NEXGEL Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 13, 2023

There are 6 speakers on the call.

Operator

Good afternoon. I will be your conference operator today. At this time, I would like to welcome everyone to Nextel's Third Quarter 2023 Earnings Conference Call. I will now turn the call over to Walter Pinto, Managing Director of KCSA Strategic Communications for introductions. Please go ahead.

Speaker 1

Thank you, operator. Good afternoon and welcome everyone to the Nextel Third Quarter 2023 Earnings Conference Call. I'm joined today by Adam Levy, Chief Executive Officer Adam Drafzic, Chief Financial Officer of NextGel. Before we begin, I'd like to remind everyone that statements made during today's conference call may be deemed forward looking statements within the meaning of the Safe Harbor of the Private Securities Litigation Reform Act of 1995, and actual results may differ materially due to a variety of risks, uncertainties and other factors. For a detailed discussion of some of the ongoing risks and uncertainties in the company's business, I refer you to the press release issued this evening and filed with the SEC on Form 8 ks as well as the company's reports filed periodically with the SEC.

Speaker 1

The company disclaims any intention or obligation to update or revise any forward looking statements, whether as a result of new information, future events or otherwise, unless otherwise required by law. With that, it's my pleasure to turn the call over to Mr. Adam Levy. Adam, please go ahead.

Speaker 2

Thank you, Walter. Thank you everyone for joining us today to discuss our Q3 2023 financial and operating results. We are pleased to deliver yet another record revenue quarter in Q3 of $1,220,000 an increase of 115 percent year over year and up slightly as compared to revenue of $1,170,000 for the Q2 of 2023. Of note, the $2,300,000 in revenue generated the last two quarters exceeds our full year of 2022 revenue. Growth year over year was driven by an increase in contract manufacturing.

Speaker 2

This is our 2nd consecutive quarter of revenue contribution from the acquisition of a 50% interest in the JV with CG Labs. The return on this $500,000 investment into the JV, which we recently made the last payment on, has proved to be an excellent mutually beneficial transaction and one in which we have quickly realized the benefits. It has contributed materially to our top line growth and is accretive to the bottom line as well. We also have yet to realize the full benefits to margins as that will come as the new equipment is installed and validated. We expect the first equipment to come online in Q1 of 2024.

Speaker 2

We recently announced executing the supply agreement with AbbVie to be the supplier of gel pads for their rapid acoustic pulse device. In December of 2021, AbbVie acquired the owner of this technology, Soliton, for $550,000,000 in cash after its RASONIC device demonstrated significant improvement in the appearance of cellulite. After extensive due diligence from AbbVie for many months, our hydrogels were chosen as the required razor to its razor blade model for each procedure to be done. Our ability to meet the high standards of AbbVie demonstrates the uniqueness of our technology and the fact that a company of their size would select us is something we are very proud of. We expect the RASONIC device to be launched next year.

Speaker 2

We have been making necessary preparations to ensure we are fully prepared for this potentially significant and impactful revenue opportunity for Nextel. Our branded consumer products grew year over year 54% and quarter over quarter by 37%. This was led by Silverseal, which continues to be a hero product for us, consistently gaining popularity and positive reviews. This product is a unique hydrogel dressing for wounds and burns. The sterile silver patches are FDA cleared and have been clinically shown to kill 99% of staph, MRSA and strep.

Speaker 2

They've also been shown to reduce scarring and pain in wounds. Silverseal was a behind the counter hospital device for many years and our messaging of hospital grade product now available for home use has resonated with our consumers. In North America, we are making good progress with Enigma Health for retail distribution. Now that we have fully vetted the audience for our leading products and have gained steady traction in the market, it is time to put these products on shelves. Our active discussions with many leading retailers have been going well and we realistically could see our products on shelves by this coming summer.

Speaker 2

Last quarter, we provided an update on our amblyopia patch. We have since launched the product and have shipped to approximately 30 ophthalmology offices and the feedback thus far has been very positive. We are currently monitoring reorder rates, adoption and consumer feedback to plan the next phase of our rollout strategy. Importantly, we have also made significant strides improving our gross profit, going from a gross loss in Q1 to a gross profit in Q2 and improving again in Q3. Gross margins improved sequentially to 28.1 percent in Q3 compared to 15% in the prior quarter.

