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NovaBay Pharmaceuticals, Inc. (NBY)·Q4 2023 Earnings Summary

Executive Summary

  • Q4 2023 revenue was $3.7M, up ~12% sequentially vs Q3 ($3.3M), with gross margin at 49% and net loss attributable to common shareholders of $9.2M ($1.33 per share). Year-over-year, Q4 revenue rose 2% driven by eye care growth. Non-cash items weighed on GAAP results: $2.6M DERMAdoctor impairment and a $5.1M preferred stock conversion price adjustment; other expense was $0.8M tied to 2023 convertible notes amortization .
  • Business pivot accelerated: sale of DERMAdoctor closed March 25, 2024 ($1.07M proceeds), refocusing on Avenova-driven eye care and wound care; NovaBay will return to a single segment model post-divestiture .
  • Commercial momentum: physician‑dispensed channel and subscription metrics strengthened, co‑marketing with Eyenovia for a newly approved steroid is expected to launch in coming months (trade name expected in summer), with Eyenovia reps also promoting prescription Avenova .
  • Estimates context: S&P Global consensus for Q4 2023 revenue and EPS was unavailable via our data feed, so “vs. estimates” cannot be assessed at this time (S&P Global).

What Went Well and What Went Wrong

What Went Well

  • Eye care KPIs strengthened: online subscription-based unit sales rose 64% YoY and subscription-based sales increased 38%; prescriber-originated sales comprised 24% of online revenue in 2023, up from ~14% in 2022. Management emphasized the “doctor recommended” halo and subscription flywheel to drive repeat purchasing .
  • Cost discipline: Q4 sales & marketing fell 27% YoY to $1.4M and G&A fell 51% YoY to $1.2M; full‑year 2023 S&M and G&A declined 17% and 15%, respectively, reflecting lower digital ad and professional services spending and headcount rationalization .
  • Strategic partnerships: launched Avenova Allograft (BioStem) for severe dry eye via physician channel; announced co‑marketing with Eyenovia to leverage 10 field reps nationwide and promote prescription Avenova, expanding reach beyond inside sales. “This is a considerable opportunity to generate additional professional awareness and grow sales of Avenova” .

What Went Wrong

  • DERMAdoctor underperformance and strategic exit: continued skin care weakness drove a $2.6M impairment in Q4 (following $6.7M in 2022), with skin care sales decline a major factor leading to divestiture; going forward the brand is sold and assets removed from collateral .
  • Sequential margin compression: gross margin decreased to 49% in Q4 (from 56% in Q3), reflecting product/channel mix and cost dynamics; Q3 mix commentary cited lower margins on certain DERMAdoctor and wholesale wound products .
  • Capital structure headwinds: other expense rose to $0.8M in Q4 due to amortization of 2023 convertible notes; anti‑dilution provisions triggered in March 2024 reduced Series C conversion price to $0.14, increasing potential dilution, and monthly redemptions on secured notes pressure liquidity amid going‑concern risk flagged by auditors .

Financial Results

MetricQ2 2023Q3 2023Q4 2023
Revenue ($USD Millions)$4.6 $3.3 $3.7
Gross Margin (%)50% 56% 49%
Net Loss per Share ($)$(1.27) $(0.37) $(1.33)

Segment revenue mix (where disclosed):

SegmentQ2 2023 ($M)Q3 2023 ($M)Q4 2023 ($M)
Eye Care (Avenova)$2.2 $2.4 Not separately disclosed (included below)
Skin Care (DERMAdoctor)$1.1 $0.8 $0.9
Wound Care (NeutroPhase/PhaseOne)$1.3 $0.1 Not separately disclosed (included below)
Eye Care + Wound Care (combined)——$2.8

Operating expense detail (Q4 2023):

MetricQ4 2023
Sales & Marketing ($M)$1.4
G&A ($M)$1.2
R&D ($M)$0.004
Impairment (DERMAdoctor, non-cash) ($M)$2.6
Other Expense (primarily notes amortization) ($M)$0.766

KPIs (2023 unless noted):

KPIValue
Online subscription-based unit sales YoY growth+64%
Subscription-based sales YoY growth (Amazon + avenova.com)+38%
Prescriber share of online sales (2023 vs 2022)24% vs ~14%
Physician‑dispensed channel Avenova growth (Q3 YoY)+36%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY/Q4 2023None disclosedNone disclosedMaintained (no formal guidance)
Gross MarginFY/Q4 2023None disclosedNone disclosedMaintained (no formal guidance)
OpExFY/Q4 2023None disclosedContinued cost discipline focusQualitative: lowered ad/pro services, headcount
Product Launch Timing (Eyenovia steroid co‑marketing)2024N/ATrade name expected “as soon as this summer”; co‑marketing to begin in coming monthsNew qualitative timing

