NovaBay Pharmaceuticals, Inc. (NBY)·Q2 2024 Earnings Summary

Executive Summary

• Net sales were $2.40M, down year-over-year due to the absence of a large, low-margin wound care order in Q2 2023; eyecare product revenue grew 8% YoY and drove gross margin expansion to 66% from 49% .
• Sales and marketing expense fell 13% YoY to $1.02M amid continued digital advertising efficiencies; G&A held steady at $1.62M .
• Net loss attributable to common stockholders improved to $1.6M ($1.37 per share) versus $4.0M ($44.43 per share) in Q2 2023; six-month net loss was $5.2M ($5.57 per share) .
• Management reaffirmed confidence in ~ $10.0M 2024 eyecare net revenue, highlighted subscription-driven recurring sales (~24% of online Avenova revenue YTD), and completed a $3.9M financing in July that strengthens liquidity and positions the company to pursue strategic/fundamental transactions—management teased a possible transaction that could fundamentally change the business .

What Went Well and What Went Wrong

What Went Well

• Eyecare product revenue rose 8% YoY with higher Avenova sales through online channels; gross margin expanded to 66% from 49% on product mix shift away from low-margin wound care .
• Subscription base momentum: “Subscribe & Save customers on Amazon.com increased 16% during the first half of the year… subscriber sales… accounted for approximately 24% of all online Avenova sales year to date” .
• Operating discipline: “sales and marketing spend for the quarter down 13% over the prior year… testament to our digital marketing expertise” (Justin Hall) .

What Went Wrong

• Total net sales declined to $2.40M from $3.53M in Q2 2023 due to the lack of a one-off NeutroPhase wound care order that benefited the prior-year quarter (Q2 2023: $1.3M wound care) .
• Cash at quarter-end was $0.75–$0.80M pre-offering, underscoring near-term liquidity sensitivity prior to the July raise .
• Continued net losses, with H1 2024 net loss attributable of $5.2M, and increased G&A in H1 tied to strategic initiatives and divestiture costs .

Financial Results

Revenue, EPS, Margins vs Prior Periods and Estimates

Notes:

• Consensus estimates from S&P Global were unavailable due to data access limitations; therefore, no beat/miss vs consensus can be assessed for Q2 2024 [GetEstimates error].

Segment Breakdown

Key KPIs

Guidance Changes

No formal quantitative guidance ranges were issued for EPS, operating income, OI&E, tax rate, or dividends in Q2 materials .

Earnings Call Themes & Trends

Management Commentary

• “Revenue growth was driven by higher Avenova sales through online channels… subscriber sales on Amazon.com and Avenova.com accounted for approximately 24% of all online Avenova sales year to date… These recurring sales create predictable revenue… and allow us to efficiently manage our sales and marketing spend” (Justin Hall) .
• “Sales and marketing spend for the quarter down 13% over the prior year… testament to our digital marketing expertise… loyal base of customers who generate reoccurring revenue” (Justin Hall) .
• “Gross margin… 66% compared with 49%… primarily due to… higher-margin eyecare products and a decrease in… lower-margin wound care products” (Tommy Law) .
• “We completed a capital raise last month… allowing us to pursue some strategic and fundamental transactions from a position of strength… possible transaction that would fundamentally change our business” (Justin Hall) .
• “Margins… consistent… around 65%… expect that to remain constant going forward” (Justin Hall) .

Q&A Highlights

• Wound care orders outlook: Expect some orders later in 2024 and into 2025, but not as material as 2023 lumpiness .
• Marketing strategy shift: Reduced top-of-funnel spend; focus on converting loyal consumers to Subscribe & Save to drive predictable, zero-ad-spend recurring revenue .
• Subscription contribution and frequency: ~25% of online revenue comes from Subscribe & Save; typical cadence ~monthly per bottle .
• Seasonality: Expect incremental Q3 increases and a “strong Q4” with physician-dispensed and back-to-school pushes .
• Margins/supply chain: No supply chain changes; eyecare margins steady at ~65% given mix; Amazon/ads costs stable with careful spend on Google/Meta .

Estimates Context

• S&P Global consensus for Q2 2024 EPS and revenue was unavailable due to data access limitations, so we cannot assess beat/miss versus Wall Street expectations at this time [GetEstimates error].
• Given management’s commentary and reported results, near-term estimate revisions may reflect: higher gross margin from eyecare mix, lower S&M expenses, and continued subscription-driven recurring revenue; however, without published consensus, magnitude cannot be quantified .

Key Takeaways for Investors

• Mix shift to eyecare improved unit economics: gross margin expanded sharply to 66% on the absence of low-margin wound care and strength in Avenova online sales .
• Efficient growth engine: S&M fell 13% YoY while subscriptions rose—~24% of online revenue YTD—supporting predictable monthly cash inflows and reduced CAC .
• Liquidity enhanced: $3.87–$3.90M July financing alleviates near-term cash constraints (Q2-end cash ~$0.75–$0.80M), enabling pursuit of strategic/fundamental transactions .
• Seasonality matters: Expect sequential Q3 uptick and stronger Q4 from physician-dispensed and back-to-school initiatives—useful for near-term trading models .
• Watch for partnership execution: Eyenovia co-promotion and broader partnership focus in H2 could expand reach and add complementary revenue streams .
• Risk monitor: Continued net losses and warrant/convertible structures; ad spend and platform dependency (Amazon) need ongoing efficiency discipline .
• Potential catalyst: Management’s indication of a possible transaction that could “fundamentally change” the business warrants close attention for event-driven positioning .