Q4 2021 NovaBay Pharmaceuticals Inc Earnings Call

Good afternoon, and welcome to the Novabay Pharmaceuticals fourth quarter 2021 financial results Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

Good afternoon, and welcome to the Nova Bay Pharmaceuticals' 4th Quarter 2021 Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key, followed by zero.

After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two.

After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note, this event is

Please note this event is being recorded.

I would now like to turn the conference over to Jody Cain. Please go ahead.

I would now like to turn the conference over to Jody Kane. Please go ahead.

This is Jody Cain with L. E. K. 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'd like to remind listeners that comments made during this call by management will include forward looking statements.

Toody King: This is Jodi King with LHA. Thank you for participating in today's call. Joining me from Nova Bay are Justin Hall, Chief Executive Officer and General Counsel, and Andy Jones, 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 the federal securities law.

Within the meaning of the federal Securities laws. These forward looking statements involve risks and uncertainties that could cause actual results.

Really different from any anticipated results in particular, there is uncertainty about the integration of derma doctor into notebooks as operations and duration and potential impact of the ongoing COVID-19 pandemic. This means that results could change at any time and the contemplated impact of Nova.

Toody King: In particular, there is uncertainty about the integration of Dermadopter into Novabase operations and duration of potential impact of the ongoing COVID-19 pandemic. This means that results could change at any time in the contemplated impact of Novabase recent acquisition and COVID-19 on Novabase operations, its financial results and its outlook is the best estimate based on information available for today's discussion.

This recent acquisition.

COVID-19, I know if a base operations its financial results and its outlook is our best estimate based on 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 SEC Dot Gov.

Toody King: For a list and description of risk and uncertainties, please review NOVA-based filings with the Securities and Exchange Commission at sec.gov.

Speaker Change: Furthermore, the content of this conference call contains information that is accurate only as of the date of the live broadcast, March 29, 2022. NOVA Bay 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?

More of the content of this conference call contains information that is accurate only as of the date of the live broadcast March 29, 2022, 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.

Justin.

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

Justin Hall: Thank you Jody. Good afternoon everyone and thank you for joining us.

I'm pleased to report that product sales for the fourth quarter increased by 40% over the prior year period on record high unit sales of Avenova stripe.

Justin Hall: I'm pleased to report that product sales for the fourth quarter increased by 40% over the prior year period on record high unit sales of Avenova spray.

Q4 was a strong close to a highly productive year in which avenova sales increased by 15% while the number of unit sold increased by 31% as more people than ever used our anti microbial mid and lash spray.

Justin Hall: Q4 was a strong close to a highly productive year in which Avenova sales increased by 15% while the number of units sold increased by 31% as more people than ever used our antimicrobial lid and lash spray.

Importantly, 74% of Avenova Avenova product revenue during 2021 came from our nonprescription channels, reflecting the success of our consumer marketing initiatives.

Justin Hall: Importantly, 74% of Avenova product revenue during 2021 came from our non-prescription channels reflecting the success of our consumer marketing initiative.

The crowning achievement of 2021 was the acquisition of Derma Doctor, which was completed in November in my view. This is the most significant event in our corporate history.

Justin Hall: The crowning achievement of 2021 was the acquisition of Dermadoctor, which was completed in November . In my view, this is the most significant event in our corporate history.

By acquiring Derma Doctor, we effectively transitioned novabay from a single product company to one with a strong presence in the large and growing eye care and skin care markets.

Justin Hall: By acquiring DermaDoctor, we effectively transition Novabay from a single product company to one with a strong presence in the large and growing eye care and skin care market.

While diversifying diversifying our product portfolio in itself is of significant value. We also gained additional growth opportunities from this highly synergistic transaction.

Justin Hall: While diversifying our product portfolio in itself is of significant value, we also gained additional growth opportunities from this highly synergistic transaction.

On our last quarterly call I laid out a multi pronged growth strategy for our combined companies.

Justin Hall: On our last quarterly call, I laid out a multi-pronged growth strategy for our combined company.

