Yahoo Finance NEXGEL, Inc. (NASDAQ:NXGL) Q3 2023 Earnings Call Transcript
NEXGEL, Inc. (NASDAQ:NXGL) Q3 2023 Earnings Call Transcript November 17, 2023
Operator: Good afternoon. I will be your conference operator today. At this time, I would like to welcome everyone to NEXGEL's Third Quarter 2023 Earnings Conference Call. 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 the NEXGEL Third Quarter 2023 Earnings Conference Call. I'm joined today by Adam Levy, Chief Executive Officer; Adam Drapczuk, Chief Financial Officer of NEXGEL. Before we begin, I'd like to remind everyone that statements made during today's conference call may be deemed forward-looking statements within the meaning of the safe harbor of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially due to a variety of risks, uncertainties and other factors. For a detailed discussion of some of the ongoing risks and uncertainties in the company's business, I'll refer you to the press release issued this evening and filed with the SEC on Form 8-K as well as the company's reports filed periodically with the SEC.
The company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise -- unless otherwise required by law. 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 third quarter 2023 financial and operating results. We are pleased to deliver yet another record revenue quarter in Q3 of $1.22 million, an increase of 115% year-over-year and up slightly as compared to revenue of $1.17 million for the second quarter of 2023. Of note, the $2.3 million in revenue generated in the last 2 quarters exceeds our full year of 2022 revenue. Growth year-over-year was driven by an increase in contract manufacturing. This is our second consecutive quarter of revenue contribution from the acquisition of a 50% interest in the JV with CG Labs. The return on this $500,000 investment into the JV, which we recently made the last payment on has proved to be an excellent mutually beneficial transaction and 1 in which we have quickly realized the benefits.
It has contributed materially to our top line growth and is accretive to the bottom line as well. We also have yet to realize the full benefits to margins as that will come as the new equipment is installed and validated. We expect the first equipment to come online in Q1 of 2024. We recently announced executing the supply agreement with AbbVie to be the supplier of gel pads for their Rapid Acoustic Pulse device. In December of 2021, AbbVie acquired the owner of this technology, Soliton, for $550 million in cash after its RESONIC device demonstrated significant improvement in the appearance of cellulite. After extensive due diligence from AbbVie for many months, our hydrogels were chosen as the required razor to its razor blade model for each procedure to be done.
Our ability to meet the high standards of AbbVie demonstrates the uniqueness of our technology and the fact that a company of their size would select us is something we are very proud of. We expect the RESONIC device to be launched next year. We have been making the necessary preparations to ensure we are fully prepared for this potentially significant and impactful revenue opportunity for NEXGEL. Our branded consumer products grew year-over-year 54% and quarter-over-quarter by 37%. This was led by SilverSeal, which continues to be a hero product for us, consistently gaining popularity and positive reviews. This product is a unique hydrogel dressing for wounds and burns. The sterile silver patches are FDA cleared and have been clinically shown to kill 99% of STAPH, MRSA and STREP.
They've also been shown to reduce scarring and pain in wounds. SilverSeal was a behind-the-counter hospital device for many years, and our messaging of hospital-grade product now available for home use has resonated with our consumers. In North America, we are making good progress with Enigma Health for retail distribution. Now that we have fully vetted the audience for our leading products and have gained steady traction in the market, it is time to put these products on shelves. Our active discussions with many leading retailers have been going well, and we realistically could see our products on shelves by this coming summer. Last quarter, we provided an update on our amblyopia patch. We have since launched the product and have shipped to approximately 30 ophthalmology offices and the feedback thus far has been very positive.
We are currently monitoring reorder rates, adoption and consumer feedback to plan the next phase of our rollout strategy. Importantly, we have also made significant strides improving our gross profit, going from a gross loss in Q1 to a gross profit in Q2 and improving again in Q3. Gross margins improved sequentially to 28.1% in Q3 compared to 15% in the prior quarter. Our net loss in the third quarter also continued to trend lower quarter-over-quarter, in line with our goal to become profitable in 2024 from $814,000 in Q1 to $695,000 in Q2 to $552,000 in Q3. Included in our net loss of $552,000 for the third quarter are approximately $95,000 of noncash items. Our cash and cash equivalents decreased from $4.3 million at June 30, 2023 to $3.3 million at September 30, 2023.
The delta between our improved net loss during the quarter and the net cash decrease over the period was related to an increase in accounts receivables and property, plant and equipment investments. As we mentioned last quarter, the customers of CG Converting and Packaging require lengthier payment terms. Their payment terms are closer to 90 days as compared to NEXGEL's core business customers who typically receive 30-day payment terms. Therefore, AR increased during the period by $208,000. We also invested $361,000 in additional property, plant and equipment during the quarter. Before I turn the call over to Adam, while Q3 was a significant quarter for us -- we also have a lot to be excited about as we head into next year. Given our growth into retail in new markets and our branded product line as well as the opportunity to onboard new customers, we have strategically invested in inventory and equipment to increase capacity and automation to meet the significant increase in demand we expect for our proprietary hydrogels in 2024 and beyond.
We expect our revenue to continue to grow year-over-year, margin expansion and the net loss decrease to continue as we move towards profitability, which is always our highest priority. With that, I would like to turn the call over to our CFO, Adam Drapczuk. Adam?
Adam Drapczuk : Thank you, Adam. Today, I'll review financial highlights of our third quarter 2023 results. For the third quarter of 2023, revenue totaled $1.22 million, an increase of $653,000 or 115% as compared to $568,000 for the same period the year prior. The quarterly increase in overall revenues was primarily due to sales growth in contract manufacturing and branded products year-over-year, including revenue contribution from the joint venture formed with CG Labs. Gross profit for the third quarter of 2023 was $344,000 compared to a gross profit of $148,000 for the same prior year period. Gross profit margin for the third quarter of 2023 was 28.2% compared to 26.1% for the same period the year before. Gross margin increased sequentially to 28.2% during the third quarter of 2023 as compared to 15% during the second quarter of 2023.
Total operating expenses including R&D and SG&A expenses, decreased to $956,000 for the 3 months ended September 30, 2023, compared to $1.19 million for the prior year period. The year-over-year decrease was attributable to a decrease in total SG&A and R&D expenses period-over-period. Net loss for the quarter ended September 30, 2023, improved to $552,000 or $0.10 per basic and diluted share compared to net loss of $1.2 million or $0.22 per basic and diluted share for the same period in 2022. Net loss also improved sequentially to $552,000 during the third quarter of 2023 as compared to $695,000 during the second quarter of 2023. As of September 30, 2023, NEXGEL had approximately $3.3 million of cash. During the quarter, the company invested in capital expenditures for new equipment and increased its capacity at the Texas facility to prepare us to execute our new supply agreements in 2024.
As of November 13, 2023, NEXGEL had 5,717,629 shares of common stock outstanding. I would now like to open the call for questions. Operator?
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