NovaBay Pharmaceuticals, Inc. (AMEX:NBY) Q1 2023 Earnings Call Transcript May 11, 2023

NovaBay Pharmaceuticals, Inc. beats earnings expectations. Reported EPS is $-0.85, expectations were $-0.91.

Operator: Welcome to the NovaBay Pharmaceuticals First Quarter 2023 Financial Results Conference Call. At this time, all participants are in listen-only mode. Following management’s prepared remarks, we will hold a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Jody Cain. Please go ahead.

Jody Cain: This is Jody Cain with LHA. Thank you for participating in today’s call. Joining me from NovaBay 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 impact the broader economy such as rising interest rates and the conflict between Russia and Ukraine.

This means that results could change at any time and the contemplated impact of circumstances that impact the broader economy on NovaBay’s operations, its financial results and its outlook is the best estimate based on the 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 at sec.gov. Furthermore, the content of this conference call contains information that is accurate only as of the date of the live broadcast, May 11, 2023. NovaBay undertakes no obligation to revise or update any circumstances to reflect events or circumstances, except as required by law. Now I’d like to turn the call over to Justin Hall. Justin?

Justin Hall: Thank you, Jody. Good afternoon to everyone and thank you for joining us. Today, we’re reporting good news with increased revenue from our core eye care vertical, driven by higher sales of Avenova Spray through our physician dispense channel and by increased sales of our Avenova companion products such as our warm compress, dry wipes and oral supplements. More good news on the expense side of things with lower marketing spend due to our ability to optimize digital advertising programs. We also took steps to support future growth with product innovation and the introduction of new effective evidence-based products that meet consumer needs. So far this year, we’ve launched three new products and introduced our first co-promoted product.

Now I’d like to share updates on each of our three verticals, eye care, skin care and wound care, beginning with Avenova and our eye care franchise. I’m pleased to report that our efforts to deepen relationships with eye care specialists has paid off with an uptick in sales in our physician dispensed channel during the quarter. This channel represents a win-win for NovaBay and our eye care professionals who make our high-quality products available directly to their patients through their practices. As mentioned on our March investor call, we are proactively reaching out to optometrists and ophthalmologists by partnering with educational organizations with CE accredited programs discussing dry eye disease. These programs help our customers meet continuing education requirements and provide us a platform for discussing the attributes of our eye care products.

I’m also pleased with the performance of our high-quality Avenova companion products as dry eye is a multifaceted and complex condition that may require more than one approach to gain and sustain relief. Over the past several years, we’ve commercialized a portfolio of best-in-class products that address each step of the standard dry eye treatment regimen. These products build upon our brand recognition and our loyal customer base, making NovaBay a one-stop destination for those seeking relief from symptoms of dry eye and other ophthalmic-related eye conditions. Recent industry reports state that up to 49 million Americans suffer from dry eye symptoms and the global market for treatments is expected to reach nearly $9 billion by 2030. Among the factors driving this market growth are the increased demand for effective treatments, the rising prevalence of dry eye disease and growing awareness about the condition.

Needless to say, we have plenty of growth opportunity for our full line of Avenova branded products. Moving now to DERMAdoctor and our collection of skin care products. Last month, we launched our Comfort + Joy Psoriasis Therapeutic Moisturizing Cream exclusively on the QVC network through a special introductory offer. This is the first DERMAdoctor product specifically formulated for the treatment and relief of the symptoms of psoriasis. This skin condition causes the body to make new skin cells in days rather than weeks. Psoriasis is a common skin condition afflicting about 125 million people worldwide and nearly 8 million in the U.S., with more than half of those people claiming it represents a significant problem in their everyday life. Psoriasis can show up anywhere in the body, including eyelids, ears, mouth, hands and feet.

Our Comfort + Joy cream is appropriate for use head to toe and even on the most sensitive skin. It is steroid-free, fragrance-free and includes salicylic acid to help relieve and prevent the reoccurrence of itching, scaling, redness, flaking and irritation, while helping to restore the skin’s essential moisture. Beginning in August, this product will also be available on dermadoctor.com and on Amazon. Earlier this week, our Chief Product Officer, Dr. Audrey Kunin, returned to QVC as an honor guest featuring our Calm Cool + Corrected Eczema Balm just in time for when spring allergies are triggering eczema flare-ups. Just using balm provides temporary relief from eczema’s rashes, redness, dryness and itchiness. Like our psoriasis cream, this balm is suitable for use by the whole family anywhere on the body.

