Good afternoon, ladies and gentlemen. Welcome to NEXGEL's Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen only mode. Later, you will have the opportunity to ask questions, during the question-and-answer session. [Operator Instructions] And just a reminder, today's call is being recorded. [Operator Instructions] Now at this time, I'll turn things over to Maria Honeycutt, Account Director of KCSA Strategic Communications for introductions. Maria, please go ahead.

Thank you, operator. Good afternoon, and welcome, everyone, to NEXGEL's third quarter 2020 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 the 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 evening 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. Also, during the course of today's call, we will refer to certain non-GAAP financial measures. Reconciliation of the non-GAAP to GAAP financial measures and certain additional information are also included in today's press release. With that, it's my pleasure to turn the call over to Mr. Adam Levy. Adam, please go ahead.

Thank you, Maria, and thank you, everyone, for joining us today to discuss our third quarter 2024 financial and operating results. The third quarter of 2024 was yet another record quarter for the company across all of our key financial metrics. Revenue for the third quarter totaled $2.94 million, an increase of 141% year-over-year and 104% sequentially. Gross profit margins for the quarter were 43.6%, as compared to 28.2% for the same period last year, and 28.5% in the previous second quarter. Branded consumer revenue increased 99% sequentially, while contract manufacturing revenue also increased approximately 103% sequentially, contributing to the margin expansion year-over-year and sequentially. Adjusted EBITDA, which is a non-GAAP financial measure, narrowed from a loss of $788,000 last quarter in Q2, '24 to $347,000 in Q3, 2024. Becoming cash flow positive has been a priority of ours. With the growth we experienced in Q3, growth which we expect to continue into Q4, we are very close to achieving this goal. In Branded Consumer Products, the third quarter was the first full quarter of revenue contribution from our Silly George brand, a beauty and cosmetics' company focused on eyeliner, fake eyelashes, lash growth serum and mascara. As a reminder, when we acquired the brand six months ago in May, Silly George was on a revenue run rate of approximately $2 million. Since then, we have launched new products introduce them on Amazon, and optimized our marketing, the result of which is that we are now on a $5 million run rate heading into the holidays. We also continue to see year-over-year growth, from both our Kenkoderm and Medigel brands. In contract manufacturing, Q2 saw the completion of the expansion of our Texas facility in order to support the new client relationships we have, and the resulting increases in demand.…

Thank you, Adam. Today, I'll review financial highlights of our third quarter 2024 results. For the third quarter 2024, revenue totaled $2.94 million, an increase of approximately 141%, as compared to the third quarter 2023, and an increase of approximately 104%, as compared to the second quarter 2024. The increase year-over-year and sequentially in overall revenues, was primarily due to sales growth in branded consumer products, and contract manufacturing. Gross profit totaled $1.28 million for the third quarter 2024, compared to a gross profit of $344,000 for the third quarter 2023, and gross profit of $410,000 for the second quarter 2024. The increase of $936,000 in gross profit year-over-year, was primarily due to the increase in branded consumer products. The increase of $870,000 in gross profit sequentially, was primarily due to the increase in branded consumer products and contract manufacturing. Gross profit margin for the third quarter of 2024, was approximately 44%, compared to a gross margin for the third quarter of 2023, of approximately 28% and a gross profit margin of approximately 29%, for the second quarter of 2022. Cost of revenues increased by $781,000, or approximately 89% to $1.66 million for the third quarter 2024, as compared to $877,000 for the third quarter 2023. The increase in cost of revenues is primarily aligned with sales of branded consumer products, as both Silly George and Kenkoderm were acquired after the comparable 2023 period. General - selling, general and administrative expenses increased by $1.2 million, or approximately 118% to $2.07 million for the third quarter 2024, as compared to $950,000 for the third quarter 2023. The increase in selling, general and administrative expenses, is primarily attributable to an increase in advertising, marketing and Amazon fees, which increased $819,000. Net loss for the third quarter 2024 was $754,000, as compared to a net loss of $552,000 for the third quarter 2023, and a net loss of $979,000 for the second quarter 2024. As of September 30, 2024, the company had a cash balance of approximately $1.1 million. Subsequent to the end of the quarter, the company closed on a registered direct offering of $2 million, with insiders and the Board participating. Use of proceeds for the financing is for working capital, and the immediate requirement for additional inventory and marketing, to meet the higher-than-expected demand for Silly George brand products. As of November 13, 2024, NEXGEL had 6,790,777 shares of common stock outstanding, which number does not include the 772,272 shares of common stock we anticipate issuing, in connection with our recent offering. I would now like to open the call for questions. Operator?

