Q2 2024 NovaBay Pharmaceuticals Inc Earnings Call

Operator: I mean, look, we, like, abused that point and shifted it around. Good day, and welcome to the NovaBay Pharmaceuticals 2nd Quarter 2024 Financial Results Conference Call. All participants will be in listen-only mode.

Speaker Change: Good day, and welcome to the Nova Bay Pharmaceuticals 2nd Quarter 2024 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.

Operator: Should you need assistance, 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, you may press the star key, then 1 on your telephone keypad.

Speaker Change: After today's presentation, there will be an opportunity to ask questions.

Speaker Change: To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Jody Cain. Please go ahead.

Operator: To withdraw your question, please press star, then 2. Please note 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 LHA. Thank you for participating in today's call. Joining me from NovaBay Pharmaceuticals are Justin Hall, Chief Executive Officer and General Counsel, and Tommy Law, Interim Chief Financial Officer. I'd like to remind listeners that comments made during this call by management will include forward-looking statements within the meaning of federal securities 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 uncertainty about circumstances beyond the company's control that impact the broader economy.

Speaker Change: This is Jody Cain with LHA. Thank you for participating in today's call.

Jody Cain: Joining me from NovoVe Pharmaceuticals are Justin Hall, Chief Executive Officer and General Counsel, and Tommy Law, Interim Chief Financial Officer. I'd like to remind listeners that comments made during this call by management will include forward-looking statements within the meaning of federal securities laws.

Jody Cain: This means that results could change at any time, and the contemplated impact of such circumstances on NovaBay's operations, financial results, and outlook is the best estimate based upon information available for today's discussion. For a list and description of risks and uncertainties, please review NovaBay's filings with the Securities and Exchange Commission, which are available 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 13, 2024. NovaBay undertakes no obligation to revise or update statements to reflect events or circumstances except as required by law. And now I'd like to turn the call over to Justin Hall. Okay?

Speaker Change: These forward-looking statements involve risks and uncertainties that could cause actual results.

Speaker Change: to be materially different from any anticipated results.

Speaker Change: In particular, there is uncertainty about circumstances beyond the company's control that impact the broader economy.

Speaker Change: This means that results could change at any time and the contemplated impact of such circumstances on NOVA-based operations, financial results, and outlook is the best estimate based upon information available for today's discussion.

Speaker Change: For a list and description of risks and uncertainties, please review NOVA-based filings with the Securities and Exchange Commission, which are available 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.

Speaker Change: August 13, 2024. NOVA Bay undertakes no obligation to revise or update 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? August 13, 2024. NOVA Bay undertakes no obligation to revise or update statements to reflect events or circumstances except as required by law.

Justin Hall: Thank you, Jody. Good afternoon, everyone, and thank you for joining us. We are reporting another quarter of growth in our eye care business driven by sales of Avanova branded products through our OTC online channels. For the first half of 2024, sales from iCare products reached $4.8 million, giving us confidence in reaching our goal of approximately $10 million for the year. This revenue growth is efficient growth, with sales and marketing spend for the quarter down 13% over the prior year.

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

Speaker Change: We are reporting another quarter of growth in our eye care business, driven by sales of Avanova-branded products through our OTC online channels. For the first half of 2024, sales from eye care products reached $4.8 million, giving us confidence in reaching our goal of approximately $10 million for the year.

Speaker Change: This revenue growth is efficient growth, with sales and marketing spend for the quarter down 13% over the prior year.

Justin Hall: Our ability to continue growing our eye care product sales while lowering marketing expenses is a testament to our digital marketing expertise and to the high quality of our products, which has given rise to an extremely loyal base of customers who generate recurring revenue. Over the past several years, our base of repeat customers has grown steadily and consistently. In fact, the number of Avanova subscribers and save customers on Amazon, our largest sales channel, increased by a formidable 123% since the beginning of 2022, and is up 64% since the beginning of 2023, and is up 16% for the first six months of 2024. It's no surprise that given these increases that satisfaction with our products is exceedingly high, with the Avanova Lid and Lash Solution online rating from more than 14,000 customers averaging an impressive 4.5 stars.

Speaker Change: Our ability to continue growing our eye care product sales while lowering marketing expenses is a testament to our digital marketing expertise into the high quality of our products, which has given rise to an extremely loyal base of customers who generate reoccurring revenue.

Speaker Change: Over the past several years, our base of repeat customers has grown steadily and consistently.

Speaker Change: In fact, the number of Avanova subscribe and save customers on Amazon, our largest sales channel, increased by a formidable 123% since the beginning of 2022 and is up 64% since the beginning of 2023.

Speaker Change: and is up 16% for the first six months of 2024.

Speaker Change: It's no surprise that given these increases that satisfaction with our products is exceedingly high with the Avanova Lid and Lash Solution online rating from more than 14,000 customers averaging an impressive 4.5 stars.

Justin Hall: The importance of our loyal customer base cannot be overstated. In fact, subscription sales accounted for approximately 24 percent of all online Avanova revenue for the first half of this year. Importantly... Reoccurring sales from these customers provides us with predictable revenue upon which to build future sales, which in turn allows us to efficiently manage our sales and marketing spend. We also attribute growth in our eye care business to the expansion of our Avanova-branded product portfolio in recognition that dry eye can be a multifaceted, stubborn, and complex condition that may require more than one approach to manage.

Speaker Change: The importance of our loyal customer base cannot be overstated. In fact, subscription sales accounted for approximately 24% of all online Avanova revenue for the first half of this year.

Speaker Change: Importantly, reoccurring sales from these customers provides us with predictable revenue upon which to build future sales, which in turn allows us to efficiently manage our sales and marketing spend.

Speaker Change: We also attribute growth in our eye care business to the expansion of our Avanova-branded product portfolio in recognition that dry eye can be a multifaceted, stubborn, and complex condition that may require more than one approach to manage.

Justin Hall: We now have products that address each step of the standard at-home dry eye treatment regimen. Our scientifically developed, best-in-class portfolio includes our flagship Avanova lid and lash solution, as well as lubricating eye drops for instant relief, a warm eye compress to soothe irritated eyes, and the Eye Check to monitor physical eyelid health. The U.S. dry eye market is rapidly growing and is expected to exceed $4.8 billion by 2030. Among the factors impacting the prevalence of dry eye are increased computer time and smart screen usage, the aging population, heightened awareness of this condition, and improved diagnostic capabilities. The fact that dry eye can be a complex condition was corroborated by a recent survey of 337 optometrists across the U.S. that was published in the Eyes on Eye Care 2024 Dry Eye Report.

Speaker Change: We now have products that address each step of the standard at-home dry eye treatment regimen.

