |
(123,322) |
(473,002) |
|
Net loss |
(627,462) |
(905,268) |
(816,352) |
(4,453,438) |
|
|
|
|
|
|
|
Other comprehensive loss: |
|||||
Items that may be subsequently reclassified to earnings: |
|||||
Unrealized foreign exchange gain (loss) |
|||||
on translation of foreign operation |
(28,140) |
37,817 |
(98,908) |
23,715 |
|
Total comprehensive loss |
$ (655,602) |
$ (867,451) |
$ (915,260) |
$ (4,429,723) |
|
|
|
|
|
|
|
Basic and diluted earnings (loss) per share: |
|
|
|
|
|
Continuing operations |
$ (0.01) |
$ (0.01) |
$ (0.01) |
$ (0.07) |
|
Discontinued operations |
$ 0.00 |
$ (0.01) |
$ 0.00 |
$ (0.01) |
|
Net loss |
$ (0.01) |
$ (0.02) |
$ (0.01) |
$ (0.08) |
|
|
|
|
|
|
|
Weighted average number of common shares |
|||||
Basic and diluted |
68,395,825 |
60,027,320 |
68,395,825 |
56,006,062 |
|
Nanotech Security Corp. |
||
Condensed Consolidated Interim Statements of Financial Position |
||
(Unaudited) |
||
|
||
(In Canadian dollars) |
||
|
June 30, |
September 30, |
|
2018 |
2017 |
|
|
|
Assets |
||
Current assets: |
||
Cash and cash equivalents |
$ 9,451,015 |
$ 10,883,919 |
Accounts receivable |
943,014 |
1,374,442 |
Inventory |
203,648 |
151,708 |
Prepaid expenses and other assets |
158,251 |
187,874 |
Assets held for sale |
- |
216,225 |
|
10,755,928 |
12,814,168 |
|
|
|
Property, plant and equipment |
17,357,043 |
15,856,998 |
Goodwill |
1,388,458 |
1,388,458 |
|
$ 29,501,429 |
$ 30,059,624 |
|
|
|
Liabilities and Shareholders' Equity |
||
Current liabilities: |
||
Accounts payable and accrued liabilities |
$ 1,429,423 |
$ 1,431,466 |
Deferred revenue |
- |
157,171 |
Liabilities directly associated with assets held for sale |
34,128 |
200,226 |
|
1,463,551 |
1,788,863 |
|
|
|
Non-current liabilities: |
||
Tenant inducement |
50,545 |
71,223 |
|
1,514,096 |
1,860,086 |
|
|
|
Shareholders' equity |
|
|
Share capital |
61,426,483 |
61,426,483 |
Contributed surplus |
3,250,379 |
2,715,137 |
Deficit |
(36,689,529) |
(35,873,177) |
Accumulated other comprehensive loss |
- |
(68,905) |
|
27,987,333 |
28,199,538 |
|
$ 29,501,429 |
$ 30,059,624 |
Nanotech Security Corp. |
||||
Condensed Consolidated Interim Statements of Cash Flows |
||||
(Unaudited) |
||||
|
||||
Three and nine months ended June 30, 2018 and 2017 |
||||
(in Canadian Dollars) |
||||
|
Three months ended |
Nine months ended |
||
|
June 30, |
June 30, |
||
|
2018 |
2017 |
2018 |
2017 |
|
|
|
|
|
Cash flows provided by (used in): |
|
|
|
|
Operating activities: |
|
|||
Net loss from continuing operations |
$ (455,920) |
$ (748,795) |
$ (693,030) |
$ (3,980,436) |
Items not involving cash: |
|
|||
Depreciation and amortization |
406,021 |
730,022 |
1,186,419 |
2,187,249 |
Share-based compensation |
201,803 |
230,416 |
535,242 |
744,663 |
Accretion of convertible debentures |
- |
435,271 |
- |
589,858 |
Other |
(6,893) |
(6,893) |
(20,678) |
(20,678) |
Non-cash working capital changes |
541,453 |
197,255 |
42,333 |
(309,547) |
|
686,464 |
(837,276) |
1,050,286 |
(788,891) |
|
|
|
|
|
Net cash provided by (used in) discontinued operations |
(3,018) |
(140,648) |
94,618 |
(554,377) |
Cash provided by (used in) operating activities |
683,446 |
696,628 |
1,144,904 |
(1,343,268) |
|
|
|
|
|
Investing activities: |
|
|
|
|
Purchase of property and equipment |
(1,490,993) |
(6,837) |
(2,478,900) |
(97,016) |
Cash used in investing activities |
(1,490,993) |
(6,837) |
(2,478,900) |
(97,016) |
|
|
|
|
|
Financing activities: |
|
|
|
|
Issuance of shares for options exercised |
- |
- |
- |
223,000 |
Proceeds on financing, net of costs |
- |
12,486,784 |
- |
12,486,784 |
Repayment of convertible debentures |
- |
(1,370,000) |
- |
(1,370,000) |
Cash provided by financing activities |
- |
11,116,784 |
- |
11,339,784 |
|
|
|
|
|
Effect of foreign exchange on cash and cash equivalents |
(28,140) |
37,817 |
(98,908) |
23,715 |
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
(835,687) |
11,844,392 |
(1,432,904) |
9,923,215 |
|
|
|
|
|
