Earnings Call Transcript - NXGL Q4 2025

Operator, Operator

Good afternoon. I will be your conference operator today. At this time, I would like to welcome everyone to NEXGEL's Shareholder Update Conference Call. I will now turn the call over to Valter Pinto, Managing Director of KCSA Strategic Communications for introductions. Please go ahead.

Valter Pinto, Managing Director, KCSA Strategic Communications

Thank you, operator. Good afternoon, and welcome, everyone, to NEXGEL's Shareholder Update Conference Call. I'm joined today by Adam Levy, Chief Executive 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 our filings with the SEC filed periodically. 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.

Adam Levy, Chief Executive Officer

Thank you, Valter, and thank you, everyone, for joining. On today's call, I will discuss our announcement this morning regarding the closing of our transaction to acquire Celularity's degenerative wound segment. This is a transformational step forward for our company, marking our evolution into a more scalable, diversified medical technology business, tripling our revenue run rate and immediately contributing to profitability. To close on the transaction, we successfully secured capital on more favorable terms led by Sequence LifeScience, a strategic partner with deep expertise in regenerative medicine, manufacturing, development and commercialization. Their lead investment of $5.5 million not only strengthened the financing structure of the transaction, but also aligns us with a partner that enhances our capabilities across all of the aforementioned verticals. The financing was done through convertible notes at a $0.60 conversion price and 50% warrant coverage with a strike price of $0.80. We are excited to announce the formation of a new division, BioNX Surgical, a dedicated division focused on advanced biomaterials for tendon repair, soft tissue reconstruction, bone regeneration and, of course, wound care. The acquired portfolio includes six established regenerative biomaterial products spanning these key areas, positioning us squarely within one of the fastest-growing segments of health care. These are not early-stage assets. They are commercial-stage products with more than a decade of clinical use, demonstrated real-world utility and existing reimbursement pathways. These products are already approved in approximately 500 hospitals and represent a large opportunity for BioNX in non-orthopedic surgical specialties. In addition to these commercialized products, there are currently three existing 510(k) devices in our pipeline. These three products have $4.6 million in paid-in capital and are scheduled for 2026, 2027 and 2028. Beyond the products themselves, we are also gaining an experienced commercial and scientific team. This is an important aspect of the transaction as it meaningfully expands our internal capabilities and strengthens our ability to develop and market NEXGEL's own medical devices as well. This transaction will be transformative, not only from a strategic standpoint, but also financially. On a pro forma basis, we expect it to approximately triple our annual revenue to roughly $35 million and be immediately accretive to profitability upon closing. The strategic partnership with Sequence LifeScience is incredibly important to NEXGEL. In addition to providing the crucial capital for us to close on this transaction, Sequence brings an enormous wealth of expertise and skills. Sequence will act as backup manufacturer for the existing products, help us develop new products and aid with distribution channels of their own to further expand our reach. I cannot think of a better partner for the journey we are about to take. Taken together, the acquisition and our strategic partnership with Sequence represents a step change in NEXGEL's trajectory. We are combining a proven hydrogel platform with a portfolio of commercial regenerative products supported by a strategic manufacturing partner, occurring on favorable financing terms. This positions us to accelerate product development, broaden our commercial footprint and pursue new opportunities within the regenerative medicine landscape. Our focus is now on execution and successfully integrating these assets and driving commercial growth. We will continue to build a platform that can generate sustained long-term growth and profitability. With that, I'd like to open the call for questions. Operator?

Operator, Operator

The operator will take a question from Naz Rahman of Maxim Group.

Nazibur Rahman, Analyst, Maxim Group

Congrats on the transaction. I actually have a few. First, I want to clarify the structure of the deal. So you received $5.5 million from your strategic partner, but it looks like you have to pay $8.3 million in total. So was the entire $8.3 million on converting that includes the $5.5 million? Or is it $5.5 million directly in cash and then the remaining being a convert? I just want—could you clarify the transaction also, like you also gave a $5 million note to Celularity, right? Could you clarify all the terms of transaction? I just want to be clear on this.

Adam Levy, Chief Executive Officer

Sure. Good to hear from you, Naz. There was no note. So basically, and it's a little confusing, but we paid $5.3 million at closing to Celularity. And we assumed and are going to pay out the $2.9 million that is owed to the sales reps in back commissions. Those sales reps are then reinvesting some of that back into NEXGEL. Of the $5 million convertible note, we also gave Celularity $5 million of this convertible note. They then gave $2.5 million, or half of that note, to Sequence to settle a pre-existing debt that they had with Sequence. Sequence then wrote a check for $3 million in cash into this deal, thereby bringing their total investment between the debt, the compensation they took for their debt, as well as the cash they wrote directly into NEXGEL to $5.5 million. So it's a little bit—it's kind of like one of those four-way trades, but I hope that explains it for you.

