Q1 2021 NovaBay Pharmaceuticals Inc Earnings Call

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Hello, and welcome to the Novabay Pharmaceuticals first quarter 2021 financial results Conference call. All participants will be in a listen only mode should you need assistance from an operator. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question.

The press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note that this event is being recorded I would now like to turn the conference over to Jody Cain. Please go ahead.

This is Jody Cain with L. A J. Thank you for participating in today's call.

Joining me from Novabay Pharmaceuticals are Justin Hall, President and Chief Executive Officer, and Andy Jones, The company's Chief Financial Officer, I would like to remind listeners that comments made during this call by management will include forward looking statements within the meaning of federal Securities laws. These forward looking statement.

Involve risks and uncertainties that could cause.

Cause actually results to be materially different from any anticipated results in particular, there of significant uncertainty about the duration and potential impact of the COVID-19 pandemic.

This means that results could change at any time and the contemplated impact of COVID-19, I know if of base operations its financial results.

And its outlook is the best estimate based on the information available for today's discussion for a list and description of risks and uncertainties. Please review Novabay filings with the Securities and Exchange Commission at the SEC Dot Gov.

Furthermore of the content of this conference call contains information that is accurate only as of the day. That's the live broadcast May six 2021, Novabay undertakes no obligation to revise or update any statements to reflect the events or circumstances, except as required by law and now I'd like to turn the.

Call over to Justin Hall, Justin.

Thank you Jody good afternoon, everyone and thank you for joining us.

It was of the day is off to a strong start in 2020, one with continued momentum with the over the counter sales of Avenova Rev.

Revenue from this channel exceeded $1 million for the first time ever on record unit on record high unit sales.

This increase in over the counter of Avenova was driven by year over year of growth from both Amazon Dot Com and Avenova dotcom.

We also benefited from revenue generated by Walmart Dot Com, which began offering of an open to the third quarter of 2020 and from a first time revenue contribution from CBS, one of the nation's largest retail chains.

The OTC channel accounted for 79% of total Avenova Avenova revenue for the quarter, that's up from 66% in Q4 2020.

We are making excellent progress on building upon our momentum of the OTC channel Avenova is now available on the shelves of Cvs stores nationwide and its exciting to have them as our first brick and mortar partner.

The market opportunity for Avenova as large as dry as chronic dry eye of flicks, approximately 30 million Americans with ocular bacteria accounting for about 85% of these cases.

Driving continued growth in the OTC channel is our top priority.

To further capitalize on the significant market opportunity by accelerating avenova sales through digital advertising campaigns with the online advertising now being one of our core competencies.

Our new digital advertising campaigns are focused on growing our customer base customer base with newly developed creative messaging and a heightened level of sophistication combined with the data driven marketing programs.

This approach of target specific customer segments with the messages that will resonate with them.

Our digital marketing will be monitored the real time performance metrics, such as click through and conversion rates and customer acquisition costs as we direct our campaign across multiple advertising platforms, while maximizing our return on ad spend.

While expanding our customer base is our main focus we do not take for granted that avenova users are quite devoted to our product.

Of this loyalty as evidenced by numerous of favorable product reviews on Amazon Dot com and the growing number of repeat customers signing up for the subscribe and save feature offered on both Amazon Dot Com and Avenova Dotcom Bill.

Building and nurturing this loyal customer base provides for reoccurring revenue and provides visibility on future sales.

We plan to leverage this loyal customer following and growing brand recognition with a full suite of dry eye products, we've already launched our warm icon price and we'll be launching two new products in the coming months.

The warm icon price is a mess that when used with avenova helps clear oil glands and allows the natural oils to flow back onto the eye to relieve dry eye discomfort or warm icon process watchable and reusable and can be used for a host of conditions from blepharitis blepharitis seasonal allergies headaches and puffy.

The itchy eyes.

Furthermore, it's easy to use by simply heating in the microwave and placing it over your eyes for 15 to 20 minutes.

It's also quite soothing and effective even when not heated we're offering the warm icon price to consumers as a standalone product or in a therapeutic combination of our spray and wipes.

We believe.

Our strong following is directly linked to our products many unique characteristics.

