Company Overview
NEXGEL, Inc. (NXGL) has established itself as a leading provider of ultra-gentle, high-water-content hydrogel products for healthcare and consumer applications. With a diverse portfolio spanning wound care, medical diagnostics, transdermal drug delivery, and cosmetics, the company has navigated the dynamic landscape of the hydrogel industry, delivering innovative solutions to its growing customer base.
The company’s origins can be traced back to 2019 when it operated under the name AquaMed Technologies, Inc. In November 2019, the company rebranded to NEXGEL, reflecting its focus on the development and manufacturing of custom hydrogel products. NEXGEL’s core technology involves proprietary mixing, coating, and cross-linking methods that allow it to produce hydrogels that can satisfy rigid tolerance specifications. From 2019 through 2023, NEXGEL primarily served as a contract manufacturer, supplying its hydrogel products to third parties who incorporated them into their own products.
Business Expansion and Diversification
In 2020, NEXGEL launched two new business lines, its own branded consumer products and a custom and white label opportunity, which focused on combining its hydrogel technology with proprietary branded products and white label opportunities. This diversification strategy has been instrumental in driving the company’s growth, as evidenced by its recent financial performance.
In March 2023, NEXGEL acquired a 50% interest in a newly formed joint venture, CG Converting and Packaging, LLC, to expand its converting and packaging capabilities. This allowed the company to reach more customers with a variety of gel shapes and sizes. Later in 2023, NEXGEL acquired the Kenkoderm brand, a skincare line focused on reducing symptoms associated with psoriasis. This marked the company’s first expansion into product offerings unrelated to its core gel technology.
Challenges and Growth
NEXGEL faced several challenges during this time period. In 2022, the company incurred net losses of $4.75 million as it invested in growing its branded consumer product lines and joint ventures. The company also had to navigate supply chain disruptions and increasing costs. Despite these headwinds, NEXGEL was able to grow revenue from $1.55 million in 2021 to $4.09 million in 2023 through its diversification efforts.
Financials
For the 2023 fiscal year, NEXGEL reported revenue of $4.09 million, a significant increase from the $2.05 million reported in 2021. The company also reported a net income of -$3.16 million, operating cash flow of -$3.24 million, and free cash flow of -$3.93 million for the same period.
In the third quarter of 2024, NEXGEL reported revenue of $2.94 million, a staggering 141% increase compared to the same period in 2023 and a 104% increase sequentially. The net income for this quarter was -$693,000, with operating cash flow at -$1.22 million and free cash flow at -$1.23 million. The increase in overall revenues was primarily due to sales growth in branded consumer products, including the recent acquisition of the Silly George brand, and partially offset by a decrease in contract manufacturing.
For the nine months ended September 30, 2024, NEXGEL reported total revenues of $5.65 million, a substantial 87.8% increase from the $3.01 million reported in the same period of 2023. Gross profit also improved significantly, rising to $1.97 million or 34.9% gross margin, compared to $461,000 and a 15.3% gross margin in the prior year period. However, the company reported a net loss of $2.43 million for this period, compared to a $2.06 million net loss in the same period of 2023, primarily due to increased selling, general, and administrative expenses.
Liquidity
As of September 30, 2024, NEXGEL had a cash balance of $1.06 million, which was subsequently strengthened by a $2 million registered direct offering completed in November 2024. This additional capital will enable the company to invest in inventory, marketing, and support the growth of its receivables from its large customers.
The company’s financial health is further evidenced by its debt-to-equity ratio of 0.22, current ratio of 1.51, and quick ratio of 0.93 as of September 30, 2024. NEXGEL also has a brokerage account margin line of credit with $345,000 outstanding as of the same date.
Business Segments
NEXGEL operates in two main business segments: the NexGel segment and the CGN segment.
The NexGel segment is the company’s core business, focused on manufacturing ultra-gentle, high-water-content hydrogel products for healthcare and consumer applications. This segment includes the company’s proprietary gel technology and recent acquisitions of the Kenkoderm and Silly George brands.
