Nexgel (NXGL) Q4 2025 earnings call transcript

Thank you, operator. Good afternoon and welcome everyone to NextGel's shareholder update conference call. I'm joined today by Adam Levy, Chief Executive Officer. Before we begin, I'd like to remind everyone the 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 in the company's business, I refer you to our filings with the SEC filed periodically.

The committee 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.

With that, it's my pleasure to turn the call over to Mr. Adam Levy. Adam, please go ahead.

Thank you, Walter, and thank you, everyone, for joining. On today's call, I will discuss our announcement this morning regarding the closing of our transaction to acquire Cellularity's degenerative wound segment. This is a transformational step forward for our company, marking our evolution into a more scalable, diversified medical technology business, tripling our revenue run rate and immediately contributing to profitability.

To close on the transaction, we successfully secured capital on more favorable terms, led by Sequence Life Science, a strategic partner with deep expertise in regenerative medicine, manufacturing, development, and commercialization. Their lead investment of $5.5 million not only strengthened the financing structure of the transaction, but also aligns us with a partner that enhances our capabilities across all of the aforementioned verticals.

The financing was done through convertible notes at a $0.60 conversion price and 50% warrant coverage with a strike price of $0.80. sense. We are excited to announce the formation of a new division, Bionic Surgical, a dedicated division focused on advanced biomaterials for tendon repair, soft tissue reconstruction, bone regeneration, and of course, wound care. The acquired portfolio includes six established regenerative biomaterial products spanning these key areas, positioning us squarely within one of the fastest-growing segments of healthcare. These are not early-stage assets. They are commercial-stage products with more than a decade of clinical use, demonstrated real-world utility, and existing reimbursement pathways. These products are already approved in approximately 500 hospitals and represent a large opportunity for bionics in non-orthopedic surgical specialties.

In addition to these commercialized products, there are currently three existing 510K devices in our pipeline. These three products have $4.6 million in paid-in capital and are scheduled for 2026, 2027, and 2028. Beyond the products themselves, we are also gaining an experienced commercial and scientific team. This is an important aspect of the transaction as it meaningfully expands our internal capabilities and strengthens our ability to develop and market NextGel's own medical devices as well. This transaction will be transformative not only from a strategic standpoint, but also financially. On a pro forma basis, we expect it to approximately triple our annual revenue to roughly $35 million and be immediately accretive to profitability upon closing. The strategic partnership with Sequence Life Science is incredibly important to NextGel.

In addition to providing the crucial capital for us to close on this transaction, Sequence brings an enormous wealth of expertise and skills. Sequence will act as backup manufacturer for the existing products, help us develop new products, and aid with distribution channels of their own to further expand our reach. I cannot think of a better partner for the journey we are about to take.

Taken together, the acquisition and our strategic partnership with Sequence represent a step change in NextGel's trajectory. We are combining a proven hydrogel platform with a portfolio of commercial regenerative products supported by a strategic manufacturing partner occurring on favorable financing terms. This positions us to accelerate product development, broaden our commercial footprint, and pursue new opportunities within the regenerative medicine landscape.

Our focus is now on execution and successfully integrating these assets and driving commercial growth. We will continue to build a platform that can generate sustained long-term growth and profitability.

With that, I'd like to open the call for questions. Operator?

Sure. So good to hear from you, Nas. There was no note. So basically, and it's a little confusing, but we paid $5.3 million at closing to Cellularity, and we assumed, and they're going to pay out, the $2.9 million that is owed to the sales reps in back commissions. Those sales reps are then reinvesting some of that back into NextGel. Of the $5 million convertible note, we also gave cellularity $5 million of this convertible note.

They then gave $2.5 million or half of that note to Sequence to settle a pre-existing debt that they had with Sequence. Sequence then wrote a check for $3 million in cash into this deal, thereby bringing their total investment between the debt, the existing debt, the compensation they took for their debt, as well as the cash they wrote directly into NextGel to $5.5 million. So it's a little bit – it's kind of like one of those four-way baseball trades, but I hope that explains it for you.