Cash and cash equivalents, beginning of period |
10,286,702 |
1,391,514 |
10,883,919 |
3,312,691 |
Cash and cash equivalents, end of period |
$ 9,451,015 |
$ 13,235,906 |
$ 9,451,015 |
$ 13,235,906 |
|
|
|
|
|
About Nanotech
Nanotech researches, creates and produces nano-optic structures and colour-shifting materials used in authentication and brand enhancement applications across a wide range of markets including banknotes, tax stamps, secure government documents, commercial branding, and the pharmaceutical industry.
The Company's nano-optic technology employs arrays of billions of nano-indentations that are impressed or embossed onto a substrate material such as polymer, paper, metal, or fabric. By using sophisticated algorithms to direct an electron beam lithography system, the Company creates visual images with colour-shifting effects such as 3D, perceived movement, and can also display high-definition colours including skin tones, and whites and blacks, which are not possible using holographic technology.
Additional information about Nanotech can be found at the Company's website www.nanosecurity.ca, the Canadian disclosure filings website www.sedar.com or the OTCMarkets disclosure filings website www.otcmarkets.com.
FORWARD-LOOKING STATEMENTS
The discussion and analysis in this news release contains forward-looking statements concerning anticipated developments in the Company's operations in future periods, the adequacy of Nanotech's financial resources, and the events or conditions that may occur in the future. Forward-looking statements are frequently, but not always, identified by words such as "expects", "anticipates", "believes", "intends", "estimates", "predicts", "potential", "targeted", "plans", "possible" and similar expressions, or statements that events, conditions, or results "will", "may", "could" or "should" occur or be achieved.
These forward-looking statements include, without limitation, statements about the Company's market opportunities, strategies, competition, and the Company's views that its optics-based technologies will continue to show promise for large-scale production. Other forward-looking statements imply that the Company will remain capable of being financed and/or will be able to partner in development until profitability is eventually realized. The principal risks related to these forward-looking statements are the loss of a key customer, that the Company's products receive market acceptance, and that its intellectual property claims will be sufficiently broad or enforceable to provide the necessary protection or attract the necessary capital.
These forward-looking statements are based on the beliefs, expectations and opinions of management on the date the statements are made. Consequently, all forward-looking statements made in the discussion and analysis of the financial conditions and results of operations or the documents incorporated by reference, are qualified by this cautionary statement and there can be no certainty that actual results or developments the Company anticipates will be realized. For additional information with respect to certain of these risks or factors reference should be made to the "Business Risks and Uncertainties" section of the management's discussion and analysis and the notes to the audited consolidated financial statements for the year ended September 30, 2017, as well as with the Company's continuous disclosure materials filed from time to time with Canadian securities regulatory authorities, which are available online at www.sedar.com. Nanotech disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, other than as required by law. Caution needs to be used when taking forward-looking statements into account when evaluating the Company.
Company Snapshot |
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Nanotech Security (A Meta Materials Inc. Company)
Burnaby (Other Tech Sectors)
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