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spk04: Welcome to the NOLA Bay Pharmaceuticals Second Quarter 2022 Financial Results Conference Call. At this time, all participants are in listen-only mode. Following management's prepared remarks, we'll hold a question and answer session. Ask a question at that time, please press the star key followed by the number one on your touch-tone phone. If any of you have difficulty hearing the conference, please press star zero for operator assistance. As a reminder, this conference is being recorded. I'd like to turn the conference over to Jody Kane. Please go ahead.
spk02: This is Jody Kane with LHA. Thank you for participating in today's call. Joining me from Nova Bay are Justin Hall, Chief Executive Officer and General Counsel, Andy Jones, Chief Financial Officer, and Kim Scharzitz, the company's Vice President of Commercial. I'd like to remind listeners that comments made during this call by management will include forward-looking statements within the meaning of federal securities laws. These forward-looking statements involve risks and uncertainties that could cause actual results to be materially different from any anticipated results. In particular, there is uncertainty about circumstances beyond the company's control that impact the broader economy, such as the COVID-19 pandemic and the conflict between Russia and Ukraine. This means that results could change at any time and the contemplated impact of COVID-19 and circumstances that impact the broader economy on NOFA-based operations. Its financial results and its outlook is the best estimate based on the information available for today's discussion. For a list and description of risks and uncertainties, please review NOFA-based filings with the Securities and Exchange Commission at sec.gov. Furthermore, the content of this conference call contains information that is accurate only as of the date of the live broadcast, August 11, 2022. Nova Bay undertakes no obligation to revise or update any statements to reflect events or circumstances except as required by law. I'd now like to turn the call over to Justin Hall. Justin?
spk06: Thank you, Jody. Good afternoon, everyone, and thank you for joining us. I'm pleased to report that our strategy to diversify and expand our product portfolio of high-quality products is paying off, with product revenue for the quarter increasing 43% over the prior year. Additionally, online sales of the Avenuva spray unit increased year-over-year, which we attribute to the success of our shift to the more efficient online sales channel. We achieved this growth while holding our marketing spend steady, even with the additional expenses associated with promoting Dermadoc products. The majority of Avanova unit sales, once again, were generated through the Amazon sales channel. You may have seen a recent announcement of record single day sales of Avanova branded products during Amazon's Prime Day event in mid-July, with the sales of Avanova branded products increasing 27% over Prime Days 2021, and 48% over Prime Days 2020. We enjoy an extremely loyal customer base of Amazon customers, with our Avanova Spray receiving 4.5 stars from more than 11,000 reviews, demonstrating the quality of our product and a broad market acceptance. I'm pleased to say that we have many lifetime customers, and in fact, about 17% of Avanova Spray orders come through the subscribe and save feature. We are aggressively executing on a multi-pronged strategy to create a stronger company with accelerated top-line growth. With Avanova and Dermadoctor, we have a solid foundation of established brands in the large and growing eye care and skin care markets. Our growth initiatives, including expanding and refreshing digital marketing campaigns, widening demographic targets for existing products, and increasing their accessibility, while also expanding Avanova and Dermadoctor brands with new innovative, scientifically developed OTC products. I'd like to share with you some of the initiatives we've taken so far this year, starting with a recent step in expanding into the beauty market with Avanova. Late last month, we announced the launch of a new marketing campaign for Avanova, targeting the large and growing number of women turning to eyelash extensions to enhance their appearance while eliminating the need for mascara. Unfortunately, lash extensions can attract oil, dust, dirt, and debris that may shorten their lifespan, cause irritation, and create the likelihood of eye infections. Avanova offers an ideal solution for proper lid and lash hygiene. Our antimicrobial formulation is highly differentiated from the water-based cleansers and serums currently on the