Q2 2020 NovaBay Pharmaceuticals Inc Earnings Call
[music].
Ladies and gentlemen, today's conference is scheduled to begin momentarily until that time their life will again be placed all musical thank you [noise].
[noise].
Welcome to the Novabay Pharmaceuticals conference call.
At this time all participants are in a listen only mode. Following management's prepared remarks, we'll hold acuity session.
To ask a question. Please press star followed by the number one on your Touchtone phone.
As a reminder, this conference is being recorded August 620 20.
I would now like turn the conference average coupon break. Please go ahead ma'am.
Thank you. This is a bomb briggs without like Jay. Thank you for participating in today's call joining me from Novabay Pharmaceuticals, or just some hall, President and Chief Executive Officer, and Andy Johnson, The company's Chief Financial Officer.
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 Law. These forward looking statements involve risks and uncertainties that could cause actual results could be materially different from any anticipated results.
In particular, there was sick nipigon uncertainty about the duration and potential impact of the covert 19 pandemic.
This means that results could change at any time and the contemplated impact of coping 19, I noticed the base operations and financial results and.
And its outlook is the best estimate based on the information available for today's discussion.
Her list and description of risks and uncertainties. Please review Novabay filings with the Securities and Exchange Commission FCC Dot Gov.
Furthermore, the content that this conference call contains information, but as accurate only as of the date of the live broadcasts today August six 2020.
Novabay undertakes no obligation to revise or update any statements reflect events or circumstances, except as required by law.
Now I'd like to turn over the call could just and hall Justin.
Thank you have on good afternoon, everyone and thank you for joining us.
Today, I'm very proud to share with you or second order books.
At a time when many business has struggled we not only survived but thrived.
We are reporting strong financial results for the second quarter with revenue of $4 million up 122% over the prior year period, while narrowing our operating loss by 22%.
We have also strengthened our kashagan significantly, giving us financial security at a time of general uncertainty.
Our strategic move a year ago to create a direct to consumer sales channel proved can you just reporting year over year growth in unit volume.
This general allowed customers to order obnova during a pandemic without ever leaving their homes and without a prescription while physician offices were largely closed and patient visits to eye care specialists virtually stopped.
Second quarter revenue growth was driven by our ability to capitalize on our international health network to supply can 95 mass.
Beginning in the early months of the pandemic when personal protective equipment was in short supply.
Our team here and Novabay demonstrated great agility and quickly creating the infrastructure to offer these math with timely order fulfillment.
As a kobin 19 pandemic continues its particularly gratifying to announce the results from a highly reputable independent laboratory confirming that I've been over kills the cobot 19 virus since I've known as inception, we have noted to be a very powerful anti microbial sprayed solution effective against all types of pathogens.
Including a wide variety of viruses bacteria from Guy.
Now we have the results from a highly reputable independent laboratory confirming I've been over kills the Corona virus that causes cobot 19.
[noise] well, many disinfectants killed a virus, having nova is the only spray solution that is completely non toxic and gentle enough for use on the sensitive skin around the eyes knows and mouth. These parts of the body are known to be particularly susceptible to covert 19 transmission.
I've, Nova is formulated with our pure FDA cleared hypochlorous acid, which is a significant differentiator.
I'd like to remind everybody that not all hype of course acid products are like unlike some other well known disinfectants made by familiar names like Lysol and Clorox I've, Nova is specifically designed for use on skin.
I have Nova is pure manufactured in America and can be applied repeatedly throughout the day.
As a cautionary note I'd like to warn consumers to be careful of other hypochlorous acid products.
Most are not pharmaceutical grade like I've inova. It may not contain a sufficiently high concentration of hypochlorous acid to kill the cobot 19 virus.
In times like these the quality of our product really sets us apart from all other generic and copycat products.
It's not surprising given the resurgence in koby 19 cases that consumers and physicians are reacting favorably to these laboratory test results.
Since announcing these results we've seen an uptick in I've innovus sales and both the consumer and physician dispense channels. Additionally, we're seeing some doctors come back to rebrand after it not having prescribed I've been over for several years.
In addition to our regular customers. We are now fulfilling bulk orders for OMNOVA and other PPG from doctors and large medical institutions.
These types of bulk orders, our new for us and they've shown us the opportunity that we currently have in front of us to truly grow our bread and expand into new markets.
During these turbulent times, many low quality health care products with false claims of effectiveness have flooded the marketplace consumers and professionals have become skeptical and thus our reputation for delivering quality products has become much more valuable.
