NovaBay Pharmaceuticals, Inc. (AMEX:NBY) Q1 2024 Earnings Call Transcript

NovaBay Pharmaceuticals, Inc. (AMEX:NBY) Q1 2024 Earnings Call Transcript May 11, 2024

NovaBay Pharmaceuticals, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Ladies and gentlemen, welcome to the NovaBay Pharmaceuticals Financial Results Conference Call. At this time, all participants are in a 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. And I would now like to turn the conference over to Bruce Voss. Please go ahead.

Bruce Voss: Thank you. This is Bruce Voss with LHA. Thank you all 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 would 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. 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, May 9th, 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. Justin?

Justin Hall: Thank you, Bruce. Good afternoon, everybody, and thank you for joining us. I'm pleased to report that we hit an all-time record high ordered sales of Avenova products in the past two months on Amazon.com, our largest sales channel. We set a new record in March and then beat it in April. In fact, our April 2024 sales were -- order product sales were more than 20% higher than April 2023. These records are even more impressive given that ordered sales in March and April, eclipse months, that even included record-breaking Amazon Prime Days. So it's not surprising that our first quarter sales increased 13% over the prior year, with that increase largely attributed to Avenova product sales through online channels. We saw an 8% increase in sales over the prior quarter through our online sales channels with sales from this channel surpassing $2 million for the very first time.

This growth is largely due to sales driven by our social media channel, which increased more than 160% year-over-year and from our e-mail program, which has been on a sustained upward trajectory since mid-2023 being up more than 360% over the prior year. Even with these higher sales, we were able to reduce marketing spend in Q1 by 15% through our cost-efficient ad placement programs. We're excited and encouraged by these new records following the streamlining of our business to focus solely on eyecare. This is a testament to our marketing expertise and the high quality of our products and extremely loyal customer base. We also attribute these records to our recognition several years ago that dry eye can be a multifaceted stubborn and complex condition that may require more than one approach to manage.

This prompted us to expand the Avenova branded portfolio to offer scientifically developed best-in-class products for each step of the dry eye treatment regimen We built our dry eye franchise on a solid foundation of the Avenova spray, which is the number one doctor-recommended hypochlorous acid lid and lash solution. Our Avenova product line now includes lubricating eye drops for instant relief, a WarmEye Compress to soothe irritated eyes, an antioxidant-rich dietary supplement with omega-3 oils, and the i-Chek to monitor physical eyelid health. Earlier this year, we took a major step to position NovaBay to pursue high-growth opportunities by focusing on the eyecare market with most of our products under the Avenova brand addressing dry eye.

This is a large and growing market that offers us plenty of room to grow. Dry eye syndrome is one of the most commonly observed clinical diseases in the US, afflicting approximately 16 million Americans. In fact, the US market for the treatment of dry eye and other ocular surface diseases is projected to grow from $3 billion in 2023 to $4.7 billion by 2030. Among the factors driving this growth are the escalating prevalence of dry eye due to increased computer time and smartphone screen usage, the aging population and a heightened awareness of this condition and improved diagnostic capabilities. In the past, we've discussed marketing programs to better engage eyecare specialists in our physician dispense channel, noting the halo effects this channel has in transitioning their patients into our OTC customers.

Throughout this period, we did not lose sight of our digital marketing programs aimed directly at our OTC customers. We're expanding our digital marketing to include text messages and targeted e-mails to build on the incredible success with our social media marketing to further enhance the Avenova brand, engage customers and drive online sales of Avenova products. These programs meet our cost management measures to efficiently enhance customer loyalty and reach new prospective customers. Our text messaging programs provide an additional and immediate touch point with our customers and are producing encouraging strong initial results. We plan to use text messaging to share exclusive discounts, news and value-added content such as tips for enhancing eye health and other tips will engage and encourage our audience to interact with the brand.

