Q1 2025 NEXGEL Inc Earnings Call
Speaker Change: Please stand by, your program is about to begin. If you need assistance during your conference today, please press star zero.
Speaker Change: Good afternoon, I will be your conference operator today. At this time, I would like to welcome everyone to Nexgel's first quarter 2025 financial results conference call.
Speaker Change: I will now turn the call over to Valter Pinto, Managing Director of KCSA Strategic Communications for Introductions. Please go ahead.
Valter Pinto: Thank you operator. Good afternoon and welcome everyone to Nexgel's first quarter, 2025 Financial Results Conference call. I'm joined today by Adam Levy, Chief Executive Officer, and Joe McGuire, Chief Financial Officer.
Valter Pinto: For detailed discussion of some of the ongoing risks and uncertainties in the company's business, I refer you to the press release issued this evening.
Valter Pinto: and filed with the SEC on Form A.K. as well as the company's reports filed periodically with the SEC.
Unknown Attendee
Speaker Change: Also, during the course of today's call, we will refer to certain non-GAAP financial measures. Reconciliation of a non-GAAP to GAAP financial measures and certain additional information are also included in today's press release. With that, it's my pleasure to turn the call over to Mr. Adam Levy, Adam, please go ahead.
Adam Levy: Thank you, Valter, and thank you, everyone, for joining us today to discuss our first quarter of 2025 financial and operating results.
Adam Levy: Revenue for the first quarter came in slightly higher than our previously issued guidance, totaling $2.81 million, an increase of 121% year-over-year compared to the same quarter in 2024.
Adam Levy: Although Q1 is our seasonally weakest quarter of the year, contract manufacturing revenues still increased 58% year-over-year, and consumer branded products increased 189% year-over-year, led by the addition of Silly George.
Adam Levy: Gross margins for the first quarter normalized to 42.4% aligning with our historical range in the low to mid 40s. This compares to 37% in the fourth quarter of 2024 and 43.6% in the third quarter of 2024.
Adam Levy: As I mentioned during our Q4 call, we reclassified Amazon sales commissions into our cost of goods sold, which will provide us with a more stable gross margin going forward.
Adam Levy: There were also one-time write-offs in Q4 that lowered our gross margins for that period only.
Adam Levy: EBITDA and adjusted EBITDA loss narrowed to negative 0.54 million and negative 0.47 million respectively, compared to negative 0.84 million and negative 0.73 million for the same period last year.
Once again, both contract manufacturing and consumer products grew substantially.
Adam Levy: Starting with contract manufacturing, this segment of our business has played a pivotal role in our growth led by increased demand from existing customers as well as the successful onboarding of several new global corporations such as Sintas and Owens & Minor.
Adam Levy: We began shipping initial orders to CentOS in Q4, and this continued into Q1. We have already received our first reorder for deliveries in Q2.
Adam Levy: As I mentioned before, this partnership is not only great for our revenue growth, but we expect it to also result in increased brand awareness for Silver Seal.
Adam Levy: Regarding AbbVie, the official launch of their Rosonic machine has been pushed again due to delays in their manufacturing process unrelated to NextGel. We remain their exclusive supplier of gel pads for the Rosonic machine and we have been kept up to date frequently on their progress.
Adam Levy: The timing of their launch has nothing to do with our product or readiness from our team. Unfortunately, we are beholden to their timelines. While frustrating, we feel confident the product will launch and be a substantial opportunity for us.
Adam Levy: Fortunately, aside from the opportunity with AbbVie, we have multiple other shots on goal and we expect our business to continue to expand and grow. We have a robust pipeline of new and potential customers for 2025.
Adam Levy: In July, we announced the launch of an institutional review board study conducted in accordance with the FDA guidelines funded by Innovative Optics.
Adam Levy: This 30 patient human trial conducted at the Florida Clinical Research Center studies the efficacy of hydrogel applied to patients prior to laser hair removal treatments.
Adam Levy: The primary outcome measure is the reduction of harmful carcinogenic plume generated by laser hair removal into the air during these procedures. The study is now complete and we are only awaiting publication.