Justin Hall: Among our strategic initiatives is introducing innovative, scientifically developed, over-the-counter products under both the AVENOVA and DERMA doctor brands. We are already executing on this initiative, having launched two new products this year.

Our strategic initiatives is introducing innovative scientifically developed over the counter products under both the Avenova and Derma Doctor brands. We are already executing on this initiative, having launched two new products. This year.

In January we expanded.

Banded our avenova product portfolio with the launch of our lubricating Eyedrops. These new eyedrops were designed to help dry eye sufferers by providing immediate relief from irritated gritty scratchy or blurry eyes.

What differentiates our lubricating eyedrops and makes them so highly effective as a motive action that is entirely new to the eye care market. While these drops are effective as a standalone product.

When they are combined with the Avenova warm I compress in Avenova spray they become our science for sure is three stop daily regimen for at home dry eye management.

Like other Avenova products, you can find our lubricating eyedrops for sale on Amazon Dot Com, Avenova, dotcom and Derma Doctor Dotcom.

They are also offered for resale by eyecare specialists through our physician dispensing channel.

Earlier this month, we launched a highly ironic acid moisture recoveries, Sarah this new product expands the German doctor Com, calling corrected family, which is specifically formulated formulated dehydrate and repair eczema prone skin. The H a serum was created by our new product officer Dr. Roderick.

And then who is a board certified dermatologist and co founder of Derma Doctor or serum is unique to the marketplace. Because it includes the vitamin C Dragon fruit and water binding cactus botanicals to restore natural hydration to parched skin.

Beyond just the new product pipeline, we have an opportunity for growth by expanding the marketing and distribution of our current products the.

The combined Avenova in Derma Doctor teams bring extensive in house expertise in developing robust social media and a strong marketing presence across all digital channels, allowing consumers to engage with the brand through social media and Influencer campaigns.

We are building on the Audrey has established position as a key opinion leader in the skincare industry by identifying opportunities for her to provide an expert opinion on various skincare and beauty topics since the beginning of 'twenty 'twenty. Two Audrey has been quoted in articles appearing in online publications, including glam Dot Com Cosmos.

<unk> Dot Com C N N dotcom and Marie Claire Dot com.

You may have also seen Audrey and her recent QVC your parents as an on air guest on a show called Cheers to shopping with Sean.

Which she featured our new eczema bulk.

Due to the popularity and success of her appearance Adria is expected to be additional QBC appearances and we plan to announce those dates and times once their site.

Nobody has also been executing on or on a strategy to expand marketing activities outside of the United States to that end, we engaged a leading Chinese marketing firm to drive consumer sales of Derma Doctor products and the vast Chinese market.

As of March 1st our new partner began managing derma Doctor as flagship store on Tmall Dot Com, which is the leading business to consumer online retailer in China. As you May know Novabay has developed excellent relationships in China over the last several years.

One thing that we've learned is that success in China is predicated on having a strong local business partner that understands the market and has the ability to create positive brand awareness.

Social media platforms like tick tock are the best ways to attract new customers in China, and our new marketing partner brings a greatly expanded network of bloggers and Influencers, along with strong social media brand building capabilities.

We are also looking to leverage derma doctors relationships are with their network of international distributors and retailers to further distribute in obesity products throughout the world.

As an update on another benefit from this acquisition Novabay and Derma Doctor are now sharing warehouse operations, including storage picking and packing shipping and logistics all orders for Avenova branded products placed through our own website are now fulfilled by derma doctor, helping us save on Amazon fees.

Now I'd like to turn the call over to Andy to review, our financial performance from Q4, and the full year 2021 .

Yes.

Thank you Justin and good afternoon, everybody as a reminder, we closed the derma Doctor acquisition on November five 2021, and our financial results from that date forward and reflect combined Novabay and derma Doctor results potash.

Product revenue in Q4 was $2 $6 million, which consisted of Avenova avenova spray sales of one $6 million up 11% from the prior year quarter.

