NEXGEL, Inc. (NASDAQ:NXGL) Q1 2025 Earnings Call Transcript

NEXGEL, Inc. (NASDAQ:NXGL) Q1 2025 Earnings Call Transcript May 13, 2025

NEXGEL, Inc. beats earnings expectations. Reported EPS is $-0.09, expectations were $-0.1.

Operator: Good afternoon. I will be your conference operator today. At this time, I would like to welcome everyone to NEXGEL’s First Quarter 2025 Financial Results 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: Thank you, operator. Good afternoon, and welcome, everyone, to NEXGEL’s first 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 of 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 Levy: Thank you, Valter, and thank you, everyone, for joining us today to discuss our first quarter of 2025 financial and operating results. Revenue for the first quarter came in slightly higher than our previously issued guidance, totaling $2.81 million, an increase of 121% year-over-year compared to the same quarter in 2024. Although Q1 is our seasonally weakest quarter of the year, contract manufacturing revenue still increased 58% year-over-year and consumer branded products increased 189% year-over-year, led by the addition of Silly George. Gross margins for the first quarter normalized to 42.4%, aligning with our historical range in the low to mid-40s. This compares to 37% in the fourth quarter of 2024 and 43.6% in the third quarter of 2024.

As I mentioned during our Q4 call, we reclassified Amazon sales commissions into our cost of goods sold, which will provide us with a more stable gross margin going forward. There were also onetime write-offs in Q4 that lowered our gross margins for that period only. EBITA and adjusted EBITDA loss narrowed to negative $0.54 million and negative $0.47 million, respectively compared to negative $0.84 million and negative $0.73 million for the same period last year. Once again, both contract manufacturing and consumer products grew substantially. 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, such as Cintas and Owens & Minor.

We began shipping initial orders to Cintas in Q4, and this continued into Q1. We have already received our first reorder for deliveries in Q2. As I’ve mentioned before, this partnership is not only great for our revenue growth, but we expect it to also result in increased brand awareness for SilverSeal. Regarding AbbVie, the official launch of their RESONIC machine has been pushed again due to delays in their manufacturing process unrelated to NEXGEL. We remain their exclusive supplier of gel pads for the RESONIC machine, and we have been kept up to date frequently on their progress. The timing of their launch has nothing to do with our product or readiness from our team. Unfortunately, we are beholden to their timelines. While frustrating, we feel confident the product will launch and be a substantial opportunity for us.

Fortunately, aside from the opportunity with AbbVie, we have multiple other shots on goal, and we expect our business to continue to expand and grow. We have a robust pipeline of new and potential customers for 2025. In July, we announced the launch of an institutional review board study conducted in accordance with the FDA guidelines funded by innovative optics. This 30-patient human trial conducted at the Florida Clinical Research Center, studies the efficacy of hydrogel applied to patients prior to laser hair removal treatments. The primary outcome measure is the reduction of harmful carcinogenic plume generated by laser hair removal into the air during these procedures. The study is now complete, and we are only awaiting publication. We are confident that our high water level hydrogel will offer a long-needed industry-wide solution for absorbing and capturing plume during laser hair removal when applied to the service of the skin before the procedure begins.

In addition, the application of hydrogel may also allow for more effective laser hair removal and reduce the amount of pain experienced during treatment. These added benefits make this an attractive practical solution for regulatory compliance, safety and customer satisfaction. We have received some initial orders from innovative optics as they prepare to go to market. They’re also serving as a strategic marketing partner with strong connections to all the major laser hair companies in the space, making this a particularly exciting opportunity with significant growth potential. We are constantly seeing new applications for our hydrogels. These are often brought to us by potential partners exploring innovative use cases. As we continue to pursue these opportunities, we expect contract manufacturing and white label to continue being a major driver of our expansion and success moving forward.