Adam Levy: We are confident that our high-water level hydrogel will offer a long-needed, industry-wide solution for absorbing and capturing plume during laser hair removal when applied to the surface of the skin before the procedure begins.
Adam Levy: In addition, the application of Hydra-Gel may also allow for more effective laser hair removal and reduce the amount of pain experienced during treatment. These added benefits make this an attractive, practical solution for regulatory compliance, safety and customer satisfaction.
Adam Levy: We have received some initial orders from Innovative Optics as they prepare to go to market. They're also serving as a strategic marketing partner with strong connections to all the major laser hair companies in the space, making this a particularly exciting opportunity with significant growth potential.
Adam Levy: As we continue to pursue these opportunities, we expect contract manufacturing and white label to continue being a major driver of our expansion and success moving forward, and this segment represents some of the largest opportunities that we have in our pipeline.
Adam Levy: Turning our attention to consumer products, our entire portfolio saw a strong expansion in 2024, driven by the continued success of our brands, MetaGel, Cancoderm, and Philly George, each also having several growth factors in 2025.
Adam Levy: Similarly, KencoDerm will double the size of its product portfolio in the third quarter of 2025 with the launch of new products. KencoDerm is an established brand that provides its customers with high quality skincare products to relieve the symptoms of psoriasis.
The new product line will expand into solutions for eczema.
Adam Levy: tapping into an even larger market opportunity for the brand that is leveraging its strong reputation as a leader in sensitive skincare.
Speaker Change: Silly George will also have several exciting new products in 2025. While continuing to expand our popular lash offerings, we are also launching complementary beauty products including five shades of lip gloss, a hydrating lip mask, and under-eye patches that feature our own proprietary Hydrogel technology.
Adam Levy: We are making the transition from a, quote, Lash brand into a true beauty company with a more complete suite of solutions for our loyal customers.
Adam Levy: Lastly, our partnership with Stata is progressing extraordinarily well. Our first product, Histosol, is exceeding projections and showed continued revenue growth in Q1.
Adam Levy: We recently signed an amendment to our contract with Stata to expand our relationship beyond histosolves. We expect to launch another product in Q4 of 2025, and several more are planned for 2026, beginning in Q1.
Adam Levy: There are many other applications for our high water content hydrogels and our aspirational medical device products, which provide our shareholders with significant upside potential.
Adam Levy: With that being said, R&D exploration in each of these opportunities will be done thoughtfully and strategically, managing cash appropriately and not overextending our resources, while pursuing paths that will lead to high ROI and be core to our vision for the company in the future.
Adam Levy: Before I turn the call over to Joe to review our first quarter financial results, I would like to touch upon tariffs. It is a bit of a double-edged sword for us. On the one hand, we do supply some Silly George products from China. As we all know, this is a fluid situation, although yesterday's news was certainly most welcome.
Adam Levy: At a 34% rate, the impact is minimal for us because our cost of goods is generally quite low making the overall effect small and manageable and we can absorb it. However, a jump to 145% might be a different story, but at this stage the implications remain uncertain.
Adam Levy: We are monitoring this closely and will make adjustments as needed. For example, we are exploring the possibility to use our brand new clean room in Texas to assemble here if the tariffs return to being abnormally high.
Adam Levy: On the other side of the coin, we are seeing a substantial increase in interest in our U.S. made gels.
Adam Levy: To date, for some applications, mostly cheaper and short-term usage products, sourcing of gels has come from China, where they cross-link the water and polymer using UV light and chemical activators.
Adam Levy: These gels do not compete with us in our main markets, such as medical device, cosmetics or dermatology, where biocompatibility is a prerequisite and they simply don't qualify.
Adam Levy: As of recently, we are seeing expanded interest in our gels. With tariffs even at 35% in play, we may find that our hydrogels are no longer materially more expensive than those produced abroad, while being far superior.
Adam Levy: So far, that's a great advantage for us being a U.S. manufacturer and our pipeline and interest has grown significantly.
Adam Levy: So far, we have seen no weakness in our consumer product sales, and so we do not see a need to change our guidance of $13 million in revenue and achieving cash flow positivity in 2025.