Justin Hall: According to the survey, more than 80% of respondents found dry eye diagnosis and treatment moderately to extremely important in generating revenue for their practice, and respondents estimated that more than two-thirds of their patients have some form of dry eye disease. Dry eye was ranked as the second leading area of specialization, exceeded only by primary eye care. And it's expected to account for 43% of their clinical focus over the coming 12 months. This is up from only 17% in 2023. Importantly, the report recommended that a personalized treatment approach may be essential in the successful management of dry eyes.

Speaker Change: Our scientifically developed, best-in-class portfolio includes our flagship Avanova lid and lash solution, as well as lubricating eye drops for instant relief, a warm eye compress to soothe irritated eyes, and the eye check to monitor physical eyelid health.

Speaker Change: The U.S. dry eye market is rapidly growing and is expected to exceed $4.8 billion by 2030.

Speaker Change: Among the factors impacting the prevalence of dry eye are increased computer time and smart screen usage, the aging population, heightened awareness of this condition, and improved diagnostic capabilities.

Speaker Change: The fact that dry eye can be a complex condition was corroborated by a recent survey of 337 optometrists across the U.S. that was published in the Eyes on Eye Care 2024 Dry Eye Report.

Speaker Change: According to the survey, more than 80% of respondents found dry eye diagnosis and treatment moderately to extremely important in generating revenue for their practices.

Speaker Change: and respondents estimated that more than two-thirds of their patients have some form of dry eye disease.

Speaker Change: Dry eye was ranked as the second leading area of specialization, exceeded only by primary eye care, and it's expected to account for 43% of their clinical focus over the coming 12 months. This is up from only 17% in 2023.

Speaker Change: Importantly, the report recommended that a personalized treatment approach may be essential in the successful management of dry eye.

Justin Hall: In a further effort to help manage the multifactorial nature of dry eye, we expanded our Avanova product bundles to provide personalized collections. Our new Avanova Total Eye Health Dry Eye Essentials and the Clean In Relieve Bundles provide individuals with personalized product options at a discounted price. The Eyes on Eye Care Survey specifically identified daily lid and lash hygiene as one of the top three approaches for patients with dry eye disease, and hypochlorous acid as a top approach for lid and lash hygiene.

Speaker Change: In a further effort to help manage the multifactorial nature of dry eye, we expanded our Avanova product bundles to provide personalized collections.

Speaker Change: Our new Avanova Total Eye Health Dry Eye Essentials and the Clean In Relieve Bundles provide individuals with personalized product options at a discounted price.

Speaker Change: The Eyes on Eye Care survey specifically identified daily lid and lash hygiene as one of the top three approaches for patients with dry eye disease and hypochlorous acid as a top approach for lid and lash hygiene.

Justin Hall: The cornerstone of each of our new personalized product bundles is the Avanova Lid and Lash Solution, which is formulated with our proprietary pure hypochlorous acid, differentiating it from other hypochlorous acid sprays on the market. You may have seen our recent announcement regarding record Amazon Prime Day sales of our Avanova products. During the two-day event, which was held on July 16th and 17th, we offered a 20% discount to reward loyal customers with great prices on the products that they rely on, while attracting new customers and providing us with the opportunity to convert them into subscribers. During this year's two-day event, Avanova sales were 17% higher than Prime Day 2023 and 40% higher than Prime Day 2022. Now I'd like to turn the call over to Tommy to review our financial results. Okay, Tommy?

Speaker Change: The cornerstone of each of our new personalized product bundles is the Avanova Lid and Lash Solution, which is formulated with our proprietary pure hypochlorous acid, differentiating it from other hypochlorous acid sprays on the market.

Speaker Change: You may have seen our recent announcement regarding record Amazon Prime Day sales of our Avanova products.

Speaker Change: During the two-day event, which was held on July 16th and 17th, we offered a 20% discount to reward loyal customers with great pricing on the products that they rely on, while attracting new customers and providing us with the opportunity to convert them into subscribers.

Speaker Change: Over this year's two-day event, Avanova sales were 17% higher than Prime Day 2023 and 40% higher than Prime Day 2022.

Speaker Change: Now, I'd like to turn the call over to Tommy to review our financial results. Tommy?

Tommy Law: Thank you, Justin, and good afternoon, everybody. I'll review Q2 and the 6-month results, followed by our cash position. But before we start, I'd like to mention that the financial results for all the periods I'll be discussing today do not include any results from Dermadoc. Financial information related to Dermadoctor can be found in the Form 10-Q that we are filing today under the heading Divestiture and Discontinued Operations.

Tommy: Thank you, Justin, and good afternoon, everybody. I'll review Q2 and the six-month results, followed by our cash position.

Tommy: But before we start, I'd like to mention that the financial results for all the periods I'll be discussing today do not include any results from Dermadoctor.

Speaker Change: Financial information related to Dermadoctor can be found in the Form 10-Q that we are filing today under the heading Divestiture and Discontinued Operations. Now turning to our quarterly results.

Tommy Law: Now, turning to our quarterly results, total sales net for the second quarter of 2024 were $2.4 million. Essentially, all revenue for the quarter was derived from sales of iCare products, which increased 8% over the prior year and were driven by higher Avanova-branded products sold through our OTC online channel. Total sales net for the second quarter of 2023 were $3.5 million. Those sales were compressed of $2.2 million from eye care products and $1.3 million from wound care products, which included an unusually large order of Nutraphase-branded wound care products.

Speaker Change: Total sales net for the second quarter of 2024 were $2.4 million. Essentially, all revenue for the quarter was derived from sales of iCare products, which increased 8% over the prior year and were driven by higher Avanova-branded products sold through our OTC online channels.

Speaker Change: Total sales net for the second quarter of 2023 were $3.5 million.

Speaker Change: Those sales were compressed of 2.2 million dollars from eye care products and 1.3 million dollars from wound care products which included an unusually large order of the Neutrophase branded wound care product.

Tommy Law: Gross margin on net product revenue for the second quarter of 2024 was 66% compared with 49% for the second quarter of 2020. The improvement was primarily due to an increase in sales of higher-margin eye care products and a decrease in sales of lower-margin wound care products. Sales and marketing expenses for the second quarter of 2024 of $1 million declined 13% from the prior year as we continue to benefit from efficiencies from our digital advertising expertise.

Speaker Change: Gross margin on net product revenue for the second quarter of 2024 was 66%, compared with 49% for the second quarter of 2023.

Speaker Change: The improvement was primarily due to the increase in sales of higher-margin eye care products and a decrease in sales of lower-margin wound care products.

Speaker Change: Sales and marketing expenses for the second quarter of 2024 of $1 million declined 13% from the prior year as we continue to benefit from efficiencies from our digital advertising expertise.

Tommy Law: G&A expenses for the second quarters of 2024 and 2023 remain consistent at $1.6 million. Non-cash items for the second quarter of 2024 included a loss on the change in fair value of warrant liabilities of $80,000, and a loss on the change in fair value of an embedded derivative liability of $83,000. Non-cash items for the second quarter of 2023 included a gain on changes in fair value of warrant liabilities of $216,000 and a gain on change in fair value of an embedded derivative liability of $40,000. Accretion of interest and amortization of discount on convertible notes for the second quarter of 2024 was $0.3 million compared with $0.5 million for the second quarter of 2020.

