NovaBay Pharmaceuticals, Inc. (AMEX:NBY) Q4 2023 Earnings Call Transcript
NovaBay Pharmaceuticals, Inc. (AMEX:NBY) Q4 2023 Earnings Call Transcript March 26, 2024
NovaBay Pharmaceuticals, Inc. misses on earnings expectations. Reported EPS is $-0.95 EPS, expectations were $-0.3. NBY isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Hello and welcome to the NovaBay Pharmaceuticals Fourth Quarter and Full Year 2023 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to hand the call 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 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 circumstances that impact the broader economy 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, March 26, 2024. NovaBay undertakes no obligation to revise or update any 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, Jody. Good afternoon, everyone, and thank you for joining us. We took a major step in streamlining our business and better positioning NovaBay to pursue higher growth opportunities with the recent sale of our skincare business. The divestiture of DERMAdoctor reduces our operating expenses, which aligns with our priority of extending our cash runway in this continued challenging capital market environment. NovaBay acquired DERMAdoctor in November 2021 to expand our direct-to-consumer product lineup during the height of the COVID-19 pandemic. Our expectation was that e-commerce sales would continue to grow post-pandemic. Unfortunately, like many other companies that pursued a similar strategy during the pandemic, our projections were not realized.
The financial results that we're reporting today show a year-over-year decline in sales from our skincare segment, which was a major factor in our decision to divest DERMAdoctor. Our focus is now on opportunities in our core eye care business. Avenova Spray is established as the number one doctor-recommended Antimicrobial Lid & Lash Solution, providing us a platform of loyal customers from which to grow. This customer loyalty is evidenced by the 64% year-over-year increase in online subscription-based unit sales and the 38% increase in the number of subscription-based sales on Amazon and avanova.com, our two most productive OTC sales channels. A substantial 24% of all online sales were from prescribers in 2023. That's up from approximately 14% in 2022.
Notably, we accomplished this while reducing sales and marketing spend for the year by 17% through our digital marketing expertise. Our physician dispense channel also contributed to the growth of our eye care business in 2023 as we worked to deepen relationships with eye care professionals. Beyond just revenue, this channel creates a halo effect around our direct-to-consumer sales by establishing Avenova as a doctor-recommended brand. Last year, we launched two promotional programs aimed at further rewarding our network of physicians who help their patients manage the symptoms of chronic dry eye with Avenova branded products. Last year, we also launched our new Avenova Allograft through the physician dispense channel. This prescription-only Allograft provides a protective environment or covering for the repair of the cornea and conjunctiva, helping the ocular surface return to a healthier state.
It's the only optic Allograft manufactured using the patented six-step BioREtain process that preserves the natural integrity of the placental tissue. To further support the use of optic Allografts, we sponsored a free CME webinar featuring key opinion leaders discussing optimal ocular surface conditions for the use of Allografts in candidate selection. More recently, we executed on our growth strategy through a new co-marketing agreement with Eyenovia. Eyenovia recently announced FDA approval of prescription-only Clobetasol, a unique and differentiated steroid prescribed by cataract surgeons. Clobetasol provides ophthalmologists and ocular surgery patients with a compelling, rapid, sustained, and more convenient solution for post-operative inflammation and pain.
In fact, FDA approval was based on stellar clinical results showing nearly 9 out of 10 patients achieved complete absence of post-surgical pain and 6 out of 10 patients achieved total absence of inflammation within 15 days of ocular surgery. This is the first new ophthalmic steroid to enter the U.S. market in more than 15 years. Under our co-marketing agreement, we will leverage our established relationships with thousands of eye care professionals to market the newly approved Clobetasol product. Our channel provides a ready-made opportunity to accelerate this product's commercialization, which is complementary to our Avenova line of products. In addition, Eyenovia will market our prescription Avenova spray through its nationwide sales representatives who are targeting ophthalmic surgeons.
This is a considerable opportunity to generate additional professional awareness and grow sales of Avenova. We're excited to partner with Eyenovia, which shares our commitment to scientifically developed, cutting-edge, and high-quality ophthalmic products. Our co-marketing agreement is yet another example of how our physician dispense channel has become increasingly important in building our Avenova business. The Clobetasol product is expected to receive a trade name as soon as this summer, with co-marketing initiatives expected to begin in the coming months. Now I'd like to turn the call over to Tommy Law to review our financial results. Tommy?