I have of Nova is formulated with Novabay is of proprietary pure pharmaceutical grade of hypochlorous acid with no bleach impurities or other impurities that could staying or irritate the eye, making our product completely safer regular use.

In addition customers can be assured that avenova is the only lid and lash anti microbial spray to be clinically proven to reduce the bacterial load on the ocular skin surfaces I've.

I've been over addresses the underlying cause of bacterial dry eye rather than just the symptoms.

Avenova also provides the consumer with the added confidence of knowing that our product is manufactured here in the United States.

Our focus for the balance of the year includes growing consumer sales of seller ex clinical reset which is the unique pharmaceutical products, we launched into the beauty market earlier this year.

We are working with our new media partner to bring the same sophistication to the digital marketing campaigns for clinical reset as we did with Avenova.

Clinical research is a gentle calming soothing daily facial spray that fights against irritated inflamed and compromise skin by removing barriers to cell regeneration through gentle cleansing and biofilm disruption without the stripping the skin.

The clinical reset reduces the traumas and disruptors to skin, thereby leading to healthier and lessen flamed complexion of our product is highly complementary to a daily beauty regimen and can be used with any combination of skincare products.

Like Avenova seller excess formulated with Novabay pharmaceutical grade pure hypochlorous acid to eliminate harmful microorganisms and to provide for clearer healthier skin.

In surveying existing seller ex users are media partner is discovering the clinical reset has already developed a loyal following we look forward to a full media launch program, which we expect to occur in the third quarter of this year.

Our other key initiative for 2021.

We have stepped up our efforts to further growth through strategic acquisition of existing products organizations, and the large ophthalmic and skin care markets in order to grow revenues.

We are positioned to capitalize on these opportunities by leveraging sales channels and our marketing expertise we've engaged the services of the quality advisory firm to support this endeavor.

We believe novabay is extremely well positioned to execute on our growth strategy, including our new media programs.

The sufficient capital to fund operations well into 2022.

Lastly, although we are only one month into the second quarter based on current trends, we expect Avenova revenue and unit sales to increase over the second quarter of 2020.

We will however, not have any comparable revenue from PPE. This year as we did last year during the height of the pandemic.

That said, we expect a favorable revenue uptick from our core avenova of business.

Now I'll turn the call over to Andy to review, our financial performance in more detail.

Thank you Justin good afternoon, everyone, starting with our Q1 top line results.

Avenova product revenue was up for the quarter on total net sales of $1 8 million, we recorded $1 $6 million on Avenova revenue for Q1, 2021, which is an increase from $1 5 million for Q1 of 2020.

As we heard from Justin Q1, 2021 was the first in which Avenova product revenue from the OTC channel topped $1 million in fact, OTC product revenue from Amazon sales alone exceeded $1 million for the first time, increasing 34% over the first quarter of 2020.

These increases demonstrate the momentum that we're gaining from our improved and better informed of digital marketing programs.

Gross margin for the first quarter of 2021 was 75% that's up from 69% of year ago. The <unk>.

Proved net resulted from lower revenue from products other than <unk>, which are generally sold at a lower relative margin.

Total operating expenses in the first quarter of 2021, one of our $2 $9 million compared with $2 $8 million from the prior year period.

G&A expenses for Q1, 2021 were $1 $2 million down compared with $1 $3 million a year ago. The.

The 2021 quarter included the benefit of an insurance reimbursement for legal costs that were incurred in 2020.

Sales and marketing expenses were $1 7 million as compared with $1 6 million for Q1 2020.

This increase was primarily due to increased investments in our marketing programs for both Avenova and stellar ex as we look to capitalize on these large market opportunities.

The increase was offset in part by a reduction in field sales head count as part of our increasing focus on a more cost effective in house sales team.

Our in house team is focused primarily on telephonic and video conference outreach to educate the medical community about how their patients can benefit from the extraordinary qualities of Avenova and how their offices can benefit financially from our affiliate and physician defense programs.

As we have previously discussed the Doctor's office is where the Avenova patient journey and the physician recommended Halo effect often begins.

Operating loss for the first quarter of 2021, and 2020 was unchanged at $1 5 million.