Thank you, Mr. Drapczuk. [Operator Instructions] We'll go first this afternoon to Naz Rahman of Maxim Group. Naz, please go ahead.

Hi everyone. Thanks for taking my questions and congrats on the call. I just have a few First to start at a high level. Your next is very close to turning cash flow positive. I guess, strategically, what are you sort of thinking about in terms of what happens in nutshell, what do you do next when you become cash flow positive? Like what initiatives could you engaging, or what projects you take on once you sort of make that churn?

Well, hi Naz it's good to hear from you again. That churn is always important. And I've said this before that when you're running a public company and you're not cash flow positive, you're playing defense and becoming cash flow positive allows you to switch over to offense. So there's a lot of things that we can do. We can certainly think about additional acquisitions. We can think about additional expansion what those will be exactly, we've always been opportunistic. So we're kind of part roll-up strategy. We're trying to grow our consumer products, and we have some other very large customers we're engaged with right now. And continuing to develop the products with them and bringing them on board is really our focus right now.

Got it. That was helpful. On the laser hair removal study, could you talk about what the following steps would be to get that approved for that indication? Would you have to file a PMA or what - I guess, what are the regulatory steps following the study readout? And what do you think would be the time line to have your hydrogen incorporated into that procedure commercially?

So. That study the really primarily - it's there's no real regulatory requirement for it. The study is really to show that it suppresses the plume, and to allow us to commercialize, right? So we'll be able to make claims about suppressing the plume. We'll be able to make claims about the reduction of pain for the patients, assuming that's one of the endpoints we hit. And we'll be able to make claims for greater efficacy, which has been a pleasant surprise in the early data, but obviously, we'll see what happens with that once all the data together and we announce it later on this quarter.

Have you started funding that study?

Sorry. No, no. That study is being funded by Vanalay we did not pay anything to fund that study. They're doing it, because they want to be our marketing partner, and distribute to the laser hair removal companies.

Got it. And I guess just one last question. So we're obviously approaching the holiday season. And typically, your products tend to get a boost during the holiday season. And I know Silly George is sort of - and that fits in that paradigm. Could you talk about what you kind of expect to see in terms of potential unit, or revenue acceleration for holiday season? And I guess, at least for what products?

Yes. So by the way, I never - I didn't answer your part of the question on the laser hair removal. We think revenues could start as soon as the first half of next year on that, as soon as the study results are released. So when it comes to the holiday season for Silly George, this is obviously our first season with the new products and with Silly George going into the Christmas holidays. Historically, they've seen a very nice bump up in sales during month of November, as historically their best month. But one of the reasons I've been a little cagey about what we're going to do in Q4, is because having not done it before, it could be very, very big. It could be moderately big. It could be anything in the middle. I'm just not 100% sure, but we are expecting and gearing up for a very big and successful Black Friday and Christmas season.

Got it. And then one more question, if you don't mind. I know what of the initiatives you've been working on, is expanding your distribution both to retail and Europe. Could you just provide some comments on where you are at on that process?

Sure. So we do have some partners in Europe now. They're interested in taking the products in. I think you'll start to see some European deals come to fruition in the first half of 2025, just some regulatory steps and things like that to jump through. And then here in the states, we are in front of Walgreens. We are in front of a couple of large retail operators. And hopefully, they only do the planograms once a year. When these planograms come due, we will be selected in there, and we'll start to see SilverSeal probably the first product in stores here in the U.S. sometime in 2025. We also are very close now to getting our approval for Canada, smaller market, but we should be able to soon start selling SilverSeal up in Canada, both on Amazon and at retail.

Got it. Thanks a lot for taking my questions. And once again, congrats on the progress.

Thanks, Naz.

Thank you. [Operator Instructions] We go next now to Michael Gustitus at One Pride.

Adam, congratulations on another record quarter. I was going to ask a question about the retail, but just heard that good news. I was wondering if you could elaborate a little bit on the laser hair removal as far as the size of that opportunity? And as another aspirational projects with the [next rate]. I was wondering if you could, had any potential numbers, any ballpark numbers for what those would look like?