We are working with our marketing team to incorporate that message of quality into our digital advertising program. This is a cost effective means for us to create awareness about avenue as virus, killing capability with current customers, while also expanding our customer base.
We have been more active in advertising and in other media, including San Francisco City Kiosks, New York City subway signage television in print.
We're also submitting the laboratory test results to the environmental Protection agency for inclusion of Avenue of on the EPA is approved list of disinfectant.
The EPA is review process will likely require several weeks.
We're also working towards a strong future with a significantly strengthened balance sheet to support our business strategy.
During the second quarter, we sold stock through an aftermarket financing program and recently completed a very successful warrant transaction.
We were able to exercise and renegotiate most of our outstanding warrants, resulting in a stabilization of our balance sheet by eliminating the warrant liability and the related large noncash swings in our piano.
With the addition of these funds we will also maintain compliance with the continued listing requirements of the New York Stock Exchange. This is huge.
Lastly, we continue to actively work with the FDA on emergency use authorization or are you a for the floor care Sars Koby two antibody test kit.
Since submitting the Tesco for review the FDA has requested a ton of additional data, which we have provided we recently received we believe is the final round of questions and we continued to be hopeful in securing you a for this kit. They're currently continues to be a strong demand for these types of kits.
Now I'll turn the call over to Andy to review, our financial performance in more detail.
Thank you Justin and good afternoon, everyone I'll begin my financial review with topline results for the second quarter as 2020.
As Justin mentioned net product revenue increased 122% to $4 million up from $1.8 million for the second quarter of 2019.
The increase was due to $2.8 million from net sales of canned 95 masks with no comparable revenue in the second quarter of 2019.
Evan over revenue for the quarter was $1.1 million down from $1.6 million for the second quarter of 2019.
Although we sold more avenues to have another units in the current year quarter versus the prior year quarter. Our net average selling price was lower this was primarily due to lower insurance coverage by national payers and our related launch of Abbott Nova direct in June 2019 was lower relative pricing.
Gross margin on net sales for Q2 2020 was 49%. This compares with 77% in a year ago period.
This decline reflects the addition of they can 95 maps, which are sold with a lower relative margin.
Operating expenses for the second quarter of 2020, whereas $3 million up from $2.8 million a year ago.
Specifically sales and marketing expenses were $1.4 million decreasing from 1.5 million in the prior year period. This was primarily due to lower headcount, which was partially offset by an increase in direct marketing expenses.
DNA expenses were $1.5 million up from $1.2 million, a year ago, due primarily to higher legal fees.
R&D expenses for Q2 were $115000 and this compares to 30 $32000 for the year ago period.
Operating loss for the second quarter as 2020 was $1.1 million, which has a 21% improvement from the $1.4 million operating loss that we reported for the second quarter of 2019.
The noncash loss on the fair value of warrant liability for Q2, 2020 was $3.8 million versus a noncash loss of $487000 for Q2 of 2019.
As Justin just mentioned subsequent to the end of the second quarter of this year nearly all of these the warrants associated with this liability where renegotiated and exercise.
The noncash loss from the adjustments to the fair value of derivative liability for the second quarter at 2019 was 246000.
We did not record a comparable loss or gain for the second quarter 2020.
Net other income for the second quarter of 2020 was $362000.
Consisted primarily of income recognized related to qualified expenses incurred under the payroll protection.
Graham.
This compares with net other expense of $387000 for the second quarter 2019, which primarily consisted of interest expenses related to a convertible note, which was issued in March 2019.
The net loss for the 2022nd quarter was $4.5 million or 15 cents per share. This compares with a net loss for the second quarter of 2019, a $2.5 million or 14 cents per share.
And now briefly for our six months results.
Net product revenue for the first half of 2020 increased 79% to $5.9 million.
Gross margin on product revenue was 55% compared with 77% for the first half of 2019.
Operating expenses for the first half of 2020 or $5.9 million, which is 28 is 26% less than the prior year period and includes sales and marketing expenses of $3 million Gina expenses of $2.8 million and R&D expenses of 100.
$24000.
Our operating loss for the first half of 2020 narrowed by 53% to $2.6 million from $5.5 million for the first half of 2019.
The net loss for the six months ended June Thirtyth, 2020 was $6.1 million or 21 cents per share compared with a net loss for the first six months of 2019 of $6.7 million or 38 cents per share.
In reviewing our balance sheet as the end of the second quarter of 2020, we had cash and cash equivalents of $8.8 million compared with $6.9 million as of the end of 2019.
During the second quarter as Justin mentioned, we raised proceeds from the sale of common stock through an ATM facility, resulting in net proceeds of $5.2 million.
