Good morning. My name is Todd and I will be your conference operator today. At this time, I would like to welcome everyone to NEXGEL's Fourth Quarter and Full Year 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.

Thank you, operator. Good morning and welcome, everyone, to NEXGEL's fourth quarter and full year 2023 earnings conference call. I'm joined today by Adam Levy, Chief Executive Officer; and Adam Drapczuk, Chief Financial Officer. Before we begin, I'd like to remind everyone that statements made during today's conference call may be deemed forward-looking statements within meaning of the Safe Harbor of the Private Securities Litigation Reform Act of 1995. And 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 refer you to the press release issued this morning 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.

Thank you, Valter and thank you, everyone, for joining us today to discuss our fourth quarter and full year 2023 financial and operating results. 2023 was a record year for NEXGEL and transformational in many respects. Over the course of the year and into our current first quarter, we have significantly expanded our operational infrastructure, solidified several key strategic partnerships with multi-billion-dollar corporations and made key strategic investments, that collectively have our company prepared for what we believe will be significant growth going forward. For the full year of 2023, we increased revenue by nearly 100% year-over-year to approximately $4.1 million. This year-over-year growth was driven by an increase in both contract manufacturing and branded products of 166% and 52%, respectively. For the fourth quarter, revenue decreased slightly sequentially mainly due to seasonality in both our contract manufacturing and consumer business. A recurring pattern historically in our branded products has been to see increased sales beginning in February and peaking in Q3. We, therefore, expected a slight decrease in revenue from Q3 to Q4 and to trend upwards in our current Q1 throughout the remainder of the year which I will provide more details on shortly. As a reminder, the second quarter of 2023 was our first full quarter of revenue contribution from our joint venture with CG Converting and Packaging in Texas. Segmenting our revenue between contract manufacturing and branded products, in 2023, we are proud to have grown branded product revenue by approximately $427,000 or 52.4% to $1.24 million. For the fourth quarter of 2023, branded products revenue was $392,000, an increase of 104.2% year-over-year and 10.1% sequentially. When you exclude Kenkoderm from branded products, the year-over-year growth in the fourth quarter of 2023 was approximately 45%. Our hero products, Silverseal, a hospital grade hydrogel dressing for wounds…

Thank you, Adam. Today, I'll review financial highlights of our fourth quarter full year 2023 results. For the year ended December 31, 2023, revenue totaled $4.1 million, an increase of $2 million or 99.7% as compared to $2 million for the year ended December 31, 2022. The increase in revenue was primarily due to sales growth in contract manufacturing of 166% and branded products 52% year-over-year. For the fourth quarter of 2023, revenue totaled $1.1 million, an increase of approximately 110% as compared to $524,000 in the fourth quarter of 2022. Gross profit totaled $619,000 for the year ended December 31, 2023, compared to a gross profit of $256,000 for the year ended December 31, 2022. Gross profit margin for 2023 was approximately 15.2% as compared to gross profit margin of 12.5% for 2022. The increase in the gross profit year-over-year directly correlates to our higher sales. Gross profit for the fourth quarter of 2023 was $158,000 compared to $36,000 for the same period in 2022. Gross profit margin for the fourth quarter of 2023 was 14.6%. Cost of revenues increased by $1.7 million or 93.6% to $3.5 million for the year ended December 31, 2023, as compared to $1.8 million for the year ended December 31, 2022. The increase in cost of revenues pertains to an increase in materials and finished products and equipment, production and other expenses. These increases primarily align with the increased revenues. Cost of revenues was $924,000 for the quarter ended December 31, 2023, an increase of $436,000 compared to $488,000 for the quarter ended December 31, 2022. The increase in cost of revenues was attributable to the company's revenue growth. Selling, general and administrative expenses increased by $756,000 or 23.4% to $4 million for the year ended December 31, 2023, as compared to $3.2…

[Operator Instructions] Our first question will come from Bill Odinthal [ph] with Cove Capital.

Two questions. One is -- when do you expect to be MDR compliant this year in Europe and actually start selling product overseas.

Yes, I'm sorry, -- can you hear me? Yes. Yes. So Billy, there are several pre-inspections we've already gone through. The final inspection is scheduled in Q2 at the end of May, maybe gets pushed in the first week of June. But at that point, we expect to be MDR compliant, that will allow us to begin to release all of our Class 1 devices and be self-certified. Some of the Class 3s, like SilverSeal might take a little bit longer. We're targeting the end of the year for clearance on those but it will start the flow of our products moving out into Europe and we have a lot of interest from different parties for that market.

So tough question but I'm going to ask it anyhow. When can we expect the company to start having a positive cash flow?

Well, as you know, that's one of our primary motivating objective. I would simply say stay tuned. We've obviously had to spend a little bit of money for some of these like MDR initiatives as well as our expansion but it is coming, stay tuned.

Our next question comes from Kenneth Sher [ph].