Speaker Change: G&A expenses for the second quarters of 2024 and 2023 remain consistent at $1.6 million.

Speaker Change: Non-cash items for the second quarter of 2024 included a loss on the change in fair value of warrant liabilities of $80,000 and a loss on the change in fair value of embedded derivative liability of $83,000.

Speaker Change: Non-cash items for the second quarter of 2023 included a gain on changes in fair value of warrant liabilities of $216,000 and a gain on change in fair value of embedded derivative liability of $40,000.

Speaker Change: Accretion of Interest and Amortization of Discount on Convertible Notes for the second quarter of 2024 was $0.3 million compared with $0.5 million for the second quarter of 2023.

Tommy Law: Other expense net for the second quarter of 2024 was $69,000 compared with $0.4 million for the second quarter of 2023, with the decrease due primarily to higher finance costs in the prior year. Net loss attributable to common stockholders for the second quarter of 2024 was $1.6 million, or $1.37 per share. This compares with the net loss attributable to common stockholders for the second quarter of 2023 of $4 million or $44.43 per share, which included a $2 million non-cash increase to the accumulated deficit due to the adjustment to the preferred stock conversion price.

Speaker Change: Other expense net for the second quarter of 2024 was $69,000 compared with $0.4 million for the second quarter of 2023, with a decrease due primarily to higher finance costs in the prior year period.

Speaker Change: Net loss attributable to common stockholders for the second quarter of 2024 was $1.6 million or $1.37 per share.

Speaker Change: This compared with the net loss attributable to common stockholders for the second quarter of 2023 of $4,000,000 or $44.43 per share, which included a $2,000,000 non-cash increase to accumulated deficit due to adjustment to preferred stock conversion price.

Tommy Law: Turning to the six-month result, net sales for the six months ended June 30, 2024 were $5 million. This compares with $5.9 million for the six-month-ended June 30, 2023, which included the large wound care product order as mentioned earlier. Sales of iCare products for the first half of 2024 were $4.8 million compared with $4.4 million for the prior year period. Gross margin on net product sales for the first half of 2024 increased to 67% from 57% for the first half of 2022.

Speaker Change: Turning to the 6-month results.

Speaker Change: Net sales for the six months ended June 30, 2024 were $5 million.

Speaker Change: This compares with $5.9 million for the six-month end of June 30, 2023, which included the large wound care product order as mentioned earlier.

Speaker Change: Sales of iCare products for the first half of 2024 of $4.8 million compared with $4.4 million for the prior year period.

Speaker Change: Gross margin on net product sales for the first half of 2024 increased to 67% from 57% for the first half of 2023.

Tommy Law: For the six months ended June 30th, 2024, sales and marketing expenses decreased 14%, and G&A expenses increased 18%, both compared with the six months ended June 30th, 2022. The increase in GNA expenses was primarily due to higher non-reoccurring strategic initiative costs, including the Dermadoctor-Diabetic. We also incurred a $0.9 million expense in the first half of 2024 related to the Dermadoctor and divestiture, with no comparable item in the first half of 2024. Net loss attributable to common stockholders for the first half of 2024 was $5.2 million, or $5.57 per share.

Speaker Change: For the six months ended June 30, 2024, sales and marketing expenses decreased 14% and G&A expenses increased 18%, both compared with the six months ended June 30, 2023.

Speaker Change: The increase in GNA expense were primarily due to higher non-reoccurring strategic initiative costs including the Dermadoctor divestiture.

Speaker Change: We also incurred a $0.9 million expense in the first half of 2024 related to the Dermadoctor and Diverstiture with no comparable item in the first half of 2023.

Speaker Change: Net loss attributable to common stockholders for the first half of 2024 was $5.2 million, or $5.57 per share.

Tommy Law: This is compared with the net loss attributable to common stockholders for the first half of 2023 of $5.8 million, or $77,000. Forty-two cents per share. Turning to our balance sheet, we had cash and cash equivalents. $0.8 million as of June 30th, 2025. We completed an underwritten public offering late last month, raising gross proceeds of approximately $3.9 million, which included a partial underwriters' over a lot. Investors have since exercised all the pre-funded warrants from the public offering, with an outstanding share count now at approximately 4.9 million shares.

Speaker Change: This is compared with the net loss attributable to common stockholders for the first half of 2023 of $5.8 million, or $77.42 per share.

Speaker Change: Turning to our balance sheet.

Speaker Change: We had cash and cash equivalent of $0.8 million as of June 30, 2024.

Speaker Change: We completed an underwritten public offering late last month, raising gross proceeds of approximately $3.9 million, which included a partial underwriter's over allotment.

Speaker Change: Investors have since exercised all the pre-funded warrants from the public offering, with an outstanding share count now at approximately 4.9 million shares.

Speaker Change: The F-1, F-2, and F-3 warrants remain outstanding, each with a one-time reset of the exercise price to the lesser of the current exercise price, or 90% of the volume-weighted average prices for the five trading days immediately preceding the 60th calendar day after issuance.

Operator: The F1, F2, and F3 warrants remain outstanding, each with a one-time reset of the exercise price to the lesser of the current exercise price, were 90% of the volume-weighted average price for the five trading days immediately preceding the 60th calendar day after issuance. Now, I'll turn the call back to Justin. Thanks, Tommy. As Tommy just mentioned, we completed a capital raise last month that will allow us to pursue some strategic and fundamental transactions from a position of strength.

Speaker Change: And now, I'll turn the call back to Justin.

Justin Hall: Thanks Sami. As Sami just mentioned, we completed a capital raise last month that will allow us to pursue some strategic and fundamental transactions from a position of strength.

Operator: Among these options is a possible transaction that would fundamentally change our business, and we look forward to providing more details at the appropriate time. In the meantime, we continue to focus on our established position in the large U.S. dry eye market and to continue growing our sales of our best-in-class Avanova products. We're managing our sales and marketing expenses through optimized digital programs, which allow us to build on the predictable, reoccurring sales from our loyal customer base.

Justin Hall: Among these options is a possible transaction that would fundamentally change our business, and we look forward to providing more details at the appropriate time.

Justin Hall: In the meantime, we continue to focus on our established position in the large U.S. dry-eye market and to continue efficiently growing our sales of our best-in-class Avanova products.

Justin Hall: We're managing our sales and marketing expenses through optimized digital programs, which allow us to build on the predictable, reoccurring sales from our loyal customer base.

Operator: So, with that overview of our business and our recent financial performance, I thank you for your attention. Operator. We are now ready to take questions. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys.

Justin Hall: So, with that overview of our business and our recent financial performance, I thank you for your attention. Operator, we're now ready to take questions.

