Earnings Call Transcript - NXGL Q2 2025

Operator, Operator

Good afternoon. I'll be your conference operator today. At this time, I'd like to welcome everyone to NEXGEL's Second Quarter 2025 Financial Results Conference Call. I'll now turn the call over to Valter Pinto, Managing Director of KCSA Strategic Communications for introductions. Please go ahead, sir.

Valter Pinto, Managing Director

Thank you, operator. Good afternoon, and welcome, everyone, to NEXGEL's Second Quarter 2025 Financial Results Conference Call. I'm joined today by Adam Levy, Chief Executive Officer; and Joe McGuire, 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. Reconciliations 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.

Adam R. Levy, CEO

Thank you, Valter, and thank you, everyone, for joining us today to discuss our second quarter of 2025 financial and operating results. For the second quarter of 2025, we reported a strong revenue and gross margin period with a continued decline in our adjusted EBITDA loss as we head into what we expect to be a seasonally strong second half of the year. Revenue during the quarter was approximately $2.9 million, an increase of 100% year-over-year and up slightly sequentially. The year-over-year growth was led by growth in both consumer demand for our branded products and new agreements in contract manufacturing. Gross margins for the quarter came in at 43.6%, more than double the 20.3% we reported in Q2 2024 and an increase from 42.4% sequentially. Our loss continued narrowing in the second quarter as well. EBITDA and adjusted EBITDA loss narrowed to negative $530,000 and negative $420,000, respectively, compared to negative $760,000 and negative $790,000 for the same period last year. I'll now provide an update on both our contract manufacturing and consumer branded products businesses, starting with contract manufacturing. This segment of our business has played a pivotal role in our growth, led by increased demand from existing customers as well as the successful onboarding of several new global corporations. For the second quarter, contract manufacturing revenue increased to $863,000 from approximately $425,000 in Q2 of 2024, a 103% year-over-year increase. Our ongoing relationship with Cintas remains strong with our SilverSeal product continuing to be included in their wound care kits. We began shipping initial orders to Cintas in Q4 and Q1 of this year, and reorders began in late Q2. Due to the initial shipments, Q2 sales were lower than we expect to have going forward. The reorder pattern is solid for Q3. This partnership reflects the consistent value our advanced hydrogel technology brings to Cintas' customers and underscores our commitment to long-term recurring commercial relationships. The institutional review board study conducted under FDA guidelines and funded by our partner, Vanalay U.S. Inc., is complete, and we are waiting on final data to be published. This 30-patient clinical trial evaluated the use of our hydrogels when applied prior to laser hair removal treatments. The primary goal of the study was to assess its efficacy in reducing the release of carcinogenic plume during these procedures. We are constantly seeing new applications for our hydrogels. For example, in May, we signed an agreement with iRhythm, a publicly listed company on NASDAQ and a leading digital health care company that creates trusted solutions that detect, predict, and prevent disease to supply our hydrogels as part of their Zio® ECG heart monitor. Zio® is a single-use ECG heart monitor that provides a continuous single-channel recording for up to 14 days. The monitor is worn on the patient's upper left chest and it features NEXGEL's hydrogel adhesive wings for security, comfortable placement throughout the daily usage, and easy removal. After the conclusion of the 14-day monitoring period, the patient simply removes the device and mails it back to iRhythm for analysis. The integration of our hydrogels into iRhythm's Zio® heart monitor showcases another impactful application for our skin-friendly, dermatologically safe technology. We look forward to growing this relationship going forward as they continue to commercialize their product. There are also many other opportunities like this that we are evaluating. We expect contract manufacturing and white label to continue driving our expansion and success moving forward. Turning our attention to consumer products, this segment's revenue increased 95% year-over-year for the second quarter of 2025, driven by growth across the entire brand portfolio. In late Q2, we began to see strong performance from the first of the new Silly George product launches we previewed earlier this year. In addition to the continued growth of our core lash offerings, we are excited to introduce our expanded beauty line. The upcoming collection includes five new shades of lip gloss, the hydrating lip mask, and under-eye patches crafted with our proprietary hydrogel, each designed to enhance our brand's commitment to innovative, high-quality beauty solutions. These additions are expected to meaningfully contribute to our revenue in Q3 and Q4 and reflect continued success in our product innovations. Similarly, Kenkoderm will double the size of its product portfolio with the launch of new products. Kenkoderm is an established brand that provides its customers with high-quality skincare products to relieve the symptoms of psoriasis. The new product line will expand into solutions for eczema, tapping into an even larger market opportunity for a brand that is leveraging its strong reputation as a leader in sensitive skincare. MEDAGEL has expanded its product line with the launch of several new offerings, including the SilverSeal wound and burn kit, which was just released this week and its moist burn pads. We have also just received approval from Health Canada to begin selling SilverSeal in that territory. Lastly, we could not be more excited about our expanding partnership with STADA, a European leader in consumer health. Building on the strong performance of Histasolv, we recently amended our agreement to broaden the collaboration considerably. Together with STADA, we anticipate introducing additional products as early as Q4 2025, with several more slated for the first half of 2026. This next phase of the partnership includes the planned launch of additional digestive enzyme formulas and skincare solutions targeting scars and stretch marks, products we are now positioned to bring to the North American market. As part of the expanded relationship, STADA has provided $1 million in non-dilutive funding to support the upcoming product launches and marketing initiatives. With our current cash on hand, the $1 million from STADA, and the $1.05 million which we recently raised, we now have sufficient cash to support our upcoming growth initiatives. We remain confident in our previously issued guidance for 2025 of $13 million in revenue and to achieve positive EBITDA during the year. Before I turn the call over to Joe to review our second quarter financial results, I am excited to welcome Steve Ciardiello, Chief Accounting Officer at Shutterstock, to our Board of Directors. Steve brings deep expertise in accounting systems and financial oversight, and we believe his strategic guidance will be a strong asset as we enter this next phase of our growth. Thank you to our shareholders for your ongoing confidence in our team and mission. Your support remains essential as we continue to execute on our growth strategy and build long-term value together. I'd now like to turn the call over to Joe McGuire, our Chief Financial Officer.