And as mentioned in subsequent to the the close of the quarter in July we raised net proceeds of $6.4 million to the exercise.
The warrants.
With that I'll turn the call back to Justin.
Thanks, Andy.
Before we open the call to questions. Let me summarize our recent progress in near term plants.
We are maintaining our supply of inova with no manufacturing issues.
We've seen a recent increase in AVANOVA orders following the announcement of the independent lab testing confirming that our pure proprietary hypochlorous acid solution kills the cobot 19 virus.
We continue to focus on online sales, which enables consumers to buy of inova without a prescription and without leaving home.
Our salesforce continues to engage with eye care specialists through phone and email well in person visits are not feasible as well as focusing on opportunities for bulk sales of ERP.
Our team has successfully built the infrastructure to fulfill PE orders responsibly and with reasonably quick turnaround times.
We have added additional PE products as the pandemic continues in order to meet the safety needs of our fellow Americans.
And importantly, we have significantly strengthened our balance sheet, giving us the resources, we need to grow the business.
From a business development perspective, we continue targeting ophthalmic and skincare products in line extensions that will allow us to leverage our salesforce and utilize our established sales channels under economic terms that makes sense for adobe.
We are regularly evaluating new products to support profitable growth.
I'm proud of our ability to thrive in a rapidly changing cobot 19 environment, while we positioned the company for a bright future in a post pandemic world where that overview I. Thank you for your attention operator, we're ready to take questions.
Ladies and gentlemen, if you wish to register for our question for today's question and answer session. You will need to press Star then the number one on your telephone.
Your question has been answered any was to withdraw your request you may do so by pressing the pound Keith.
If you are using a speakerphone. Please pick up your handset before entering your request one moment. Please first question.
While we're waiting for the first question I want to mention that we have received close to 50 Dr. testimonials over the past three months supporting OMNOVA as the preferred lid and lash solution.
Okay, operator, we're ready for the first question.
Our first question will come from the line of Jeffrey Cohen with Ladenburg Thalmann.
Well, Hi, Justin Andy how are you.
Hi, Jeff.
Okay.
Okay.
So with that Andy for so.
Cash was 80, including me Jim last quarters, you noted six for could you give us a guesstimate what it is.
Kind of spot now in can you give us a better guesstimate on.
Number of outstanding shares now please.
Sure. So so our cash balances in the 13 to 14 million range. After the recent warrant exercises Adams.
The outstanding shares is I'll give you give you the number from the cover of our Q, It's 41 million 739904.
Okay got it and then on the on the debt side, you Peel off that 7.6 war liability from Q2, so they'll go to zero.
Yes, so apps after we renegotiated the warrants we anticipate that that liability will come off the books and be Reclassed equity.
Okay Yep, Okay got it and then.
Justin could we talk a little bit about.
Even though the specifically and the more recent trajectory that you've seen perhaps.
No.
Made April and June today in July June.
Yes, so actually very very gladly. This is a little bit of a wild ride and we did see.
Dip in Avenue for sales during Q2 because of the shutdown so.
Ophthalmologists and optometrists like everybody else, we're not in the office working and.
They were writing prescriptions as they normally way for Nova as an eye care prescription product. So we we did see a dip there but.
We always knew that Avenue was a very powerful anti microbial and so.
We didn't want people just to take our word for it. So we we engaged allowed to do that testing for us.
And it took a long time.
Because the lab, just like I care professionals, and you know all Novabay employees are all trying to work remotely in sort of figure things out but this is not testing that can be done remotely. So it took a little bit longer to do it but the results were tremendous we were really happy with them. So.
That has as I mentioned like in the script.
Really created an entirely new market for us and it's really a market that.
All describe as a sort of facial sanitizer of which there really is no dominant market player.
Everybody knows lysol wipes.
Clorox.
Hand, sanitizer right I mean, everybody is going crazy for hand, sanitizer, we can we can even keep it its talk around the office here, but what would I think Americans really need instead of hand sanitizer in wiping down surfaces is they need official sanitizer and in Avenue, but we have died.
And so those results we now it's really only three weeks ago and put it out to our existing universe.
And it was really well accepted and so now.
I think Andy and I feel the burden along with our marketing department to really get that message out beyond our current universe. So it's not just ophthalmologist optometrists people.
Who have been prescriber product or purchased it before it's really something that I think.
Everybody everybody needs, so thats sort of our our next challenge, which I think we gladly accept.
Okay. So while you don't put on any specific guidance.
It sounds like what I'm hearing is perhaps an uptick from the Q2 number.
Back toward.
More recent historical numbers like Q4 in Q1 and.