Net loss attributable to common stockholders for the 2021 first quarter was $1 5 million or <unk> <unk> per share operating.

Operating loss and net loss for the 2021 quarter were substantially the same as we eliminated our warrant liability in the second half of 2020 as part of our effort to improve our balance sheet.

Net loss attributable to common stockholders for the first quarter of 2020 was $1 6 million or <unk> <unk> per share.

Lastly, we continue to be pleased with the overall health of our balance sheet as of March 31, 2021, we had cash and cash equivalents of $10 $5 million and we ended the quarter again with no significant debt obligations.

We have sufficient funds to meet planned operating needs well into 2022, allowing us to comfortably execute on all of 2021 initiatives to drive adoption of Avenova and stellar ex and seek out other product opportunities that will provide top line growth and operating synergies as we execute on our path towards profitability.

With that I'll turn it back to Justin.

Thanks, Andy.

Before we open the call to your questions. Let me summarize our near term plans to continue building upon the sales momentum we've achieved over the past several quarters.

First we're focusing on driving avenova sales through the direct to consumer channel, which is where we see the greatest growth opportunity. We have a strong foundation upon which to build having already established established avenova as the premier anti microbial lid and lash spray.

We have expanded consumer access to Avenova this year through availability at Cvs and we're excited by the prospects of gaining momentum through this large retailer as of the year progresses.

We will also be rolling out new media campaigns that feature customized lifestyle of messaging and data analytics to attract new avenue of of customers and encourage repeat usage to build upon our loyal customer following.

Second we're developing new sophisticated digital marketing programs for seller ex to build upon a customer base. That's also showing early signs of loyalty to our product.

Like Avenova. This new campaign will include the monitoring of various metrics to evaluate the effectiveness and reaching an expanding targeted demographics and to optimize our ad spend.

Third we will be introducing two new products in the coming months to complete our suite of dry eye offerings.

And fourth we continue to actively evaluate opportunities to support profitable growth through acquisition or licensing of ophthalmic and skincare products.

This is a priority for us.

Our experienced commercial organization improved balance sheet and established industry relationships all give us confidence that now is the opportune time for us to pursue new sources of revenue in order to increase shareholder value.

With that summary of our business and future plans I. Thank you for your attention operator, we're now ready to take questions.

Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up of your handset before pressing the keys if at any time you would like to withdraw your question. Please press Star then two.

The first question stay will come from Jeffrey Cohen with Ladenburg Thalmann. Please go ahead.

Hey, Justin Andy how are you.

Hi, Jeff.

So.

Let's start with the gross margins, which were Sherman on Florida.

The estimate and then you read into that.

Yes, sure. So suggested EBITDA last year, we had a little bit more in terms of revenue from non avenova products, including the beginning of the mask sales.

<unk> and other products those generally come with a lower margin.

Then does avenova with less revenue from those those.

Products.

It allowed us allowed us to raise our margin Smith.

Okay. So would you expect for the balance of the year with Avenue of driving a larger proportion of the revenue that we should be stable at the mid 70 level.

Sure Yep.

Fantastic Okay.

What are you seeing out there is for <unk>.

The recurring orders and purchasing trends just from Orange stickiness of your customer base.

Yes, so I think that we are really lucky to have a product that is.

Not only save for long term use.

But also designed for a disease state that is chronic so once people start on avenova with dry eye.

The generally love it and keep on coming back for it dry. Unfortunately is not one of those conditions that can ever be truly healed. It can only be managed.

And we are finding more and more as we expand into the consumer space that people love to manage it with Avenova, which is great.

What are you seeing any interesting trends of the consumer space as far as geography growth within the U S.

Well so what's the.

Actually really interesting is that it is spread out pretty evenly all across.

The United States on what we are seeing for seller ex though is it tends to be.

The congregated in large metro areas. So we are seeing.

A lot of New York, where you are in a lot of San Francisco, where we are of course.

La and Chicago, Miami, those kind of places with the.

With not so much.

In the smaller metro areas.

Okay and then.

You talked about the possibility of.

A couple of more products, we see that on the second quarter and can you give us soon.

Vacation flavor on what.

Area that may be whether it be ocular.

