NovaBay Pharmaceuticals, Inc.

Welcome to the NOVA 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 touchtone phone. If any of you have a 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.

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 Shartsvitz, 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?

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 channels. 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 Day's 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 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 Dermadoctor 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 Dermadoctor product offerings, having launched seven new products since the beginning of 2022. Our newest addition include Dermadoctor 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 gain 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 Schartzis to today's call. Kim recently joined us as our new VP of Commercial to support our many growth initiatives. Her skill set 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?