Speaker Change: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad.

Speaker Change: If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star of N2. Our first question comes from Jeffrey Cohen with Lautenberg-Saltman. Please go ahead.

Operator: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. Our first question comes from Jeffrey Cohen with Lautenberg-Solman, please go ahead. Hey Justin and Tommy, this is actually Destiny on for Jeff.

Destiny Buch: Thank you for taking our questions. I wanted to start, I know in the comparable period you did have some revenue based on the wound care product, but I'm just wondering if you have anything to call out there, or should we expect any other kind of stocking orders? I know it's really lumpy and hard to kind of predict, but I'm just curious if you have any commentary around that.

Speaker Change: Hey Justin and Tommy, this is actually Destiny on for Jeff.

Speaker Change: Thank you for taking our questions. I wanted to start

Speaker Change: I know in the comparable period, you did have some revenue based on the wound care product. I'm just wondering if you have anything to call out there or should we expect any other kind of stocking orders? I know it's really lumpy and hard to kind of...

Speaker Change: predict, but I'm just curious if you have any commentary around that.

Tommy Law: Yeah, so we should see some orders in the remainder of the year, but they're not going to be, I think, as material or as large as they were in 2023. But we'll continue to see some orders later this year and then, of course, into 2025. Okay. So largely unchanged. Okay.

Speaker Change: Yeah, so we should see some orders in the remainder of the year.

Speaker Change: But they're not going to be, I think,

Speaker Change: as material or as large as they were in 2023. But we'll continue to see some orders later this year and then, of course, into 2025.

Justin Hall: And then, can you give us some more idea, or not idea, more color on the changes in these efficiencies for your marketing strategy? Is it an increased ROAS or return on ad spend? Is it, Is there another metric that you're using to kind of determine what's working and what's not? Can you give us a little more color there?

Speaker Change: Okay, got it. So largely unchanged. Got it. And then, can you give us some more idea, or not idea, more color on the changes in these efficiencies for your marketing strategy? Is it an increased ROAS or return on ad spend? Is it...

Speaker Change: Is there another metric that you're using to kind of determine what's working and what's not? Can you give us a little more color there?

Justin Hall: Sure. Absolutely. It's a good question because it's the main focus of our business. We are trying to become just really better at what we do. So we really shifted the strategy about a year ago where we moved away from spending a lot of money on the top of the funnel and spending a lot of money on customer acquisition costs and turned our approach on its head where we're really focusing on our subscribe and save customers right now.

Speaker Change: Sure, absolutely. It's a good question because it's a main focus of our business. We are trying to become just really better at what we're doing.

Speaker Change: You know, we really shifted the strategy about a year ago, where we moved away from spending a lot of money in the top of the funnel and spending a lot of money in customer acquisition costs.

Speaker Change: Turned our approach on its head where we're really focusing on our subscribe and save customers right now so

Justin Hall: So after being in the market for eight or nine years, almost 10 years now with Avanova, a lot of people have tried the product, and they just need reminders to buy the product again. So the best case scenario for us is that customers, because it's a personal consumable product, the best case scenario is for those customers to become a subscriber and save customer. But we realize that not everybody is.

Speaker Change: After being in the market for, you know, eight or nine years, almost 10 years now with Avanova, a lot of people have tried the product and they just need reminders to buy the product again. So the best case scenario for us is those customers because it's a

Speaker Change: personal, consumable product.

Speaker Change: Best case scenario is for those customers to become a subscribe and save customer, but we realize that not everybody is so I think we have done a really good job of getting people into Subscriptions on our website and also on Amazon. So when we get somebody into the subscribe and save program. That means that we don't need to spend any money to make that money.

Justin Hall: So I think we have done a really good job of getting people into subscriptions on our website and also on Amazon. So when we get somebody into the subscribe and save program, that means that we don't need to spend any money to make that money. And that is incredibly efficient for us. So that frees up a little bit more money to go after new customer acquisition or just remind those customers who want to repeat a purchase that they need to go on and do a one-time repeat purchase.

Speaker Change: And that is incredibly efficient for us. So that frees up a little bit more money to go after a new customer acquisition or just reminding those customers who want to repeat a purchase that they need to, you know, go on and do a one-time.

Justin Hall: So over the past 12 years, we've really changed the strategy from filling the top end of the funnel, which is inefficient, to really focusing on and growing that community of users and getting them into the subscribe and save program, where we don't have to spend any money to make that money. Okay. That makes sense.

Speaker Change: repeat purchase. So you know over the past 12 years we've really changed the strategy from you know filling the top end of the funnel which is inefficient to really focusing and growing that community of users and getting them into the subscribe and save program where we don't have to spend any money to make that money.

Justin Hall: And then what portion of your revenue is now generated from those subscribe and save programs? And then I'm also curious, how often are your customers receiving the product? Is it monthly? Is it every two months, three months? Can you give more color there?

Speaker Change: Okay, that makes sense. Got it. And then what portion of your revenue is now generated from those subscribe and save programs and then

Speaker Change: I'm also curious, how often are your customers receiving product? Is it monthly? Is it every two months, three months?

Justin Hall: Sure. Yeah. Absolutely.

Speaker Change: Can you give more color there?

Justin Hall: So, you know, one of the metrics that is easy to remember and that, you know, that we like to share is that about a quarter of all of our online revenue comes from subscribe and save. So that's pretty substantial. So just having, you know, a quarter of our revenue, we know that it's going to come in every single month, and we know exactly what it's going to be. And then, as I mentioned earlier, we don't need to spend any money to make that money.

Speaker Change: Sure, yeah, absolutely. So, you know, one of the metrics that is easy to remember and that, you know, that we like to share is that

Speaker Change: about a quarter of all of our online revenue comes from Subscribe and Save. So that's pretty substantial.

Speaker Change: Just having a you know a quarter of our revenue. We know that it's going to come in every single month You know and we know exactly what it's going to be and then as I mentioned earlier We don't need to spend any money to make that money, so you know it's a significant chunk about you know a quarter, so

Justin Hall: So, you know, it's a significant chunk, about a quarter. So we really like that, and customers tend to buy about every month. There are some people who like to be a little bit more thrifty with their use of the spray, and they may stretch it out so they get one bottle every 45 days.

Speaker Change: We really like that.

Speaker Change: tend to buy about every month. There are some people who like to be a little bit more thrifty with their use of the spray, and they may stretch it out so they get one bottle every 45 days. On the outside end, it's one every 60 days. But looking at our data, it's the majority of our subscribed and saved customers buy one bottle per month.

Justin Hall: On the outside end, it's one every 60 days. But looking at our data, the majority of our subscribe and save customers buy one bottle per month. Okay, got it. And then with Prime Day being in the third quarter, when you're looking at Q3, would we see a bit of a bump up compared to Q2 and Q4, or do you think it's going to be pretty aligned with the growth throughout the remainder of the year?