On either on line extension from another.

Yeah. So there is.

We're really moving forward on two different fronts.

One front is just expanding the avenova product line and so.

You will see one product launch next week and then you will see another product launch in about three months.

And then the other half of that.

Is are our licensing and acquisition of where we're looking for.

The complete product lines with the existing revenue and that's through sort of in.

In the M&A initiative and.

There is no telling when that will hit sometimes it happens fast and sometimes it's a long drawn out process.

Got it and then lastly from me could you talk a little bit about the the OTC trends and the tools and scores on your direct channel.

There too.

Otherwise the against the Amazon channel as firms.

Growth.

She and repeat orders and I think there's a price of you're spot on matched up.

Yeah, Yeah, so theres price parity across all channels, even in our of physician dispensed channel we try to have the cost of the customer be exactly the same.

Our mantra here is.

That we like to have the path of least resistance. So we'll put it in the hands of the customer any which way they want it so.

On on.

On our online site Youll see like four or five different pay button. So if somebody comes to our site, but they want to use their Amazon account to buy it they can do that.

We find that.

With the growth of Amazon just during the pandemic of nationwide most of our traffic comes from Amazon, but I think the ability to really grow brand identity will never really come through Amazon. It will have to come through our voice and our site and our messaging and through.

<unk> and so all of that will be outside of Amazon.

Okay got it and then lastly from me.

Any commentary over the past five weeks as far as of.

Q2 over Q1 specific to.

Pick ups from non pick ups and just general macro trends in the order that you could provide the would be helpful. Thank you.

Yes, actually Andy do you want to take this one share of yes. So as we mentioned we're a little of that ended the second quarter, we certainly expect.

To see an uptick versus the second quarter of last year.

As we're implementing new digital marketing programs, obviously that that's pushing the OTC channel and we expect to see some signs of success on some growth from those in the in the second quarter.

Okay perfect. Thanks, guys kind of screwed on I appreciate you taking the questions.

Thanks, Jeff.

On the next question will come from Ed Woo with <unk> capital. Please go ahead.

Yes, congratulations on growing Avenova year over year. My question is you mentioned that you have a lot of repeat buyers.

Why is the chronic condition. So from your digital marketing how are you at the able to pinpoint the people, who arent buying avid nobody yet versus people who are repeat customers.

Yes.

It is something that we are.

Our focusing on now that we really have.

I think a very solid base to grow on.

As the as I mentioned before it's kind of tricky with Amazon because it is definitely our largest channel in the path of least resistance for.

Most customers, but when people buy on Amazon, we are not able to remarket to them directly we don't we're not able to capture there.

Mail addresses and remarket to them. So one of the main things that wed like to do this year is really grow people on our site and tell our brand story and sort of capture of that customer data and remarket to them. So that is the trend that I was referring to the now that we're really diving into.

Obtaining our own customer information, maintaining it and then re marketing to them and.

It has surprised us how well.

That has that has worked because people generally like to come back to something that has worked well for them, but sometimes they just need a little reminder.

Great and then.

You mentioned a couple of new products one market next week one in the next three months <unk> will be doing a full launch in the third quarter.

Should we expect increased sales.

Sales and marketing expenses.

The significant on a significant scale for the next couple of quarters.

Yeah, I mean as far as we're growing those channels I think it will be more focused on the refreshed advertising from both avenova and <unk>, but yes, we'll be investing a little bit more on those areas as far as the new product Scott well, obviously invest in those as well.

Probably a little bit more modestly than the beginning.

Great. Thanks for the color on I wish you guys. Good luck. Thank you.

Great. Thanks, Ed Thank you Ed.

This will conclude today's question and answer session I would now like to turn the conference back over to Justin Hall for any closing remarks.

Before we ended wanted to mention that we'll be presenting at the Ladenburg Thalmann 2021, virtual health care conference that's going to be held on July 13th and 14th So we invite you to view of the webcast of our presentation, which will be posted to our corporate website.

So thank you to everybody for joining us today and thank you for your interest in Novabay. We look forward to updating you on our next call in August when we'll discuss our second quarter financial results and business progress in the meantime have a good day.

The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.

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