Earnings Transcript for BFRI - Q4 Fiscal Year 2023

Operator: Welcome to the Biofrontera Incorporated Fourth Quarter 2023 Financial Results and Business Update Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Andrew Barwicki with Barwicki Investor Relations. Please go ahead.

Andrew Barwicki: Thank you. Good morning, and welcome to Biofrontera Incorporated's fourth quarter fiscal 2023 financial results and business update conference call. Please note that certain information discussed during today's call by management is covered under the safe harbor provisions of the Private Securities Litigation Reform Act. We caution listeners that Biofrontera's management will be making forward-looking statements and that actual results may differ materially from those stated or implied by these forward-looking statements due to risks and uncertainties associated with the company's business. All risks and uncertainties are detailed in and are qualified by the cautionary statements contained in Biofrontera's press release and SEC filings. Also, this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, March 18, 2024. Biofrontera undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call, except as required by law. During today's call, there will be reference to certain non-GAAP financial measures. Biofrontera believes these measures provide useful information for investors, yet should not be considered as a substitute for GAAP, nor should they be reviewed as a substitute for operating rules determined in accordance with GAAP. A reconciliation of non-GAAP to GAAP results is included in this Friday's press release. More specifically, management will be referencing adjusted EBITDA and non-GAAP financial measures defined as net income or loss excluding interest income and expense, income taxes, depreciation and amortization, and certain other non-recurring or non-cash items. With that said, I would like now to turn the call over to Hermann Luebbert, CEO, Chairman, and Founder of Biofrontera. Hermann?

Hermann Luebbert: Yes. Thank you, Andrew. And my thanks to everyone joining us this morning. On today's call, I'll provide an overview of our accomplishments and [patent] (ph) strategy that occurred during the second part of 2023 and how these changes help lay the groundwork for many value-driving initiatives in 2024 and beyond. Additionally, we have had some significant successes already in the first quarter of 2024 that I will touch upon. Fred Leffler, our CFO, will follow with a discussion on financial results, and then both of us will be available to answer questions after our prepared remarks. Starting with the business update, we have made tremendous progress across three critical areas, including

