Cyanotech posts record sales, marred only by production issues, legal fees

By Hank Schultz

- Last updated on GMT

Cyanotech's production facility in Kona, Hawaii.
Cyanotech's production facility in Kona, Hawaii.

Related tags: Gross profit margin, Revenue, Generally accepted accounting principles

Microalgae producer Cyanotech recorded a record $7.2 million in sales in the third quarter, an 8% rise year-over-year. Net income declined, however, coming at at $607,000 compared to $1.1 million a year earlier.

“Demand in the third quarter was strong with net sales at an all-time record. The growth is in the strategic areas we have identified as priorities and is driven by our increased sales and marketing spending,”​ said Brent Bailey, President and CEO of Cyanotech.

Among the company’s brands that showed strong results were Nutrex Mainland, with 49% growth, Nutrex Hawaii, up 30% and online Nutrex sales, up 96%.  In addition, international bulk sales rose 73%.

The company showed strong growth in its packaged products segment, which accounted for 43% of revenue, Bailey said.  In particular,  astaxanthin sales were up.

“Astaxanthin overall is continuing to gain awareness and recognition, aided by such factors as Dr. Oz and many other mentions,”​ Cyanotech spokesman Bruce Russell told NutraIngredients-USA. “Our marketing program is moving along strongly, as is our focus on our own branded products sold at retail and direct to the consumer online.”

Production costs, legal fees up

Bailey noted a few drags on the overall positive report. 

Marketing costs were up because of increased advertising, promotional events and web support to drive the packaged products business.  In addition the company instituted a new Scientific Advisory Board.

Another drag was increased legal fees.  Cyanotech has been embroiled in a contractual dispute with Valensa and its parent company, India-based Parry Nutraceuticals.  Most of the increased feeds related to this issue, Russell said.

Issues surrounding spirulina production at the company’s Kona, Hawaii facility was a third drag on the overall picture.  Spirulina yields were down and costs were up, and it is a reminder that chemical processing efficiencies are one of the key metrics in the algae sector.

“It's an issue with smaller-size spirulina not being captured in the harvest of a pond and surviving to generate more smaller spirulina in the next growing cycle. We are working on several fronts including altering the harvesting technique and lengthening the growing period, among others. It's a matter of fine-tuning the micro-algae cultivation,”​ Russell said.

For the first nine months of fiscal 2013 compared to the same period in fiscal 2012, Cyanotech’s revenues were $20.7 million compared to $18.6 million, an increase of 11%. Gross profit was $8.3 million with gross profit margin of 40%, compared to gross profit of $7.7 million and gross profit margin of 41%. Net income was $1.6 million or $0.28 per diluted share, compared to net income of $2.5 million or $0.45 per diluted share.

In the past year, Cyanotech’s share price has declined from $11.35 on March 14, 2012 to $4.77 at the start of trading on Feb. 13, 2013.

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