Joseph F. McGuire, CFO

Thank you, Adam. Today, I'll review our key financial results for Q2 2025. For the second quarter of 2025, revenue totaled $2.88 million, an increase of 100.3% compared to $1.44 million for the second quarter of 2024. The increase in overall revenues was primarily due to sales growth in both contract manufacturing and branded products. Cost of revenues totaled $1.63 million for the second quarter of 2025, compared to $1.15 million for the second quarter of 2024. The increase in cost of revenues is primarily aligned with sales of branded consumer products as Silly George was acquired midway through the comparable 2024 period. Gross profit totaled $1.26 million for the second quarter of 2025, compared to a gross profit of $0.29 million for the second quarter of 2024. Gross profit margin for the second quarter of 2025 was 43.6%, compared to 20.3% for the second quarter of 2024. The increase of $0.97 million in gross profit on a year-over-year basis was primarily due to both an increase in contract manufacturing and an increase in consumer branded products given the acquisition of Silly George midway through the comparable period. Selling, general and administrative expenses totaled $1.89 million for the second quarter of 2025 compared to $1.27 million for the second quarter of 2024. The increase year-over-year was attributable to increases in compensation and benefits, share-based compensation, advertising, professional and consulting fees, other fees, and investor and shareholder services, which was partly offset by a decrease in depreciation and amortization. EBITDA, a non-GAAP financial measure, totaled a loss of $530,000 for the second quarter of 2025 compared to a loss of $760,000 for the second quarter of 2024. Adjusted EBITDA, another non-GAAP financial measure, totaled a loss of $420,000 for the second quarter of 2025 compared to a loss of $790,000 for the second quarter of 2024. The net loss attributable to NEXGEL's stockholders for the second quarter of 2025 was $670,000 compared to a net loss of $890,000 for the second quarter of 2024. As of June 30, 2025, the company held a cash balance of approximately $0.73 million. Subsequent to the quarter end, the company received a $1 million non-dilutive capital from STADA to support upcoming product launches and marketing efforts. Additionally, the company closed on a $1.05 million registered direct offering and a concurrent private placement. As of August 12, NEXGEL had 8,067,580 shares of common stock outstanding. I would now like to open the call for questions.

