Q4 2023 NEXGEL Inc Earnings Call
Good morning.
Todd: My name is Todd and I will be your conference operator today.
None: At this time I would like to welcome everyone to Nextgen <unk> fourth quarter and full year 2023 earnings conference call.
None: I will now turn the call over to Valter Pinto managing director of Casey S. A strategic communications for introductions. Please go ahead.
Valter Pinto: Thank you operator, good morning, and welcome everyone <unk> fourth quarter and full year 2023 earnings conference call.
Valter Pinto: I'm joined today by Adam Levy, Chief Executive Officer, and Adam drastic Chief Financial Officer.
Valter Pinto: Before we begin I'd like to remind everyone that statements made during today's conference call maybe deemed forward looking statements within the meaning of the safe Harbor of the private Securities Litigation Reform Act of 1995, and actual results may differ materially due to a variety of risks uncertainties and other factors for a detailed discussion of some of the ongoing risks and uncertain.
Valter Pinto: And the company's business I refer you to the press release issued this morning and filed with the SEC on form 8-K, as well as the company's reports filed periodically with the SEC.
Valter Pinto: Company disclaims any intention or obligation to update or revise any forward looking statement, whether as a result of new information future events or otherwise unless otherwise required by law.
Valter Pinto: With that my pleasure to turn the call over to Mr. Adam Levy Adam. Please go ahead.
Adam R. Levy: Thank you Walter and thank you everyone for joining us today to discuss our fourth quarter and full year 2023 financial and operating results.
Adam R. Levy: 2023 was a record year for Nexgen and transformational in many respects.
Adam R. Levy: Over the course of the year and into our current first quarter, we have significantly expanded our operational infrastructure solidified several key strategic partnerships with multi billion dollar corporations and made key strategic investments that collectively have our company prepared for what we believe will be significant growth going forward.
Adam R. Levy: For the full year of 2023, we increased revenue by nearly 100% year over year to approximately $4 1 million.
Adam R. Levy: This year over year growth was driven by an increase in both contract manufacturing and branded products of 166% and 52% respectively.
Adam R. Levy: For the fourth quarter revenue decreased slightly sequentially, mainly due to seasonality in both our contract manufacturing and consumer business.
Adam R. Levy: A recurring pattern historically in our branded products has been to see increased sales beginning in February and peaking in Q3.
Adam R. Levy: We therefore expect a slight decrease in revenue from Q3 to Q4 and a trend upwards in our current Q1 throughout the remainder of the year, which I will provide more details on shortly.
Adam R. Levy: As a reminder, the second quarter of 2023 was our first full quarter of revenue contribution from our joint venture with C. G converting in packaging in Texas.
Adam R. Levy: Segmenting, our revenue between contract manufacturing and branded products. In 2023, we are proud to have grown branded product revenue by approximately $427000 or 52.4% too.
Adam R. Levy: One point to $4 million.
Adam R. Levy: For the fourth quarter of 2023 branded products revenue was 392000, an increase of 104, 2% year over year and 10, 1% sequentially.
Adam R. Levy: When you exclude kimco derm from branded products the year over year growth in the fourth quarter of 2023 was approximately 45%.
Adam R. Levy: Our hero products Silversea L. A hospital grade hydrogel dressing for wounds and Burns continue to drive consumer demand within the OTC wound care market today.
Adam R. Levy: Today, we have 29 health and beauty products sold direct to consumer.
Adam R. Levy: From the ground up we have build a line of direct to consumer health and wellness products that we expect will continue to grow in the foreseeable future year over year with several growth strategies in place, including expansion into Europe, and a retail strategy for North America.
Adam R. Levy: For the full year gross margins were 15, 1% compared to 12, 5% in 2022.
Adam R. Levy: As I mentioned earlier in our branded products, we have several growth opportunities to sell into Europe.
Adam R. Levy: To do so we must be European medical device regulation or MTR compliant.