Fred Leffler: Thank you, Hermann. And it is great to be talking -- excuse me, talking with everyone again. I will start with our fourth quarter 2023 results. Total revenue for the fourth quarter of 2023 were $10.6 million, an increase of $0.5 million or about 4% compared with $10.1 million for the fourth quarter of 2022. This reflects the continued adoption of Ameluz, but was impacted by -- impacted more than anticipated by a buy in prior to a price increase at the beginning of the quarter. Total operating expenses were $14.5 million for the fourth quarter of 2023 compared with $15.8 million for the fourth quarter of 2022. Cost of revenues were $5.4 million for the fourth quarter of 2023 compared with $5.3 million for the prior-year quarter [Technical Difficulty] compared with $10.2 million for the fourth quarter of 2022, with the decrease primarily driven by lower personnel costs. Net income for the fourth quarter of 2023 was $3.5 million or $1.65 per share compared with a net loss of $2.8 million or a loss of $2.16 per share for the prior-year quarter, with all share -- with all per share figures on a split-adjusted basis. Adjusted EBITDA for the fourth quarter of 2023 was negative $3.2 million compared with negative $4.4 million for the fourth quarter of 2022, reflecting higher revenues partially offset by increased SG&A costs. Adjusted EBITDA, a non-GAAP financial measure, is defined as net income or loss excluding interest income and expense, income taxes, depreciation and amortization and certain other non-recurring or non-cash items. I'll refer you to the table in the news release we issued on Friday, March 15 for a reconciliation of GAAP to this non-GAAP financial measure. Now turning to our full year 2023 results. Total revenues for 2023 were $34.4 million compared to $28.7 million for 2022, a growth of approximately 19%. The increase was primarily driven by higher volume of Ameluz sales due to a restructured discount program, higher adoption of Ameluz by dermatologists and a higher average Ameluz selling price. Total operating expenses were $56.7 million for 2023 compared with $47.3 million for 2022. Cost of revenues increased from the prior year to $17.4 million for 2023 from $15.2 million in 2022 primarily driven by increased Ameluz volume. Selling, general and administrative expenses for 2023 were $39.1 million compared with $35.9 million for 2022, an increase of about 9% compared with the prior year, driven by personnel-related expenses and higher legal expenses. The net loss for 2023 was $20.1 million or $13.02 per share compared with a net loss of $0.6 million or $0.61 per share for the fiscal year 2022. Adjusted EBITDA was negative $19.5 million for 2023 compared with negative $18.1 million for 2022. The decrease was primarily driven by the commercial team expansion that took place in the second quarter of 2023. Again, please refer to the table in news release on Friday, March 15 for a reconciliation of GAAP to non-GAAP financial measures. Now turning to our balance sheet as of December 31, 2023, we had cash and cash equivalents of $1.3 million compared with $17.2 million as of December 31, 2022. Our investment in related parties is $0.1 million compared with $10.5 million as of December 31, 2022. This is due to the increase -- or the decrease in share price of the investment and the fact that we used a large portion of the shares to settle an arbitration dispute. As a result, we eliminated liabilities of approximately $9.8 million and recorded a gain of approximately $7.4 million. I have talked about our increasing inventory in 2023 quite a bit, and as of today, we have received and paid for all orders. Our inventory balance as of December 31, 2023 is $10.9 million compared to $7.2 million on hand as of December 31, 2022. I would like to clarify this amount a bit. We also have an asset for replacement inventory of $5.2 million as well. This is due to a voluntary recall of three batches of Ameluz from our supplier of which we were notified of the issue in February of 2024. The batches will be replaced at no cost to us and we expect to receive those batches over the summer months. This will not impact our ability to fulfill orders in the meantime. So, we are now in a position to sell off our inventory over 2024 and achieve a reasonable safety stock which improves our working capital position. We are still not anticipating on making any inventory purchases for until at least the second half of 2024. And as a result, we will continue to manage our working capital very closely. Finally, we entered into a bridge loan for $4 million at the end of December of 2023 in order to finance the company through the most recent capital raise that Hermann mentioned earlier. We will pay down this loan through early July of 2024 and do not expect to need such a facility in the near future. Based on multiple positive indicators for the year, we expect two-digit growth in revenue compared to 2023 and expect to be cash flow positive within approximately 12 to 18 months depending on our spend associated -- with our additional spend associated with the U.S. clinical studies. So, with that overview of our business and recent financial performance, Hermann and I are now ready to take questions from our covering analysts. Operator?

Operator: We will now begin the question-and-answer session. [Operator Instructions] The first question is from Jonathan Aschoff with ROTH. Please go ahead.

Jonathan Aschoff: Thank you, guys. Good morning. And I want to ask about just your trials. Acne, what is the patients' enrollment number and the timing to data?

Hermann Luebbert: Hi, Jonathan. In the acne Phase 2 trial, about half of the patients are currently enrolled, little more than -- between 50% and 60% are currently enrolled. And we expect to complete enrollment until the end of the year and then have data available in the middle of next year.

Jonathan Aschoff: Okay. And then, how about the same two questions for peripheral AK?

Hermann Luebbert: So, peripheral AK study has similar enrollment actually. The data will probably come slightly after the acne trial data because the patients are longer in the trial. But...

Jonathan Aschoff: Okay. So, 2H '25 maybe? Okay. Like 2H '25 for data you would think?

Hermann Luebbert: Yes.

Jonathan Aschoff: Second half of '25. And then, how about enrollment for BCC data? Is that still tracking for mid-'24 or like a few months from now something like that?

Hermann Luebbert: Enrollment was completed already.

Jonathan Aschoff: No. With the data tracking -- data timing, is that still the middle of this year?

Hermann Luebbert: Data should be of the -- clinical part of the study should be after the middle of this year and follow-up then in the first half of next year.

Jonathan Aschoff: Okay. Thank you, Hermann. If I may go to the portable lamp, can you make any estimates as to when derms might have access to the portable lamp?