Nazibur Rahman, Analyst, Maxim Group

Got it. Okay. So the note, what are the terms of the note? When is it due? And what is the maturity on that note—what is the interest rate, I'm sorry.

Adam Levy, Chief Executive Officer

Yes. So the note is an 18-month note, and it's a convertible note, and it matures in 18 months. It pays a 10% coupon.

Nazibur Rahman, Analyst, Maxim Group

Got it. Okay. So now that you have the transaction closed, how long do you think it will take you to integrate the assets into NEXGEL? And you're saying it will be immediately accretive. Are you expecting any initial restructuring costs or anything along those lines?

Adam Levy, Chief Executive Officer

No. What's nice about this transaction is that this was always a separate segment with its own people within Celularity. In fact, they reported as a separate segment. So we took the key people that we wanted from that segment. We sublet some space in the actual same building that Celularity is in. So most of the operations move over seamlessly. What there also is to integrate, however, is some of the synergies. I've been asked, including by yourself, many times: why don't you ever sell SilverSeal or these other medical devices, why aren't you developing them? Because they require a medical sales force, which we never had. So we're looking forward to, because we will now have reach through all the independent sales reps that we're planning on putting on and the ones that are returning to us, to be able to not only fully commercialize these existing products, but the new products in the pipeline as well as some of the NEXGEL products where appropriate within hospitals.

Nazibur Rahman, Analyst, Maxim Group

Got it. And just on that point, with the integration of these new products, what do you think happens to the company's gross margins for 2026? And what do you think EBITDA could potentially be in 2026?

Adam Levy, Chief Executive Officer

So in the case of this company doing the same business that they did last year, our models, if we did $22 million to $23 million, show about $4 million to $4.5 million of EBITDA, assuming that's the number we hit. We were hoping to do better than that. The gross margins are—and I know you and I have had many conversations about NEXGEL's gross margins being complicated because you have both the medical device and the consumer products and now they skew each other. There's a bit of that within Celularity too. They really have three buckets of margins. There's the lower margin, higher cost-of-goods distributor model, where there's no commissions paid. Then there's the wound care area, which is only about 15% to 20% of the business, where the commissions are modest but there's still somewhat less margin. And then there's surgical, where the margins are exceptionally good, but the sales commissions can go as high as 30% to 35% to almost 40% sometimes. So when you talk about the blend, we expect to get a contribution margin of roughly 52%, but it's made up of those three different components.

Nazibur Rahman, Analyst, Maxim Group

Got it. That was helpful. Okay. So Adam, we're also basically past Q1. Could you potentially provide some color on how you think Q1 is going to develop or look like for NEXGEL? Q4 obviously came in relatively light below your guidance. Just curious if you could provide some context on what Q1 is going to look like.

Adam Levy, Chief Executive Officer

Yes. Q4 was surprisingly light for us. Some of the new products didn't really do what we thought they were going to do. Silly George had sort of a setback quarter, but we're seeing a nice recovery in Q1. We're not going to see a drop-off, especially in consumer in Q1. I don't want to get too detailed because we obviously haven't reported it yet. But we're seeing a return to normality in Q1. Q4 seemed to be on the consumer product side a little bit anomalous for us.

Operator, Operator

We'll move on to Mike Andrews.

Mike Andrews, Analyst

You mentioned in the press release the ongoing development of products as this partnership matures. Where does NexGelRx play in the dynamics of this deal?

Adam Levy, Chief Executive Officer

It doesn't. NexGelRx is specifically the drug delivery program that was spun out to be developed separately, which includes our apremilast program. So that is a separate spinout that NEXGEL owns 20% of, but it has very little to do with this transaction. It's not affected at all by this transaction.

Operator, Operator

We'll move next to Brett Derekson.

Brett Derekson, Analyst

Congratulations on your purchase. Just a quick question. Could you talk to what the dilutive outstanding shares are going to look like now? And then also when the warrants and the other items come into the strike price, could you talk a little bit about that?

Adam Levy, Chief Executive Officer

Sure. So if you take the conversion price of $0.60 and you also take 50% warrant coverage and assume that all the warrants are exercised, you come up with a formula that for about every $1 million there's 2.4 million shares. The deal will probably be between the purchase price and a little bit of working capital somewhere in the $12 million to $14 million range total raised. So if you do the math, you're somewhere in the 30 million share area. We'll give more details as the rounds close—our filings, including our 8-Ks, will lay that out in great detail as soon as we know what the exact numbers are.

Operator, Operator

We'll move on to David Blocker.

