NEXGEL, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Unaudited results compare with the three months ended March 31, 2023. Amounts are in thousands of dollars unless otherwise noted.
Business context
NEXGEL manufactures hydrogel products for healthcare and consumer applications, and also sells branded consumer products. Its reportable segments are NexGel and CGN, a 50%-owned converting and packaging joint venture that NEXGEL consolidates. The Kenkoderm skincare line, acquired in December 2023, expands the consumer portfolio but does not use NEXGEL’s gel technology.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 / prior balance |
|---|---|---|
| Revenue | $1,266 | $620 |
| Gross profit (loss) | $277; 21.9% margin | $(57); (9.2%) margin |
| Operating expenses | $1,148 | $826 |
| Operating loss | $(871) | $(883) |
| Consolidated net loss | $(905) | $(807) |
| Net loss attributable to NEXGEL stockholders | $(853); $(0.14) per share | $(814); $(0.15) per share |
| Cash and cash equivalents | $2,419 | $2,700 at Dec. 31, 2023 |
| Working capital | $2,380 | $2,503 at Dec. 31, 2023 |
Operating cash use was $1,092, versus $709 in Q1 2023. Investing activities used $118, including $152 of capital expenditures; financing activities provided $929, primarily from the rights offering. Cash decreased by $281 during the quarter.
Total liabilities were $5,180 at March 31, 2024. Notes payable were $750, financing lease liabilities were $407, and operating lease liabilities were $1,915. Current assets were $4,863 and current liabilities were $2,483.
Changes versus the prior period
- Revenue increased $646, or 104.2%, with growth in contract manufacturing and branded products. Disaggregated revenue included $601 contract manufacturing, $31 custom and white label, and $617 consumer branded products.
- Gross profit improved by $334, moving from a gross loss to a 21.9% margin, principally alongside increased branded-product sales.
- SG&A rose 43.8% to $1,146, reflecting higher compensation, share-based compensation, advertising and marketplace fees, and professional and consulting costs. Operating loss narrowed slightly despite this increase.
- Operating cash use increased by $383 year over year. NEXGEL raised approximately $946 net through a February registered direct offering; it issued 485,782 common shares and warrants to purchase up to 242,891 shares. The offering also included placement-agent warrants.
- Property and equipment, net, rose to $2,194 from $1,499, including equipment investment and assets financed through notes and a lease.
Outlook, risks and unusual items
- Management says available cash and marketable securities should fund its business plan into 2025, but expects near-term losses and says additional debt or equity financing may be needed. The filing identifies continued operation as dependent on growing the business and achieving profitability.
- Plans include expanding contract manufacturing and branded products, pursuing sales channels in cosmetics and athletic products, developing medical devices and drug-delivery programs, and evaluating strategic initiatives. No quantified revenue or earnings guidance is provided.
- The Kenkoderm purchase included $546.5 cash consideration and contingent earn-out payments initially set at $136.625 per quarter during 2024, subject to adjustment based on business results. The reported contingent consideration liability was $439.
- Revenue and receivables remain exposed to customer concentration: one customer represented approximately 10% of Q1 2024 revenue, and two customers represented 24% and 44% of receivables at quarter-end.
- Other cited risks include capital availability, customer or supplier loss, competition, regulation, manufacturing compliance, technology obsolescence, and execution of acquisitions and growth plans. Management reported no known material legal proceedings or material litigation claims.
- Management concluded disclosure controls were effective at a reasonable level of assurance as of March 31, 2024. The filing cover page appears to mark “No” for filing all required reports during the preceding 12 months.
Important facts for investors to verify
- Confirm the cover-page “No” response regarding timely filing of required reports and understand its implications.
- Track cash burn, working capital, and the company’s stated funding runway into 2025, including whether further financing is required.
- Assess whether revenue growth—especially branded-product growth—can support sustained gross margins and reduce operating losses.
- Review potential dilution from the offering securities, outstanding warrants, options, and restricted stock units.
- Monitor Kenkoderm sales and earn-out calculations, customer concentration, and the timing and returns of equipment investment.
- Reconcile reported revenue by sales type with the segment disclosure, which presents contract-manufacturing revenue differently.