Speaker 2

Our net loss in the 3rd quarter also continued to trend lower quarter over quarter in line with our goal to become profitable in 2024 from $814,000 in Q1 to $695,000 in Q2 to $552,000 in Q3. Included in our net loss of $552,000 for the 3rd quarter are approximately $95,000 of non cash items. Our cash and cash equivalents decreased from $4,300,000 at June 30, 2023 to $3,300,000 at September 30, 2023. The delta between our improved net loss during the quarter and the net cash decrease over the period was related to an increase in accounts receivables and property, plant and equipment investments. As we mentioned last quarter, the customers of CG Converting and Packaging require lengthier payment terms.

Speaker 2

Their payment terms are closer to 90 days as compared to Nextel's core business customers who typically receive 30 day payment terms. Therefore, AR increased during the period by $208,000 We also invested $361,000 in additional property, plant and equipment during the quarter. Before I turn the call over to Adam, while Q3 was a significant quarter for us, we also have a lot to be excited about as we head into next year. Given our growth into retail and new markets and our branded product line, as well as the opportunity to onboard new customers, we have strategically invested in inventory and equipment to increase capacity and automation to meet the significant increase in demand we expect for our proprietary hydrogels in 2024 and beyond. We expect our revenue to continue to grow year over year, margin expansion and the net loss decrease to continue as we move towards profitability, which is always our highest priority.

Speaker 2

With that, I would like to turn the call over to our CFO, Adam Draupsek. Adam?

Speaker 3

Thank you, Adam. Today, I'll review financial highlights of our Q3 2023 results. For the Q3 of 2023, revenue totaled $1,220,000 an increase of $653,000 or 115 percent as compared to $568,000 for the same period the year prior. The quarterly increase in overall revenues was primarily due to sales growth in contract manufacturing and branded products year over year, including revenue contribution from the joint venture formed with CG Labs. Gross profit for the Q3 of 2023 was $344,000 compared to a gross profit of $148,000 for the same prior year period.

Speaker 3

Gross profit margin for the Q3 of 2023 was 28.2% compared to 26.1% for the same period the year before. Gross margin increased sequentially to 28.2% during the Q3 of 2023 as compared to 15% during the Q2 of 2023. Total operating expenses, including R and D and SG and A expenses, decreased to $956,000 for the 3 months ended September 30, 2023, compared to $1,190,000 for the prior year period. The year over year decrease was attributable to a decrease in total SG and A and R and D expenses period over period. Net loss for the quarter ended September 30, 2023 improved to $552,000 or $0.10 per basic and diluted share compared to net loss of $1,200,000 or $0.22 per basic and diluted share for the same period in 2022.

Speaker 3

Net loss also improved sequentially to $552,000 during the Q3 of 2023 as compared to $695,000 during the Q2 of 2023. As of September 30, 2023, Next Shell had approximately $3,300,000 of cash. During the quarter, the company invested in capital expenditures for new equipment and increased its capacity at Texas facility to prepare us to execute our new supply agreements in 2024. As of November 13, 2023, Nextel had 5,000,717,629 shares of common stock outstanding. I would now like to open the call for questions.

Speaker 3

Operator?

Operator

Thank you. We will now be conducting a question and answer session. Our first question comes from Nav Rahman with Maxim Group. Please proceed with your question.

Speaker 4

Hi, everyone. Congratulations on the progress and thanks for taking our questions. I have a few, if I could start. On the supply agreement with AbbVie for the Risonic product, could you talk a little more about the market opportunity and the potential economics to NextGen in 2024?

Speaker 2

Sure. Hey, Nas, good to hear from you again. So look, we're under NDA with AbbVie. So I can't obviously share their forecast. We're obviously not in control of their launch.

Speaker 2

But I can say that you really couldn't ask for a much better partner in a product like this. And I can say that if they are successful, this is extremely significant and impactful revenue for us.