And this segment represents some of the largest opportunities that we have in our pipeline. Turning our attention to consumer products. Our entire portfolio saw strong expansion in 2024, driven by the continued success of our brands, Medagel, Kenkoderm and Silly George, each also having several growth factors in 2025. This year, Medagel will expand its product line with the anticipated launch of several new offerings, including the SilverSeal wound and burn kit and its moist burn pads. We have also just received approval from Health Canada to sell SilverSeal in that territory. Similarly, Kenkoderm will double the size of its product portfolio in the third quarter of 2025 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 the brand that is leveraging its strong reputation as a leader in sensitive skin care. Silly George will also have several exciting new products in 2025. While continuing to expand our popular lash offerings, we are also launching complementary beauty products, including five shades of lip gloss, a hydrating lip mask and undereye patches that feature our own proprietary hydrogel technology. We are making the transition from a “lash brand” into a true beauty company with a more complete suite of solutions for our loyal customers. Lastly, our partnership with STADA is progressing extraordinarily well. Our first product Histasolv is exceeding projections and showed continued revenue growth in Q1.

We recently signed an amendment to our contract with STADA to expand our relationship beyond Histasolv. We expect to launch another product in Q4 of 2025 and several more are planned for 2026, beginning in Q1. There are many other applications for our high water content hydrogels and our aspirational medical device products, which provide our shareholders with significant upside potential. With that being said, R&D exploration in each of these opportunities will be done thoughtfully and strategically, managing cash appropriately and not overextending our resources while pursuing pads that will lead to high ROI and be core to our vision for the company in the future. Before I turn the call over to Joe to review our first quarter financial results, I would like to touch upon tariffs.

It is a bit of a double-edged sword for us. On the one hand, we do supply some Silly George products from China. As we all know, this is a fluid situation, although yesterday’s news was certainly most welcome. At a 34% rate, the impact is minimal for us because our cost of goods is generally quite low, making the overall effect small and manageable, and we can absorb it. However, a jump to 145% might be a different story. But at this stage, the implications remain uncertain. We are monitoring this closely, and we’ll make adjustments as needed. For example, we are exploring the possibility to use our brand new clean room in Texas to assemble here if the tariffs return to being abnormally high. The good news is we are well positioned with plenty of Silly George inventory, having brought in a significant amount ahead of tariff changes.

This gives us valuable time to wait-and-see how the dust settles and continue to monitor how things will unfold, and then we can create a strategy that will preserve our margins. On the other side of the coin, we are seeing a substantial increase in interest in our U.S.-made gels. To date, for some applications, mostly cheaper and short-term usage products, sourcing of gels has come from China, where they cross-length the water and polymer using UV light and chemical activators. These gels do not compete with us in our main markets, such as medical device, cosmetics or dermatology, where biocompatibility is a prerequisite, and they simply don’t qualify. As of recently, we are seeing expanded interest in our gels. With tariffs even to 35% in play, we may find that our hydrogels are no longer materially more expensive than those produced abroad while being far superior.

So far, that’s a great advantage for us being a U.S. manufacturer and our pipeline and interest has grown significantly. So far, we have seen no weakness in our consumer product sales, and so we do not see a need to change our guidance of $13 million in revenue and achieving cash flow positivity in 2025. As we continue to drive innovation and growth across our key business segments, our focus remains firmly on delivering long-term value for our shareholders. With a strong foundation and significant opportunities on the horizon, we believe that 2025 will be another landmark year. We sincerely thank our shareholders for their trust and confidence, which are crucial to our continued success in growth as we work towards realizing our shared vision.

I’d now like to turn the call over to Joe McGuire, our Chief Financial Officer.

Joe McGuire: Thank you, Adam. Today, I’ll review financial highlights of our first quarter 2025 financial results. For the first quarter of 2025, revenue totaled $2.81 million, an increase of 121% as compared to $1.27 million for the first quarter of 2024. The increase in overall revenues was primarily due to the sales growth in both contract manufacturing and branded products. Cost of revenues totaled $1.62 million for the first quarter of 2025 as compared to $1.1 million for the first quarter of 2024. The increase and cost of revenues is primarily aligned with the increase in revenue growth. Gross profit totaled $1.19 million for the first quarter of 2025 as compared to a gross profit of $0.16 million for the first quarter of 2024.