Adam Levy: As we continue to drive innovation and growth across our key business segments, our focus remains firmly on delivering long-term value for our shareholders. With a strong foundation and significant opportunities on the horizon, we believe that 2025 will be another landmark year.
Speaker Change: We sincerely thank our shareholders for their trust and confidence, which are crucial to our continued success and growth as we work towards realizing our shared vision. I'd now like to turn the call over to Joe McGuire, our Chief Financial Officer.
Joe Mcguire: Thank you, Adam. Today, I'll review financial highlights of our first quarter 2025 financial results.
Joe Mcguire: For the first quarter of 2025, revenue totaled $2.81 million, an increase of 121% as compared to $1.27 million for the first quarter of 2024.
Joe Mcguire: The increase in overall revenues was primarily due to the sales growth in both contract manufacturing and branded products.
Joe Mcguire: Cost of revenues totaled $1.62 million for the first quarter of 2025 as compared to $1.11 million for the first quarter of 2024. The increase in cost of revenues is primarily aligned with the increase in revenue growth.
Joe Mcguire: Gross profit totaled $1.19 million for the first quarter of 2025 as compared to a gross profit of $0.16 million for the first quarter of 2024.
Joe Mcguire: Gross profit margin for the first quarter of 2025 was 42.4% as compared to 12.6% for the first quarter of 2024.
Joe Mcguire: The increase of $1.03 million in gross profit, quarter over quarter, was primarily due to the increase in overall sales.
Joe Mcguire: Selling, general, and administrative expenses totaled $1.96 million for the first quarter of 2025, as compared to $1.03 million for the first quarter of 2024.
Joe Mcguire: The increase, quarter over quarter, was attributable to increases in compensation and benefits, share-based compensation, advertising, marketing, and Amazon fees.
Joe Mcguire: EBITDA, a non-GAAP financial measure, totaled a negative $0.54 million for the first quarter of 2025 as compared to a negative $0.84 million for the first quarter of 2024.
Adjusted EBITDA, a non-GAAP financial measure, totaled negative...
Joe Mcguire: 0.47 million for the first quarter of 2025 as compared to a negative 0.73 million for the first quarter of 2024.
Joe Mcguire: Net loss for the first quarter of 2025 was $0.71 million as compared to a net loss of $0.85 million for the first quarter of 2024.
Joe Mcguire: As of March 31, 2025, the company had a cash balance of approximately $1.19 million.
Joe Mcguire: And as of May 13, 2025, NexGel had 7,654,537 shares of common stock outstanding.
I would now like to open the call for questions.
Operator.
Speaker Change: At this time, if you would like to ask a question, please press star 1 on your telephone keypad.
Joe Mcguire: You may remove yourself from the queue at any time by pressing star 2.
Once again, that is star one to ask a question.
Speaker Change: We'll take our first question from Naz Rahman with Maxim Group. Please go ahead.
Naz Rahman: Hi everyone, thanks for taking my questions and adds on the progress.
Naz Rahman: On your guidance, how much did you bake into revenue or sales from AbbVie's design advice? And does the delay affect the guidance or are there other factors that could offset what you expected from AbbVie this year?
Unknown Speaker
Speaker Change: I think I got that, Naz, you broke up a little bit, but yeah, so we did not bake in a lot for it.
Speaker Change: Hello? Go ahead. Go ahead. We did not bake in a tremendous amount for AbbVie, only because, you know, again, it's not something that's under our control. So the revenue we had for AbbVie was relatively minor. So it should not be impactful to us meeting our projection of $13 million.
Speaker Change: Got it, thanks. You mentioned that you plan to launch another product with Stata in 4Q. Can you provide, I guess, more details on what the product is, or at least what the market opportunity for the product is?
Speaker Change: I'm sorry, are you asking what the market opportunity is for the product associated with the study we did? Is that the question? No, for the Statoil launch and 4Q.
Sorry, sorry about breaking up.
Speaker Change: You're breaking up a little bit now. I didn't understand that.
Unknown Attendee
Hi, could you hear me better now?
Yes, much better.