Justin Hall: I guess what I'm asking is, even with Prime Day, is there still the potential that Q4 could grow sequentially in terms of revenue? Yeah, Destiny, I know you're looking for numbers to plug into the model. No, I understand what you're asking, and it's a fair question.

Speaker Change: Okay, got it. And then with the with Prime Day being in the third quarter...

Speaker Change: When you're looking at Q3, would we see a bit of a bump up compared to Q2 and Q4? Or do you think it's going to be pretty aligned with the growth?

Speaker Change: throughout the remainder of the year. I guess what I'm asking is, is there still, even with the Prime Day, is there still the potential that Q4 could grow sequentially?

Speaker Change: Justin, I know you're looking for numbers to plug into the model. No, I understand what you're asking and it's a fair question. We normally have...

Justin Hall: We normally have a stronger Q4. We do, you know, a push in our physician dispense channel towards the end of the year. We also do a back-to-school push. So, we tend to have a stronger Q4. So, you know, what we're looking at is, you know, incremental increases in Q3 with a pretty strong Q4. Okay. Okay, got it. That's enough for my model.

Speaker Change: a stronger Q4. We do a push in our Physician Dispense channel towards the end of the year. We also do a back-to-school push. So we tend to have a stronger Q4. So what we're looking at is incremental increases in Q3 with a pretty strong Q4.

Justin Hall: I appreciate that. And then you touched on the physician dispense channel. Can we talk a little bit more about that? I didn't hear too much commentary in your prepared remarks.

Justin Hall: Okay, okay, got it. That's enough for my model. I appreciate that. And then you touched on the physician dispensed channels. Can we talk a little bit more about that? I didn't hear too much commentary in your prepared remarks.

Operator: Good Day, and welcome to the NovaBay Pharmaceuticals 2nd Quarter 2024 Financial Results Conference call. All participants will be in listen only mode. Should you need an assistance, please signal a conference specialist by pressing the star key followed by zero.

Justin Hall: Yeah, so the physician dispense channel plays an outsized role in strategic planning and building the brand. So our lowest customer acquisition cost, which is one of the metrics that we look at for efficiency and success in the online sales channel, our lowest customer acquisition cost, and our stickiest customers are when a patient learns about Avanova through their doctor. So we really try and push the physician dispense channel, not only for the revenue that it creates on its own and independently as its own sales channel, but also for the way that it introduces new customers to the online sales channel.

Speaker Change: Yeah, so the

Speaker Change: The Physician Dispense channel plays an outsized role sort of strategically in building the brand. So...

Operator: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may open to. Please note this event is being recorded.

Speaker Change: Our lowest customer acquisition cost, which is one of the metrics that we look at, you know, for efficiency and success

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

Speaker Change: in the online sales channel.

Jody Cain: This is Jody Cain with LHA. Thank you for participating in today's call.

Speaker Change: Our lowest customer acquisition cost, and our stickiest customer, is when a patient learns about Avenova through their doctor.

Jody Cain: Joining me from NovaBay Pharmaceuticals are Justin Hall, Chief Executive Officer and General Counsel, and Tommy Law, Interim Chief Financial Officer. I'd like to remind listeners that comments made during this call by management will include forward-looking statements within the meaning of federal securities 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's uncertainty about circumstances beyond the company's control that impacts the broader economy.

Speaker Change: So, we really try and push the Physician Dispense channel not only for the revenue that it creates on its own and independently as its own sales channel, but the way that it introduces new customers to the online sales channel. So, the Physician Dispense channel for us is, you know, incredibly important to the brand and it's incredibly important to the online sales channel because that's really how we're feeding new customers into, you know, that.

Jody Cain: This means that results could change at any time and the contemplated impact of such circumstances on NovaBay's operations, financial results, and outlook is the best estimate based upon information available for today's discussion. For a list and description of risks and uncertainties, please review NovaBay's filings with the Securities and Exchange Commission, which are available at SEC.gov. Furthermore, the content of this call contains information and is accurate only as of the date of the live broadcast, August 13, 2024. NovaBay undertakes no obligation to revise or update statements to reflect events or circumstances except as required by law.

Justin Hall: So the physician dispense channel for us is, you know, incredibly important to the brand. And it's incredibly important to the online sales channel because that's really how we're feeding new customers into that efficient sales channel. So we continue to push that. And we have, you know, our loyal doctors who are Avanova believers, and they buy from us every month. And then, you know, we always have a push where we do continuing education events and just, you know, continuous outreach to bring new doctors into the fold, as well. But from a revenue perspective, the online sales channels really dwarf that wholesale physician dispensary. Okay, got it. And then, maybe Tommy, this one's for you.

Speaker Change: Efficient sales channel, so we continue to push that and we have you know our

Speaker Change: loyal doctors who are Abanova believers and they buy from us every month, and then you know we always have a push where we do

Speaker Change: continuing education events and just, you know, continuous outreach to bring new doctors into the fold as well. But from a revenue perspective, the online sales channels really dwarf that

Tommy Law: The margins continue to look pretty solid. They look good. So can you tell me a bit more about any changes in your supply chain? And at what level, what revenue level, do you think you're really at that optimal level or that optimal economy of scale? Now, there isn't really a whole lot of change in our supply chain. Yeah, so Destiny, our margins improved over last year just because this year we didn't have a very large, low-margin wound care order.

Speaker Change: that Wholesale Physician Dispatch Channel.

Speaker Change: Okay, got it. And then maybe, Tommy, this one's for you. The margins continue to look...

Tommy: Pretty solid. They look good. So can you tell me a bit more about Any changes in your supply chain and at what level what revenue level do you think? You're really at that optimal level or that optimal economy of scale

Justin Hall: And now I'd like to turn the call over to Justin Hall. Justin? Thank you, Jody.

Justin Hall: Good afternoon, everyone, and thank you for joining us. We are reporting another quarter of growth in our iCare business driven by sales of Avenova branded products through our OTC online channels. For the first half of 2024, sales from iCare products reached $4.8 million, giving us confidence in reaching our goal of approximately $10 million for the year. This revenue growth is efficient growth, with sales and marketing spend for the quarter down 13% over the prior year.

Tommy: No, there isn't really a whole lot of change in our supply chain.

Tommy: Ciao.

Tommy: Yes, so definitely our margins improved over last year.

Tommy: just because this year we didn't have a very large, low-margin wound care order.

Tommy Law: How cool. Yeah, so you take a little bit off of the top line because we didn't have that million dollar order of Nutraphase, which we had last year. So, a little bit of a blessing and a curse last year.