Gross profit margin for the first quarter of 2025 was 42.4% as compared to 12.6% for the first quarter of 2024. The increase of $1.03 million in gross profit quarter-over-quarter was primarily due to the increase in overall sales. Selling, general and administrative expenses totaled $1.96 million for the first quarter of 2025 as compared to $1.03 million for the first quarter of 2024. The increase quarter-over-quarter was attributable to increases in compensation and benefits, share-based compensation, advertising, marketing and Amazon fee, professional and consulting fees, other fees and investor and shareholder services, which were offset by a decrease in franchise taxes and corporate insurance. EBITDA, a non-GAAP financial measure, totaled a negative $0.54 million for the first quarter of 2025 as compared to a negative $0.84 million for the first quarter of 2024.

Adjusted EBITDA, a non-GAAP financial measure, totaled negative $0.47 million for the first quarter of 2025 as compared to a negative $0.73 million for the first quarter of 2024. Net loss for the first quarter of 2025 was $0.71 million as compared to a net loss of $0.85 million for the first quarter of 2024. As of March 31, 2025, the company had a cash balance of approximately $1.19 million. And as of May 13, 2025, NEXGEL had 7,654,537 shares of common stock outstanding. I would now like to open the call for questions. Operator?

Q&A Session

Operator: [Operator Instructions] We’ll take our first question from Naz Rahman with Maxim Group. Please go ahead.

Naz Rahman: Hi, everyone. Thanks for taking my questions and the progress. On your guidance, how much did you bake into revenue or sales from AbbVie’s advice and does the delay affect the guidance, or there are other factors that could offset what you expected from AbbVie this year?

Adam Levy: I think I got that. Naz, you broke up a little bit, but yes. So we did not bake in a lot for. Hello. We did not bake in a tremendous amount for AbbVie only because, again, it’s not something that’s under our control. So the revenue we had for AbbVie was relatively minor, so it should not be impactful to us, meeting our projection $13 million.

Naz Rahman: Got it, thanks. You mentioned that you launched another product with STADA in 4Q. Can you provide, I guess, more details on what the product is, or at least what market opportunity for the plug is?

Adam Levy: Sorry, are you asking what the market opportunity is for the product associated with the study we did? Is that the question?

Naz Rahman: No. For the STADA launch in 4Q. Sorry, if I’m breaking up.

Adam Levy: You’re breaking up a little bit now, because I didn’t understand that.

Naz Rahman: Could you hear me better now?

Adam Levy: Yes, much better.

Naz Rahman: Awesome. On the product that you plan on launching with STADA in 4Q, could you provide more color or details on either what the product is and the market opportunity?

Adam Levy: Sure. So the first product obviously was Histasolv. That is a digestive enzyme. The strategy with STADA is to create a line of digestive enzymes for other indications. So this will be another digestive enzyme in Q4. There will be a third digestive enzyme in Q1, and then there are some other products that have synergies with some of the Medagel offerings that we’re discussing putting out as well in Q1 and Q2 of 2026.

Naz Rahman: Got it. And here’s what’s all currently. Is profit still growing or are you seeing, I guess like any plateauing of sales? And are there any strategies in place to further accelerate sales?

Adam Levy: Yes. So actually we’ve seen nothing but growth. Last month was the largest month we had on the product. So it’s grown very nicely from zero, to where it is today and it continues to grow every single month. Interestingly, the platform that we’d identified as probably the next biggest opportunity was TikTok. The incidence of histamine sensitivity in the general population, is relatively low as a percentage of the general population. So wide nets like Meta tend to not be as effective. More captured audiences like on Amazon, where you’re basically just presenting to people who are already interested in your products. A lot of the weeding out is done for you. Those work better for us. We identified that TikTok would be a great platform for us, and we do have plans, but we’ve kind of put them aside until there’s clarity around TikTok.