We have plenty of upside from their.
Yes, absolutely.
Okay.
[music].
On the on the Pp side could you talk about the mass a little bit it looks like that's your.
Your second as to you in the mask lot being slightly different from the.
The first batch Oh providers are suppliers any comments there as floors.
Pricing or supply or pull through.
Sure well.
Actually Jeff I remember talking to you during our.
First quarter call. It you said.
Hey, I hope I hope these mass or only temporary and I think they have been really great for us in Q2, and I think we'll continue to.
Supply them for as long as demand persist, but it's not going to be sort of the name of the game.
Here going forward so.
The we have two different.
Skews that are available in one is a lower cost option that's not on the CDC Waitlist and then the second one is on the CDC waitlist and it's a little bit more.
Substantial.
It is I'll say less comfortable to where it's not something that when I'm going to go on to walk around the neighborhood that I want to have on my face, but when I am.
In an office were around people closer than six feet I would much prefer the second option, which is a.
Okay, and 95 mask that's on the CDC weightless. So we have the two different options because I think that there's I think everybody has different sort of needs.
For a mask and sometimes you want a little bit more protection and you're willing to pay a little bit more for that and then other times you just kind of want a sanitary and disposable facial covering.
So we offer both.
Okay, Okay, thats pretty clear, but it sounds like big picture.
That the DPP business would not necessarily be your focus on primary business.
I'll see you next year.
Yes, absolutely when when we're looking out to 2021, I think we'll see a return to.
Sort of you cant believe I'd say, that's like a a normal selling motion and business environment hopefully.
And I think we need to be prepared when PE could no longer be in item for us to tout and topline revenue so.
We're preparing for that now because I see that as sort of an inevitable future, but in the meantime, I think is we find it really gratifying just to be able to fulfill these needs. When we when we are talking to physicians and institutions all the way from.
Hospital groups, all the way down to public schools.
People say hey.
What can you get for me and we can fulfill that need and so I think it would be foolhardy not to help people when they needed and I think you would also be foolhardy from a business perspective, not to make those sales when its available to us.
Which is a perfect segue into my last question. If you could talk about the M&A fraud and other products and.
Activities. There if you have any comments thanks a lot.
Sure.
Jeff I cannot wait for the day would we have a formal announcement of either a product acquisition or something we don't have anything.
Right now that.
We would like to announce but we do have.
Things in the Hopper, so I look forward to when it's appropriate to publicly announce those.
That's very helpful. Thanks, guys I appreciate it.
Thanks, Jeff.
Our next question will come from the line.
Well just nbn capital.
Yes. Thank you for taking my question my questions again on math into PE products.
Are you still see robust demand for the mask and how is the supply chain for mass right now.
Yes, so things have really dramatically changed.
And we have broadened our offering.
Quite a bit because there was a.
Hey, I'll characterize it as an extreme shortage back in March and April but the supply.
I will say the global supply has.
Hi, it up and got up to speed so.
Masks are no longer.
In huge demand, but sort of interestingly.
What we have received a lot of request for and seen a growing demand in somewhat of a shortage is globes nitrile nitride local ups and I think as.
Restaurants start to open up and.
Thats service industry.
Tries to open backup gloves is kind of the next big.
Shortage in demand and so.
We were trying to fulfill some of those.
And you know that it's just a part of I think the evolving environment that we're trying to be a part of.
Great I.
I know you said in 2021 do you expect.
Pete is not be.
Focus for you guys, but what about in Q3 in Q4.
Or do you think there we're going be a drop off.
You before that.
Yes, it's a very interesting question.
Because I don't think anybody knows and I think we would be.
For Hardy to to try and.
Predicted towards the end of the year, because if you had told me.
In March at the end of Q1 that we were going to have a Q2 like we did.
Both.
From a business perspective market perspective, and operational perspective.
I would have never I would have never predicted that.
And so really towards the end of the year.
I simply don't know.
I do see a market saturation with supply and it certainly is not.
The wild West, though we saw in March and April.
That sounds good that's sounds good well. Thank you for answering my questions and wish you guys. Good luck. Thank you all right. Thanks, Ed. Thank you.
There are no further questions at this time. Please proceed with your closing remarks.
Thank you once again for joining us today and your interest in Novabay. We look forward to updating you during our next call in November to discuss third quarter financial results and progress.
In the meantime have a good day.
Ladies and gentlemen that concludes your conference call for today, we thank you for your participation assets you. Please disconnect your lines.
[music].
Okay.
[music].
Okay.
[music].
Okay.
[music].
Yes.
[music].
[music].
[music].