Justin Hall: Our ability to continue growing our iCare product sales while lowering marketing expenses is a testament to our digital marketing expertise into the high quality of our products, which has given rise to an extremely loyal base of customers who generate reoccurring revenue. Over the past several years, our base of repeat customers has grown steadily and consistently. In fact, the number of Avenova subscribers on Amazon are the largest sales channel increased by a formidable 123% since the beginning of 2022, and is up 64% since the beginning of 2023, and is up 16% for the first six months of 2024. It's not a surprise that given these increases that satisfaction with our products is exceedingly high, with the advent of a lid and last solution online rating for more than 14,000 customers averaging in impressive 4.5 stars.

Speaker Change: Yeah, so you take a little bit off of the top line because we didn't have that million dollar order of Nutraphase, which we had last year.

Speaker Change: So, you know, a little bit of a blessing and a curse. Last year, we had a larger top line.

Tommy Law: We had a larger top line, but it's a low margin product, so it dragged down our gross margin quite a bit. So what you see this year is consistent margins around the eye care unit, and those are all around 65%. They have remained steady. Is that right, Tommy? 65?

Speaker Change: But it's a low-margin product, so it dragged down our gross margin quite a bit.

Speaker Change: So what you see this year is consistent margins around the eye care unit, and those are all around 65%. They have remained steady. Is that right, Tommy? 65? Yeah.

Tommy Law: Yeah. So that has remained steady over the past year, and we also expect that to remain constant going forward. Okay, and then one more, if I may.

Tommy: That has remained steady over the past year, and we also expect that to remain constant going forward.

Justin Hall: I'm curious about some of the partnerships or co-promotion agreements you have going on. Can you talk a bit about the agreement with Inovia and how that's going? And then I know you are collaborating with another company for some international markets. Are there any international markets you're looking to go into directly on your own?

Speaker Change: Okay, and then one more, if I may.

Speaker Change: I'm curious about some of the partnerships or co-promotion agreements you have going on. Can you talk a bit about the agreement with Inovia and how that's going? And then I know you are collaborating with another company for some international markets. Are there any international markets you're looking to go in direct on your own?

Justin Hall: The importance of our loyal customer base cannot be overstated. In fact, subscription sales accounted for approximately 24% of all online advent of a revenue for the first half of this year. Importantly, reoccurring sales from these customers provides us with predictable revenue upon which to build future sales, which in turn allows us to efficiently manage our sales and marketing spend. We also tribute growth in our eye care business to the expansion of our advent of a branded product portfolio in recognition that dry eye can be a multifaceted, stubborn and complex condition that may require more than one approach to manage.

Justin Hall: Yeah, so that last question is the easiest question to answer. We don't anticipate doing any expansion all on our own because it's just we don't have the existing footprint, we don't have the existing relationships, and it's just it would be too heavy of an investment for us to go on our own. So we are working on partnerships and partnerships of all sorts and sizes. So while our base business continues to be solid, our eye care business is efficient, it's growing incrementally, and we think that will continue.

Speaker Change: Yeah, so that last question is the easiest question to answer. We don't anticipate doing any expansion all on our own because it's just we don't have the existing footprint, we don't have existing relationships.

Speaker Change: It would be too heavy of an investment for us to go on our own. So we are working on partnerships and partnerships of

Justin Hall: We now have products that address each step of the standard at-home dry eye treatment regimen. Our scientifically developed best-in-class portfolio includes our flagship Avanova lid and last solution, as well as lubricating eye drops for instant relief, a warm eye compress to soothe irritated eyes and the eye check to monitor physical eyelid health.

Speaker Change: all sorts and sizes. So while our base business continues to be solid, our eye care business...

Speaker Change: is

Speaker Change: efficient, it's growing incrementally, and we think that will continue.

Justin Hall: Really, the main focus for the remainder of the year is all partnerships for us. And then, at this time, all I can really tell you, Destiny, is that these strategic partnerships and possible fundamental transactions are our main focus for the remainder of the year. Okay, excellent. Thank you so much. I'll get back in queue. Okay. Our next question comes from Edward Rue with Ascendia Capital. Please go ahead.

Destiny: Really, the main focus for the remainder of the year is all partnerships for us. And then at this time, all I can really tell you, Destiny, is that these

Justin Hall: The US dry eye market is rapidly growing and is expected to exceed $4.8 billion by 2030. Among the factors impacting the prevalence of dry eye are increased computer time and smart screen usage, the aging population, heightened awareness of this condition and improved diagnostic capabilities. The fact that dry eye can be a complex condition was corroborated by a recent survey of 337 optometrist across the US that was published in the eyes on eye care 2024 dry eye report.

Destiny: Strategic partnerships and possible fundamental transactions are our main focus for the remainder of the year.

Destiny: Okay, excellent. Thank you so much. I'll get back in queue.

Destiny: Okay?

Destiny: Our next question comes from Edward Rue with Ascendiant Capital. Please go ahead.

Edward Rue: Yeah, thanks for my question. Has there been any change in distribution costs or advertising on Amazon? Thank you. Prices are, you know, advertising costs are increasing. Fortunately for us, we haven't really seen that.

Justin Hall: According to the survey, more than 80% of respondents found dry eye diagnosis in treatment moderately to extremely important in generating revenue for their practices, and respondents estimated that more than two-thirds of their patients have some form of dry eye disease. Dry eye was ranked as the second leading area of specialization, exceeded only by a primary eye care, and it's expected to account for 43% of their clinical focus over the coming 12 months. This is up from only 17% in 2023.

Edward Rue: Yeah, thanks for my question. Has there been any change in distribution costs or advertising on Amazon?

Edward Rue: Thank you.

Speaker Change: Yeah, hey, Ed. Nice to hear from you. And you know, good question, because I think industry wide,

Speaker Change: Prices are, you know, advertising costs are increasing. Fortunately for us, we haven't really seen that and so our our costs

Justin Hall: And so our costs tend to be pretty consistent. We haven't really seen much of an increase there. We keep an eye, a close eye, on Google and meta ads and really try to pull back spend when those become inefficient. But those are a much smaller portion of our spend.

Speaker Change: tend to be pretty consistent. We haven't really seen much of an increase there. We keep an eye, a close eye, on the Google and meta ads and really try

Justin Hall: Importantly, the report recommended that a personalized treatment approach may be essential in the successful management of dry eye. In a further effort to help manage the multifactorial nature of dry eye, we expanded our avenue of product bundles to provide personalized collections. Our new Avanova Total Eye Health, Dry Eye Essentials, and the Clean-In Relive Bundles provide individuals with personalized product options at a discounted price. The eyes on eye care surveys specifically identified daily lid and lash hygiene as one of the top three approaches for patients with dry eye disease and hypochlorous acid as a top approach for lid and lash hygiene. The cornerstone of each of our new personalized product bundles is the Avanova Lid and Lash Solution, which is formulated with our proprietary pure hypochlorous acid, differentiating it from other hypochlorous acid sprays on the market.

Speaker Change: to pull back spend when those become inefficient. But those are a much smaller portion of our spend. And most of our customer acquisition, as I mentioned, comes from the Physician Dispense channel and also advertising within the Amazon environment.