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3)Current Period (Q4)Trend
Physician‑dispensed channel+36% YoY in Q3; CME outreach, AOA/educational engagement Core growth lever; Eyenovia co‑marketing adds 10 field reps; focus on prescription Avenova and Allograft Strengthening reach and conversion
Digital marketing spendS&M -16% YoY in Q2; optimization across DTC Strategy pivot away from heavy DTC ad spend to physician-led “flywheel” Lower spend, higher efficiency
Product portfolio & partnershipsAvenova Allograft via BioStem launched; wound care record order in Q2 Partnership-led innovation; co‑marketing with Eyenovia; no internal R&D expansion Partner-first expansion
Wound care demand cadenceQ2: $1.0M China order; expected smaller Q4 order Q4 included combined eye+wound sales; lower-margin wholesale mix impacts GM Lumpy wholesale; margin sensitivity
Regulatory/market safetyAvenova products unaffected by FDA eye drop warnings; US-made Continued emphasis on safety and physician recommendation Reputation tailwind
International expansionDERMAdoctor focus on China “Double 11”; DERMAdoctor distributors EU distributor outreach with Sonoma (Avenova-branded HOCl) in progress Early-stage EU outreach
Capital & dilutionPrivate placement notes/warrants (May 2023); non-cash items Anti‑dilution triggered lowering Series C conversion price to $0.14; new warrants/notes issued; going‑concern risk persists Heightened dilution/liquidity risk

Management Commentary

  • “Avenova Spray is established as the #1 doctor recommended antimicrobial lid and lash solution…customer loyalty is evidenced by the 64% year-over-year increase in online subscription-based unit sales and 38% increase in subscription-based sales on Amazon and avenova.com” .
  • “This is a considerable opportunity to generate additional professional awareness and grow sales of Avenova…we’re excited to partner with Eyenovia” (on co‑marketing and field reps) .
  • “With the sale of DERMAdoctor now closed, we look forward to focusing once again on our eye care business segment…this channel supports direct-to-consumer sales and provides a doctor recommended halo effect” .

Q&A Highlights

  • EU distribution: Company and Sonoma are engaging EU distributors to launch Sonoma hypochlorous acid under the Avenova brand; revenue won’t be broken out by channel, but commentary will be provided as sales grow .
  • Commercial strategy: Pivot from inside-only sales to leverage Eyenovia’s 10 field reps to access accounts requiring in-person detail; inside team on Eyenovia side complements NovaBay’s CRM reach for 2024 physician‑dispensed push .
  • Marketing pivot: Reduced focus on buying online “eyeballs” and building consumer brand; now relying on physician recommendation flywheel to drive DTC re-purchase behavior .
  • R&D/product pipeline: No internal R&D expansion; innovation via partnerships (BioStem Avenova Allograft, Eyenovia steroid) .

Estimates Context

  • S&P Global consensus for Q4 2023 revenue and EPS was unavailable via our data access at this time, so “vs. estimates” assessment cannot be provided (S&P Global).

Key Takeaways for Investors

  • Sequential improvement in revenue with eye care momentum, but Q4 GAAP loss reflects sizable non‑cash impairment and capital structure adjustments; focus on underlying operating trajectory and margin mix .
  • Post-divestiture simplification and physician‑led go‑to‑market should improve efficiency and reduce cash burn; eye care channel is the growth engine .
  • Co‑marketing with Eyenovia and Allograft launch can expand prescriber awareness and prescription Avenova adoption—watch rep activity and RX pull‑through in 2H 2024 .
  • Margin sensitivity to wholesale/wound mix persists; monitoring gross margin trajectory as product/channel mix normalizes will be key .
  • Liquidity and dilution risks are elevated: monthly redemptions on convertible notes, anti‑dilution reset on Series C to $0.14, and auditor going‑concern warning—expect capital actions and potential dilution .
  • International expansion is exploratory (EU distributors via Sonoma); near-term growth drivers remain US physician-dispensed and DTC subscription flywheel .
  • With no formal guidance, track quarterly execution on S&M discipline, prescriber-led KPIs (subscriptions, physician-dispensed revenue), and field rep productivity to gauge progress .