Q2 2021 NovaBay Pharmaceuticals Inc Earnings Call
Good day and welcome to the Novabay Pharmaceuticals second quarter 2021 financial results Conference call. At this time all participants are in listen only mode. Following management's prepared remarks, we will hold a Q&A session to ask a question at that time. Please press the star key followed by the number one on your Touchtone phone.
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As a reminder, this conference is being recorded.
Now I'd 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 are Justin Hall, Chief Executive Officer, and General Counsel 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 statements involve risks and uncertainties that could cause actual results to be materially different from any anticipated results.
In particular, there is 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, Novo base operations financial results and its outlook is our best estimate based on information available.
For todays discussion for a list and description of risks and uncertainties. Please review Novabay filings with the Securities and Exchange Commission at SEC Gov.
Furthermore, the content of this conference call contains information that is accurate only as of the date of the live broadcast August 12, 2021, Novabay undertakes no obligation to revise or update any statements to reflect 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.
Highly gratifying to begin this call by reporting record high quarterly unit sales as more people are using avenova today than ever before.
Our Q2 financial performance was driven by record Avenova unit sales and record revenue in the DTC channel for the fourth consecutive quarter.
In fact, with the exception of one quarter last year during the height of the pandemic, we have consistently broken records in this channel since its inception in 2019.
Amazon continues to be our largest source of online sales complemented by growing sales through our own website.
Our considerable DTC competency is reflected in our ever increasing sophistication and digital marketing.
We now consistently launch fresh advertising campaigns across multiple electronic platforms with marketing techniques that include real time monitoring our performance metrics. This tracking allows for quick adjustments to placements and messaging to leverage what's working best accelerate sales and maximize our return on ad spend.
Our efforts to expand and improve our D. C. C channel are paying off and we continue to see this channel as our highest growth potential for avenova.
DTC sales are coming from both both first time users and our loyal customer base.
Expanding our customer base is key to creating a reliable revenue stream as avenova enjoys a very high rate of repeat business. We know we have a strong brand loyalty because of the growing number of users who are utilizing the subscribe and save future on Amazon Dot com and Avenova dotcom.
We also know that our customer satisfaction is extremely high as evidenced by Avenova is four five star rating by 70% of the 8000 customers who have reviewed our product on Amazon with 84% of the ratings at four stars and above.
Verified purchasers appraise, our product and written reviews with comments such as I have suffered for years with dry eye and this is the only thing that has ever worked I have literally tried everything else on the market.
These customer views are especially rewarding because they are honest and unsolicited as required by Amazon. We can truly say that our product is making a positive impact in people's lives.
Other contributions to the DTC channel have also come from Walmart Dot com and from Cvs, where avenova has been available both in stores and online since earlier this year it's.
It's exciting to announce at Cvs has recently expanded access to our product with Avenova now on the shelves of more than half of Cvs is 10000 stores nationwide.
We are also capitalizing on the strong avenova brand by launching complementary eye care products in the DTC channel.
So far this year, we've added the warm I compress in the eye checked illuminated eye examination mirror.
The I check is the portable lightweight handheld mirror featuring 10 times magnification and is specifically designed for at home visual resolution and Mad magnification of the eye and surrounding area.
Its uses I check enables our customers to have an up close look at the effectiveness of avenova on their lids and lashes. These.
These ancillary products are meant to support the use of avenova by both new and returning customers.
Our avenova lubricating eyedrops are still slated to launch at the beginning of Q4.
While sales have continued to grow through our DTC channel, we continue to focus on our pharmacy channel with our Rx only product.
We increased our focus on the prescription channel through our recently announced highly promising partnership with the nation's largest ophthalmic pharmacy Imprimis Rx.
Our new partner had lots of success in commercializing high quality prescription ophthalmic drugs to its established customer base of thousands of eyecare specialists nationwide.
I have Nova is highly complementary to their newly launched cyclosporine Eyedrop clarity C. I firmly believe that patients who use both clarity C and avenova will experience better clinical outcomes, if they use both products together.
These two products have different mechanisms of action, but are completely complementary.
Although they were designed separately, it's almost as if the two products were created to be used together.
In addition to their eye drops their portfolio consists of hundreds of products used in ophthalmic surgical procedures avenova as antibacterial and anti microbial properties make it ideal for pre and post lasik surgery and cataract procedures.
This opens a significant market opportunity for Avenova as cataract surgery is the number one surgical procedure in the United States with about 4 million procedures performed each year.
Imprimis Rx is involved in approximately 20% of all cataract surgeries in the U S. So the market potential is huge and we're excited to have a partner with such broad reach.
The infamous Rx sales force is already promoting avenova and we expect to see a material impact from this new partnership in the fourth quarter.
Avenova is high quality formulation has made it the number one physician recommended anti microbial lid and laughs Fray and provides a foundation for continued growth.