Because we don’t want to make the investment in building an audience on TikTok, and then find out it’s going away in two months. So yes, TikTok is one alternative places like WebMD is another. We’re already starting with that program, but right now, unfortunately, we just think it’s prudent to wait on TikTok until 60 days from now, when there’s more clarity as to its final determination.

Naz Rahman: In your remarks, you mentioned that if the tariffs end up being higher, I understand it’s a very evolving situation. You could potentially transition manufacturing to Texas, but if you did that with, would that impact any of your other business lines, or do you have enough excess capacity to transition, or shift manufacturing to Texas?

Adam Levy: Yes, well, so a lot of the eyelash manufacturing process is very manual. We just built a brand new clean room, and we built it with enough space to grow into both for ourselves, for AbbVie, which we thought would be a large opportunity in that space, as well as a few other larger customers. So we do have room to do it if we had to. Fortunately, now with yesterday’s news, the tariffs have come down to a more manageable level. And since our cost of goods on a consumer product, particularly a prestige brand, is only 16 or 17% of our final selling price, the 35% tariff is probably manageable and probably not worth moving anything over here. But again, we kind of didn’t know, and we’re thinking about those strategies in case somehow it reescalates and goes back to 150%. It is on the table for us.

Naz Rahman: If you went down that route, would you have to hire additional people and maybe your operating base would have to change, if you try to produce additional stuff in Texas, or is that based around what your current operating basis?

Adam Levy: Well, you would need additional labor to do the assemblies, and things of that nature just anytime you expand your manufacturing facility. But then again, you wouldn’t be buying it. You wouldn’t be paying for that in China, where labor is extraordinarily cheap. So look, it’s not an ideal situation, but it is one of the things that we’re looking at to mitigate if tariffs become basically untenable at 150%. They might be so you know, again, it’s a work in progress. But I’m just pointing out that we are considering lots of different scenarios, and we want to have a plan A, a plan B and a plan C right now that’s plan C.

Naz Rahman: Got it. And just kind of staying on solidworks in general. I mean you basically have the brand for a year at this point, give or take are you further optimizations you can make the brand, to I guess continue growing margins or more just about having launches at this point?

Adam Levy: So the brand is definitely going to continue to grow margins. And in fact we saw the largest growth in margins in – this last Q1. And the reason for that is simple. When you take over a brand, you don’t really know everything that works and you’re hoping to do a better optimization than the folks that had it before you. So you’re starting with let’s try these keywords. Let’s try those keywords. Which ones work, which ones don’t. This strategy worked effectively. The strategy was a little bit of a waste of money, and you start to dial it in better and better. Q1 was not. This is silly, George. Only taken by itself, it was not the largest quarter we had for Q1. In fact it was smaller in Q1 sales, because it wasn’t the holidays smaller than Q4 and smaller even than Q3.

Which had the launch of the pop-ons yet it was the most profitable quarter, and we’re going to continue on that trend now as sales grow, new products come out. We think we’re just scratching the surface with the profitability potential of Silly. George.

Naz Rahman: Got it. And just one if I may, on the laser hair removal application, could you I guess provide some comments as to how big of a market opportunity that is, and I guess like how many what the strategy there would be, like how many offices would you be selling to, or the physician size of marketplace is?

Adam Levy: Yes, so I’m not 100% sure as to the total size of the market. I know it is a very popular procedure and has a very large market size. We unfortunately have access to a lot of the market data surveys that are very expensive. But I can tell you that it is a large and growing market. We have interest from some very large companies such as Removery, some of the big players that have large franchises in laser. Because this is going to be a problem that has come to light. I mean this plume, this carcinogenic plume is a real health hazard. Again, not so much for the patient who goes in, five or six or eight times, but really for the practitioner. And we’re already starting to see OSHA, mandate that the plume must be controlled. And I think that our study is going to show that, we are by far the best and most cost effective option for that. And I think that’s going to be a big opportunity. How big exactly? I’m not sure.