So yeah, so the note is an 18 month note. And it's a convertible note, obviously, and it matures in 18 months, pays a 10% coupon.

No, what's nice about this transaction is that this was always a separate segment with its own people within Cellularity. In fact, they reported as a separate segment. So we took the key people that we wanted from that segment. We sublet some space in the actual same building that Cellularity is in. So most of the operations kind of move over seamlessly.

You know what there also is to integrate however is some of the synergies So you know I been asked by including yourself many times like well why don you ever sell SilverSeal or these other medical devices Why aren't you developing them? Because they require really a medical sales force, which we never had. So we're looking forward to, because we will now have reach through all the independent sales reps that we're planning on putting on and the ones that are returning to us, to be able to not only fully commercialize these existing products, but the new products in the pipeline, as well as some of the NextGel products, where appropriate, within hospitals.

So in the case of this company doing the same business that they did last year, our models, if we did 22 to 23 million, shows about 4 million to 4.5 million of EBITDA. Assuming that's the number we hit, we were hoping to do better than that. The gross margins are, and I know you and I have had many conversations about NexJel's gross margins being, you know, complicated because you have both the medical device and the consumer products and how they skew each other.

There's a little bit of that within cellularity. So they really have three buckets of margins. There's the lower margin with higher cost of goods distributor model where there's no commissions paid. Then there's the wound care area, which is only about 15% to 20% of the business, where the commissions are modest, but there's a little more margin, but still less. And then there's surgical where the margins are exceptionally good, but the sales commissions can go as high as 30 to 35 to almost 40% sometimes. So when you talk about the blend, we expect to get a contribution margin of roughly 52%, but it's made up of three different components.

Yeah, you know, Q4 was surprisingly light for us. Some of the new products didn't really do what we thought they were going to do. Silly George had sort of a step back quarter, but we're seeing a nice recovery in Q1. We're not going to see a drop off, especially in consumer in Q1. And I don't want to get too detailed because we obviously haven't reported it yet. But we're seeing a return to normality in Q1. Q4 seemed to be, on the consumer product side, a little bit of anomaly for us.

Sure.

It doesn't. NextGelRx is specifically the drug delivery program that was spun out to be developed separately, which includes our Premalask program. So that is a separate spin out that NextGel owns 20% of, but has really very little to do with this transaction. It's not affected at all by this transaction.

Got it. Thank you. Pleasure.

Sure. So if you take basically the conversion price of 60 cents and you also take 50% warrant coverage and assume that all the warrants are going to be exercised, you come up with a formula that for about every million dollars, there's 2.4 million shares. The deal will probably, between the purchase price and a little bit of working capital, be somewhere in the $12 to $14 million range total raised. So if you do the math, you're somewhere in the $30 million share area.

We'll get more details as the rounds close. Our filings will certainly, or 8Ks and everything, we'll certainly lay that out in great detail as soon as we know what the exact numbers are.

Sure. Thank you.

so this was a business that had scaled all the way up to 50 million as recently as 2024 cellularity ran into some financial challenges and in 2025 did not pay their sales reps and that's why you see in the deal that one of the things that had to come out of proceeds immediately was getting the sales reps back and re-engaged as i said in the in my opening you know these products are approved in over 500 hospitals and there was nobody walking into them. So it's our job to sort of reinvigorate that, get the sales force working again. We've identified and will soon be hiring a new national sales manager and we hope to get back to that level and beyond.

Especially some of the new products, the product that we currently call Project Spark, which is a tendon wrap. It will be the first FDA 510K constructed out of human tissue. It's made of placental material. The reason placental material has not been used previously extensively for wraps like this is because of the tensile strength. This has about the highest tensile strength on the market. It's thin as a piece of paper. And of course, because it's made of placental material, has tremendous anti-inflammatory properties. So we think that could be a game changer. We think that product could potentially be a $40 to $70 million product on its own. That's potential. But we're very excited about the new products, and we think we can get back to close to what they were doing in 2024, hopefully in that two-year span that you're talking about.