David Blocker, Analyst

I have a quick question. If you've modeled, what do you expect the revenue to be like two to three years out?

Adam Levy, Chief Executive Officer

This was a business that had scaled up to $50 million as recently as 2024. Celularity ran into some financial challenges and in 2025 did not pay their sales reps, which is why you see in the deal that one of the things that had to come out of proceeds immediately was getting those sales reps back and reengaged. As I said in my opening, these products are approved in over 500 hospitals, and there was nobody walking into them. It's our job to reinvigorate that, get the sales force working again. We've identified and will soon be hiring a new national sales manager. We hope to get back to that level and beyond, especially with some of the new products. The product that we currently call Project SPARK is a tendon wrap. It will be the first FDA 510(k) constructed out of human tissue. It's made of placental material. The reason placental material has not been used extensively for wraps like this is because of tensile strength; this has about the highest tensile strength on the market. It's thin as a piece of paper and, because it's made of placental material, has tremendous anti-inflammatory properties. We think that could be a game changer. That product could potentially be a $40 million to $70 million product on its own. That's potential, but we're very excited about the new products and think we can get back to close to what they were doing in 2024, hopefully, in that two-year span you're asking about.

Operator, Operator

We will take a question from Ves Mahallov.

Ves Mahallov, Analyst

Adam, I wanted to ask you about the intellectual property being acquired in this transaction. Is NEXGEL going to be paying any royalties to anybody on these products going forward?

Adam Levy, Chief Executive Officer

The only royalties are related to the new products in the pipeline that have the $4.6 million paid-in capital. We have a 5% royalty to Celularity on the SPARK project, a 3% royalty on the ORCHID project and a 1% royalty on the FUSE project. That's because Celularity had significant money tied up in those projects. When you look at the sale price of these products and the margins on surgical products, those are low single-digit royalties that are easy to handle. There are no other royalties.

Ves Mahallov, Analyst

Do they sunset at any point or for the life of the product?

Adam Levy, Chief Executive Officer

Yes, the royalties sunset. I believe they sunset after seven years.

Ves Mahallov, Analyst

Now I wanted to ask you about profitability. When you say these parts will be accretive to corporate finances, in previous calls you mentioned it will make the company profitable at the operating line. Considering GAAP financing, let's go into Q2, the first quarter fully integrated and fully reporting under the NEXGEL brand. So quarter ending in September, under safe harbor and everything else, will this be a profitable company on an operating margin basis or at least an EBITDA basis overall, not just this division, but including the existing business of NEXGEL when you combine them together? What should we expect for the third quarter, the one ending in September?

Adam Levy, Chief Executive Officer

Yes, our third quarter—that's the quarter that starts July 1 and ends September 30—on an EBITDA basis, the company will be profitable. Remember, this is a seasonal business. Q1 is generally the weakest. It gets a little stronger in Q2 and Q3 and Q4 is where you make hay. Q4 particularly is the strongest because of certain reimbursement dynamics; many procedures occur later in the year when reimbursement is better. Historically, Q4 was as big as the rest of the year put together. On a rolling 12-month basis, the company should be EBITDA profitable.

Ves Mahallov, Analyst

When you speak about contribution margin, I get a little confused. For me, contribution margin from accounting is the delta in operating margin under GAAP. When you say 52% contribution margin, could you translate that for us? What is the delta at the operating line under GAAP or at the EBITDA line? Fifty-two percent sounds very high for EBITDA, so I assume you mean something else.

Adam Levy, Chief Executive Officer

Sure. We use contribution margin to mean cost of goods plus commissions and direct sales costs. It does not include fixed overhead. Contribution margin is essentially the gross profit that contributes to covering fixed overhead. We know the contribution margin and we know our fixed cost—payroll, rent and other SG&A—so we can determine the revenue level needed to cover those fixed costs. Operating margin and EBITDA are below that line and account for fixed overhead and other expenses.

Ves Mahallov, Analyst

So COGS plus sales commissions equals contribution margin. Then corporate overhead is everything in SG&A below that, correct?

Adam Levy, Chief Executive Officer

Correct. Our fixed overhead will be around the $6 million to $6.5 million range, which includes budgets for demonstrations, travel and all other SG&A items. The contribution margin is what goes into covering that SG&A line.

Ves Mahallov, Analyst

Going forward, will NEXGEL have an R&D department for this division to develop new products? When you say you're developing new products, is NEXGEL developing them and retaining the intellectual property? Or is someone else doing the R&D and then there is an arrangement? Who gets the margin from any future R&D being performed with these product lines?

