NexGel, Inc

Good afternoon, everyone. My name is Beau, and I will be your conference operator today. At this time, I would like to welcome everyone to NextGel's first quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing star 1 on your telephone keypad. You may withdraw yourself from the queue by pressing star 2. Also, today's call is being recorded, and I will be standing by if anyone should need any assistance. And now at this time, I'd like to turn the call over to Walter Pinto, Managing Director of KCSA Strategic Communications, for introductions. Please go ahead, sir.

Thank you, Operator. Good afternoon, and welcome, everyone, to NextGel's first quarter 2024 Financial Results 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 afternoon 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 of 2024 financial and operating results. Following a record year of growth in 2023, I am pleased to report our first quarter financial results that demonstrate steady growth year over year and preparedness for significant growth levers we expect in 2024. First quarter revenue increased by 104% year over year to approximately $1.27 million, exceeding our first quarter revenue guidance of $1.25 million provided during our year-end conference at the beginning of April. As a reminder, revenue during this quarter does not include the non-refundable deposit of $176,000 from AbbVie against their first purchase order. For the first quarter, our gross profit margin was approximately 22% as compared to negative gross margin for the same period the prior year and an increase sequentially as compared to 14.6% in Q4 of 23. Our strong top line results reflect an increase in both contract manufacturing and consumer-branded product business segments, with revenue increasing year-over-year by approximately 58% and 178%, respectively. Sequentially, total revenue increased by approximately 17%, while the consumer-branded product segment increased by approximately 57%, reflecting our first full quarter of revenue contribution from the acquisition of Kencoderm. While we continue on our path of steady growth year over year, both in branded, sales, and contract manufacturing, we are also investing in future growth of the business. Our investments made during the quarter were twofold. First, alongside capacity expansion in our converting and packaging facility in Texas, we purchased and are installing state-of-the-art new equipment. And secondly, we are making the final investments and preparations for meeting European compliance requirements. In 2023, we acquired ownership in the CG converting and packaging business and its facility in Texas. The addition of this facility not only added an additional revenue stream for us, but also provided us with optionality to increase capacity in order to support the new client relationships that we expect given our robust pipeline of new customers. As we have mentioned, we are in the process of completing the expansion of our CG converting and packaging manufacturing facility to double its existing square footage, providing us with the needed capacity to support the increased demand that we expect to see this year. While the expansion is funded by our landlord in terms of the building construction, during the quarter we invested $152,000 in CapEx for state-of-the-art automated machinery and related clean room facilities. Going forward, we have minimal additional CapEx for this project. to complete the expansion currently targeted for this summer. A creed driver for this investment is our partnership with AbbVie as the exclusive supplier of gel pads for their Rhizonic Rapid Acoustic Pulse device for reduced cellulite appearance. We still expect to launch this device by the end of the year and continue to work closely with their team. As I mentioned above, we have invoiced them $176,000 as a non-refundable deposit that will be applied against future orders. This has yet to be included in our quarterly revenue. In branded consumer products, we currently have 31 health and beauty products sold direct to consumer and several growth strategies in place, which are driving a stronger retail presence in North America and eventually our expansion into Europe. A key addition to our product portfolio is our newly acquired Kenco Derm product line. This is our first full quarter of revenue contribution from six new Kenco Derm products, which focus on treating the symptoms of psoriasis. The KencoDerm line complements our current product offering and has been a contributor to our quarterly revenue growth. In Q4, we began the process of attaining MDR compliance, which will provide us with the ability to self-certify all of our Class 1 devices for sale into the European market. Costs associated with MDR compliance carried into Q1 as expected in the amount of $102,000. Achieving the certification is extremely important for our long-term growth, given the opportunity we have to enter the European market through our partnership with Stata as well as other potential distributors. We expect a final and lesser amount of fees relating to MDR compliance in Q2, in anticipation of distributing and commercializing our first products in Europe later this summer. In total, our expenses will be reduced and more normalized in the second half of 2024, as our facility expansion is completed and we receive MDR compliance. Cash at March 31st, 2024 was 2.4 million as compared to 2.7 million at December 31st, 2023. In February of 2024, we also completed a registered direct offering led by insiders for net proceeds of just under 1 million at attractive terms. I feel very comfortable with the runway of cash we have on hand, to fund our operations going forward. With that, I would like to turn the call over to our CFO, Adam Drapsing.