NEXGEL, Inc. Q4 FY2023 earnings call

• 2023 was a record year for NEXGEL, with significant expansion of operational infrastructure and strategic partnerships.
• In 2023, revenue grew by nearly 100% YOY, driven by contract manufacturing and branded products.
• Fourth quarter revenue decreased slightly sequentially due to seasonality. Branded products typically see increased sales from February and peak in Q3.
• NEXGEL is working towards MDR compliance in Europe, with final inspection scheduled for Q2 2024, incurring related expenses in SG&A.
• Key growth levers include branded products with stable contribution margins, converting and packaging operations moving towards higher margins with new equipment, and gel manufacturing with potential margin improvements from increased production.
• AbbVie supply agreement for gel pads with Resonic device, launch targeted for end of 2024; received a $176,000 deposit in Q1 2024.
• Partnership with STADA for consumer health product distribution in North America, launch scheduled for mid-summer 2024. Acquisition of Kenkoderm, adding profitable product lines with immediate synergies.
• Q1 2024 revenue expected to be $1.25 million, including full quarter revenue from Kenkoderm.

For the full year of 2023, NEXGEL increased revenue by nearly 100% year-over-year to approximately $4.1 million. This growth was driven by contract manufacturing (up 166%) and branded products (up 52%). Branded product revenue for the full year 2023 was approximately $1.24 million, a 52.4% increase. For the fourth quarter of 2023, branded products revenue was $392,000, an increase of 104.2% year-over-year and 10.1% sequentially. Excluding Kenkoderm, the year-over-year growth in the fourth quarter of 2023 was approximately 45%. Gross margins for 2023 were 15.1% compared to 12.5% in 2022. The converting and packaging operations carry a contribution gross margin of approximately 20% to 30% on retail products and 30% to 40% on medical device products. Gel manufacturing in the Pennsylvania facility is operating at approximately 9% to 13% capacity, with expected margin improvements as production increases.

• Q1 2024 revenue expected at $1.25 million, including full Kenkoderm revenue but excluding AbbVie deposit.
• MDR compliance expected by end of 2024 following final inspection in Q2 2024.
• AbbVie launch targeted for end of 2024.
• STADA partnership product launch scheduled for mid-summer 2024.

• Uncertainty around MDR compliance timeline and associated costs.
• Cash flow management concerns, though positive payment terms from multinational partners are noted.
• Slow growth in branded product distribution to doctors initially, with plans to shift distribution to Amazon to address this.
• Risks associated with entering retail with the wrong products or too early, requiring careful selection of hero products.

Q: When do you expect to be MDR compliant in Europe and start selling product overseas?

A: Final inspection is scheduled in Q2, end of May or first week of June, expecting to be MDR compliant by end of 2024, allowing product sales in Europe.

Q: When can we expect the company to start having a positive cash flow?

A: Stay tuned, as cash flow is a primary objective with ongoing investments in MDR and expansion, but it is coming.

Q: Are you confident in having enough cash runway to fund orders from AbbVie and STADA?

A: Multinational partners have fast payment terms, opposite to retail concerns, with positive payment experiences so far.

Q: Have you seen revenue synergies with the Kenkoderm acquisition?

A: Kenkoderm is profitable, with potential cross-promotion benefits once the updated website is launched.

Q: When will AbbVie launch result in revenue?

A: There will be revenue in preorders in Q4 2024, with full big quarter revenue expected in Q1 2025.

Q: How has the amblyopia product launch gone and reorder patterns?

A: Launch is growing slowly, with plans to make the product available on Amazon to speed up distribution.

Q: What products will be in retail offering?

A: Initially, hero products like Kenkoderm and SilverSeal will be included in retail, with potential for other products later.