Speaker Change: Awesome. On the product that you plan on launching with Stata and for QG, could you provide more color or details on either what the product is and the market opportunity?
Speaker Change: Sure, so the first product obviously was histosol, that is a digestive enzyme. The strategy with STATA is to create a line of digestive enzymes for other indications.
Speaker Change: So this will be another digestive enzyme in Q4, there will be a third digestive enzyme in Q1, and then there are some other products that have synergies with some of the metagel offerings that we're discussing putting out as well in Q1 and Q2 of 2026.
Unknown Attendee
Speaker Change: Got it. And here's a thought currently, is profit still growing? Or are you seeing, I guess, like any plateauing of sales? And are there any strategies in place to further accelerate sales?
Unknown Speaker
Speaker Change: Yeah, so so actually we've seen nothing but growth. Last month was the largest month we had on the product So it's grown very nicely from zero to where it is today and it continues to grow every single month
Speaker Change: Interestingly, the platform that we'd identified as probably the next biggest opportunity was TikTok.
Speaker Change: The incidence of histamine sensitivity in the general population is relatively low as a percentage of the general population. So wide nets like META tend to not be as effective.
Speaker Change: More captured audiences like on Amazon where you're basically just presenting to people who are already interested in your products. A lot of the weeding out is done for you. Those work better for us.
Speaker Change: We identified that TikTok would be a great platform for us and we do have plans but we've kind of put them aside until there's clarity around TikTok because we don't want to make the investment in, you know, building an audience on TikTok and then find out it's going away in two months.
Speaker Change: So, yeah, TikTok is one, alternative places like WebMD is another, we're already starting with that program. But right now, unfortunately, we just think it's prudent to wait on TikTok until, you know, 60 days from now when there's more clarity as to its final determination.
Unknown Speaker In your first remarks, you mentioned that
Speaker Change: If the tariffs end up being higher, I understand it's a revolving situation, you could quickly transition manufacturing to taxes?
Speaker Change: But if you did that, would that impact any of your other business lines, or do you have enough excess capacity to transition or shift manufacturing to Texas?
Speaker Change: Yeah, well, so a lot of the eyelash manufacturing process is very manual. We just built a brand new clean room and we built it with enough space to grow into, both for ourselves, for AbbVie, which we thought would be a large opportunity in that space, as well as a few other larger customers. So we do have room to do it if we had to. Fortunately, now with yesterday's news, the tariffs have come down to a more manageable level.
Valter Pinto: and Valter Pinto, Joseph McGuire, Valter Pinto, Adam Drapczuk, Unknown Attendee
Valter Pinto: If you went down that route, would you have to hire additional people and maybe your operating base would have to change if you try to produce stuff in Texas? Or is that based around what your current operating base is?
Valter Pinto: Well, you would need, you would be an additional labor to do the assemblies and things of that nature just any time you expand your manufacturing facility. But then again, you wouldn't be buying it, you wouldn't be paying for that.
Speaker Change: Unknown Speaker In China where labor is extraordinarily cheap. So look, it's not an ideal situation, but it is one of the things that we're looking at to mitigate if tariffs become basically untenable at 150% they might be.
Speaker Change: So, you know, again, it's a work in progress, but I'm just pointing out that we are considering lots of different scenarios, and we want to have a plan A, a plan B, and a plan C. Right now, that's plan C.
Unknown Speaker
Speaker Change: Got it. And just kind of sticking on Silly George in general, I mean, you basically have the brand for a year at this point, give or take. Are there further optimizations you can make the brand to, I guess, continue growing sales and growing margins or just about having launches at this point?
Speaker Change: So the brand is definitely going to continue to grow margins and in fact we saw the largest growth in margins in this last Q1. And the reason for that is simple. When you take over a brand, you don't really know everything that works and you're hoping to do a better optimization than the folks that had it before you. So you're starting with, let's try these keywords, let's try those keywords, which ones work, which ones don't, this strategy worked effectively, this strategy was a little bit of a waste of money. And you start to
Speaker Change: Q1 was not, this is Silly George only, taken, you know, by itself.
Speaker Change: It was not the largest quarter we had for Q1, in fact it was smaller in Q1 sales because it wasn't the holidays.