Total avenova spray unit sales increased 13% with over the counter unit sales, increasing 41% both compared with the prior year period rounding out rounding our product revenue for Q4, German Doctor product sales contributed approximately $600000 and we recorded approximately 400.

<unk> thousand dollars for phase, one and neutral phase wound care brands and other avenova branded products.

Gross margin for the 2021 fourth quarter was 54% and this compares with 57% for the 2020 quarter with the decrease due primarily to a reduction in the portion of net revenue from traditionally higher margin pharmacy channels.

Total operating expenses for Q4 of 2021 were $4 $6 million that compares with $2 $8 million in the prior year period.

The majority of the increase was due to one time expenses associated with the Derma Doctor acquisition and the related financing.

Sales and marketing expenses were $1 $9 million compared with one 5 million in the prior year quarter with the increase due to higher marketing costs for Avenova branded products as we increased our investment in digital advertising to a dropped there to adopt their AR to drive their adoption excuse me.

2021 quarter also includes 200000 in Derma Doctor sales and marketing costs incurred after the close of the acquisition.

These increases were partially offset by a decrease in Novabay sales head count, which took place in the beginning of 2021.

G&A expenses were $2 $7 million in Q4 of 2021 and that compares with $1.3 million a year ago with the increase due primarily to nonrecurring costs associated with the Derma Doctor acquisition and private placement financing that we completed in the fourth quarter of 2021.

The 2021 fourth quarter also includes approximately $300000 in Germany Doctor G&A costs incurred after the close of the acquisition.

R&D expenses for the fourth quarter of 2021 or $9000 and this compares with $36000 for the prior period.

We recorded a noncash gain on changes in fair value of warrant liability in the 2021 and fourth quarter, a $4.6 million. This gain relates to warrants issued in conjunction with the private placement financing, which we completed in the fourth quarter in anticipation of the Derma Doctor acquisition.

These warrants were classified as liabilities until they became exercisable subsequent to December 20.

2021 on January 31, 2022, when the fair value at that time was transferred to equity.

Other expense net for the fourth quarter of 2021 was $1 $6 million and this represented issuance costs related to those warrants.

Net loss attributable to common stockholders for the 2021 fourth quarter was approximately $900000 or two cents a share.

This is a significant decrease from the prior year period, when the net loss attributable to common stockholders was $1 $8 million or four cents per share.

Turning now to our 2021 full year financial results. We are reporting total net sales for 2021 of $8 $4 million, which includes $6 $8 million in Avenova spray sales up 15% from 2020.

As Justin mentioned Avenova spray unit sales for 2020 , one increased 31% compared with 2020.

Total net sales for 2020 were $9 $9 million and this included $3 $1 million in nonrecurring sales of canned 95 masks and other PPE products. We sold early in the COVID-19 pandemic. When these products were in short supply.

Gross margin for 2021 was 67% and this is an improvement from 60% for 2020.

Total operating expenses for 2021 were $14 $5 million and this compares with $12 $4 million for 2020 with the increase mainly attributable to one time costs incurred in conjunction with the Derma Doctor acquisition, and the previously mentioned financing and to higher sales and marketing expenses.

We invested in digital advertising programs.

We recorded a noncash gain on changes in fair value of warrant liability for 2020 , one of $4 $6 million and this compares with a net noncash loss for 2020 up $5 $2 million.

Other expense net for 2021 was $1 $6 million. This compares with other income net for 2020 of approximately $600000.

Net loss attributable to common stockholders for 2021 was $6 $6 million or <unk>.

<unk> 15 cents per share. This is a significant improvement from a net loss attributable to common stockholders of $11 million or <unk> 31 cents per share for 2020.

As of December 31, 2021, we had cash and cash equivalents of $7 $5 million. During 2021, we raised net proceeds from the private placement financing as well as an ATM facility I'm pleased to report that we believe our current cash is sufficient to fund operations through the coming year, including our cost.