We also recently refreshed our e-mail campaign to include new creative and added automation. Both programs target our existing and highly loyal customer base to enhance retention while expanding reach to new audiences. Turning now to update everybody on our co-marketing agreement with Eyenovia that we announced in March. You may recall that Eyenovia received FDA approval for prescription-only clobetasol, a unique and differentiated steroid that's prescribed by cataract surgeons. Clobetasol provides ophthalmologists and ocular surgery patients with a compelling, rapid and sustained and more convenient solution for the treatment of postoperative inflammation and pain. This is the first new ophthalmic steroid to enter the US market in more than 15 years.

We are expecting it to launch in the third quarter. Eyenovia will market this program through their sales reps, while NovaBay will market it alongside Avenova in our physician dispense channel. Under the agreement, Eyenovia sales reps will also market our Avenova products. I'm pleased to report that we completed training of the Eyenovia sales team earlier this month. So 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 Q1 results and then our cash position. Before we start, I'd like to mention that the financial results for the first quarters of 2024 and 2023 that I will be discussing today do not include results from DERMAdoctor. These results can be found in the Form 10-Q that we filed today under the heading Divestiture and Discontinued Operations. Total sales net for the first quarter of 2024 increased 12% over the prior year to $2.6 million. Sales from our eyecare business were $2.4 million, up from $2.2 million in the prior year, with the increase due to higher Avenova branded sales through online channels. We also benefited from a modestly higher contribution from branded Phase 1 wound care product sales during the quarter.

Gross margin on net product revenue was 68% for the first quarters of both 2024 and 2023. Sales and marketing expenses decreased by 50% from the prior year to $1.1 million as we continue to leverage our digital advertising expertise, along with lower expenses for related consulting services. G&A expenses were $2.3 million for the quarter, up from $1.7 million due mainly to higher legal costs related to nonrecurring strategic initiatives. R&D expenses for the first quarter of 2024 were $19,000 versus $10,000 for the prior year period. Related to our DERMAdoctor divestiture, we recorded a noncash loss during the first quarter of $865,000, which is recorded as a loss from the divestiture of a subsidiary in operating expenses. In connection with this divestiture, we entered into a service agreement with the acquirer to provide for a customary and orderly business transition.

This includes warehousing and logistical services. Costs incurred for these services will be included in continuing operations in future quarters with the service contract expiring at the end of this year. Among noncash items, we recorded gains of $194,000 on change in fair value of warrant liabilities and $65,000 on change in fair value of embedded derivative liability during the first quarter of 2024. Also during the quarter, we recorded accretion of discount on convertible notes of $433,000 and other expense net of $480,000 primarily due to the issuance of the March 2024 warrant and the unsecured convertible notes issued in March 2024, with no comparable items in the first quarter of 2023. Net loss attributable to common stockholders for the first quarter of 2024 was $3.6 million or $0.15 per share.

This compares with the net loss attributable to common stockholders for the first quarter of 2023 of $1.7 million or $0.85 per share. We reported cash and cash equivalents of $1.8 million as of March 31st, 2024. And now I'll turn the call back to Justin.

Justin Hall: Thanks, Tommy. So in summary, Avenova is a well-established brand that has tremendous growth potential in the large and growing dry eye market, which is projected to reach nearly $5 billion in the US over the next six years. We're proud of our expertise in digital marketing and our recent success that validates its effectiveness with ordered product sales reaching all-time records in the past two months through Amazon.com. We're introducing new digital programs to build on the success that target our loyal customer base and attracting new potential customers. Importantly, we're effectively promoting our products while cost efficiently managing our expenses. We're also capitalizing on strategic growth opportunities with our new relationship with Eyenovia to co-promote each other's products.

Under our co-promotion agreement, Eyenovia sales reps will market Avenova, while we leverage our established relationships with thousands of eyecare specialists to market the newly approved clobetasol product. Our physician dispensed channel provides a ready-made opportunity to accelerate this product's commercialization, which is complementary to our Avenova line of products. Over the past year, we've introduced programs that strengthen our relationships with -- in our physician dispense channel, which creates a halo effect, which supports sales through our OTC channel. It's also instrumental in developing a marketing partnership for prescription product sales. So with that overview of our business and recent financial performance, I thank you for your attention.

Operator, we're now ready to take questions.

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