Speaker Change: Smaller than Q4 and smaller even than Q3, which had the launch of the pop-ons, yet it was the most profitable quarter. And we're going to continue on that trend now as sales grow, new products come out. We think we're just scratching the surface with the profitability potential of Silly George.
Speaker Change: Got it, and just one more question if I may. On the laser hair removal application, could you, I guess, provide some comments as to how big of a market opportunity that is, and I guess, like, how many, what the strategy there would be, like, how many offices would you be selling to with a physician?
Size of the marketplaces.
Speaker Change: Yes, so I'm not 100% sure as to the total size of the market. I know it is a very popular procedure and has a very large market size. We unfortunately...
Speaker Change: Don't have access to a lot of the market data surveys that are very expensive.
Speaker Change: but I can tell you that it is a large and growing market. We have interest from some very large companies such as Removery, some of the big players that have large franchises in laser,
Speaker Change: This is going to be a problem that has come to light. I mean, this plume, this carcinogenic plume, is a real health hazard. Again, not so much for the patient who goes in, you know, five or six or eight times, but really for the practitioner.
Speaker Change: and we're already starting to see OSHA, you know, mandate that the plume must be controlled and I think that our study is going to show that we are by far the best and most cost-effective option for that and I think that's going to be a big opportunity. How big exactly, I'm not sure.
Unknown Speaker
Thank you for taking my calls.
Sure. Anytime.
Speaker Change: We'll go next to Eric Ramos with Titan Capital Management. Your line is open, please go ahead.
Eric Ramos: Hi Adam, congrats on the quarter. My first question was kind of you guys hinted at some inventory bills for Silly George following the tariffs. Could you kind of discuss the magnitude of that given that it presumably happened after the quarter end?
Unknown Attendee
Eric Ramos: They're okay for us. It was only when it was 145 that we began to really look at alternatives. So hopefully we will be fine and hopefully this doesn't revert back to the escalation we had just a few days ago.
Speaker Change: Got it. And then on the dilution side, you guys will seemingly need to tap the markets in the next few quarters. Is equity still kind of the primary form of financing you guys are looking at, or are there other options you guys are wearing, such as convertible notes or otherwise?
Speaker Change: I don't really love convertible notes, and I'm not a fan, as I've said before, of debt on a company until we cross that EBITDA positive line. But we do expect to cross that line in the very near future.
Speaker Change: Everything's open to us, right? You have revolvers, you have all sorts of ways to finance growth once you're a profitable business. I just, I'm just doing my best to avoid any kind of debt until we are a need-to-tell positive company.
Speaker Change: Got it. Okay. And I assume that's EBITDA for the quarter, not the full year.
Speaker Change: Yes, as we as we well, you know, we've been growing at a tremendous rate. I have to believe that once we achieve it, because of the stickiness of our
Speaker Change: contract and white label that when we do achieve it and that's what really drives our profitability because there are fixed costs that we should be able to stay there once we get there. It won't just pop up for one quarter and then suddenly go back to a big loss the next quarter. I don't see a scenario where that would happen.
Speaker Change: Got it. Okay. And then maybe just one last one for me on the AbbVie deal. You may have discussed this previously, but kind of what is your like baseline runway, run rate for AbbVie revenues? And then as that kind of supply agreement starts to pick up, you know, like, what is the remaining excess production capacity you guys would have at your facility for
Water gel.
Speaker Change: Unknown Speaker And again, that's a significant if you start doing the math on that number of machines, if they can get that number of machines out, you know, one, two, three years in a row, and those machines do.
Speaker Change: Unknown Speaker 2, 3, 4, depending on what you think they can do in terms of procedures, remember that every procedure requires at least a minimum of two of our gel pads.
Speaker Change: So the numbers become quite significant. It will have a definite impact on the facility and get us closer to where you want to be as a contract manufacturer in terms of your capacity and your capacity utilization. But we have a long way to go. So we're not worried about that right now. That would be a good problem to have to need to build another facility.
Speaker Change: Got it. That was all I had. Thank you so much.
Thank you.