Adam R. Levy: Once our facility in operation are fully M. D. Our compliance we will be able to self certify all of our class one medical devices, thereby opening up the European market for us.
Adam R. Levy: During the fourth quarter of 2023, we had expenses of approximately 153000 relating to the process of receiving MTR compliance such as the inspections consulting fees and application fees, which are accounted for in our SG&A.
Adam R. Levy: Our final inspection is scheduled for Q2 of this year. Therefore, we expect some further M D. Our compliance cost in Q1, and some in Q2 as well totaling approximately an additional $150000.
Adam R. Levy: I would also like to provide insight into how we analyze gross profit margins and where the growth levers are.
Adam R. Levy: We look at margins three ways at Nextgen.
Adam R. Levy: First our branded products, we currently sell direct to consumer carry a fairly stable contribution margin of between 20 and 25%.
There are some efficiencies that should occur as we optimize and scale, but we see this as a stable profit for the company in the coming quarters.
Adam R. Levy: Secondly, our converting and packing packaging operations carry a contribution gross margin of approximately 20% to 30% on retail products and 30% to 40% on medical device products.
Adam R. Levy: Steadily moved towards the higher end of this range as new state of the art automation equipment arrives at the facility comes online.
Adam R. Levy: Additionally, as we have mentioned before we are already in process with our landlord to expand this facility by approximately doubling the square footage to meet the significant increase in demand we expect going forward.
Adam R. Levy: The additional space along with having three not in one automated machine lines will significantly increase our operational efficiency.
Adam R. Levy: Lastly, and our biggest growth man.
Adam R. Levy: <unk> is Joe manufacturing in our Pennsylvania facility.
Adam R. Levy: We have growing utilization of this facility is a branded product sales have increased we are still the only operating at approximately 9% to 13% capacity.
Adam R. Levy: Given that our fixed costs will only increase minimally as we increased production to meet the demand on our significant partnership agreements. Once these customers come online and throughput increases we expect continued improvement in our margins and cash flow.
Adam R. Levy: One of these key customers as Abbvie, who provides a major growth driver for our company and an important validation of our hydrogel technology.
Adam R. Levy: In October of 2023, we executed a supply agreement with Abbvie to be the exclusive supplier of gel pads are there rysanek rapid acoustic pulse device, which is to be used for the improvement in the appearance of cellulite.
Adam R. Levy: In December of 2021, Abbvie acquired the owner of this technology. So all the time for $550 million in cash after its rysanek device demonstrated significant improvement in the appearance of cellulite.
Adam R. Levy: After extensive due diligence from abbvie for many months or hydro gels were chosen as the exclusive required razorblade to its razor model for each procedure to be done our ability to meet the high standards of Abbvie demonstrates the uniqueness of our technology and the fact that a company of their size with select US is something that we're very proud of.
Adam R. Levy: Our dialogue with Abbvie to date has been engaging and collaborative as the launch approaches we speak weekly to ensure that we I was one of the many suppliers on this launch and it goes off flawlessly.
Adam R. Levy: We have said many times that this is abbey's launch not ours, we had targeted mid 2024 for the launch as likely.
Adam R. Levy: Now looking more like the end of 2024.
Adam R. Levy: In Q1, we received a non refundable $176000 deposit from Abbvie against their first order. While this is a deposit and not reflected in revenue. The additional capital is certainly helpful.
Adam R. Levy: In addition to Abbvie, we have several other important growth drivers for 2024.
Adam R. Levy: In December we announced an important partnership with start up a European leader in consumer health to distribute and commercialize a product line of consumer health OTC products in North America.
Adam R. Levy: Our investment in M. D. Our compliance will also bode well for this partnership in Europe and in the future as well.
Adam R. Levy: The launch of these products is on schedule as planned for mid summer.
Adam R. Levy: Also in December we acquired <unk>, a privately owned skincare company focused on treating the symptoms of psoriasis.
Adam R. Levy: The addition of six new Skus, which include cream salt, so blood soap shampoo conditioner, and a multi vitamin perfectly aligned with our health and wellness offering.