market. Avanova is also differentiated from other hypochlorous acid products in that it is the only cleanser available that's clinically proven to kill infection-causing bacteria and remove the irritants on the lids and lashes. Most importantly, Avanova will not damage the adhesive that holds extensions in place and can actually extend the life of the lashes. We are addressing an entirely new and younger customer demographic with this marketing campaign. To reach this younger demographic, we are promoting Avanova through new social media platforms such as TikTok. Among the growth opportunities we envision for the derma doctor brand is the trend for beauty products to be increasingly purchased online. According to the research firm Insider Intelligence, online sales of beauty products this year are expected to be more than double than those of 2019. By 2026, e-commerce sales are expected to account for nearly one-third of the category's total retail sales. We have developed robust social media programs across all digital channels to take advantage of this growing market. Just this week, we launched a new advertising campaign for one of Dermadoctor's hero SKUs, KP Duty. This product was the original solution for keratosis pilaris. After its launch many years ago, it became so popular that many others tried to copy it. With this new marketing campaign, we intend to take back market share from those copycat products. Expanding into international markets is also a key priority. To this end, our new partner in China is now managing Dermadoctor's flagship store in tmall.com, which is the leading business-to-consumer online retailer in China. Brand influencers and social media platforms like TikTok are particularly effective ways to attract new customers in China, and our new marketing partners bring an extensive network of bloggers and influencers, as well as strong brand-building capabilities. And lastly, we continue to expand our Avanova and Dermadocter product offerings, having launched seven new products since the beginning of 2022. Our newest addition include Dermadocter Picture Perfect Oil-Free Gel Moisturizer, which is perfectly formulated with oily and acne-prone skin in mind. This lightweight gel rejuvenates and refines skin texture, leaving skin soft to the touch, hydrated, and without clogging pores. These new products keep us highly relevant in an industry that is rapidly changing, and importantly, they keep the Dermadoc brand in the minds of the consumers. All of our new offerings complement our corporate purpose of offering proprietary OTC products that are effective, scientifically developed, and clinically proven, yet gentle, and importantly, address common yet underserved conditions. Our launches are being executed under our low-cost model, which allows us to test market acceptance before committing to a larger investment associated with a broader commercial launch. Looking forward, we are extremely excited about a sizable order that we anticipate receiving in the second half of the year for Dermadoctor's top-selling product, Kakadu C, from one of the largest U.S. retailers. Kakadu C is formulated from Kakadu plums, which are thought to be one of the most concentrated sources of vitamin C on the planet, along with ferulic acid and vitamin E to help protect against free radical damage and improve skin elasticity and firmness. We also expect a seasonal increase in derma doctor sales during the fall, which is typically stronger for skin care products. I'm pleased to say that as we gained traction from these initiatives already in place and those underway, we are confident that the majority of our growth in 2022 will come in the remaining half of the year. I'd also like to welcome Kim Shartsis to today's call. Kim recently joined us as our new VP of commercial to support our many growth initiatives. Her skillset is ideally suited for NovaBay with more than 20 years of experience in consumer brand management and hyper growth brand building. and a strong track record of driving growth through traditional retail, DTC, e-commerce, social media, and other direct sales channels. Kim?
spk01: Thanks, Justin. I'm thrilled to join NovaBay and to use my experience to support our company's continued success. Since joining, I've become familiar with the high-quality Avanova and Dermaducter products and the exceptional team that is actively executing on a wide range of initiatives to broaden market reach and build on the success of existing products. This is a tremendous opportunity, and I look forward to making a meaningful contribution to the profitability of the company. Now I'd like to turn the call over to Andy Jones to review our Q2 financial performance.