Hey, Ves. I wanted to ask you about the intellectual property being acquired in this country. transaction. Is NextJol going to be paying any royalties to anybody on these products going forward? So the only royalties is a great question. The only royalties are because the new products that we're getting in the pipeline that have the $4.6 million of paid in capital. We have a 5 royalty to cellularity on the Spark project We have a 3 royalty on the ORCID project and a 1 royalty on the Fuse project And that just sort of a hey, you guys have a lot of money tied up in this. They obviously have the most money tied up in the one that's coming out this year.

So that's got a little bit higher royalty. But when you look at the sale price of these products and the margins on these products being surgical products, that's a very easy to handle single digit, low single digit royalty. And that's it. Other than that, there's no other royalties.

Yeah, they sunset, I think, after seven years, I want to say.

Right. So our third quarter, you're talking about the second quarter, which we own these products.

Got it. Yeah, our third quarter. yes, the company will be on an EBITDA basis for certain will be profitable. Remember, this is a seasonal, and this kind of took me by surprise as well, this is a seasonal product line. So Q1 is generally the weakest. It gets a little stronger in Q2. And Q3 and Q4 is sort of where you kind of make hay. And Q4 particularly is the strongest product. And that's because of these new high reimbursement insurance plans. a lot of people wait for these procedures until the end of the year when the reimbursement is better. So Q4, to give you an example, in many of the historical years, Q4 was as big as the rest of the year put together.

But on a rolling, you know, 12-month basis company should be both EBITDA and operating, which EBITDA is profitable.

I was just going to embellish on that, but good. I was just going to say that's really one of the things that made this kind of – one of the things amongst others that made this an attractive proposition for us is that, look, NextGel has made some acquisitions, and each of those acquisitions from CG Labs to Silly George to Kencoderm, each one is profitable in and of its own. But the plant is still underutilized, and the public company expenses are still considerable. So what we really lacked was the ability to scale because this is a very long onboarding process. We talk about NextGel's medical device business.

So this is a nice way for us to accelerate and get enough revenue and volume and scale so that we can immediately become profitable. And that was a big motivator in why we did this.

Sure, sure, sure. And we kind of get that from the – we do the same thing in the commercial products. So really all week, what I just called, and I'll clarify, contribution margin, is essentially cost of goods plus commissions and sales commissions and direct sales costs. So it does not include any of the fixed overhead. That's what I consider as being contributed to cover the fixed overhead, which gives you a good way to analyze things, right? We know we have 52% margin, and we know our fixed cost, payroll, rent, all of those things are X. We have to do some multiple of revenue to get to where we cover that, and after that we become profitable.

So that's what I mean when I say contribution margin. So it's cost of goods out plus sales commissions. And then what basically goes into corporate overhead? So all of the other things, rent, salespeople, you know, we have a fixed overhead that's pretty easy to quantify. And so, you know, it's going to be probably around the six to six and a half million dollar range. And in that, we also have budgets for things like demonstrations and travel. And, you know, it covers everything else that's below the line in the SG&A line. So the contribution margin really is the gross profit that goes into the SG&A line.

So the short answer is NextGel, Will, but it's going to be done in a series of different ways. So first of all, this is a great opportunity for NextGel to move forward with some programs we kind of put to the side, like our drape programs and Nexterm, things that we really said, you know, we can't really make these right now because the only real opportunity for us is to hope we can sell them to somebody else and we have other things to do right now. But now we have a sales force so we can begin to continue to develop those because there's not a lot of cost needed for those. Number two is the continued development of the programs that are already in cellularity and those are done within our offices.

The space that we took has its own development lab, so we have a budget built in to continue to do R&D on those types of products and continue to get labels on those products. And the third one, which is really exciting, is that our new strategic partner, Sequence, also develops products. They have a full development team in their facility in San Antonio, and they're very excited about combining technologies with us, finding uses for the hydrogel, helping us distribute the hydrogel. They have some ideas on how our hydrogels could be used in wound care in the new landscape that's out there. So we'll be getting products from multiple different sources.

Yes, we own, for example, on Project Fuse and Project Orchid, we will own all the patents on those. And that means obviously higher margins go to NexJL's shareholders or stakeholders, let's put it that way.