Adam R. Levy: Bringing forth immediate synergies to support optimization of marketing and supply chain operations. In Q4, we recognized one month of revenue for the <unk> product line and our current first quarter will be our first full quarter of revenue.
Adam R. Levy: This product line is profitable and will contribute positively to our financial results in Q1.
Adam R. Levy: Cash at December 31, 2023 was $2 7 million as compared to 3.2 dollars 7 million at September 32023, reflecting a $546500 dollar payment in cash for kimco during paid in Q4.
Adam R. Levy: Subsequent to the end of the year, we completed a registered direct offering led by insiders of just over $1 million at attractive terms and we feel very comfortable with our cash runway.
Adam R. Levy: Looking into Q1, we expect revenue of 1.25 million, which reflects a full quarter of revenue from Kenkel derm, but does not include the $176000 deposit from Abbvie discussed earlier.
Adam R. Levy: We'll not be booked as revenue, but rather as a deposit.
Adam R. Levy: We also expect margins to be in line with that of the fourth quarter or slightly improved.
Adam R. Levy: We have a lot to be excited about in 2024 I want to thank our entire team for laying the foundation for growth for the future.
Adam R. Levy: With that I would like to turn the call over to our CFO Adam drops that Adam.
Thank you Adam.
Adam: Today, I'll review financial highlights of our fourth quarter full year 2023 results.
Adam: For the year ended December 31, 2023 revenue totaled $4 1 million, an increase of $2 million or 99.7% as compared to $2 million for the year ended December 31 2022.
Adam: The increase in revenue was primarily due to sales growth in contract manufacturing of 166%.
Adam: <unk> products, 52% year over year.
Adam: For the fourth quarter of 2023 revenue totaled $1 1 million, an increase of approximately 110% as compared to 524000 in the fourth quarter of 2022.
Adam: Gross profit totaled 619000 for the year ended December 31, 2023 compared to a gross profit of 256000 for the year ended December 31 2022.
Adam: Gross profit margin for 2023 was approximately 15, 2% as compared to gross profit margin of 12, 5% for 2022.
Adam: The increase in the gross profit year over year directly correlates to our higher sales.
Adam: Gross profit for the fourth quarter of 2023 was 158000 compared to 36000 for the same period in 2022.
Adam: Gross profit margin for the fourth quarter of 2023 was 14, 6%.
Adam: Cost of revenues increased by $1 7 million or 93, 6% to $3 5 million for the year ended December 31, 2023, as compared to $1 8 million for the year ended December 31 2022.
The increase in cost of revenues pertains to an increase in materials and finished products and equipment production and other expenses.
Adam: Increases primarily in line with the increased revenues.
Adam: Cost of revenues was 924000 for the quarter ended December 31, 2023, an increase of 436000 compared to 488000 for the quarter ended December 31 2022.
Adam: The increase in cost of revenues was attributable to the company's revenue growth.
Adam: Selling general and administrative expenses increased by 756000 or 23, 4% to $4 million for the year ended December 31, 2023, as compared to $3 2 million for the year ended December 31 2022.
Adam: The increase in selling general and administrative expenses is primarily attributable to an increase of compensation and benefit expense advertising marketing and Amazon fees as well as the cost for professional and consulting fees.
Adam: Selling general and administrative expenses totaled $1 4 million in the fourth quarter of 2023 as compared to 778000 for the same period the prior year.
Adam: Research and development expenses decreased by 264000 to 103000 for the year ended December 31 2023.
Adam: 367000 for the year ended December 31 2022.
Adam: The decrease is due to the completion of development efforts of two proof of concept studies for drug delivery candidates utilizing our hydrogel technology.
Adam: In 2022, the company paid off approximately $3 5 million in convertible notes, reducing interest expense from $1 3 million in 2022 to less than 20000 as of December 31 2023.
Adam: Net loss for the year ended December 31, 2023 was $3 2 million as compared to $4 7 million for the same period the year prior.