spk03: Thank you, Kim. We are very excited to welcome you to the call and to the NovaBay team. Your experience and skills are very clearly a great compliment for Justin and I, and I look forward to working with you as we continue to get the word out. and increase the number of people that we count as Avanova and Derma Doctor lovers. As a reminder, we closed the Derma Doctor acquisition in November 2021. So our financial results for the second quarter and first six months of 2022 reflect combined NovaBay and Derma Doctor results. I'm very happy to report that net product revenue for the second quarter of 2022 was $3 million, which is up 43% from $2.1 million for the prior year period. Second quarter results included $0.6 million of Derma Doctor product sales. The quarter also included $1.8 million of Avanova branded product sales. As Justin mentioned, we are excited to report that over-the-counter Avanova unit sales through our most critical online channels have increased over the prior year period, while our related direct advertising costs have decreased. The second quarter of 2022 also included $0.6 million of neutrophase and Phase I branded wound care product sales. Sales of these products is somewhat sporadic. However, we do anticipate fulfilling additional orders for these products in the second half of the year. Gross margin for the 2022 second quarter was 51%. This compares with 71% for the 2021 quarter. The decrease primarily resulted from the addition of derma doctor product sales and higher sales of the wound care products. Total operating expenses for Q2 2021 were $3.7 million. This compares with $3.4 million in the prior year quarter. Sales and marketing expenses were unchanged at $1.8 million with $0.7 million in derma doctor sales and marketing costs. which were offset by the lower AbaNova digital advertising and related consulting costs as we continue that focus on optimizing the cost effectiveness of our online engagement of new and existing customers. G&A expenses were $1.9 million in Q2 of 2022. That compares with $1.6 million a year ago. The 2022 period included a half a million dollars in derma doctor costs, which were partially offset by a decrease in corporate professional services, consultants, and employee costs. R&D expenses for the second quarter of 2022 were $40,000 compared with $20,000 for the prior year period as we continue to create, develop, and release new products without incurring significant R&D costs. The net loss attributable to common stockholders for Q2 of 2022 was $2.2 million, or 4 cents per share. This compares with the net loss attributable to common stockholders for Q2 of 2021 of $1.9 million, also 4 cents per share. Turning to year-to-date financial results, Product revenue for the first six months of 2022 was $5.7 million, a 44% increase over the prior year period. Gross margin on net product revenue for the first half of 2022 was 54%, compared with 73% for the first half of 2021. For the first half of 2022, sales and marketing expenses were down slightly, and G&A expenses increased 49%, both compared with the first half of 2021. R&D expenses were $68,000 for the first six months of 2022 versus $26,000 for the prior year period. The net loss for the first six months of 2022 was $2.2 million, or 4 cents a share, which included a non-cash gain on changes in fair value of warrant liability of $2.1 million. You might remember this liability was reclassified to equity during the first quarter of 2022 and will no longer require fair value adjustments affecting our operating results in the future. The net loss for the first six months ended June 30th, 2021, excuse me, was $3.4 million or 8 cents per share. As of June 30th, 2022, we had cash and cash equivalents of $3.9 million. And with that, I'll turn the call back over to Justin.
spk06: Thanks, Andy. In closing, I'm enthusiastic about NovaBay's future. We are executing on our focused strategy and have already accomplished a lot this year with more to come. Again, given the timing of our initiatives and seasonality of our products, we continue to expect that the majority of our growth in 2022 will come in the remaining half of the year. With that, I thank you for your attention. Operator, we're now ready to take questions.
spk04: As a reminder, If you wish to register to ask a question in today's Q&A session, you'll need to press the star and the number one on your telephone. If your question has been answered and you wish to withdraw your polling requests, you may do so by pressing the pound key. Using a speakerphone, please pick up your handset before entering your request. One moment, please, for the first question.
spk06: Before we take questions, I'd like to mention that we will be presenting at the Ladenburg-Thalman 2022 Healthcare Conference being held in person in New York on September 29th. A webcast of our presentation will be posted to the Nova Bay website. Okay, operator, we're ready for the first question.
spk04: First question will be from Jeffrey Cohn, Ladenburg-Thalman. Please go ahead.
spk05: Hi, Justin and Andy and Kim. How are you?
spk06: Good. Good.
spk05: So just a bunch of questions. I'm going to jump around here. It looked, Andy, like the OPEX for Q2 was lighter than we had thought. How does that pull through into the back half of the year? I think it sounded like it's going to be closer to four-ish million versus five-ish million. Is that an accurate statement?
spk03: Yes, that's correct. Might see a little uptick in sales and marketing side, but I think, you know, a small uptick there and G&A, I think, will remain consistent through the rest of the year.