Operator, Operator

We'll take our first question from Naz Rahman with Maxim Group.

Nazibur Rahman, Analyst

Congrats on the progress. Just a few. I wanted to start on the STADA partnership and the additional capital you got. Could you talk a little about what you think the market opportunities are for the upcoming launches? And I guess, how does that compare to Histasolv?

Adam R. Levy, CEO

Histasolv is a digestive enzyme designed for those with histamine sensitivity. It has been very successful in Europe, generating over $25 million annually, and is growing well in our market. However, histamine sensitivity only impacts about 2.5% to 3% of the population. We're planning to release new enzymes targeting gluten, dairy, and fructose, along with an extra strength vegan version of Histasolv, which will tap into much larger markets. We are enthusiastic about these developments, as they will strengthen our brand. It's challenging to enter retail with just one product, but by expanding our range of solutions, we aim to enhance our market presence.

Nazibur Rahman, Analyst

Got it. That was helpful. And I guess on that point, in terms of your retail strategy, do you have any updates on when you could potentially enter the retail market? And also just on that point, are there any thoughts about consolidating all the various brands under, I guess, like one brand to enter the retail space? Or is that currently not an option?

Adam R. Levy, CEO

I'll begin with the second question. The brands have distinct identities based on the solutions they provide and the markets they target. It doesn't make sense to merge wound care or blister products with Silly George Beauty. Each brand holds its own identity. Therefore, I don't anticipate any consolidation, although we will be introducing more products. For instance, STADA Health products are marketed under the MetaGel brand store, where we're effectively combining exposure because it’s suitable. This approach doesn’t apply to the Silly George brand. Regarding retail, we are currently in discussions with several major retailers, primarily focusing on private label opportunities, as there is significant interest in the SilverSeal product. However, it is challenging to launch a single product without the necessary advertising budget to support it, which poses a risk. Thus, our discussions are primarily centered on private labeling at this stage. It typically takes about 8 to 10 months for any significant product to actually appear in stores due to the time required for planning and execution.

Nazibur Rahman, Analyst

Got it. That was very helpful. Obviously, NEXGEL as a whole signed a lot of partnerships and engaged in a lot of partnership agreements over the last couple of years. I guess on the manufacturing side, could you talk a little about how much manufacturing capacity you have at this point to supply more partners? Or I guess how much slack do you have in that system currently?

Adam R. Levy, CEO

Yes. So driving the gel sales is really one of the secrets to our profitability because the plant utilization is still very low for a manufacturing facility, much better than the 4% it was when I walked in the door, but still only in the high teens maybe. So we can still make lots and lots of gel, that's not really the issue. We need to onboard more of these customers. And as you know, this can be a 1.5- to 2-year process. Now we expect to announce more as the year develops. We expect to bring more on board because it's constantly feeding the pipeline. We're not able to do a press release, but we did file an 8-K on the iRhythm becoming a new customer, and there'll be more customers like that. They didn't allow us to do a press release, but they did allow us to talk about them and use their logo in our deck. So we thank them for that. But that's just one example of another one that's in the pipeline, and there are several more.

Nazibur Rahman, Analyst

Yes. That's helpful. But I guess on that point, could you talk about what you think the revenue economic opportunity for the iRhythm partnership is?

