NexGel, Inc

Good afternoon. I will be your conference operator today. At this time, I would like to welcome everyone to NextGel, Inc.' 's fourth quarter and full year 2022 earnings conference call. Please be advised that today's call is being recorded. I will now turn the call over to Walter Pinto, Managing Director of KCSA Strategic Communications, for introductions. Please go ahead.

Thank you, Operator. Good evening, and welcome, everyone, to NextGel's fourth quarter and full year 2022 earnings conference call. I'm joined today by Adam Levy, Chief Executive Officer, and Adam Drapsek, Chief Financial Officer. 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 8K, as well as the company's reported filings periodically with the SEC. 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.

Thank you, Walter, and thank you, everyone, for joining us today to discuss our fourth quarter and full year 2022 financial and operating results. 2022, our first full year as a public company, was a transformative year for NextGel. We successfully executed a multi-pronged business strategy and grew steadily year over year, confirming the vast potential of our proprietary hydrogel platforms. In 2022, we achieved record revenues in excess of $2 million, a 32% year-over-year increase, mostly driven by revenue growth in contract manufacturing of 34.7% and branded consumer products of 66.9%. For the full year, we reported a gross profit margin of 12.5%. Throughout the year, our team did a nice job of continuing to refine our processes and manage our costs appropriately. As we expect sales to continue to grow year over year for the foreseeable future, the increased revenues will, along with larger production runs, absorb more of the fixed facility expenses, improving our margins even further. For the fourth quarter, we generated revenues of $524,000, essentially flat to the fourth quarter of 2021, results of $533,000. Sequentially, revenues decreased from the third quarter of 2022 by $43,000. This reflects an overall sales slowdown we saw within the Amazon marketplace during the quarter, which impacted our branded consumer product sales and overall sales mix. Our established products had a 29% decline in sales year over year, but actually improved in ranking, indicating that the decrease in sales was due to overall softness in Amazon and not lost market share. Amazon sales have since rebounded nicely in Q1, so we believe this was a temporary condition. We also experienced some supply chain delays that impacted new product launches originally scheduled for Q3. The launches came online very late in Q4, with the full impact of these launches not to be felt until late Q1. A higher contribution of lower margin contract manufacturing revenue also affected our fourth quarter 2022 gross profit margin, which was 7% for the quarter. As we continue to navigate a challenging macroeconomic backdrop, generating record revenue for the full year 2022 speaks volumes of the strength of our business model and strategic direction of the business. Thus far in Q1, we have seen Amazon sales normalized and new product launches getting off to a great start. Both will allow branded consumer product revenue growth year over year to be more in line with the growth we saw in Q3 year over year, while shifting our revenue contribution of branded products compared to contract revenue to a more normalized level of about 50% each. Turning to operations and corporate updates during the fourth quarter, we developed and launched TurfGuard, a hydrogel dressing designed to soothe turf burn and protect athletic wounds. TurfGuard is a unique product that includes sterile silver and has been improved by the FDA for use on turf burn. These patches have been shown to kill 99% of staph, MRSA, and strep bacteria, making TurfGuard an effective solution for athletes who are a risk group prone to skin infections. TurfBurn is a common skin injury that occurs when athletes come into contact with artificial turf. We have seen our product perform and resonate well with our customers. In fact, we are proud to partner with Greg the Beast Gorenlian, a former major league lacrosse player, to help expand Turf Guard's reach and get it into the hands of athletes. Greg, as well as other key influencers in various sports, are one of Nextgel's approaches to support the growth of our consumer-branded product vertical at an efficient cost. As I mentioned earlier and in prior quarters, we will continue to opportunistically invest. Subsequent to the end of the fourth quarter, we acquired a 50% interest in a joint venture with CG Laboratories, to create CG Converting and Packaging LLC. As part of this transaction, we are contributing a cash investment to the joint venture for the purchase of new equipment and facility upgrades, as well as general corporate purposes within the joint venture. CG Labs Converting and Packaging division is already a successful and profitable business and has been one of our largest customers for the past 15 years at NextGel. This transaction immediately increases our capacity, improves margins, and streamlines our supply chain. There are also significant synergies between the two operations, allowing for the onboarding of potential finished good customers that in the past were not large enough to be practical for CG Labs or might be too large for us to onboard alone, as well as combined marketing and customer outreach. We closed the transaction at the beginning of March, and we expect it to be accreted to earnings by the second quarter of 2023. In more recent news, we signed a services agreement with GlaxoSmithKline's consumer healthcare division, Halion. After extensive dialogue and testing of our hydrogel, we are very excited about this opportunity to work with a company of the size and stature of Halion. As part of the agreement, we will supply them with material for a tentatively scheduled product launch in 2024. We have now developed a strong foundation that will enable our company to execute on its strategies to grow our contract manufacturing, branded products, light label, and medical devices business segments year over year in 2023 and beyond. With that, I would like to turn the call over to our CFO, Adam Drapsik.