Cyanotech Corporation

Aloha from Kona, Hawaii. Thank you all for joining us today to report Cyanotech's second quarter fiscal year 2025 earnings results. I am Matt Custer, President and Chief Executive Officer of Cyanotech. Joining me on the call today is Jennifer Rogerson, our Chief Financial Officer. I will turn the call over to Jennifer to provide a forward-looking statement.

Thanks, Matt. 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 10Q and fiscal year 2024 10K report filed with the Securities and Exchange Commission. I will turn it back to Matt for comments on the quarter. Matt?

In prior quarters, our inventory levels were reduced to just-in-time levels to manage cash flow, and strong sales in the first quarter of fiscal 2025 decreased inventory. However, mid-quarter financing allowed us to start restocking, increasing work-in-progress inventory by $1.9 million, even though finished goods were still down by $1.5 million. Bulk inventory, which has a shorter production time, helped drive a 39% increase in sales, and revenue from contract extraction grew by 156%. However, packaged goods, which take longer to restock, saw a 21% decrease due to stock shortages and timing issues, contributing to an overall 8% drop in total sales for the quarter. For the first half of the year, sales were up 2%. While progress with packaged goods has been slower than expected, we're working quickly to replenish stock and continue promoting our algae-based products farmed in Hawaii's pristine waters. Turning over to Jennifer to discuss the financial results. Jennifer?

Thank you, Matt, and good evening, everyone. Key financial results for the second quarter. Total net sales for the second quarter of fiscal 2025 were $5.8 million compared to $6.4 million for the second quarter of fiscal 2024. Total sales revenue decreased by $528,000 or negative 8.3% from the prior year. Gross profit for the second quarter of fiscal 2025 decreased. was $1.48 million with a gross profit margin of 25.3%, compared to gross profit of $2 million and gross profit margin of 32.8% in the second quarter of fiscal 2024, a 7.5% point decrease due to high demand in our bulk products, as Matt mentioned previously. Operating loss for the second quarter was $975,000 compared to operating loss of $632,000 in the second quarter fiscal 2024, an increased loss of $343,000. Net loss for the current quarter was $1.15 million or $0.16 per diluted share compared to a net loss of $0.8 million or $0.13 per diluted share in the prior year. The company had cash of $780,000 and working capital of $550,000 compared to $720,000 and $200,000 respectively as of June 30, 2024. The increase in working capital is due to higher inventories, lower accounts payable, and an amendment to a short-term loans maturity date resulting in a reclassification of $1 million of short-term debt to long-term debt. I will hand the call back to Matt for concluding comments. Matt.

We had a few questions come in that we were able to answer. Number one, there was a significant drop in gross profit margin from 32.8% to 25.3%. Does this reflect higher costs or lowering sales prices or both? The drop in gross profit margin was primarily driven by product mix. Due to the inventory challenges we have talked about, a higher percentage of our sales this quarter were in bulk, which have lower profit margins. We have not made any recent changes to our selling prices. Number two, packaged goods sales fell by 21% due to stock shortages. Was the low finished goods stock caused by ongoing supply chain issues or production issues? We are not experiencing any production issues. The low inventory was driven by delays that were beyond our control at our co-manufacturers.