Adam R. Levy, CEO

So regarding that partnership, I can't discuss the total number of units due to the NDA. However, when we consider the various opportunities available, there are smaller customers as well as larger medical device customers that experience steady growth. Most of these opportunities range from $300,000 to $1 million annually. Companies like Owens & Minor and iRhythm are examples of those in this category. Additionally, there are opportunities that could be extremely significant, particularly projects where our product is integral to the device. An example is the AbbVie project, which has faced several delays. I haven't mentioned it much due to the uncertainty, although I do have regular discussions with them, and they are making progress and assure me that it will launch. These opportunities, including AbbVie and others in the pipeline, have the potential to generate substantial revenue, amounting to millions of dollars.

Nazibur Rahman, Analyst

Got it. If I could just ask one more question. I know this is an ever-evolving conversation regarding tariffs. But I guess based on everything that's happened thus far, has NEXGEL been impacted or affected by tariffs either beneficially or negatively? Or do you still see that happening based on your understanding of the tariff situation currently?

Adam R. Levy, CEO

So a little bit of both. There's a mild negative impact on the margins in Silly George and in some of the products that do come from overseas, although it hasn't been as bad as we were worried about, so it really has not been super impactful. On the positive side, we have seen a lot more interest in our gels from domestic companies. But again, there's an onboarding process associated with that. So it hasn't translated yet into a lot of revenues in Q2 because it really kind of started in Q1. But we think it will, there will be some of these customers that do convert and help us on that side as we move into later Q3 and Q4 and Q1 of next year.

Nazibur Rahman, Analyst

Got it. Congrats on the progress.

Operator, Operator

We'll take our next question from Christopher Spencer.

Unidentified Analyst, Analyst

I was just going to ask about the AbbVie partnership, but you sort of covered that as kind of waiting for their product to come out because you guys have been talking about that for a while and didn't know where the status was on that.

Adam R. Levy, CEO

There have been some delays in their process due to a different vendor they were working with on their console, which was unrelated to us. They informed me that they ended their relationship with that vendor some time ago and have since brought everything in-house. I regularly check in with them because it's very important for us. We were expecting this to be fully operational by now, but we haven't even started yet. I reach out to ensure that nothing disastrous has occurred, and while there are no new updates, they assure me that they are back on track with the new timeline and that things are moving forward. So, fingers crossed.

Unidentified Analyst, Analyst

They don't have any set schedule. They're just waiting for FDA and putting everything together?

Adam R. Levy, CEO

Their schedule indicates a delay of about 10 to 12 months from the first quarter of last year, which puts the start at the first quarter of 2026. There is a possibility for some small orders to come in before that, but I'm currently viewing this as a 2026 event. This project has already been delayed twice, with the original timeline set for July 2024 when they first contacted us in 2022. We've been collaborating for a long time, and they have a significant financial commitment of $550 million for the device. I remain optimistic that it will be released, and they share that belief, but it is certainly frustrating that it has not been launched yet.

Operator, Operator

We'll take our next question from Chris Bitiosky.

Unidentified Analyst, Analyst

You mentioned a new product from Silly George that started selling this quarter. Can you tell us more about it?

Adam R. Levy, CEO

Sure. Silly George released a couple of variations on our lashes at the very end of Q2, including a 75 Lash that covers almost the entire eye and can be accented with smaller lashes. We also introduced Focus Packs in response to customer feedback indicating that while they loved the 60 Pack, they often used specific sizes and wished for a box that contained just those. So we created a Focus Pack of 24 lashes all in the same size, which has proven to be very popular. This approach has worked well for us because the smaller packages have higher margins, although we have observed some cannibalism. However, the sales of the 60 Pack are only down about 4%, while we’ve seen around a 17% or 18% increase in sales from the new packs, which also offer better margins. Looking ahead, we will be releasing five shades of lip gloss, a lip and eye mask, and an under-eye product made from our hydrogel at the beginning of September. A new mascara is also on the way, so we have a series of exciting products scheduled for release in the second half of this year.

