NexGel, Inc

Good morning. My name is Todd, and I will be your conference operator today. At this time, I would like to welcome everyone to NextGEL's fourth quarter and full year 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.

Thank you, operator. Good morning, and welcome, everyone. to NextGel's fourth quarter and full year 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 morning 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 fourth quarter and full year 2023 financial and operating results. 2023 was a record year for NextGel and transformational in many respects. Over the course of the year and into our current first quarter, we have significantly expanded our operational infrastructure, solidified several key strategic partnerships with multi-million dollar corporations, and made key strategic investments that collectively have our company prepared for what we believe will be significant growth going forward. For the full year of 2023, we increased revenue by nearly 100% year-over-year to approximately 4.1 million. This year-over-year growth was driven by an increase in both contract manufacturing and branded products of 166% and 52% respectively. For the fourth quarter, revenue decreased slightly sequentially, mainly due to seasonality in both our contract manufacturing and consumer business. A recurring pattern historically in our branded products has been to see increased sales beginning in February and peaking in Q3. We therefore expected a slight decrease in revenue from Q3 to Q4 and a trend upwards in our current Q1 throughout the remainder of the year, which I will provide more details on shortly. As a reminder, the second quarter of 2023 was our first full quarter of revenue contribution from our joint venture with CG Converting and Packaging in Texas. Segmenting our revenue between contract manufacturing and branded products, in 2023, we are proud to have grown branded product revenue by approximately $427,000 or 52.4% to 1.24 million. For the fourth quarter of 2023, branded products revenue was 392,000, an increase of 104.2% year-over-year and 10.1% sequentially. When you exclude Kinkoderm from branded products, the year-over-year growth in the fourth quarter of 2023 was approximately 45%. Our hero product, SilverSeal, a hospital-grade hydrogel dressing for wounds and burns, continued to drive consumer demand within the OTC wound care market. Today, we have 29 health and beauty products sold direct to consumer. From the ground up, we have built a line of direct to consumer health and wellness products that we expect will continue to grow in the foreseeable future year over year with several growth strategies in place, including expansion into Europe and a retail strategy for North America. For the full year, gross margins were 15.1% compared to 12.5% in 2022. As I mentioned earlier, in our branded products, we have several growth opportunities to sell into Europe. To do so, we must be European Medical Device Regulation, or MDR, compliant. Once our facility and operation are fully MDR compliant, we will be able to self-certify all of our Class 1 medical devices, thereby opening up the European market for us. During the fourth quarter of 2023, we had expenses of approximately $153,000 relating to the process of receiving MDR compliance, such as the inspections, consulting fees, and application fees, which are accounted for in our SG&A. Our final inspection is scheduled for Q2 of this year. Therefore, we expect some further MDR compliance costs in Q1 and some in Q2 as well, totaling approximately an additional $150,000. I would also like to provide insight into how we analyze gross profit margins and where the growth levers are. we look at margins three ways at Nextgel. First, our branded products we currently sell direct to consumer carry a fairly stable contribution margin of between 20 and 25%. There are some efficiencies that should occur as we optimize and scale, but we see this as a stable profit for the company in the coming quarters. Secondly, our converting and packaging operations carry a contribution gross margin of approximately 20 to 30% on retail products, and 30 to 40% on medical device products. We will steadily move towards the higher end of this range as new state-of-the-art automation equipment arrives at the facility and comes online. Additionally, as we have mentioned before, we are already in process with our landlord to expand this facility by approximately doubling the square footage to meet the significant increase in demand we expect going forward. The additional space, along with having three, not one, automated machine lines will significantly increase our operational efficiency. Lastly, and our biggest growth lever is gel manufacturing in our Pennsylvania facility. While we have grown utilization of this facility as our branded product sales have increased, we are still only operating at approximately 9 to 13% capacity. Given that our fixed costs will only increase minimally as we increase production to meet the demand on our significant partnership agreements, Once these customers come online and throughput increases, we expect continued improvement in our margins and cash flow. One of these key customers is AbbVie, who provides a major growth driver for our company and an important validation of our HydroDel technology. In October of 2023, we executed a supply agreement with AbbVie to be the exclusive supplier of gel pads for their Resonic Rapid Acoustic Pulse device, which is to be used for the improvement in the appearance of cellulite. In December of 2021, AbbVie acquired the owner of this technology, Soliton, for $550 million in cash after its Rhizonic device demonstrated significant improvement in the appearance of cellulite. After extensive due diligence from AbbVie for many months, our hydrogels were chosen as the exclusive required razor blade to its razor 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 that we are very proud of. Our dialogue with AbbVie to date has been engaging and collaborative as the launch approaches. We speak weekly to ensure that we, as one of the many suppliers on this launch, that it goes off flawlessly. We have said many times that this is AbbVie's launch, not ours. We had targeted mid-2024 for the launch, as likely, but it is now looking more like the end of 2024. In Q1, we received a non-refundable $176,000 deposit from AbbVie against their first order. While this is a deposit and not reflected in revenue, the additional capital is certainly helpful. In addition to AbbVie, we have several other important growth drivers for 2024. In December, we announced an important partnership with Stata, a European leader in consumer health, to distribute and commercialize a product line of consumer health OTC products in North America. Our investment in MDR compliance will also bode well for this partnership in Europe and in the future as well. The launch of these products is on schedule as planned for mid-summer. Also in December, we acquired Cancoderm, a privately owned skincare company focused on treating the symptoms of psoriasis. The addition of six new SKUs, which include cream, salt soap, mud soap, shampoo, conditioner, and a multivitamin, perfectly aligned with our health and wellness offerings. bringing forth immediate synergies to support optimization of marketing and supply chain operations. In Q4, we recognize one month of revenue for the Kinklederm product line, and our current first quarter will be our first full quarter of revenue. This product line is profitable and will contribute positively to our financial results in Q1. Cash at December 31, 2023 was $2.7 million. as compared to 3.27 million at September 30, 2023, reflecting a $546,500 payment in cash for Kenco Derm paid in Q4. Subsequent to the end of the year, we completed a registered direct offering led by insiders of just over $1 million at attractive terms, and we feel very comfortable with our cash runway. Looking into Q1, We expect revenue of 1.25 million, which reflects a full quarter of revenue from Kenco Derm, but does not include the $176,000 deposit from AbbVie discussed earlier, and that will not be booked yet as revenue, but rather as a deposit. We also expect margins to be in line with that of the fourth quarter or slightly improved. We have a lot to be excited about in 2024. I want to thank our entire team for laying the foundation for growth for the future. With that, I would like to turn the call over to our CFO, Adam Dropsik. Adam?