The CGN segment, established in March 2023 through a joint venture, expanded NEXGEL’s converting and packaging capabilities. This segment provides additional capacity and flexibility to reach more customers with a variety of gel shapes and sizes.
Growth Drivers
NEXGEL’s growth trajectory has been primarily driven by the success of its branded consumer product segment, particularly its Silly George brand, a beauty and cosmetics company focused on eyeliner, fake eyelashes, lash serum, and mascara. The company acquired Silly George in May 2024, and the brand has already contributed significantly to NEXGEL’s topline, reporting a revenue run rate of approximately $5 million as of the end of the third quarter.
The company’s contract manufacturing business has also played a pivotal role in its overall performance. In the third quarter of 2024, contract manufacturing revenue increased by 103% sequentially, as NEXGEL successfully navigated the expansion of its Texas facility and the installation of state-of-the-art automated machinery and clean room facilities.
Strategic Partnerships
NEXGEL has forged strategic partnerships that have enhanced its product portfolio and market reach. In June 2024, the company announced a supply agreement with Cintas Corporation, a leading provider of corporate identity uniforms, first aid, and safety products, to distribute NEXGEL’s flagship product, SilverSeal, a hospital-grade hydrogel dressing for wounds and burns.
Additionally, in June 2024, NEXGEL partnered with STADA Arzneimittel AG, a European leader in consumer health, to launch Histasolv, Europe’s number one selling Diamine Oxidase (DAO) enzyme supplement, in North America. This partnership has expanded NEXGEL’s product offerings and tapped into a new market segment.
Industry Trends
The hydrogel market is experiencing significant growth, with a forecasted compound annual growth rate (CAGR) of 6-8% from 2023-2028. This growth is primarily driven by increased demand in wound care, medical diagnostics, and consumer applications, aligning well with NEXGEL’s product portfolio and growth strategies.
Challenges and Future Outlook
The company’s growth has not been without its challenges. In 2023, NEXGEL encountered a short report that raised concerns about the company’s operations and financial reporting. The company promptly addressed these allegations, providing a detailed response that reaffirmed its commitment to transparency and robust financial practices.
Looking ahead, NEXGEL remains focused on capitalizing on the growing demand for its hydrogel-based products in both the healthcare and consumer markets. The company has set its sights on further expanding its branded consumer product portfolio, exploring new medical device applications for its technology, and continuing to strengthen its contract manufacturing business.
NEXGEL is also exploring medical device applications for its hydrogel technology, including a study on using its hydrogel to capture plume during laser hair removal procedures.
Guidance and Future Expectations
The company’s guidance for the fourth quarter of 2024 reflects its confidence in its growth trajectory, with revenue expectations exceeding $3 million, a significant increase compared to the same period in 2023. NEXGEL also expects operating cash flow to continue to improve and approach positive levels in Q4 2024.
It’s worth noting that this guidance does not incorporate any revenue from NEXGEL’s partnership with AbbVie as the exclusive supplier of gel pads for their sonic rapid acoustic pulse device for reduced cellulite appearance. The company expects those revenues to start in Q1 2025.
NEXGEL has made significant progress in reducing its Adjusted EBITDA loss, narrowing it from $788,000 in Q2 2024 to $347,000 in Q3 2024. The company has stated that becoming cash flow positive has been a priority, and with the growth experienced in Q3 2024, which they expect to continue into Q4 2024, they are very close to achieving this goal.
Conclusion
In conclusion, NEXGEL’s remarkable transformation and sustained growth in recent years have positioned the company as a key player in the hydrogel-based product market. With its diversified product portfolio, strategic partnerships, and robust financial foundation, NEXGEL is poised to capitalize on the growing demand for its innovative solutions and deliver continued success in the years to come. The company’s focus on expanding its branded consumer products, exploring new medical device opportunities, and potential strategic acquisitions suggests a clear path for future growth and value creation for shareholders.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.