Speaker 4

Got it. And on kind of a similar note, you also signed a deal with Halion earlier this year for a product launch by them. Do you have any updates on the product or do you have any potential timelines on when we could hear more about the product itself and a potential launch?

Speaker 2

Yes, that product is actually a little bit further off than the AbbVie product. So think about that for or certainly an update somewhere in mid-twenty 24 as they're probably targeting the end of 2024 has always been kind of our guidance on that product.

Speaker 4

Got it. That's helpful. So on those two points, now more of like a high level strategic question I've had and had conversations about is obviously had a very, very transformative 2023 and you have a lot of different initiatives going on. Based on internal thinking and with everything that's happened, what do you think it's like the most significant or potential strategic growth driver at

Speaker 2

least in 2024? Unquestionably, it's probably AbbVie. There's going to be some other good things, but that one is staring us right in the face.

Speaker 4

Got it. Do you have any thoughts on how much of that revenue that could as we could compromise?

Speaker 2

Again, look, this is it will be very significant, we think. They paid more than $500,000,000 $550,000,000 for this product. I can't imagine they're going to go out. And again, I don't have any direct knowledge and I'm under NDA, but I can't imagine we're going to go out weak with that kind of investment. So if they really do the job that we think they can do on that product, that is by far the biggest opportunity we have.

Speaker 4

Understood. On the Pridemores, you commented a little about the amblyopia patch launch. Could you provide more color on what feedback you got from physicians regarding the patch? And I was also curious, in terms of the actual use of the patch, have you found that they're being mainly given to, I guess, new patients or switches? And do you have any idea of how many patients are either newer switches like in terms of percentages?

Speaker 2

So, great question. So, as far as so far the feedback has been terrific. Generally, they're being given to existing patients because the patients with the worst irritation and the worst issues are the ones that we're using a different patch. The children are complaining. They've got those red rings around their eyes that are either blistering or very irritated.

Speaker 2

So those are who I think the doctors are giving it to 1st and foremost. And then they're going to offer it to other people. And as the practice goes through, patients come in every month to get a different set in. They seem to be now steadily reordering and steadily giving it to more and more patients. I think what we need to understand and don't have the full picture of yet is exactly what percentage of their patients are going to switch to this, right?

Speaker 2

It's a slight premium or a significant premium. Actually, it's about 50% more expensive than something else you can buy on Amazon. And I think what we need to determine is, is everybody just going to like it because it feels so much better or are really the patients that are going to use it the ones with the worst eye irritations and the worst problems. And that, of course, defines the size of the market. So we're getting a lot of feedback from these doctors.

Speaker 2

We're doing a lot of research. We're talking to some of the patients. They want to tell us some great stories. And as we determine what our next step should be, that will kind of tell us where we should put our resources and how we should really try to ramp this thing.

Speaker 4

That was helpful. Thanks. And also on that point on AMLIAOPIA, have you gotten any inquiries for potentially very large wholesale orders beyond the initial orders or

Speaker 2

reorders? So, no, I mean, we've gotten some large practice orders, practices that have ordered 100 boxes at a time, but those are still small in the overall scheme of things until you get a lot of practices. I don't think we're quite ready yet and that's part of what we're trying to determine before we engage one of those more expensive like professional sales forces that might go out to a whole bunch of doctors' offices. We want to understand the product, understand the pitch, understand what we're doing because that's not cheap to engage someone like that. But when we're ready, that is definitely one of the things that we will talk about and make a plan around.

Speaker 4

Understood. So obviously, you have a lot of initiatives ongoing and very meeting near term initiatives. But I also also want to talk a little about your pipeline. Could you provide a potential update on the progress and development of the 510 devices you're working on?

Speaker 2

Sure. So the main thing that we had for the 510 devices that pushed them off was our inability to at scale and at a effective manufacturing cost to produce them with the dies and pumps that we currently had. We have tested the new prototype dies. They worked very, very well and we're now going ahead and ordering those dies to come in. And so we're probably going to be ready to manufacture product in the next 60 to 90 days and then we will submit it for testing and start moving those products forward again.