Adam Levy, Chief Executive Officer

Short answer: NEXGEL will. It will be done in several ways. First, this gives NEXGEL an opportunity to move forward with programs we previously put to the side, like the Drape programs and NEXDerm. Now that we have sales coverage, we can develop those further without having to sell them off. Second, continued development of the programs already in Celularity will be done within our new space—the space we took has its own development lab and we have a budget for R&D to continue to get labels and improvements on those products. Third, our strategic partner Sequence also develops products. They have a full development team at their facility in San Antonio and are excited about combining technologies with us, finding uses for the hydrogel and helping with distribution. So we'll get products from multiple sources. For Project FUSE and Project ORCHID, we will own all the patents on those. In general, our plan is to own IP developed under NEXGEL.

Ves Mahallov, Analyst

And that means higher margins accrue to NEXGEL's shareholders, correct?

Adam Levy, Chief Executive Officer

Yes. The other products like BIOVANCE and Interfyl have been on the market since around 2012–2014 and don't have patent protection. Their value is in hospital approvals, clinical data and reimbursement pathways rather than patent protection. But products developed under NEXGEL's roof will be owned by NEXGEL.

Ves Mahallov, Analyst

You mentioned previously the possibility of a stock buyback if the company is on solid financial footing and generating cash flow. Do you still believe that may be the case in the future?

Adam Levy, Chief Executive Officer

That depends on circumstances. It's always been important that when a company becomes profitable it can go on the offense. At that point, if the stock is being unfairly treated, a stock buyback is a tool to protect shareholders and increase value. If the stock has gotten ahead of itself, it might be appropriate to take money off the table. The key is to be in a decision-making position rather than needing to raise money to stay afloat. That's one of the reasons this transaction is so important. I can't predict exact circumstances, but a stock buyback would be in the toolkit if the situation warrants it.

Operator, Operator

We'll move on to Robert Gotlieb.

Robert Gotlieb, Analyst

What a great update. A couple of questions. When will the Celularity products start having sales under the NEXGEL banner, the ones that came over? Will it be at the end of the quarter, mid-quarter or earlier?

Adam Levy, Chief Executive Officer

Yesterday. The effective date was Monday. As of Monday, all sales—these are products that are used in hospitals every day—will begin to generate revenue.

Robert Gotlieb, Analyst

Okay. Excellent. As you've modeled things out, if you're able to share any, how do you model a middle case versus best case scenario for the convertible note in terms of whether the note will be paid back or issued as equity? How do you game that out?

Adam Levy, Chief Executive Officer

If we do well and stay above the conversion price, the note would likely convert and we wouldn't have to pay the money back. If we do poorly and conversion doesn't occur, then we'd need to find a way to repay. That's why it is critical that we turn profitable and maintain profitability. We have a high confidence level. When we announced this deal, many on the Street didn't like it. After more analysis and conversations, Sequence and other smart investors thought the Street was wrong and wanted to get involved. Sometimes you have to take opportunities you believe in, and we're confident this will turn out well.

Robert Gotlieb, Analyst

What other debt is on the books that is relevant?

Adam Levy, Chief Executive Officer

None. This is senior secured debt, and there was no other debt on the books. NEXGEL never had debt before this.

Robert Gotlieb, Analyst

This seems like an acquisition of a commercial line that positions you differently than a hydrogel company—more like a regenerative medicine company. How do you see the branding working?

Adam Levy, Chief Executive Officer

We're branding the division as BioNX. The product brand names—BIOVANCE and Interfyl—are already established and are what doctors and hospitals recognize. The President of Celularity's degenerative wound segment, Dr. Stephen Brigido, is coming over with us and has been on our Scientific Advisory Board for four years; he did the SilverSeal studies. This is what NEXGEL was always considering being: a medical device company. The commercial consumer products came about during the pandemic, but this acquisition represents a return to our roots and core capabilities.

Robert Gotlieb, Analyst

Regarding synergies and other wound care products like SilverSeal and the NEXDrape program, if you have sales folks selling BioNX products, do you see an opportunity to distribute NEXDrape and similar products using that same sales force rather than selling them to an external distributor?

Adam Levy, Chief Executive Officer

Yes. We'll need to talk to independent reps to see which products they think are most viable to carry. So far, there's been more interest in NEXDerm because it's an easier sell in hospitals. The goal is to be in the bag of reps who have access to the entire hospital. If we can be that biologic in their bag, it opens up opportunities to put other products in their bag. The important thing is we no longer have to rely on selling everything off; we can sell ourselves and if a product does extremely well, we can decide to keep it or potentially sell it later. It opens up many more opportunities.

Operator, Operator

There are no further questions at this time. This concludes our question-and-answer session as well as our conference call for today. We appreciate your time and participation. You may now disconnect.