Yes. So as far as the next rate goes, we brought Kip on to really push that program forward. He's had some very interesting ideas for the use of our adhesive in other drags that could actually be simpler and market. It's early stage. So we'll give you more news on that as the weeks progress. But the entire surgical drape and using our gel, which is a patented application for surgical drapes, is something that he was specifically interested in and specifically joined the company in order to move forward. As far as the size of the market in laser hair, I'm embarrassed to say that I don't know what that is. I do know it is a very, very large and growing market. But I don't have access to the data of exactly how big it is in the U.S.

Okay. Congratulations again.

Thank you.

We'll go next now to George Marema at Pareto Adventures. George, please go ahead.

Hi. Thanks, Adam.

Hi George.

Yes. Good, thanks. Really nice improvement on the gross margins. If you look out to '25 from kind of a high-level view, as your volumes increase, I know there's a difference with the volumes in different businesses and then the product mix. But just on a broad spectrum, as your volumes go up in '25 how will gross margin move when you have higher capacity and utilization rates and such, will that look?

Yes. So that's a great question. I'm going to give you a kind of complicated answer. First of all, thank you for the compliment on the improvement of gross margin, but it's not entirely true in Q3 I know I say true. Those are the gross margins. But remember, it's skewed by the explosion in Silly George. And if you notice, a lot of that gross margin improvement is offset by the large increase in sales and marketing that drove our SG&A up. So it's just really - we really segment our business in terms of gross margin because if you look at how consumer products are done, well, they have 85% to 87% gross margin because everything is below the line. The real expenses of direct-to-consumer marketing are all advertising. So that skews really good gross margin up top. The actual gross margin from the contract manufacturing side will see tremendous improvement in Q4. Because that billing is actually - the good news is that billing is actually more important to reducing our EBITDA loss and becoming cash flow positive than the Silly George revenue because. That revenue is in a facility that's underutilized. So all we really have is expenses against it is cost of materials. Because the salaries are paid for, the facility is paid for. So where you really see a larger effect in reducing our losses in terms of cash flow will be in Q4 and Q1 when Cintas and AbbVie come on board. Does that make sense?

Yes. Yes. No, that's exactly what I was trying to get into is the contract manufacturing side. So can you - I'm going to push you a little harder. So in '25, just a contract manufacturing part, where can gross margins sort of go?

So if you segregate out gross margin, we look at a range and we don't like to give out the exact gross margins, but we look at a range for our Texas facility of between 35% and 45%. And at our plant up in Langhorne, 40% to 50% on the medical device side. So those are the contracts manufacturing margins if you are adding people and have to cover the facility costs. But since we were already paying for all the facility costs and all the people, we'll have much higher contribution to reduce our losses for every incremental dollar that we see in 2025. So that's why we're kind of feeling bullish about getting cash flow positive.

That's perfect. And then one more, if I may. On Cintas, can you provide any color on sort of the rollout cadence like number of doors expected? Or how that cadence will roll out for next year?

Well, they distribute to over 1 million different businesses, and it's a pretty wide distribution. We've had some experience, providing them with a different product for their medical kits. We kind of have an idea of how that will sell. We know the revenue is significant. They're going to be a significant customer for us, probably our second largest or largest customer and again. As I said, the other real benefit is going to be - I'm very excited that people will see SilverSeal in their place of work, and if you see it in your place of work and you burn yourself and you put it on your arm and it feels really good, well, next time you burn yourself at home and you're on Amazon, that's a product you'll know. So both of those things, we think, can be very valuable to us.

That's very helpful. And I just want to commend you. I really am happy and appreciate your acquisition there with Silly George. And it looks like you sort of caught lightning in a bottle. So congrats on that. Thank you.

Thanks George. Sometimes it's good to be a little bit lucky. We had some good upside in that deal when we made it, but it's also good that the product is resonating, and that's fortunate.

We'll take it all.

Thanks, George.

[Operator Instructions] And Mr. Levy, it appears we have no further questions this afternoon. Sir, I'd like to turn things back to you for any closing comments.

Thank you. No, I have no closing comments just that we're very excited that the products are working, and we look forward to Q4, which we think will be even better than Q3.

Thank you, Mr. Levy. Again, ladies and gentlemen, that will conclude today's NEXGEL's third quarter 2024 earnings conference call. Again, thanks so much for joining us, everyone, and we wish you all a great evening. Goodbye.