Adam: As Adam mentioned as of December 31, 2023, the company had $2.7 million in cash and subsequently closed on approximately $8 million registered direct offering led by insiders.
Adam: As of December 31, 2023, Nextgen has $5 million 741088 shares of common stock outstanding.
Adam: Which increases to $6 billion 227624 shares of common stock outstanding in Q1.
Adam: The Q1 increase is primarily a result of the aforementioned registered direct offering.
None: I would now like to open the call for questions operator.
None: At this time, if you would like to ask a question. Please press star one on your telephone keypad.
None: You may remove yourself at any time by pressing star two.
None: Once again that is star and one to ask a question, we'll pause just a moment to allow questions to queue.
And once again that its star one to ask a question or.
None: Our first question will come from Bill out and Paul with Copa Capital. Please go ahead.
None: Hi.
Bill: Two questions handle them one is.
Bill:
Bill: When do you expect to be <unk> compliant.
Paul: This year in Europe.
Paul: <unk> actually started selling product.
Paul: Overseas.
Paul: Yeah.
Paul: Hello.
Paul: Hello.
Paul: Yeah Yeah.
Yeah, we can sorry, guys.
Paul: Can you hear me okay.
Paul: Now I got you.
Paul: So Billy Theres there are several pre inspections that we've already gone through the final inspection is scheduled in Q2 at the end of May maybe it gets pushed to the first week of June but at that point, we expect to be MTR compliant that will allow us to begin to release all of our class one devices and be self certified.
Paul: Some of the class III like Silversea might take a little bit longer with targeting the end of the year for for clearance on those but it will start the flow of our products moving out into Europe, and we have a lot of interest from different parties for that market.
None: So tough question, but I'm going to ask it anyhow.
None: When can we expect the company to start.
None: Having a positive cash flow.
Well as you know that's that's one of our primary.
None: Motivating.
Objectives.
None: I'd simply say stay tuned we've obviously had to spend a little bit of money for some of these like MTR initiative as well as our expansion, but it is coming stay tuned.
None: Okay great.
None: Thank you.
None: Thank you as a reminder, if you would like to ask a question. Please press star one at this time.
None: Our next question comes from Kenneth Sir Please go ahead.
Kenneth: Hi, Adam Good morning. My question. Good morning, our net working capital are you guys confident that you have enough cash runway to fund these orders I'm, assuming and hoping that these are large orders from abbvie.
Kenneth: Data help.
Kenneth: But just like looking at your balance sheet. It looks like your cash is already tied up with or it can be used for accounts payable and whatnot and I'm assuming that there's some long payment terms with abbvie.
None: Some clarity on that.
None: Yeah actually the opposite is true.
None: So when I think about concerns for the cash flow I think about our move into retail and accounts like these big box retailers Theyre. The ones attended to jerk you around for cash our experience has been with these big multinational so far and we are now.
None: Have a relationship with three or four of them is that they want to pay you in one day because they all have financing arms and in fact I can share with you that we've already been offered at very very early payment on the deposit. So those companies for a point or two are always anxious to pay you as fast as possible. It is the opposite when we go to retail.
None: But for companies like Abbvie, Medtronic Owens <unk> minor they all had super fast payment terms.
None: Okay. That's that's wonderful to hear and then my second question was regarding the Kimco DRAM acquisition have you guys seen any revenue synergies with that acquisition or has it really been accretive.
None: So it's been accretive and that we bought something that was already profitable we've been able to improve the margins by optimizing some of the advertising, but the true.
None: Bonus of shall we say the one plus one equals three of this deal which is cross promoting we're waiting for the completion of our new and updated web site, which is another infrastructure project. We're investing in we really at the start didn't know how successful our consumer products would be so if you go on the message our website. It's up 7000 dollar website, we really need to get that.
None: Update and have a good front face and then and by the way that project should be completed in early June and then we'll be launching a lot of these cross synergies. The one synergy we have seen is that as I have gone to Europe and begun discussing next gel products for distribution. There. There is also considerable interest for kimco Jeremy.