spk05: Okay, got it. That's helpful. Thanks for that. Could you talk about the Kakadusi, Justin, a little bit as far as the mention of retailers? a large-ish retail, and if it is, then it'll be sampled out in an initial few score of facilities or perhaps thousands. Any comment there?
spk06: Yeah, sure. So this is a retailer that Dermadoctor has worked with for years and has placed a similar order in years past. they typically order for Black Friday and then the holiday season. So they have committed to these orders, so we will see them in the tail end of Q3 and mostly in Q4.
spk05: Okay, and is that for one SKU, the one ounce size?
spk06: Yeah, so this is the Kakadu C Serum.
spk05: Got it. Okay, I can see it. And could you talk a little bit about any trends that you've noticed or any patterns worth calling out from either or both Avidove or Dermadoc as it relates to online versus Amazon versus bricks and mortar?
spk06: Yeah, so we are a majority online channel. And of course, We love it when people will buy through dermadoctor.com or avanova.com. But what we have seen is that it is just easier and cheaper to acquire new customers on Amazon. So we have seen increases in sales both on our own site and on Amazon. And it kind of goes back and forth. I think Amazon is a very efficient sales channel for us. we have multiple ways of advertising for that and You know for example, we had a nice sort of event that happened in q2 with derma doctor and an influencer and You know the the influencer didn't say where to buy it And of course most people just went to Amazon search for the derma doctor product and purchased it there. So you know we have said in the past and I think continue to believe that our largest opportunity for growth is in that online sales channel.
spk05: Okay, got it. And then lastly for us, I guess Andy, talk a little bit about gross margins. This is a common theme in our space these past couple weeks. So the puts and takes there, I know it's on a smaller base, but puts and takes are what we should anticipate for the back half and forward.
spk03: Yeah, so it is a smaller volume, so there are some fixed costs that are attributed there that, you know, keep our margins smaller when the volumes are lower. I think in the second half of the year, you're going to see those come back up. You know, of course, I think you had the expectation, and we did too, that the Dermadoc products come with, you know, a little bit smaller of a margin than the Avanova products traditionally have, which is over 70%. from the Avanova side, and DermaDoctor has been, you know, in the 50% to 60%. So, you know, I'm looking forward to, you know, ending up somewhere in between in the last couple of quarters of this year.
spk05: Okay, got it. That does it for us. Thanks for taking our questions.
spk06: Thanks, Jeff.
spk04: Thank you. Next question will be from Rafael Ruiz. City and Capital Markets, please go ahead. Hi, it's for Ed Wu from City and Capital Markets. Hi, are you seeing any or do you expect any macroeconomic slowdowns?
spk06: Yeah, so typically people like to say that skin care and beauty products are recession proof, but we don't always see that as the case. Even though we haven't seen any impact from macroeconomic movements, that doesn't mean that we won't see them in the future if there is a larger downturn. But if things, I think, in the broader economy with consumer sentiment remaining about where it is now, we don't anticipate a material impact on the business.
spk03: Okay, great. And how is the international part doing?
spk06: So actually one of our, two of our largest opportunities for growth on the derma doctor side are international. So we have some great connections through investors and also on our board for the China market. And we are in the process of building those markets and relationships and really trying to expand in the China market. So that is a great opportunity and does continue to hold a lot of opportunity for us going forward in the rest of this year and then hopefully throughout next year as well. And expanding into the EU is also sort of top of mind. We have a couple great opportunities that we're pursuing in the EU market. So international expansion is definitely a big part of our plan.
spk04: Great. Thank you very much.
spk06: Thank you.
spk04: This concludes our question and answer session. I'd like to plan to call back over to Mr. Justin Hall for closing remarks.
spk06: Thank you once again for joining us today and your interest in Novavax. We are extremely excited about our progress and the very bright future we envision. We look forward to reporting our progress during our Q3 2022 investor call in November. In the meantime, have a great day. Thank you.
spk04: That first is now concluded. Thank you for attending today's presentation. You may now disconnect.
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