Naz Rahman: Thank you for taking my questions.

Adam Levy: Sure. Anytime.

Operator: We’ll go next to Eric Ramos with Titan Capital Management. Your line is open. Please go ahead.

Eric Ramos: Hi, Adam. Congrats on the quarter. My first question was kind of you guys hinted at some inventory build for Silly George following the tariffs. Could you kind of discuss the magnitude of that, given that it presumably happened after the quarter end?

Adam Levy: Yes, so actually it happened in the quarter. We built inventory as we saw stuff kind of happening mostly on the pop on lashes, which is our most profitable, not most profitable, most popular product that comes from China. And we built enough inventory that we have time to kind of sit back and look at things. Fortunately, now it looks like we might even still be able to bring product in under the current scenario. Because as I said, 30% tariffs, 35% tariffs, they’re okay for us. It was only when it was 145% that we began to really look at alternatives. So hopefully we will be fine and hopefully this doesn’t revert back to the escalation, we had just a few days ago.

Eric Ramos: Got it. And then on the dilution side, you guys will seemingly need to tap the markets in the next few quarters. Is equity still kind of the primary form of financing you guys are looking at, or are there other options you guys are wearing, such as convertible notes or otherwise?

Adam Levy: I don’t really love convertible notes and I’m not a fan, as I’ve said before, of debt on a company until we cross that EBITDA positive line. But we do expect to cross that line in the very near future. And then everything’s open to us, right. You have revolvers, you have all sorts of ways to finance growth, once you’re a profitable business. I just, I’m just doing my best to avoid any kind of debt until we are an EBITDA positive company.

Eric Ramos: Got it. Okay. And I assume that’s EBITDA for the quarter, not the full year?

Adam Levy: Yes, as we well, you know, we’ve been growing at a tremendous rate. I have to believe that once we achieve it, because of the stickiness of our contract and white label that when we do achieve it, and that’s what really drives our profitability, because there are fixed costs that, we should be able to stay there. Once we get there, it won’t just pop up for one quarter, and then suddenly go back to a big loss the next quarter. I don’t see a scenario where that would happen.

Eric Ramos: Got it. Okay. And then maybe just one last one for me on the AbbVie deal. You may have discussed this previously, but kind of what is your like baseline runway run rate for AbbVie revenues? And then as that kind of supply agreement starts to pick up, you know, like what is the remaining excess production capacity you guys would have at your facility for water gels?

Adam Levy: Sure. So AbbVie had a pretty aggressive plan that they’ve shared with us to go out with it. Kind of follows the [Cool sculpt] plan to try to get, you know, 900 machines a year out into the marketplace. They were going to start with a soft launch that was originally supposed to start in July of 24. That got pushed to the first quarter of this year and now it’s been pushed to the end of the year to the first quarter of next year. So we’ve had two significant delays. But once that program starts, and again, that’s a significant. If you start doing the math on that number of machines, if they can get that number of machines out, one, two, three years in a row, and those machines do two, three, four, depending on what you think they can do in terms of procedures.

Remember that every procedure requires at least a minimum of two of our gel pads. So the numbers become quite significant. It will have a definite impact on the facility and get us closer to where you want to be as a contract manufacturer, in terms of your capacity and your capacity utilization. But we have a long way to go, so we’re not worried about that right now. That’ll be a good problem to have to need to build another facility.

Eric Ramos: Got it. That was all I had. Thank you so much.

Adam Levy: Sure.

Operator: We’ll go next to investor [Haristo Vachovsky]. Please go ahead.

Unidentified Analyst: Hello. Congratulations on great results. I want to ask, you mentioned that Silly George decreased in revenue a little bit from Q4 sequentially for, because of seasonal reasons. Are you tracking the general market and was the usual market seasonal decline? So can you tell us whether Silly George is still gaining market share?