Effective development and launch of new product offerings under both the Avenova and Derma Doctor brand names.

And with that I'll turn it back over to Justin.

Thank you Sandy.

There is plenty of opportunity for us to grow in 2022, not only will we be expanding our product pipeline throughout the year, but we will also be expanding the addressable market for some of our existing products up until now Avenova has been focused on the dry eye market. This year, we plan on going after a totally new market with almost no.

Overlap in customer demographic the beauty industry. Many women are telling to eyelash extensions to enhance their parents, while eliminating the need for mascara eyelash extensions can also increase the risk of ear irritation and infection of the islands Avenova is broad anti microbial properties can help manage this challenge.

This represents a significant opportunity as the global launch extension market is prime for rapid growth with a projected 7.6 growth rate through 2031, reaching $2 $4 billion in sales at year moving into this market will be our first time integrating eye care and beauty, which will allow us to capital.

On cross selling opportunities afforded by a demographic overlap with derma doctor customers.

Before opening the call to questions I would like to welcome our new Nobody They board members in January Audrey along with Julia Garlic, and Sean Zhang joined our board of directors.

Julie brings more than 25 years of marketing experience, including significant expertise in the eye care and dermatology markets. Sean was recommended by several of our large overseas stockholders to fill a vacancy following a resignation.

With these new appointments, we increased the size of our board from six to eight directors and added significant expertise that better reflects our transformed company.

Lastly, I would like to reiterate my enthusiasm for <unk> future. We are already executing on a strategy aimed at creating stronger and faster growing stronger and faster growing company with expanded footprints in the eye care and skin care markets. We have many more initiatives underway to accelerate growth, giving the timing of our initiatives we expect.

The majority of our growth in 2022 to be in the second half of the year.

Thankfully with no debt instruments, we will remain unencumbered by rising interest rates with a clear path to profitability.

We have an ambitious agenda set out in front of us, but I'm highly confident that we can capitalize on our transformed company to achieve all of our stated goals with that I. Thank you for your attention operator, we're now ready to take questions.

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 were using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.

Before we take questions I'd like to alert you that we plan to file our proxy statement at the end of this month and will hold our 2022 annual meeting of stockholders as a virtual event on may 11th.

Okay. Operator, we are ready for the first question and that question comes from Jeffrey Cohen with Ladenburg Thalmann. Please go ahead.

Hi, This is actually destiny on for Jeff how are you doing today.

Hi, Destiny, we are doing great.

I'm glad to hear I just wanted to quickly go over the product pipeline that you've referenced a couple of times, we're in and I know you talked about you know going into lash extensions in the beauty industry with Avenova. What are some of the other segments you are looking into and which product lines are you looking to extend further.

2022, and then I'm kind of curious to understand how if there could be any crossover at some point.

With eyelash extensions and some of the Derma doctor products given that they're both in the skincare slashed beauty market could you just discuss that a little bit.

Yeah, well I would love to discuss it at length with you just me, but actually for competitive reasons, we don't want to give out our entire product pipeline. So are.

We are planning on developing new products that fall into German doctors established product families.

So this year, you're going to see a few additions to the derma Doctor family just like the <unk> acid that we launched earlier. This year you will see some product additions to establish families are just like that but.

You know you're going to have to wait and see what they are.

Very exciting okay. So no new product families necessarily just extensions of the existing ones that that'll do thank you and then I'm curious about the subscribe and save feature are you noticing that a larger portion of repeat customers are are buying another product and opting in on their second.

Or do you think is happening more on the first the first purchase.

Yeah. So you know that is a really great question and it's something that we are seeing after the second and third purchase so there's quite a bit of consumer education that needs to happen before the first purchase and then once they tried the product, especially avenova for the first time.

And they go back to purchase another bottle they will oftentimes either do the subscribe and save or they will purchase one of our new multi packs. So one of our larger initiatives.

That we rolled out along with some of the and excuse me for using this word the synergies we moved a lot of or all of our warehousing into the derma Doctor warehouse in Kansas City, and that gave us the ability to do kitted bundles on our own website and then also on Amazon and our most popular <unk>.