My question regarding net working capital. Are you guys confident that you have enough cash runway to fund these orders? I'm assuming and hoping that these are large orders from AbbVie and STADA Health. But just like looking at your balance sheet, it looks like half your cash is already tied up with -- or can be used for accounts payable and whatnot. And I'm assuming that there's some long payment terms with AbbVie. So could you provide some clarity on that?

Yes. Actually, the opposite is true. So when I think about concerns for the cash flow, I think about our move into retail and accounts like these big box retailers, they're the ones that tended to jerk around for cash. Our experience has been with these big multinational so far and we've now have a relationship with 3 or 4 of them is that they want to pay you in one day because they all have financing arms. And in fact, I can share with you that we've already been offered a very, very early payment on the deposit. So those companies for a point or two are always anxious to pay you as fast as possible. It is the opposite when we go to retail but for companies like AbbVie, Medtronic, Owens & Minor, they all have super-fast payment terms.

Okay, that's wonderful to hear. And then my second question was regarding the Kenkoderm acquisition. Have you guys seen any revenue synergies with that acquisition or has it really been accretive?

So it's been accretive in that we bought something that was already profitable. We've been able to improve the margins by optimizing some of the advertising. But the true bonus, so we say, the one plus one equals three of this deal which is cross-promoting we're waiting for the completion of our new and updated website which is another infrastructure project we're investing in. We really, at the start, didn't know how successful our consumer products would be. So if you go on the [indiscernible] website, it's a $7,000 website. We really need to get that updated and have a good front phase. And then -- and by the way, that project should be completed in early June and then we'll be launching a lot of these cross synergies. The one synergy we have seen is that as I've gone to Europe and begun discussing NEXGEL products for distribution there, there's also considerable interest for Kenkoderm. There's also interesting Kenkoderm at certain retailers here in the U.S. So Kenkoderm is another product in my bag. You probably won't see those deals under that revenue until later in the year but we think those synergies are definitely coming.

[Operator Instructions] And we'll go ahead and take our next question from Naz Rahman with Maxim Group.

Congrats on the progress. See now AbbVie is now planning on launching will look to be at the end of 2024. Do you think you might see any considerable preorders of revenue recognition for -- related to the resonic device in 2024? Or do you think that from 2025?

Well, no, we're looking at delivery at the end of 2024 according to the latest that we've gotten from them. So we will see some revenue. But obviously, the first full big quarter of revenue is now looking like Q1. But there will definitely be revenue in preorders in Q4.

Got it. So last year, you guys launched your amblyopia [indiscernible] over the summer. Now that you've had several months’ worth of data, could you put some color and metrics on how that launch has gone and if you're seeing any reordering patterns from docs?

So we are seeing -- the short answer is it's going slowly. It is growing. We have seen reorder patterns from the docs that have it. I think I might have talked about this a little bit on the last call but one of the issues or errors that we made was the assumption that docs would be interested in a profit margin associated with selling in office. That has turned out not to be the case. In fact, most of the docs said, let this be a lot easier if we could just send our patients to Amazon. As a result, you will be seeing in the next 10 days, the product available on Amazon with the docs able to refer their patients to simply buy it directly from us. This is a, good for margins and b, we think will be a much more efficient method of getting the product out there. So again, the answer is it's been growing but slowly. And we're hoping that this change in distribution method will help speed things up.

Got it. And as far as you're going into retail, I mean you guys talked about a little bit. When you go into retail, is your product offering just going to include the Silver brand? Or do you also plan including Kenkoderm and also potentially [indiscernible] products?

So that's a great question. The idea at retail is you want to go with your hero products, right? Because retail can be a double-edged sword. If you go to retail with the wrong product or too early on a product, you'll get destroyed, you'll end up paying a fortune to get it in there. It won't sell, you'll get returns, they want to pay you. A lot of the cash flow problems that Ken was worried about will begin to occur. So in the beginning, we're going to limit it to Kenkoderm certainly has the ability to go in there. It should be a very good product for retail because it is focused and specialized and has strong Amazon sales, SilverSeal for sure, hexogels, those are the types of products we'll start with and then we'll see from there.

Got it. And my last question is, could you potentially give an update on the status of the 510(k) medical devices [indiscernible], where you put those in development? What are your plans for that in 2024.

Sure. So we've kind of pushed those a little bit on hold only because there are so many things we can do and the equipment necessary for the extrusion process on there, while we now have identified what it is we need our first priority is for a mechanization that will allow us to deliver all the AbbVie products and STADA products, et cetera. So that's been kind of a shift but we're also still running experiments on sterilization protocols and interestingly enough, it seems like there's another opportunity for us with a cataract surgical drape. So we're still experimenting. We're still developing the product but it's really kind of number 5 in our list of priorities right now just because there's so much for us to do.

[Operator Instructions] We have no questions in the queue at this time. This will conclude today's NEXGEL fourth quarter and full year 2023 earnings conference call. You may disconnect your line at this time and have a wonderful day.