But again, the margins are the same on, I mean, the other products don't have really patent protection anymore. The BioVans, Interfill, these products have been on the market since 2012, 2013, 2014. So really what makes them valuable is the fact that they're approved in 500 hospitals, is the fact that they have great clinical data to support their sale, the fact that they're reimbursed by Blue Cross. You know, that's what really makes those products interesting to us, not patent protection. They're off patent.

But my point was if it gets developed under NextGel roof so to speak any future products I presume developed by NextGel there will be no royalties 100% our plan is to own the patents ourselves.

Well, that also depends on where things are. I mean, what's always been critical to us, and we haven't been able to achieve it yet, but it's always been very important is that, you know, when you switch a company to being profitable, it then switches on to offense. So at that moment when you're at offense, you don't have to do anything because you're making money. So if you feel your stock is getting unfairly treated or beaten up, then it's absolutely a time for stock buybacks, you know, to protect your shareholders and increase their value. If you feel your stock has gotten ahead of itself, then sometimes it's good to take a little money off the table.

But you have the ability to do those things on a decision-making basis as opposed to we need to raise money basis because we can't stay afloat. So that's the goal. That's one of the reasons why this transaction is so important to us. So I can't particularly say what the circumstances are going to be, but yes, that would certainly be one of the tools in the toolkit would be a stock buyback should the right circumstances present themselves.

No worries. Thanks for your questions.

Yesterday, Robert.

The effective date was Monday, and so as of Monday, all sales – remember, these are products that are used in hospitals every day. So as of Monday, it will begin to generate revenue.

well obviously if the if the if we do well and we're successful and we stay above the conversion price of note it would certainly convert uh and and therefore we would not have to pay the money back um if we do poorly uh and nobody can convert well then we better find a way to get the money back to the folks and that's why it is so critical um that we turn profitable uh as one of the previous callers said in q3 and q4 and q1 and maintain that profitability because if we have that kind of strength, then all those things are very easy to do. If you can't do that, if something goes horribly wrong, you know, it's convertible notes.

I'm not going to sugarcoat it. It can turn ugly. But we have a very high confidence level here. We know sort of the space, the area. You know, it's interesting because when we announced this deal, the street clearly didn't like it. And there were times that we thought about abandoning it. And I kept talking to more and more people and going, you know, so what am I missing here? Like, why does the street hate this deal. And a lot of really smart people said, we think the street's wrong. We like this deal. We like what it does for NextGel. And then eventually I asked Sequence and they confirmed, not only do we think the street's wrong and do we like this deal, but we'd like to get involved in a meaningful way.

So, you know, sometimes you have to kind of do what you believe is the right call and take an opportunity that's there. And we're pretty confident this is going to turn out very, very well.

None.

None. This is senior secured debt. There's nothing else on the books.

Well, you know, we're branding it as Bionics. Bionics, the brands are really already established in terms of, you know, BioVance and Interfill. Those brand names are what the doctors recognize. It's what the hospitals recognize. So that part is done. You know, we have a great deal of familiarity with these products. The original iteration of BioVance, and I think it was 2012, was released by Illiqua Biomedical in a partnership with Celgene. Well, Illiqua Biomedical was our parent.

I've talked about this before. The person that runs as the president of Cellularity Degenerative Wound segment is Dr. Steve Brigido, who is coming over with us and is already on my scientific advisory board, has been for four years, did all the Silver Seal studies. So this is kind of what NextGel was always sort of thinking about being. We were always going to be a medical device company. The whole branded thing sort of happened and commercial products happened because of the pandemic.

And so we ended up with something that is now profitable. It's lucrative. And so we're going to continue it. But this is really our roots. This is really our core.

And if we can do that, it opens up putting other things in their bag. And so, yeah, we're going to identify those. And the important thing is no longer we're only making this product that we can't possibly hope to commercialize and maybe we can sell it to somebody. Now we can say, you know what, we think it's a good product. We think it's a viable product. Let's try and sell it ourselves. And if we sell it ourselves really well, then maybe we can sell it then or maybe we'll just keep it. But it opens up a lot more opportunities for us.

Thanks, Robert.