Adam Levy: Yes. So we do have four-year history on the company that we did our due diligence on when we bought it. I can tell you it was a very slight decrease. What made it was interesting about it was that it was not the biggest quarter yet. It was the most profitable that’s why I kind of brought that up. But as far as a drop from Q4 to Q1, it was very modest, and it was probably less of a drop than they’ve ever had in their history before. We are not seeing any weakness whatsoever in terms of what we’ve expected from our consumers as of now. So that may change. I don’t know if there’s a recession coming or not. That’s going to be determined in the future. But as of right now, we’re not seeing any weakness.

Unidentified Analyst: So is there going to be a seasonal improvement for Silly George? I suppose women will wear more eyelashes when they – when the weather improves, right?

Adam Levy: Yes, we’ve seen – we’ve seen historically. Again, this is historical, not when we were running the company. Last year was skewed because the pop ons were so popular that, you know, there was an explosion of sales in mid-May when the pop ons came out and we took over. So Q2 was, the end of Q2 was pretty strong. Q3 was an exceptional strength. But we also have other new products coming out. So, yes, we expect seasonally for it to get stronger and stronger moving into the holiday season in Q3 and Q4. But we also have a focus pack of lashes coming out. Customers have told us they really like to have a pack that’s all one size, because they tend to throw some away in the variety pack. We’ll be offering that, we have a new three quarter lash.

We have five shades of lip gloss. We have a lip mask, and then we’re going to have our own hydrogel under eyes. So all of these products are also coming in and adding to the offerings. We should see significant growth in Q3 and Q4 especially.

Unidentified Analyst: Okay, that’s good to hear. And if you can explain to somebody that doesn’t know much about the cosmetic business, does your hydrogel help a lot in comparison to the competition?

Adam Levy: It does. It’s really interesting. And we’ve always thought it was one of the factors, actually, that I looked at as a potential synergy upside when we bought Silly George, which is we can make a hydrogel that is mildly adhesive to the face. So not a goopy hydrogel mask like you traditionally buy in the store, that’s like paper or felt soaked in hydrogel goop, and you kind of smear it on your face and slides down. Our mask or our under eyes will just sit on your face. They’re 90% water with a little hyaluronic acid and a little vitamin C. They will deliver moisture for two, three, four hours, you can walk around the house with them on. And they’re really a completely different experience. So we never put them out ourselves, because it’s very hard to start a beauty brand from scratch.

But with Silly George, we now have a mailing list of 300,000 active customers that we can begin to market and introduce our hydrogels to the beauty world through them. So, yes, we’re pretty excited about it.

Unidentified Analyst: Okay. That’s great to hear. And financial question, I’m not sure I heard correctly. You said that you don’t like issuing debt without being EBITDA positive, which I completely understand. But what do you think you’ll be able to survive on the current cash reserves until you’re EBITDA positive in the end of the year?

Adam Levy: Yes, we kind of do. Again, if something happens that requires an infusion of cash, remember, we’re always looking for a purchase opportunity as well, which is when we raise money. In the past, we put money back on our balance sheet when we bought something, but we don’t see an immediate need to do anything right now. But, you know, time will tell.

Unidentified Analyst: Okay. This is it from me. Good luck.

Adam Levy: Thank you very much.

Operator: [Operator Instructions] We’ll go next to Investor [Mike Andrews]. Your line is open. Please go ahead. Mr. Andrews, your line is open. Please check your mute function. Again Mr. Andrews, your line is open. Please check your mute function. Hearing no response from this line, we will move on. [Operator Instructions] It appears we have no further questions at this time. I will now turn the program back over to our presenters for any additional remarks.

Adam Levy: No additional remarks, but thank you, everybody, for joining our call. It’s a very exciting time as it has been in our growth in the last couple of years. And again, I thank all of our shareholders for their support.

Operator: This does conclude today’s program. Thank you for your participation. You may disconnect at any time.