Justin Hall: And most of our customer acquisition, as I mentioned, comes from the Physician Dispense Channel and also advertising within the Amazon environment. Well, thanks for answering my questions, and I wish you guys good luck. Thank you. Terrific. 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 for joining us today and for your interest in NovaBay. We're excited about our strategic focus on the large and growing eye care market within our established eye care business. We look forward to providing an update on our next quarterly call in November.

Speaker Change: Great, well thanks for answering my questions and I wish you guys good luck. Thank you. Terrific, thanks Ed.

Justin Hall: Thanks again, and have a nice day. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Speaker Change: [inaudible]

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

Justin Hall: Thank you for joining us today and your interest in Novavay. We're excited about our strategic focus on the large and growing eye care market within our established eye care business. We look forward to providing an update on our next quarterly call in November. Thanks again and have a nice day.

Justin Hall: You may have seen our recent announcement regarding record Amazon Prime Day sales of our Avenue of our products. During the two-day event, which was held on July 16th and 17th, we offered a 20% discount to reward loyal customers with great pricing on their products that they rely on, while attracting new customers and providing us with the opportunity to convert them into subscribers. Over this year's two-day event, Avenue of a Sales for 17% higher than Prime Day 2023, and 40% higher than Prime Day 2022.

Speaker Change: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Tommy Law: Now I'd like to turn the call over to Tommy to review our financial results. Tommy? Thank you, Justin, and good afternoon everybody. I'll review Q2 and the six months results followed by our cash position.

Tommy Law: But before we start, I'd like to mention that the financial results for all the periods I'll be discussing today do not include any results from derma doctor. Financial information related to derma doctor can be found in the form 10Q that we are filing today under the heading divestiture and discontinued operations. Now, turning to our quarterly results. Total sales net for the second quarter of 2024 were $2.4 million. Essentially all revenue for the quarter was derived from sales of eye care products which increased 8% over the prior year and were driven by higher Avenue of branded products sold through our OTC online channels.

Tommy Law: Total sales net for the second quarter of 2023 were $3.5 million. Those sales were compressed of $2.2 million from eye care products and $1.3 million from wound care products which included an unusually large order of the neutral phase branded wound care product. Gross margin on net product revenue for the second quarter of 2024 was 66% compared with 49% for the second quarter of 2023. The improvement was primarily due to the increase in sales of higher margin eye care products and a decrease in sales of lower margin wound care products.

Tommy Law: Sales and marketing expenses for the second quarter of 2024 of $1 million declined 13% from the prior year as we continue to benefit from efficiencies from our digital advertising expertise. GNA expenses for the second quarters of 2024 and 2023 remain consistent at $1.6 million. Non-cash items for the second quarter of 2024 included a loss on the change in fair value of warrant liabilities of $80,000 and it lost on the change in fair value of embedded derivative liability of $83,000.

Tommy Law: Non-cash items for the second quarter of 2023 included a gain on changes in fair value of warrant liabilities of $216,000 and a gain on change in fair value of embedded derivative liability of $40,000. Acreation of interest and amortization of discount on comparable notes for the second quarter of 2024 was $0.3 million compared with $0.5 23. Other expense net for the second quarter of 2024 was $69,000 compared with $0.4 million for the second quarter of 2023, with the decrease due primarily to higher finance costs in the prior year period. Net loss attributable to common stock quotas for the second quarter of 2024 was $1.6 million or $1.37 per share.

Tommy Law: This compared with the net loss attributable to common stock quotas for the second quarter of 2023 of $4 million or $44.43 per share, which included a $2 million non-cash increase to accumulated deficit due to adjustment to first stock conversion price.

Tommy Law: Turning to the six months results, net sales for the six months ended June 30th, 2024, or $5 million. This compares with $5.9 million for the six months ended June 30th, 2023, which included the large wind care product order as mentioned earlier. Sales of eye care products for the first half of 2024, a $4.8 million compared with $4.4 million for the prior year period. Gross margin on net product sales for the first half of 2024 increased to 67% from 57% for the first half of 2023.

Tommy Law: For the six months ended June 30th, 2024, sales and marketing expenses decreased 14%, and GNA expenses increased 18%, both compared with six months ended June 30th, 2023. The increase in GNA expense were primarily due to higher non-reoccurring strategic initiatives, costs including the derma doctor's divestiture. We also incurred a $0.9 million expense in the first half of 2024 related to the derma doctor's divestiture with no comparable item in the first half of 2023.

Tommy Law: Net loss attributable to common stock quotas for the first half of 2024 was $5.2 million or $5.57 per share. This compared with the net loss attributable to common stock quotas for the first half of 2023, a $5.8 million for $77.42 per share.

Tommy Law: Turning to our balance sheet, we had cash and cash equivalent of $0.8 million as of June 30th, 2024.

Tommy Law: We completed an underwritten public offering late last month raising gross proceeds of approximately $3.9 million, which included appartial underwriters over allotment. Investors have since exercised all the pre-funded warts from the public offering with the outstanding share count now at approximately 4.9 million shares. The F1, F2 and F3 warts remain outstanding, each with a one-time reset of the exercise price to the lesser of the current exercise price, or 90% of the volume weighted average prices for the five trading days immediately preceding the 60th calendar day after issuance.

Justin Hall: And now I'll turn the call back to Thanks Tommy. As Tommy just mentioned, we completed a capital raise last month that will allow us to pursue some strategic and fundamental transactions from a position of strength.

Justin Hall: Among these options is a possible transaction that would fundamentally change our business and we look forward to providing more details at the appropriate time. In the meantime, we continue to focus on our established position in the large US dry market and to continue efficiently growing our sales of our best-and-class avenue of products. We're managing our sales and marketing expenses through optimized digital programs which allow us to build on the predictable reoccurring sales from our loyal customer base.

Justin Hall: So with that overview of our business and our recent financial performance, I thank you for your attention.

Operator: 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 speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two.

Destiny Buch: Our first question comes from Jeffrey Cohen with Lawton Bird Salmon. Please go ahead. Hey Justin and Tommy, this is actually destiny on for Jeff. Thank you for taking our questions. I wanted to start. I know in the comparable period you did have some revenue based on the wound care product. I'm just wondering if you have anything to call out there or should we expect any other kind of stocking orders. I know it's really lumpy and hard to kind of predict.

Destiny Buch: But I'm just curious if you have any commentary around that. Yeah, so we should see some orders in the remainder of the year. But they're not going to be I think as material or as large as they were in 2023. But we'll continue to see some orders later this year and then of course into 2025. Okay, got it. So largely unchanged, got it.

Justin Hall: And then can you give us some more idea or not idea, more color on the changes in these efficiencies for your marketing strategy. Is it an increased row as or return on ad spend? Is it, is there another metric that you're using to kind of determine what's working and what's not? Can you give us a little more color there? Sure, absolutely. That's it's a good question because it's the main focus of our business.