<unk> bundle is the three pack so when people will buy a single product decide as they should that they absolutely love. It it must have it they'll go back and either do the subscribe and save or they'll do a three pack and derma Doctor has actually already been so good at cut.

Customer loyalty they have a you know a loyalty program that works.

It works really well for them.

Got it Okay. That's great and then I guess, just sticking with that whole theme I'm curious about this.

This presence on QVC and I'm wondering if you could just discuss some of the buying trends associated with this marketing channel are you discovering that people are seeing it on Q V C not necessarily buying it there, but doing their own kind of researching and buying it through other channels or are you finding that people are our click to purchase office QBC.

Yes, so its actually both are I think one really nice thing about QVC is that you know Audrey goes it on herself and people sort of feel a connection with a you know a female dermatologists that really understands a lot of the very common skin problems and you know offers up a little bit of.

Very good and practical advice, along with the sale of the product, but the consumer trends I think as you very astutely pointed out people will hear about it on QVC and either go to the Derma Doctor website or go to Amazon, which is sort of like the go to place and even though there is a.

A pricing special for people, who buy through QVC, we definitely saw a spike on Amazon are sort of simultaneously with her appearance on Q V. C. And then a slight lift afterwards. So you know I think both both is true it's really nice to get that immediate sell through.

B C, but also a lift and all other channels.

Got it Alright, and then I guess lastly for me could we just talk about the strategy in China, a little more specifically I mean, new engaged the marketing firm. So I'm just curious what are some of the near term campaigns or initiatives that they'll be rolling out and what does the branding and messaging differ at all.

This region or is everything fairly consistent with them.

In the U S as well.

Well you know one of the.

Things that made derma doctor very appealing to us as you know the brand is a problem solving brand in the same way that Avenova is.

To some degree the marketing has to remain the same because the products are specifically designed to treat either in eyecare, a very specific like eye care or skincare problem. So a lot of the marketing sort of remains the same you know if you have keratosis pylorus, which is kind of nicknamed bumpy chicken skin.

Well, we have a product for that and so our worldwide. The marketing remains the same as something that is scientifically created clinically proven to address a particular type of problems. So that that remains the same with avenova and derma Doctor products.

Companywide and worldwide, but the thing that really differs in the Chinese market is how you get the word out.

So here, we have our own influence or initiatives and we have our paid social and in all of the usual things, but over in China to really gain traction are you know you have to be on the social platforms with the right Influencers and because we you know are in American <unk>.

We need a very strong partner that already knows the market that knows the influencers knows the right social platforms to use and you know I think that we have that in our new partner I think that you know, they're ready to kind of supercharge sales for derma doctor over and in China and that is such a large market so you're even small incremental.

Growth winds up being a significant amount for a company like us.

Got it okay. Thank you I think that does it for me I'll jump back in queue.

The next question is from Ed Woo with <unk> capital. Please go ahead.

Yeah do you have.

If you or impact from supply chains, and also what about completions or rising input costs.

Yeah.

So you know that is a great question and the answer is a little complicated. The the short story is we have been able to manage it successfully.

It has a you know.

Cogs to us a lot of work and a lot of time, but you know thankfully we have not had any supply chain interruptions that haven't been able to to be managed and so.

You know when when we get cost increases from any suppliers or delays.

We have been able to successfully find solutions for those but you know I won't say that we haven't felt the effects of it at all but sort of very thankfully and happy to say that you know we we've.

We've been able to work on all of those things out.

Great well, thank you and I wish you guys. Good luck. Thank you okay. Thanks Ed.

This concludes our question and answer session I would like to turn the conference back over to Justin Hall for any closing remarks.

Thank you once again for joining us and your interest in Novabay. We are extremely excited about our progress and the very bright future. We envision we look forward to reporting progress during our Q1 2022 investor call in May.

Have a good day. Thank you.

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

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