Hermann Luebbert: The portable lamp will still need some time, of course, before it hits the market. That's something that we see on the market in the next two years, just to be clear. However, we believe that this will be a significantly easier entry into PDT for offices that so far haven't been able to do PDT because they don't have sufficient space. And it will also help our reps to actually take a lamp around and do live demonstrations in doctors' offices [on label] (ph). And furthermore, the doctors will have the chance to take the lamp and do -- offer PDTs in retirement homes. So, it will provide much more flexibility to the way in which PDT can actually be done.

Jonathan Aschoff: Okay. And I think I missed what you had said. The XL lamp, was that going to come on to the market in force by the end of the year, is that what you said?

Hermann Luebbert: No, Q2.

Jonathan Aschoff: Q2 of this year?

Hermann Luebbert: Of this year, yes.

Jonathan Aschoff: All right, excellent. So guys, can you definitely sell all of the annual minimum purchases of Ameluz you must make with the new transaction terms? Like, is that a layup to sell the minimum that you have to buy?

Fred Leffler: Jonathan, yeah, this is Fred. Yeah, we believe that is, as you put it, a layup. And yeah, the minimums associated with the LSA restructuring should be easily achieved going forward.

Jonathan Aschoff: Okay. Lastly, you've moved to using the term two-digit growth. I mean that starts with 10%. I would hope that your growth this year over last year would be double that and that that would not be a stretch. Is that a fair way to look at it that 20% would not be a stretch?

Fred Leffler: Yeah, it ends with 99%, Jonathan, but you are right. I think that we expect similar to growth that we have seen over the past couple of years. And if we maintain that trajectory going forward and as I mentioned depending on how we deploy the spend associated with the clinical trials that we're taking over in June, we should be breakeven in approximately 12 to 18 months.

Jonathan Aschoff: Okay. Thank you very much, guys.

Fred Leffler: Thank you, Johnathan.

Operator: [Operator Instructions] The next question is from Bruce Jackson with The Benchmark Company. Please go ahead.

Bruce Jackson: Hi, good morning. A question about the sales and marketing efforts. So, have there been any changes to the sales force in terms of numbers? And is the turnover stable?

Hermann Luebbert: Yeah, we did, in fact, decide to reduce the sales force slightly in favor of growing the other service functions that are required to actually make the -- help the sales force to be successful. So, currently we have 32 reps out there and seven managers of these 32 reps. What was the second part of the question?

Bruce Jackson: The second -- yeah, so the question, any change in the turnover, so with the reps that you've got right now, is it stable?

Hermann Luebbert: Yeah, the turnover is, of course, something that is a problem to every company. When we compare our turnover in the sales force with other companies, so with the industry average, then we are still below that, which is good. On the other hand, we still try to do everything we can to reduce the turnover even further.

Bruce Jackson: Okay, great. And then, getting back to Fred's comments on the sales growth for the coming year, the double digit, you've done roughly 19% year-over-year for the past couple of years. If we like honed in on that number, would that be a reasonable target to begin with?

Fred Leffler: I think that's a reasonable target. Our CAGR, since 2020, has been 22%. So, yeah, I think those are the two numbers that you could take a look at and I think around that would be a reasonable estimate.

Bruce Jackson: Okay. And then, last question for me. Sometimes the timing of the price increases can have an impact on the calendarization of the quarter. So, what would be looking for this year? Would it be similar to 2023 or might there be any differences?

Fred Leffler: We're still evaluating our pricing strategy and things like that. We haven't made a concrete decision on any price increases yet for 2024.

Bruce Jackson: So, in terms of like the seasonality of the revenue by quarter then, can we assume it looks similar to 2023?

Fred Leffler: Yes. I think that's a good working assumption, and if any changes come to that, we will certainly update everyone.

Bruce Jackson: Okay. Great. Thank you very much.

Hermann Luebbert: Thank you, Bruce.

Fred Leffler: Thank you.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Hermann Luebbert: So, we believe that we had a very successful year in 2023 that we had some transformational changes to the company that makes the status of the company and future of the company look much brighter than what we were looking at a year ago. And with that, I would like to thank all our employees again to taking the company to where we are now. And thank you for taking the time to listen in. Thank you.

Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.