Nobody was the first to launch a hypochlorous acid product into the large dry eye market. We continue to standby our assertion that avenova is best in class due to our patented pharmaceutical grade formulation.
We have tested every hypochlorous acid lit and lash product, we can find on the market and no. Other formulation has been found to be as pure as avenova.
As we've said many times Avenova is completely safe for regular use it's the only late in life anti microbial spray to be clinically proven to reduce the bacterial load on ocular skin surfaces.
Addressing the underlying cause of bacterial dry eye rather than just the symptoms.
Turning now to sell Rx clinical reset we very recently launched digital advertising campaigns for this product with creative messaging aimed at accelerating sales. These campaigns have the same high level of sophistication as our avenova campaigns with real time tracking.
Clinical research is a truly exciting product that opens up a new category for pharmaceutical grade skincare.
Our product is a gentle calming and soothing facial spray that effectively removes barriers to sell turnover by disrupting the biofilm layer without stripping the skin.
Celebrex is the answer to the dangerous idea of needing to scrub repetitively wash and he was harsh ingredients to have healthy glowing skin <unk>.
Increasingly researchers are realizing that the balance of oil and lipids in the skin biofilm is exceedingly important to keeping it healthy.
<unk> addresses this balance.
As wholly as a wholly new approach to skincare adoption requires some education about its benefits our new digital media campaigns are focused on defining the role of seller acts in a daily skin care routine with messaging that features all natural non drawing deep cleansing benefits and lifestyle testimonials from actual users.
Like Avenova, we find a high level of customer loyalty on this product.
<unk> also provides us with the relationships and competencies and the large skincare market much like Avenova does in the ophthalmic market. These competencies are important as we actively negotiate strategic opportunities to broaden our product portfolio with complementary products. This is a top priority for novabay as we.
We look to build shareholder value by reaching profitability through growing revenue and a diversified product offering.
We are positioned to capitalize on attractive opportunities by leveraging our sales channels or marketing knowhow and our admin administrative expertise.
Now I'll turn the call over to Andy to review, our financial performance in more detail.
Thank you Justin and good afternoon, everybody, let me start with our Q2 top line results.
Avenova product revenue for the second quarter of 2021 was $1.9 million.
65% versus the prior year with total net sales at a coupon of $1 million for the quarter.
And the 2020 quarter, we reported total sales of $4 million, which included $2.8 million in CAD 95 masks sales.
We're very proud that we were able to supply much needed P. P. E. During the early days of the pandemic last year. However, we do not anticipate any such future sales now that supply shortages have narrowed.
The increase in Avenova revenue for Q2, 2021 was driven by a record $1.3 million in Avenova OTC sales up 117% from the prior year as Justin mentioned this is remarkable growth and a continuation of a trend of record quarterly sales since we launched the O.
T C product.
Gross margin for the second quarter of 2021 was 71% that's up considerably from 49% from the prior year with the improvement mainly due to the lack of sales of the lower margin K N 95 mask in the second quarter of this year.
Total operating expenses in the second quarter of 2021 were $3.4 million that compares with $3.0 million for the prior year period.
Specifically G&A expenses for Q2.2021.
One $6 million were relatively flat with $1.5 million for Q2.2020.
Sales and marketing expenses were $1.8 million.
That compares with $1.4 million for Q2.2020.
The increase was primarily due to higher spending on marketing programs for both Avenova and seller acts as we look to continue to capitalize on these market opportunities the.
The increase in sales and marketing expense. This year was offset in part by a Russian reduction in field sales head count when comparing the periods.
We are focused on the OTC and physician defense channels as part of our emphasis on cost effective marketing that includes an in house sales team.
We are also excited about the opportunity to expand in the prescription market through our partnership with enormous Rx.
Noncash net loss of fair market value of warrant liabilities for the 'twenty 'twenty second quarter was $3.8 million you.
You might recall that we eliminated the warrants underlying this expense as part of our effort to improve our balance sheet last year and there was therefore it no comparable expense in this year's second quarter.
Net loss for the 2021 second quarter was $1 nine $9 million or four cents a share.
As an improvement from the net loss of $4.5 million or 15 cents a share last year, which reflects higher margin product sales and our elimination of the warrant liability in the second half of 2020.
And now turning briefly to our year to date results Avenova revenue for the first six months of 2021 of $3.5 million represents a 29% increase over the prior year.
Total revenue was $3.9 million compared with $5.9 million last year, which included $3 million of K N 95 mask sales that were nonrecurring.
Gross margin improved to 73% for the six months in 2021, an improvement from 55% for the six months in 2020 with the improvement again due to higher Avenova sales and no lower margin mask sales are in this year.
For the first six months of 2021 sales and marketing expenses increased by 16% largely due to an increase in measurement and then the investment in digital marketing for Avenova.