We'll go next to Investor Hristo Vachovsky. Please go ahead.
Hello, congratulations on great results.
I want to ask...
Speaker Change: You mentioned that C. G. decreased in revenue a little bit from Q4 sequentially because of seasonal reasons.
Speaker Change: Are you tracking the general market and what's the usual market seasonal decline, so can you tell us whether Silly George is still gaining market share?
Speaker Change: Yeah, so we we do have four-year history on the company that we did our due diligence on when we bought it.
I can tell you it was a very slight decrease.
Speaker Change: What was interesting about it was that it was not the biggest quarter, yet it was the most profitable. That's why I kind of brought that up.
Speaker Change: But as far as a drop from Q4 to Q1, it was very modest and it was probably less of a drop than they've ever had in their history before. We are not seeing any weakness whatsoever in terms of what we've expected from our consumers as of now.
Speaker Change: So, that may change. I don't know if there's a recession coming or not. That's going to be, you know, determined in the future. But as of right now, we're not seeing any weakness.
Speaker Change: So is there going to be a seasonal improvement for St. George? I suppose women will wear more eyelashes when the weather improves, right?
Speaker Change: Yeah, we've seen we've seen historically, again, this is historical, not when we were running the company, you know, last year was skewed, because the pop ons were so popular that you know, there was an explosion of sales in mid May when the pop ons came out, and we took over. So so q2 was, you know, the end of q2 was pretty strong, q3 was an exceptional strength, but we also have other new products coming out.
Speaker Change: So yes, we expect seasonally for it to get stronger and stronger moving into the holiday season in Q3 and Q4. But we also have a focus pack of lashes coming out. Customers have told us they really like to have a pack that's all one size because they tend to throw some away in the variety pack. We'll be offering that. We have a new three-quarter lash. We have five shades of lip gloss.
Speaker Change: We have a lip mask, and then we're going to have our own hydrogel under eyes. So all of these products are also coming in and adding to the offerings. We should see significant growth, you know, in Q3 and Q4 especially.
Okay, that's good to hear.
Speaker Change: If you can explain to somebody that doesn't know much about the cosmetic business, does your Hydrogel help a lot in comparison to the competition?
Speaker Change: It does it's really it's really interesting and we've always thought it was one of the factors actually that I looked at as a potential synergy upside when we bought Tilly George
which is we can make a hydrogel.
Speaker Change: that is mildly adhesive to the face so not a goopy hydrogel mask like you traditionally buy in store that's like
Unknown Attendee
Speaker Change: They will deliver moisture for 2, 3, 4 hours. You can walk around the house with them on. And they're really a completely different experience. So, we never put them out ourselves because it's very hard to start a beauty brand from scratch.
Speaker Change: Unknown Speaker But with Silly George, we now have a mailing list of 300,000 active customers that we can begin to market and introduce our hydrogels to the beauty world through them. So yeah, we're pretty excited about it.
Speaker Change: Okay, that's great to hear. And the financial question, I'm not sure I heard correctly.
Speaker Change: You said that you don't like issuing debt without being EBITDA positive, which I completely understand, but do you think you'll be able to survive on the current cash reserves?
Speaker Change: Until you are EBITDA positive at the end of the year.
Speaker Change: Yeah, we kind of do. Again, you know, if something happens that requires an infusion of cash, remember, we're always looking for a purchase opportunity as well, which is when we've raised money in the past, we put money back on our balance sheet when we bought something. But we don't see an immediate need to do anything right now. But you know, time will tell.
Okay, this is it for me. Good luck.
Thank you very much.
Speaker Change: And as a reminder, ladies and gentlemen, if you'd like to ask a question, you may do so by pressing star one.
Speaker Change: We'll go next to Investor Mike Andrews. Your line is open, please go ahead.
I like it.
Hearing no response from this line, we will move on.
Speaker Change: It appears we have no further questions at this time. I will now turn the program back over to our presenters for any additional remarks.
Speaker Change: This does conclude today's program. Thank you for your participation. You may disconnect at any time.
Speaker Change: As Stephen tells me in the field of my life how he conquers the dark. But he is that way, but he is that way, but he is that way.