We invite those suffering — we invite those suffering from eczema to view the DERMAdoctor website to see the dramatic real life before and after pictures from actual product users. We proudly featured the National Eczema Association Seal of Acceptance on our eczema balm product label. Now turning to wound care. Our Skin and Wound Cleanser products are marketed under the NeutroPhase brand in China and under the PhaseOne brand in the United States and are used for cleansing and irrigating postsurgical wounds, minor burns and superficial abrasions. Like our Avenova Spray, our wound care products are formulated with NovaBay’s FDA-cleared proprietary and antimicrobial form of hypochlorous acid. Among the advantages of hypochlorous acid is its ability to penetrate and kill biofilm, which represents a significant barrier to wound healing.

Importantly, NeutroPhase and PhaseOne are differentiated in the marketplace because they do not contain the toxic chemicals found in many other wound care products. Our formulation exhibits broad-spectrum activity against a range of gram-positive and gram-negative bacteria, making it highly effective, yet it is gentle, non-irritating and non-sensitizing to skin and new tissue. We manufacture our wound care products here in the United States in large batch quantities through a proprietary process and they’re bottled in amber glass for stability to ensure the safest, purest and most powerful hypochlorous acid Wound Care Cleanser on the market. With NeutroPhase, we’re pleased to announce a recent $1 million order from our partner, China Pioneer Pharma Holdings, a leading Chinese importer and marketer of branded pharmaceuticals and medical devices.

We have shipped this order and expect to recognize the revenue from the sale in the second quarter of 2023. On the other side of the world, we commend our exclusive distributor, PhaseOne Health for its donation of PhaseOne to hospitals in the Ukraine through a partnership with the non-profit helping Ukraine Foundation. It’s a privilege to have PhaseOne Health available to Ukrainians during their ongoing conflict with Russia. PhaseOne Health is ideal for use in Ukrainian medical facilities due to its stable potent broad spectrum formulation and it can be used on wound as frequently as needed. Lastly, we closed a $3 million convertible note last month. We appreciate the investors who participated in this financing and who continue to believe in our mission.

The proceeds from this financing will strengthen our balance sheet and allow us to take another step towards profitability. Now I’d like to turn over our conference call to our Interim Chief Financial Officer, Tommy Law, to review our first quarter financials. Tommy?

Tommy Law: Thank you, Justin, and good afternoon, everybody. Net product revenue for the first quarter of 2023 was $3.1 million and included $2.2 million of Avenova branded product sales, $0.8 million of DERMAdoctor product sales and $0.1 million of our PhaseOne branded wound care product. Gross margin on net product revenue for the first quarter of 2023 was 62%. This compares with 55% for the first quarter of 2022, with the increase primarily due to channel and product mix that favored sales of higher margin products and the impact of unanticipated product returns on first quarter 2022 results from expired Avenova Spray sold prior to the launch of our over-the-counter Avenova Spray product in 2019. Total operating expenses for the first quarter of 2023 decreased 13% over the prior year.

This included a 17% decline in sales and marketing expenses to $1.7 million, which reflects lower Avenova digital advertising costs. G&A expenses decreased 9% to $2 million, primarily due to lower variable compensation costs. The net loss for the first quarter of 2023 was $1.7 million or $0.85 per share. This compares with the net loss for the first quarter of 2022 of $0.1 million or $0.08 per share, which included a non-cash gain on changes in fair value of warrant liability of $2.1 million and non-cash gain on changes in fair value of contingent liability of $0.2 million. There were no comparable items for the first quarter of 2023. We reported cash and cash equivalents of $3.7 million as of March 31, 2023, compared with $5.4 million as of December 31, 2022.

As Justin mentioned, we completed a $3 million private placement of convertible notes and warrants subsequent to the close of the quarter. And now, I’ll turn the call back to Justin.

Justin Hall: Thanks, Tommy. We’re proud of our portfolio of innovative, evidence-based and clinically proven products and are passionate about bringing these best-in-class products to a growing number of customers. With Avenova, DERMAdoctor, PhaseOne and NeutroPhase, we have a solid foundation of established brands in the large and growing eye care, skin care and wound care markets. We’re taking steps to broaden our customer base with marketing campaigns aimed at expanding targeted demographics. Importantly, we’re advancing all of these growth initiatives while prudently managing expenses. With that, I thank you for your attention. Operator, we’re now ready to take questions.

Operator: Thank you. [Operator Instructions]

Q&A Session

Operator: Our first question comes from Rafe Khalid [ph] from Ascendiant Capital Markets. Please go ahead.

Operator: Our next question comes from Anderson Schock from Ladenburg Thalmann. Please go ahead.

Operator: 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: Yeah. I’d like to thank everybody for joining us today and for their interest in NovaBay. We’re excited about our recent progress and the promising future we envision for our company. We look forward to updating everybody on our second quarter investor conference call in August. Thanks again and have a nice day.

Operator: Conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.