NovaBay Pharmaceuticals, Inc. (NYSE American: NBY) has released its financial results for the fourth quarter and full year of 2023, highlighting a strategic shift towards its core eye care business.
The company divested its skincare business, DERMAdoctor, to concentrate on its flagship Avenova products. Despite reporting a net loss of $16.7 million for the year, NovaBay is optimistic about growth through its online subscription sales and strategic partnerships aimed at expanding its eye care offerings.
Key Takeaways
- NovaBay Pharmaceuticals divested its skincare business to focus on its core eye care products.
- Avenova Spray showed increased unit sales through online subscriptions, including on Amazon (NASDAQ:AMZN) and avenova.com.
- The company launched Avenova Allograft, a prescription-only product for eye repair.
- NovaBay entered a co-marketing agreement with Eyenovia (NASDAQ:EYEN) for a new Clobetasol product.
- Total sales net for 2023 were $14.7 million, with a net loss of $16.7 million.
- The company ended the year with $3.1 million in cash and cash equivalents.
Company Outlook
- NovaBay plans to enhance direct-to-consumer sales of prescription Avenova in 2024.
- The company is shifting its sales strategy to focus on doctor-recommended products.
- Partnerships with BioStem and Eyenovia are pivotal in NovaBay's innovation strategy.
- The next quarterly update is anticipated in May.
Bearish Highlights
- NovaBay reported a significant net loss of $16.7 million for 2023.
- The loss included a non-cash adjustment to preferred stock conversion prices of $7.1 million.
Bullish Highlights
- Divesting DERMAdoctor allows NovaBay to concentrate on the promising eye care segment.
- Growth in Avenova's online subscription-based sales indicates a successful direct-to-consumer approach.
- Strategic co-marketing and expansion into the EU market with partners could bolster the company's presence.
Misses
- NovaBay did not meet profitability, with a net loss of $16.7 million for the year.
Q&A Highlights
- NovaBay emphasized its commitment to leveraging digital marketing for Avenova sales.
- The company is managing expenses while focusing on growth through strategic partnerships rather than new product development.
- NovaBay received $1.1 million from the sale of DERMAdoctor, aiding its financial position.
In conclusion, NovaBay Pharmaceuticals is embracing a refined strategic vision centered on its eye care business, with a focus on increasing prescription sales through physician recommendations and partnerships. The company's financial health remains a concern, but NovaBay is optimistic about its growth potential and plans to provide further updates in the upcoming quarterly call.
InvestingPro Insights
NovaBay Pharmaceuticals' strategic pivot toward its eye care business comes at a time when the company is navigating through financial turbulence. The InvestingPro data underscores some of the challenges and potential areas of concern for investors:
- The company's revenue for the last twelve months as of Q3 2023 stood at $14.64 million, with a modest year-over-year growth rate of 5.08%. However, there was a quarterly revenue decline of 14.66% in Q3 2023.
- NovaBay's gross profit margin remains strong at 53.51%, which is a positive indicator of the company's ability to control costs in relation to its sales.
- The stock price has experienced significant volatility, with a 91.58% decline over the last year and a dramatic 71.04% drop in the last six months.
InvestingPro Tips provide additional context to these figures:
1. Analysts have revised their earnings downwards for the upcoming period, reflecting concerns about the company's future profitability.
2. NovaBay is trading at a low revenue valuation multiple, which could be a point of interest for value investors looking for potential turnaround stories.
For readers interested in a deeper analysis of NovaBay Pharmaceuticals, there are 12 additional InvestingPro Tips available, which can offer a more comprehensive view of the company's financial health and stock performance. These tips can be accessed through InvestingPro's platform for those seeking to make an informed investment decision. Remember to use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
Full transcript - NovaBay Pharmaceuticals Inc (NBY) Q4 2023:
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.
Operator: Thank you very much. [Operator Instructions] Today's first question comes from Jeffrey F. Cohen with Ladenburg Thalmann & Company. Please go ahead.
Jeffrey Cohen: Hello, Justin and Tommy. How are you?
Justin Hall: Hey, Jeff.
Jeffrey Cohen: So just a couple of questions from my end. I guess firstly, maybe could you talk a little bit about Sonoma and some of the EU territories over the past few months and maybe some anticipatory comments regarding 2024?
Justin Hall: Sure. Yes, absolutely. So, we are working with Sonoma on expanding into the EU, announcing that agreement earlier this year. The first step is to approach various distributors over in the EU. So, we have been working with Sonoma on those partnerships to get those people interested. The product will be their Sonoma product, their hypochlorous acid, but branded as an Avenova product. And so we are reaching out to distributors over there and gauging interest.