Unidentified Analyst, Analyst

Okay. That's good to hear. And any comment on those Silly George sales thus far in the present quarter? Are they improving with the summer seasonally?

Adam R. Levy, CEO

Yes, I'm not sure if summer is a strong season for us. The fourth quarter is really the important one. Back-to-school is significant as well, but sales are very robust. We're not observing any weakness in consumer spending, which is something we monitor, especially given the discussions about the financial markets. July has been the strongest month of the year so far, and we hope to maintain that momentum through the rest of the third quarter and into our new products in the fourth quarter. Overall, everything looks positive.

Unidentified Analyst, Analyst

Okay. Good to hear. Can you explain how the $1 million non-dilutive financing came about? Is it a loan or a prepayment?

Adam R. Levy, CEO

It's an advance against future profits with no obligation for repayment. It's similar to how record labels would fund artists to create albums. If the album was successful, the label would recover the investment, but if it wasn't, they couldn't reclaim the funds from the artist. In our case, they wanted to support our partnership, knowing that NEXGEL was working towards profitability. They offered to cover the costs for creating materials and advertising for our nine scheduled products. They assured us not to worry about the expenses. They would provide the funding, and we would repay them once the partnership became profitable, with the option to pay back as little as 5% of profits. The terms were very generous, with no interest charged.

Operator, Operator

We'll take our next question from Kirtan Patel.

Kirtan Patel, Analyst

This is Kirtan. My question is, I know earlier you kind of touched up on the capacity for the manufacturing. So my question is, what is the company currently operating at in terms of both the contract manufacturing as well the branded products?

Adam R. Levy, CEO

Many of our branded products are produced in-house, which contributes to our overall capacity. In Texas, we have significant room for expansion as we await developments from AbbVie, and we are currently overbuilt in that area. In Langhorne, our capacity for gel manufacturing is still below 20%. Therefore, capacity is not a current concern; our focus should be on continuing to fill the pipeline and supporting the business's growth as it progresses.

Kirtan Patel, Analyst

Okay. Got it. So if the company grows at a current trajectory and in the future, if you need to increase the capacity, do you have a plan in place in case you need to increase that?

Adam R. Levy, CEO

Yes, we've talked about it. So we have plenty of space down in Texas. The converting and packaging facility is literally in a cow field. So we have lots of room to expand. We just did an expansion there, and there's more room and more acreage to expand if we have to. There's lots of extra room in our clean room; we overbuilt it because we didn't know what sorts of machines. So we can easily expand there. We've talked about what happens if some of these bigger customers really roll in. If two or three of them really hit within two or three years, we would need a plan to sort of increase our capacity at that point. That would be a golden problem to have, but we do have a plan for that. We do know how to build these plants.

Kirtan Patel, Analyst

Got it. My next question is about the cash position. I've noticed that the company is running very close to operating expenses and has been raising cash diligently through dilution. I appreciate that you haven't done any significant dilutions over the years. However, in the event of a global recession or similar issue, considering the current circumstances with tariffs and long-term high-interest rates, have you thought about how the company would manage to survive in such a situation?

Adam R. Levy, CEO

Yes, I always consider that. In many ways, a recession can actually be the best time to build a business because it forces you to confront reality rather than live in a fantasy where everything is great. It requires cost-cutting and a re-evaluation of margins. There would be a lot to address if we start to notice a slowdown. Thankfully, we aren't experiencing that yet, but it is something we constantly think about. Our consumer products typically have high margins, which helps. For instance, while a 145% tariff from China would certainly create issues, a tariff of 25% or 30% against a cost of goods of around 17% isn't devastating. It would increase our costs from 17% to around 21%, and while we may pass on some of that, it’s not overly harmful for a business with gross margins of 83% to 85%. The more significant expense lies in advertising.