And salary G&A expenses were relatively aligned between the years and R&D expenses declined modestly compared with the first six months of 2020.
Net loss for the first six months of 2020, one was $3.4 million or eight cents per share. This is an improvement from the net loss for the first six months of 2020 of $6.1 million or 21 cents per share, which included a noncash loss for the warrant liability of $3.6 million.
Lastly, our balance sheet remains strong with no significant debt obligations and as of June 30th 2021 we had cash and cash equivalents of $10.3 million. We continue to have sufficient funds to meet planned operating needs well into and beyond 2022, allowing us to comfortably execute.
On all 2021 initiatives to drive adoption of Avenova, and Celebrex and with that I'll turn it back to Justin.
Thanks, Andy.
Let me summarize why we're excited about Nova based future and the prospects for growth and profitability.
First we launched a refresh of digital marketing campaigns and ancillary products earlier this year in order to accelerate Avenova DTC sales by expanding our customer base.
Our new sophisticated digital marketing programs are producing results as evidenced by consistent quarter by quarter increases in unit sales, we monitor various metrics in real time, which allows us to evaluate the effectiveness and reaching targeted demographics and making adjustments. This in turn allows us to optimize our AD spend we.
Have a strong foundation upon which to build having already established avenova as the premier anti microbial lid and last spring.
Secondly, consumers have more access to avenova than ever before with our product on the shelves of nearly half of all Cvs stores nationwide.
Third we're opening up new opportunities in the prescription channel through our partnership with Imprimis, Rx, which has a track record of success promoting prescription ophthalmic products in.
In addition to promoting avenova for patients with blepharitis Mgd and other dry eye symptoms. The imprimis Rx sales force is already promoting avenova in tandem with their other prescription ophthalmic products for pre and post surgical use for lasik procedures and for cataract surgery.
Fourth we plan to begin marketing.
A new line of licensed products and the eye care space that will be offered in our physician dispensed channel.
Finally, we are actively negotiating opportunities to support profitable growth through acquisition or licensing of ophthalmic and skin care products. Our established presence in these markets our experienced commercial organization and strong balance sheet give us the confidence that now is the opportune time for us to pursue these strategic transactions.
We're excited to focus on future profitability with the addition of new products that grow and diversify our revenue.
With that I. Thank you for your attention operator, we're now ready to take questions.
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One moment please for the first question.
While we're waiting for the first question I'd like to mention that we'll be presenting at the H C. Wainwright Global investment conference being held September 13th through the 15th we invite you to view the webcast of our presentation, which will be posted to our corporate website at the beginning of September 13th.
Okay, operator, we're ready for the first question.
Our first question today comes from Jeffrey Cohen with <unk>.
But in Berg Thalmann. Please go ahead.
Hi, Justin and Andy This is actually destiny on for Jeff and Thank you for taking my question first maybe I'll just start with that collaboration with Harrow slash in premise.
Can you quantify that opportunity a bit more for us in and how does the revenue recognition works for you.
Are they providing that to you on it are you providing it to them on it with a discount or how is that working.
Yes, so I tried to allude to the total market opportunity during the call today are they just have recently started it. So we have a monthly call setup with their management to gauge.
The demand going forward, so hard to quantify what that is but this opportunity is beneficial in a number of different ways.
For us just on our side, even without their sales force promoting it.
We really needed a nationwide pharmacy partner that had the ability to ship Avenova prescription avenova in all 50 states and we didn't have that prior to inform US we had a network of local pharmacies that did the fulfillment. So I think streamlining the availability.
With a very I think sort of high end operational company like Imprimis is gonna put hand going to put the product in the hands of patients.
Much more cheaply and much more easily I say, it's hard to quantify because.
We have two real opportunities with them one is in the pre and post <unk>.
Surgical use case.
And so like I mentioned that is an incredibly large opportunity and they're the largest player in the ophthalmic space there and so you know they do it and I think they have publicly.
Said this but you know they do over 100000 prescriptions just in that space.
Orderly and so if we can grab even.
10% of that I think will we'll be poised to see a lot of growth in that channel and that's you know through our own promotion of it and also you know their sales force Teva.
Sales force of 20 to 25 people and Avenova is now a part of their sales pitch.
That's great. Thank you so much for that additional information, perhaps I'll just switch over to my marketing questions quickly could.
Could you talk to us a bit about your marketing strategies and how how they did how you change the messaging between new customers and repeat customers has that changed at all since last.
Last quarter or Q4.
And then are you noticing any additional trends in terms of customer stickiness and then lastly could you also just remind us about your lag between running an actual campaign and then recognizing revenue I know it can be a couple of weeks to a couple of months I'm, hoping you can provide us a bit more color there.
Yeah. So we are constantly changing our marketing and campaigns and not.
That ability to quickly pivot both on messaging and brand and.
The graphic.