Justin Hall: We are trying to become just really better at what we're doing. So we really shifted the strategy about a year ago where we moved away from spending a lot of money in the top of the funnel and spending a lot of money in customer acquisition cost and turned our approach on its head where we're really focusing on our subscribe and save customers right now. So after being in the market for eight or nine years, almost 10 years now with Avanova, a lot of people have tried the product and they just need reminders to buy the product again.

Justin Hall: So the best case scenario for us is those customers because it's a personal consumable product. That's case scenario is for those customers to become a subscriber and save customer, but we realize that not everybody is. So I think we have done a really good job of getting people into subscriptions on our website and also on Amazon. So when we get somebody into the subscribe and save program, that means that we don't need to spend any money to make that money and that is incredibly efficient for us.

Justin Hall: So that frees up a little bit more money to go after a new customer acquisition or just reminding those customers who want to repeat purchase that they need to go on and do a one time repeat purchase. So over the past 12 years we've really changed the strategy from filling the top end of the funnel which is inefficient to really focusing and growing that community of users and getting them into the subscribe and save program where we don't have to spend any money to make them. Okay, that makes sense, got it.

Justin Hall: And then what portion of your revenue is now generated from those subscribers saved programs? And then I'm also curious how often are your customers receiving product? Is it monthly? Is it every two months, three months? Can you give more color there? Sure, yeah, absolutely. So, you know, one of the metrics that is easy to remember and that, you know, that we like to share is that about a quarter of all of our online revenue comes from subscribers saved.

Justin Hall: So, that's pretty substantial. So, just having a quarter of our revenue, we know that it's going to come in every single month, you know, and we know exactly what it's going to be. And then, as I mentioned earlier, we don't need to spend any money to make that money. So, you know, it's a significant chunk about, you know, a quarter. So, we, we really like that. In customers, tend to buy about every month.

Justin Hall: There are some people who like to be a little bit more thrifty with their use of the spray, and they may stretch it out so they get one bottle every 45 days on the outside end. It's one every 60 days. But looking at our data, it's the majority of our subscribers' save customers by one bottle per month. Okay, got it.

Justin Hall: And then, with the, with prime day being in the third quarter, or when you're looking at Q3, would we see a bit of a bump up compared to Q2 and Q4? Or do you think it's going to be pretty aligned with the growth throughout the remainder of the year? I guess what I'm asking is, is there still, even with the prime day, is there still the potential that Q4 could grow sequentially in terms of revenue?

Justin Hall: Yeah, definitely. I know you're looking for numbers to plug into the model. No, I, I just, yeah, what you're asking, and it's a fair question. We normally have a stronger Q4. We, we do, you know, a push in our position to spend the channel towards the end of the year. We also do a back to school push. So we, we tend to have a stronger Q4. So, you know, what, what we're looking at is, you know, incremental increases in Q3 with a pretty strong Q4. Okay, okay, got it. That's enough for my model. I appreciate that.

Justin Hall: And then, you've had some, you've had some of the position to spend the channel. Can we talk a little bit more about that? I can hear too much commentary in your prepared remarks. Yeah, so the, the position to spend the channel plays an outside role sort of strategically and building the brand. So, our lowest customer acquisition costs, which is one of the metrics that we look at, you know, for efficiency and success in the online sales channel, our lowest customer acquisition cost and our stickiest customer is when a patient learns about Avenueva through their doctor.

Justin Hall: So, we really try and push the position to spend the channel, not only for the revenue that it creates on its own, and independently as its own sales channel. But the way that it introduces new customers to the online sales channel. So, the position to spend the channel for us is, you know, incredibly important to the brand, and it's incredibly important to the online sales channel. Because that's really how we're feeding new customers into, you know, that efficient sales channel.

Justin Hall: So, we continue to push that. And we have, you know, our loyal doctors who are Avenueva believers, and they buy from us every month. And then, you know, we always have a push where we do continuing education events and just, you know, continuous outreach to bring new doctors into the world as well. But from a revenue perspective, the online sales channel is really dwarfed that whole-fail physician is... Best Journal. Okay, got it.

Tommy Law: And then maybe Tommy, this one for you, the margins continue to look pretty solid, they look good.

Tommy Law: So can you tell me a bit more about any changes in your supply chain and at what level, what revenue level do you think you're really at that optimal level or that optimal economy of scale? No, there isn't really a whole lot of changes in our supply chain. Yeah, so Destiny, our margins improved over last year just because this year we didn't have a very large low margin wound care order. So yeah, so you take a little bit off of the top line because we didn't have that million dollar order of neutrophase which we had last year.

Tommy Law: So you know, a little bit of a blessing in a curse last year. We had a larger top line, but it's a low margin product, so it dragged down our gross margin quite a bit. So what you see this year is consistent margins around the supply care unit and those are all around 65%. They have remained steady. Is that right, Tommy, 65? Yeah, so that has remained steady over the past year and we also expect that to remain constant going forward.

Justin Hall: Okay, and then one more, if I may, I'm curious about some of the partnerships or co-promotion agreements you have going on. Can you talk a bit about the agreement with I know via and how that's going? And then I know you are collaborating with another company for some international markets.

Justin Hall: Are there any international markets you're looking to go in direct on your own? Yeah, so that last question is the easiest question to answer. We don't anticipate doing any expansion all on our own because it's just we don't have the existing footprint. We don't have existing relationships and it's just it would be too heavy of an investment for us to go on our own. So we are working on partnerships and partnerships of all sorts and sizes.

Justin Hall: So while our base business continues to be solid, our I care business is efficient. It's growing incrementally and we think that will continue. Really the main focus for the remainder of the year is all partnerships for us. And then at this time I can all I can really tell you does me is that these strategic partnerships and possible fundamental transactions are main focus for the remainder of the year. Okay, excellent. Thank you so much. I'll get back in queue. Okay.

Edward Brew: Our next question comes from Edward Brew with Ascendant Capital. Please go ahead. Yeah, thanks for my question.

Justin Hall: Has there been any change in distribution costs more advertising on Amazon? Thank you. Yeah, hey, nice to hear from you. And good question because I think industry-wide prices are advertising costs are increasing. Fortunately for us, we haven't really seen that. And so our costs tend to be pretty consistent. We haven't really seen much of an increase there. We keep an eye close eye on the Google and Meta ads and really try to pull back spend when those become inefficient. But those are much smaller portion of our spend and most of our customer acquisition. As I mentioned, comes from the physician dispensed channel and also advertising within the Amazon environment.

Justin Hall: Thank you for joining us today in your interest in NovaBay. We're excited about our strategic focus on the large and growing eye care market within our established eye care business.

Justin Hall: We look forward to providing an update on our next quarterly call in November.

Justin Hall: Thanks again and have a nice day.

Operator: The conference has now concluded. Thank you for attending today's presentation.

Operator: You may now just connect.