Jeffrey Cohen: Okay, got it. So, would that be broken out? You tend to break out any of your revenues other than online schemes at the moment?
Justin Hall: Yes, so probably not. So, we typically in the past have not broken out by distribution channel or by sales channel. So, I don't think that we're going to break that out in the future, but happy to provide some commentary around that as sales grow.
Jeffrey Cohen: Okay. And then could you talk about how you're targeting some of the initial accounts for potential new launches and new products and maybe talk about the demographics of some of the subscription customers as well?
Justin Hall: Sure. Well, I think the most exciting thing that we have going on right now is our partnership with Eyenovia. So, in all of 2023, we operated with just an inside sales force. We had no field sales representatives. And with Eyenovia, we are going to gain 10 field sales representatives that are going to be in all of the top metropolitan areas. And so this is sort of a return to having a much broader reach and I think a little bit more of a personal touch. Jeff, you may remember in years past, we had up to 50 sales representatives out in the field talking to physicians about Avenova. We scaled that back tremendously, especially during the pandemic when it just didn't make sense to have field sales reps driving around in company cars visiting doctor's offices. So, we did switch over to an inside rep model, which is very cost effective but is also somewhat limiting. There are certain accounts in doctor's offices that you really can only get into and sell your product if you have a rep who's going physically into the offices. So, we're partnering with Eyenovia. So, we're going to get that field sales rep. They also, on their side, they're getting an inside sales team that's really experienced and has a full CRM of existing customers that they can reach out to and sell to. So, I think the major push that we're going to have in 2024 is to really leverage that physician dispense channel and get the Avenova brand out in front of more patients. So we're going to be having hopefully a lot more prescription Avenova that will turn into direct to consumer sales. And that's really what we're pushing in 2024 as our strategy.
Jeffrey Cohen: Okay. And then I think lastly for us as far as the digital marketing strategy, is that changing at all from 2024 compared to 2023?
Justin Hall: Yes, great question, Jeff. And thank you for asking that because our strategy really has changed quite a bit. In 2022, our focus was really in the direct-to-consumer sales channel. And so, we made a sort of monumental shift because we saw some real promise in that market. And so, we thought selling over-the-counter products, consumer products directly to the end consumer over the internet was going to be sort of our future. And as I said on the call, our projections just weren't realized. And I think in order to survive in this world, you really have to be quite nimble. And so, we did change our strategy really towards the end of 2023 and coming to fruition now in pivoting away from depending solely on a direct-to-consumer sales platform where eyeballs need to be bought, online ad spend is quite high, and building a consumer brand. So, shifting away from that and then focusing really on the flywheel of having a doctor recommended product, doctor recommended products that consumers are then able to repurchase once they have been told about it and instructed by their physician to use it. So, it is a different sales and marketing strategy and one that we shifted to sort of in the tail end of 2023, but we're all in on it now in 2024.
Jeffrey Cohen: Okay, got it. Justin, thanks for taking the questions.
Justin Hall: Thanks, Jeff.
Operator: Thank you. The next question is from Edward Woo with Ascendiant Capital. Please go ahead.
Edward Woo: Yes, thanks for taking my question. My question is, should we expect a lot less new products from you guys as you guys just focused on Avenova?
Justin Hall: Yes, so that's a really great question, Ed, and it sort of follows on Jeff's question as well. So, we are not developing in R&D and spending our money on new product development, but what you will see is innovation through partners. And so that's what you saw with the Avenova Allograft in our partnership with BioStem. So, we entered into that agreement and started selling the Avenova Allograft in Q4, which is incredible innovation, a good lucrative agreement that allows both of us to profit. And then more recently with the Eyenovia agreement. So that's also bringing a lot of innovation, a very unique differentiated product, and bringing that into our portfolio and rolling it out to our customers. So, you will see some product development and some new product rollouts, but it's going to be all through partnerships and not through our own R&D.
Edward Woo: Great. Thank you and good luck.
Justin Hall: Thanks, Ed.
Operator: Thank you. This concludes our question-and-answer session. I would now like to turn the call back over to Justin Hall for closing remarks.
Justin Hall: Thank you for joining us today and your interest in NovaBay. We're excited about our refined strategic vision and the opportunities we face with our established eye care business. We look forward to providing an update during our next quarterly call in May. Thanks again and have a nice day.
Operator: The conference is now concluded. Thank you for your participation. You may now disconnect your lines.
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