Kirtan Patel, Analyst

Got it. So is your plan to basically target mainly the bigger companies who are looking into contract manufacturing compared to consumers?

Adam R. Levy, CEO

Well, no, we have all sorts of size customers, but the bigger companies are the ones that have the robust medical device programs that really need the medical-grade biocompatible hydrogels, right? So that's where the opportunity has been. The opportunity has been with the larger companies because they are the ones making the devices that are going through 510(k) through the FDA that have the more stringent requirements, and that's where we shine.

Kirtan Patel, Analyst

Okay. Got it. Again, congratulations on your continued growth. Hopefully, positive EBITDA by the end of the year as planned.

Adam R. Levy, CEO

Yes. That's our target.

Operator, Operator

We will take our next question from David Blancher.

Unidentified Analyst, Analyst

I have a question in your prior investor presentations; you had stuff about surgical drapes. I know that's been taken off. And I've seen some research reports that forecast the launch of NEXDrape and NEXDerm over the next couple of years. I just wanted to see if that was accurate or something that...

Adam R. Levy, CEO

Yes. So if you noticed we added a gentleman by the name of Kip Crecca to our Scientific Advisory Board, specifically to work on our Drape Program. We sort of thought about it and said, you know what, going after at this stage, something that we have to sell to another company and developing that surgical drape, maybe we put that on the back burner for a second because we had some issues as well with trying to extrude a drape that thin. It would have required significant investments in new pumps and dyes, which we have so many things going on. I didn't think it was the best use of our cash. But what we have identified is that there's an opportunity in, for example, cataract surgical drapes, which are very simple. And the idea of what Kip is going to try and go out and market is, can we sell our adhesives to a company that makes that drape to have a gentle to the skin for an elderly audience? So we now become just a material supplier again. That means we're not doing any 510(k) stuff. That means we're giving it to somebody who already has a market built in. We kind of think that's lower-hanging fruit, so we've sort of pivoted to that. But we still think there's a big opportunity, particularly for NEXDerm, a gentle adhesive that could hold an IV in place that could maybe be impregnated with silver that would help prevent MRSA and staph infections in a hospital. We think is a great idea; it's just that we can only do so many things at the same time, and some opportunities have presented themselves to us that are where we're putting our resources right now.

Unidentified Analyst, Analyst

Okay. One more question. If you were to rank maybe a top 3 or top 5 of your partnerships, could you give that to us? Is it something that's already been only announced, or are there some things that you're working on that would make your top 3 or 5?

Adam R. Levy, CEO

There are definitely several things in progress, particularly one that stands out among the top three. We consistently have significant opportunities in the pipeline; whether they materialize is something we work on and hope for, but we certainly have promising prospects. A couple could be ranked among the top seven, with at least one likely to be in the top three or four. Currently, we have various partnerships, including our collaboration with Cintas, which is very stable and productive. Recently, we announced that we received clearance in Canada for SilverSeal, and we will be discussing ways to expand that partnership, which has great potential. AbbVie remains a major opportunity despite some delays, and it could be one of our most significant partnerships. We also maintain solid relationships with reliable clients like Owens & Minor and iRhythm, which are all reputable companies. Additionally, we are enthusiastic about STADA, which has an extensive product range. If we successfully manage the first nine products coming out, it could lead to access to the entire catalog, which is quite exciting. Overall, there are many positive developments on the horizon.

Operator, Operator

We'll take our next question from Jeff Memira.

Unidentified Analyst, Analyst

Quick question, of the $13 million you project for revenue this year, what percentage of that revenue will be Silly George?

Adam R. Levy, CEO

Probably $6, $6.5 million.

Unidentified Analyst, Analyst

$6.5 million of the $13 million. So almost half will be Silly George?

Adam R. Levy, CEO

Yes. Yes. Silly George is doing quite well.

Operator, Operator

And there are no further questions on the line at this time. This does conclude today's program. We thank you all for your participation. You may now disconnect.