Speaker 2

Fortunately for us, despite that delay, we've had so much to work on that that's only one project out of several. But we do think it's an important project and we are going to pick it back up as soon as we can manufacture it effectively.

Speaker 4

That was very helpful. Thanks for taking my questions and I'll get back in queue.

Speaker 1

Okay. Thank you.

Operator

Our next question comes from Chris Vachowsky. Please proceed with your question.

Speaker 5

Good afternoon. Congratulations on very good results.

Speaker 2

Thank you, Chris.

Speaker 5

So during the LD Micro conference, you said that you wouldn't need any additional cash to reach profitability next year, given this quarter's cash yields. Are you do you still confirm this statement?

Speaker 2

Yes. So we are not going to need any cash to reach profitability. But I've also always said that if an opportunity presented itself or there was something accretive that we could purchase, that we would at that point do a financing tied directly to that. So as of right now, our cash loss was well below $500,000 and we still have $3,300,000 Fortunately, when you're ramping with some of these bigger companies that we now have, you're not dealing with payment terms like when you go into retail. So I think we're going to be okay right now.

Speaker 2

We're projecting profitability before we run out of cash with a pretty good cushion. But if there is something that we need to do and it means that that's going to allow us to scale and not have a hiccup in the way we scale, at that point we'll think about adding some cash. But as of right now, unless there's a really good reason that we're going to announce at the same time, we don't need any cash.

Speaker 5

Okay. This is very good to hear. So congratulations on great growth in Silverseal. And if I heard you correctly, Silverseal had very good sequential growth as well as annual. And was there any part of your business that shrunk sequentially because sequentially revenue did not grow that much?

Speaker 2

Sequentially revenues did not grow that much, but Silverseal grew. You always have a couple of products that you get rid of that didn't work out. So when you're launching a new product, especially when we test our products on Amazon, which is our model, those products will have a very high advertising rate compared to the profitability. So they're really not profitable as you start acquiring various customers. And then what we do is we watch the overall advertising drop if the product is popular because you get reorders, you get subscribed and saves and then you have to get to a certain threshold, which is probably around 25% to 30% tacos and our heroes are much lower than that.

Speaker 2

But then the product seem to be scaling. We every all the time, not every product we put out works, we're dropping products that don't meet that criteria. So yes, there's a few products that we drop, that's part of the weeding and calling process. But the real growth in Silverseal is no longer going to come from sequential growth on Amazon because that's a limited market. The next step for us is going to be retail and foreign markets and that's what's coming in the near future.

Speaker 5

Okay. And the retail, you said, is going to be sometime next year?

Speaker 2

Yes. I think it's reasonable to think midsummer around that time. There's just a process that retailers go through. All of our meetings have gone extremely well. There's a lot of interest on several products, not just SilverSeal, because we have probably 3 to 4 hero products now that we think would be viable at retail.

Speaker 2

And as I get a clearer picture, we'll give you updates on the next quarterly call as to exactly when we think we'll have products in the marketplace.

Speaker 5

Okay. And it seems that at least financially, it seems that you fit the profile of a company undergoing strong sequential growth, your accounts receivable are growing, you're investing more money in inventory. So any comments for Q4? Are we going to see sequential growth again?

Speaker 2

We really don't give guidance as to the quarters. I will tell you that you're going to continue to see very strong growth from us. But remember, we also have very large customers that tend to kick in periodically. So it doesn't look like a straight line up like a flat hill. It looks more like a staircase.

Speaker 2

So it is always possible that you have a flat quarter. We kind of had a flat quarter this quarter. But then as new things are announced and new customers come online, you'll see large jumps. And that's kind of the pattern I think you can kind of take as a general description going forward. Does that make sense?

Speaker 5

Yes, yes. Thanks. Okay, this is it for me. Good luck to us all.

Speaker 2

Thank you very

Operator

much. We have reached the end of our question and answer session. This concludes today's teleconference. Thank you for your participation. You may disconnect your lines now.

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Earnings Conference Call
NEXGEL Q3 2023
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