None: It is also interesting canco, Jeremy certain retailers here in the U S. So.
None: <unk> is another product in my bag, you, probably won't see those deals and where that revenue until later in the year.
None: But we think those synergies are definitely coming.
None: Wonderful thank you.
None: As a reminder, if you would like to ask a question at this time. Please press star one on your telephone keypad.
None: We'll pause just a moment to allow additional questions to queue.
And again Thats star one to ask a question.
None: And we'll go ahead and take our next question from <unk> Rama with Maxim Group. Please go ahead.
None: Hi.
Rama: My question and congrats on the progress.
See how abbvie is now planning on launching what looks to be at the end of 2024.
Do you think you might see any considerable pre orders and revenue recognition.
Rama: Relating to resign device in 2024 or do you think about <unk> 2025.
None: Well no we're looking at delivery at the end of 2024. According to the latest that we've gotten from them. So we will see some revenue, but obviously the first full big quarter of revenue is now looking like Q1.
None: But there will definitely be revenue and preorders in Q4.
None: Got it thank you.
None: So last year, you guys launched your amblyopia patch, if I recall correctly over the summer.
None: Now that you've got several months worth of data could you provide some color and metrics on how that launch has gone and if youre seeing in reordering patterns from docs.
None: So we are seeing the short answer is it's going slowly. It is growing we have seen reorder patterns from the docs that have it I think I might have talked about this a little bit on the last call, but one of the.
None: Issues or errors that we made was the assumption that docs would be interested in a profit margin associated with selling an office that has turned out not to be the case in fact, most of the Doc said look this would be a lot easier. If we could just send our patients to Amazon as a result, you will be seeing in the next 10 days the product available on Amazon with the docks able to.
None: Refer their patients to simply buy it directly from US. This is a good for margins and B, we think will be a much more efficient method of getting the product out there. So again the answer is it's been growing but slowly.
None: We're hoping that this change in distribution method will help speed things up.
None: Got it.
None: And as far as you're going into <unk> I know you guys talked about a little bit.
None: When you.
None: When you go on to retail.
It's often just going to include.
None: <unk> brand or do you also plan, including <unk>.
None: And also potentially.
None: Status products.
None: So so that's a great question the idea at retail as you want to go with your hero products right because retail can be a double edged sword. If you go to retail with the wrong product or two early on our product Youll get destroyed yoga, you'll you'll end up paying a fortune to get it in there won't sell youll get returns. They won't pay you know a lot of the cash flow problems that Ken was worried about mobile.
I'll begin to occur so in the beginning we're going to limit it to Canco, Jeremy certainly has the.
None: Ability to go in there it should be a very good product for retail because it is focused and specialized and has strong Amazon sales silversea for sure <unk>. Those are the types of products will start with and then we'll see from there.
None: Got it. Thank you and my last question is could you potentially give an update on the status of the five 10-K medical devices next drape next door on like where are you with the Oregon development. What are your plans for that in 2024.
None: Sure. So we've kind of pushed those a little bit on hold only because theres. So many things we can do in the equipment necessary for the extrusion process on there while we now have identified what it is we need.
None: Our first our first priority is for the mechanization that will allow us to deliver all the abbvie products and startup products et cetera. So that's been kind of a shift but we're also still running experiments on sterilization protocols and interestingly enough. It seems like there is another opportunity for us with a cataract surgical drapes.
None: Experimenting we're still developing the product, but it's really kind of number five on our list of priorities right now just because theres so much for us to do.
None: Got it. Thank you thanks for taking my questions.
None: Right.
Thank you as a final reminder, if you would like to ask a question. Please press star one at this time, we'll pause a few moments to allow any additional questions to queue.
None: And we have no questions in the queue at this time.
None: This will conclude today's nextgen <unk> fourth quarter and full year 2023 earnings conference call you.
None: You may disconnect. Your line at this time and have a wonderful day.
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