Not to mention the platform whether that be a search engine like Google or a social media platform.
Platform like.
Instagram or tick tock or chat those are some of our newer ones that we're expanding into them as well as doing educational videos.
On Youtube so.
We actually changed those constantly and in all the time.
One thing that we.
We find very.
Useful with returning customers is changing.
Changing that message, but always being in front of them. So no matter sort of where they are reminding them that that they know and love and need avenova, but we do it in a number of different ways. So the message never gets stale. So we see that that success or.
Failure of some of these messaging and advertising campaigns in real time. So if an advertising campaign is not producing the results that we want either for brand awareness where conversion.
We just stopped spend on that and then shifted over to something that is performing well so as far as revenue recognition as soon as it results in a sale.
In our direct to consumer channel that that revenue is recognized because it's a it's a sale and so you know I think as.
As far as stickiness one thing that we are very lucky to have is a product that regardless of our marketing or sophistication in a R.
Our online AD campaigns, we have a product that people just once they start they really really like and it's built into their daily routines. So sometimes when people can't you know if there one reason why the Cvs partnership is really nice is because people travel.
And if they don't have their avenova when they're on the road or they run out.
They kind of freak out, sometimes and they're like I have to have this I have to have this as a part of my daily routine and when I don't have it.
No I'm I'm unhappy I feel a difference with my eyesight, and having to having the ability to.
To just go into a Cvs store and pick it up off the shelf I think as great a lot of we've gotten a lot of really positive customer feedback.
About that but I think that that just goes to.
The stickiness to the product that we have a lot of return customers I wouldnt, even call them return customers, they're just they're avenova loyal 100%.
Okay. Thank you that kind of segways into my next question, which is around Cvs can you just remind us where that's located in the store I would assume it's with eye products, but I just wanted to get a reminder.
[laughter] Destiny, it's a it's actually very hard in the Cvs store to choose where it is in the stores. So we are in the ophthalmic section.
With other eyedrops so like.
Devising eyedrops typically when I have gone to look forward into a Cvs store. This section is right outside of the pharmacy.
But I would love it if it was over by the fake eyelashes. If it was you know.
Over by the Mascara and Eyeliner I mean, there are so many places within the Cvs store that it can be.
But for now if you're going into a Cvs store you have to go to the <unk> section with eyedrops, and that's usually right outside of the pharmacy.
I see got it okay. Thank you for that and then finally I guess I just wanted to ask do you see any alternative channels for sell Rx.
Point do you think it would make sense to move to a different channel and would you ever be able to leverage your relationship with Cvs to put sell Rx kind of in that eyelash and beauty section of Cvs as well. Thank you.
Yeah, So I.
I would love it if <unk> could.
Could make it into a brick and mortar store, we're trying to be a little bit selective about our partner from that aspect we.
Spent the first half of this year doing a lot of market research because we certainly didn't want to throw away money or put this out into the market without really knowing what our target demographic was and through our market research we found that our target.
Demographic that people, who are most likely to buy this product do not buy.
Their beauty products.
On Amazon and they don't buy them at Cvs, they tend to buy them.
On the proprietary a website of the manufacturer so that that is.
Where we've placed sell Rx now and where we place our main emphasis and access to sell Rx.
Oh Wow, Okay, that's very interesting thank you.
Yeah.
Our next question will come from Edward Woo with <unk> capital. Please go ahead.
Oh, Hey, guys. Thanks, guys Harry Yang here filling in for Andrew just wanted to ask besides some of the products you guys mentioned like the I checked mirror, what other products or areas are you guys thinking about expanding into or adding to broaden the portfolio.
So you're going to have to stay tuned for that we are working on a couple different deals right now and we'll we'll be making those announcements.
In the coming weeks so.
So we do have some additions, but you know our proprietary products that we have right. Now are that are complementary to avenova are the Nova wipes.
And the warm I compress that really I think competes head to head with Bruder, We don't we don't say it in our marketing, but we stay at around the office our mask is better than bruder, that's our tagline.
And in the I check because you know.
It's very hard to see your eye up close and even though.
<unk> with the use of Avenova, maybe getting better. There is also a visual difference of the lids and lashes and the I check allows people to track their progress using avenova and there is a visual difference to the eye and the lids and lashes that you can't really see just by looking in a mirror. So so the I check is.
Specifically designed for people to track their progress.
With Avenova and then as I mentioned earlier, we do have a dry eye lubricating drops.
Is avenova branded and that will be coming out later this year.
Got it got it thanks that helps a lot thanks guys.
Sure.
Ladies and gentlemen, this will conclude our question and answer session I would like to turn the conference back over to Justin <unk> for any closing remarks.
Thank you once again for joining us and your interest in Novabay, who we look forward to updating you during our next call in November when we will discuss our third quarter financial results and business progress in the meantime, please have a nice day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.