NexGel, Inc

Good afternoon. I will be your conference operator today. At this time, I would like to welcome everyone to NextGel Inc.' 's first quarter 2023 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 the NextGel First Quarter 2023 Earnings Conference Call. I'm joined today by Adam Levy, Chief Executive Officer, and Adam Drabczyk, 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 reports filed 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 first quarter 2023 financial and operating results. During the first quarter of 2023, we continued our strong momentum from 2022, generating revenues of $620,000 compared to $396,000 in the first quarter of last year. This 57% year-over-year growth reflects sales growth in both our contract manufacturing and branded consumer products. Q1 also includes one full month of revenue from our newly formed joint venture, CG Converting and Packaging, which I'll discuss in more detail shortly. On our last conference call, we noted that in the fourth quarter of last year, we saw a slowdown within the Amazon marketplace, even though our product rankings remained steady. This impacted our branded consumer product sales and our overall sales mix during that quarter. We also remarked how these sales were starting to improve in the first quarter. I am happy to say that as anticipated, we saw Amazon sales normalized in the first quarter of 2023. Same product sales of established SKUs returned to their previous levels, and we saw positive traction with our new product launches. In Q1, we spent more on various types of advertising and social media influencers to support those new product launches, as well as our existing SKUs. Halfway through Q2, we are seeing the positive results of this investment. Amazon sales are up 90% year over year for this period, driven by both the new products as well as increased sales of our existing SKUs. Related to support for the new product launches for the first quarter, we reported a gross loss of 9.2% compared to a gross loss of 5.6% in the first quarter of last year. The increase was mainly due to the increased production of promotional materials and customer product samples to support our new product line growth. As we continue through 2023, we expect gross margins will improve to more normalized levels, reflecting larger production runs, which should absorb more of the fixed facility expenses. Turning to operations and corporate updates. In the first quarter, on March 1st, we acquired a 50% interest in a joint venture with CG Labs to create CG Converting and Packaging LLC. As part of this transaction, we are contributing a cash investment to the joint venture, for equipment and facility upgrades, as well as general corporate purposes. Prior to this transaction, TG Labs Converting and Packaging Division was already a successful and profitable business. It was also one of our larger customers for over 15 years. This transaction immediately increases our converting capacity. Longer term, we expect it will improve our margins and streamline our supply chain. We also expect to realize considerable synergies that will allow us to onboard potential large new finished good customers that previously we simply didn't have the resources to fully service. As well as smaller customers that were not practical for CG Labs to onboard previously. We also anticipate further benefits by leveraging our combined marketing and customer outreach. The integration has been progressing well since we closed this transaction in March. and we expect it will be accretive to earnings in the second quarter of 2023. Following this transaction, later in the quarter, we signed a services agreement with GlaxoSmithKline's consumer healthcare company, Halion. This was after they conducted extensive testing of our proprietary hydrogels as a candidate for their healthcare and consumer applications. We are very excited to have been selected by Halion and are thrilled for this opportunity to work with them. As part of the agreement, We will supply Halion with a new white label product currently scheduled to launch late in 2024. We continue to onboard other new customers and expect to release more branded consumer products in the coming months. Based on the dynamic changes to our business, including the March 1st joint venture, I feel it's important to provide a one-time exception to our policy of not providing guidance. Due to our progress to date and the recent developments I just outlined, We currently expect to generate consolidated revenue of $1 million for the second quarter of 2023. We expect this revenue growth to be driven by both organic growth of existing branded consumer products, the first full quarter of new products after their launch in Q1, and from realizing the benefit of a full quarter from our joint venture with CG Labs. With all the progress we made during the first quarter and our planned product launches in both 2023 and 2024, We believe we have built a solid foundation to drive increased sales performance and improve our margins. At the same time, as I've mentioned on prior calls, we will continue to opportunistically invest in ways that we believe will enable us to unlock the enormous potential of a proprietary hydrogel platform, as well as support and accelerate NextGel's long-term growth. With that, I would like to turn the call over to our CFO, Adam Drapsik.