Tommy Law: Thank you, Justin, and good afternoon, everybody. I'll start with Q4 and then review our 2023 full-year results and cash position. Total sales net for the fourth quarter of 2023 were $3.7 million, which included $2.8 million from the eye care and wound care segment and $0.9 million from the skin care segment. Total sales for the 2023 quarter increased by 2% from $3.6 million for the prior year period, with the increase due to higher eye care and wound care product sales. Gross margin on net product revenue was 49%, up slightly from 48% for the fourth quarter of 2022. Sales and marketing expenses were $1.4 million for the quarter, a 27% decrease from $1.9 million for the prior year, reflecting lower digital advertising costs and lower expenses for outside professional services.
G&A expenses were $1.2 million, a 51% decrease from $2.4 million for the prior year, with a decrease due primarily to decrease in headcount and the use of outside professional services. R&D expenses for the fourth quarter of 2023 were reduced to $4,000 from $66,000 for the prior year period. Among non-cash items, we recorded goodwill, intangible, and other asset impairment charges related to the impairment of the DERMAdoctor business for the fourth quarters of 2023 and 2022 of $2.6 million and $6.7 million, respectively. The fourth quarters of 2023 and 2022 also included non-cash gain on changes in fair value of warrant liabilities of $56,000 and $976,000, respectively. The fourth quarter of 2022 included a non-cash gain on changes in fair value of contingent liability of $342,000, which was related to the DERMAdoctor business.
Other expenses net for the fourth quarter of 2023 was $766,000, primarily due to the amortization of discount and issuance costs related to the convertible notes issued in May 2023. This compares with other expenses net for the fourth quarter of 2022 of $98,000. Net loss attributable to common stockholders for the fourth quarter of 2023 was $9.2 million or $1.33 per share, which included a non-cash adjustment of $5.1 million related to preferred stock conversion prices. This compares with a net loss attributable to common stockholders for the fourth quarter of 2022 of $8.2 million or $4.33 per share. Turning now to our full year financial results. Total sales net for 2023 were $14.7 million, an increase of 2% versus 2022 and included $11.2 million from the eye care and wound care segment.
And $3.6 million from the skin care segment. Year-over-year sales of our eye care and wound care segment grew 9% and were driven by higher Avenova sales through our physician, dispense, and OTC channels, as well as a contribution from our branded wound care products. Gross margin on net product revenue remained relatively unchanged for 2023 and 2022 at 54%. For 2023, sales and marketing expenses decreased by 17% and G&A expenses decreased by 15%, both compared with 2022. R&D expense for 2023 were $68,000 versus $174,000 for the prior year. We recorded non-cash, goodwill, intangible, and other asset impairment charges related to the DERMAdoctor business for 2023 and 2022 of $2.6 million and $6.7 million, respectively. Goodwill, indefinite-lived intangible assets and long-live assets related to the DERMAdoctor business were fully impaired in the 2023 year.
For 2023 and 2022, we recorded a non-cash loss on a modification of common stock warrants of $0.3 million and $1.9 million, respectively. For 2023 and 2022, non-cash gain on changes in fair value of warrant liability was $0.3 million and $5.4 million, respectively. For 2022, non-cash gain on changes in fair value of contingent liability was $0.6 million. Other expense net for 2023 was $2.1 million versus other expense net of $0.3 million for 2022, with an increase primarily due to the amortization of discount and issuing costs related to the convertible notes issued in May 2023. Net loss attributable to common stockholders for 2023 was $16.7 million or $3.96 per share, which included a non-cash adjustment to prefer stock conversion prices of $7.1 million.
This compared with a net loss attributable to common stockholders for 2022 of $16.3 million or $10.10 per share, which included a non-cash adjustment to prefer stock conversion prices of $5.7 million. We reported cash and cash equivalents of $3.1 million as of December 31, 2023. We received $1.1 million upon the closing of the DERMAdoctor divestiture. And lastly, with the sale of DERMAdoctor, we will go back to managing our business as a single segment, a more profitable eye and wound care segment. And now I'll turn the call back to Justin.
Justin Hall: Thanks, Tommy. With the sale of DERMAdoctor now closed, we look forward to focusing once again on our eye care business segment. Avenova is a well-established brand that still has tremendous growth potential. For example, we're having success with various programs in the physician dispensed channel and are capitalizing on additional opportunities to further build on this channel. As I mentioned, this channel supports direct-to-consumer sales and provides a doctor-recommended halo effect around our over-the-counter product. This channel also is instrumental in developing marketing relationships for prescription product sales, such as our recent agreement with Eyenovia. On the direct-to-consumer side, we continue to benefit from the digital marketing expertise that we've developed over the past several years, which is allowing us to effectively promote our products while prudently managing our sales and marketing expenses.
With that overview, I thank you for your attention. Operator, we're now ready to take questions.
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