Net product revenue from Avenova^®-branded eyecare products grew 7% year-over-year, reflecting an increased contribution from the physician dispensed channel
Sales and marketing expenses declined 7% versus the prior year through continued optimized digital marketing programs
Operating loss for the first nine months of 2023 narrowed by 16% from the prior year
Marketing activities are underway to promote differentiated, high-quality Avenova Allograft to a broad target audience of U.S. eyecare specialists

Conference call begins at 4:30 p.m. Eastern time today

NovaBay^® Pharmaceuticals, Inc. (NYSE:NBY) reports financial results for the three and nine months ended September 30, 2023 and provides a business update.

"We are successfully expanding relationships with eyecare specialists with product sales from our physician dispensed channel growing 36% over the prior year and increasing in each consecutive quarter so far in 2023. Our multiple sales channels for Avenova have a tremendous impact on one another, with our physician dispensed channel creating a halo effect over our over-the-counter products. When patients first learn about Avenova from their doctor, there is an inherent trust in the brand that we can leverage in our direct-to-consumer sales channel," said Justin Hall, NovaBay CEO. "We continued to benefit from our expertise in digital marketing, resulting in a 7% decrease in sales and marketing spend for the quarter and a 13% decline year-to-date. Operating loss narrowed by 16% for the first nine months of 2023 as we managed our expenses.

"We are capitalizing on opportunities to leverage and build the physician dispensed channel by promoting our new Avenova Allograft through an extensive marketing campaign targeting U.S. ophthalmologists and optometrists. As with our other best-in-class eyecare products, Avenova Allograft has distinct advantages that include being the only ophthalmic allograft manufactured using a patented six-step BioREtain^® process that preserves the natural integrity of the placental tissue," he added. "We anticipate a strong finish to 2023 for our DERMAdoctor^® brand with marketing programs focused on 11/11, China's biggest online shopping event, as well as various programs and promotions for the upcoming holiday season."

Third Quarter Financial Results

Total sales, net for the third quarter of 2023 was $3.3 million, compared with $3.8 million for the prior-year period, with the decrease primarily due to lower DERMAdoctor skincare product sales. Net product revenue for the third quarter of 2023 included $2.4 million of Avenova-branded eyecare product sales, $0.8 million of DERMAdoctor skincare product sales and $0.1 million of PhaseOne^® wound care product sales.

Gross margin on net product revenue for the third quarter of 2023 was 56%, compared with 62% for the third quarter of 2022, with the decrease primarily due to product and channel mix.

Total operating expenses for the third quarter of 2023 were $3.0 million, compared with $2.8 million for the third quarter of 2022. Sales and marketing expenses were $1.7 million, a 7% decrease from $1.8 million for the prior year, reflecting lower digital advertising costs and lower expenses for outside professional services. General and administrative (G&A) expenses were $1.2 million, compared with $1.0 million for the prior year, due to the reversal of previously recorded performance-based compensation expenses in the prior fiscal year. Research & development (R&D) expenses were reduced to $11 thousand, versus $41 thousand for the prior year. Total operating loss for the three months ended September 30, 2023 was $1.1 million, compared with $457 thousand for the three months ended September 30, 2022, with the increase due primarily to note repayments, lower margins and higher G&A expenses, partially offset by lower sales and marketing expenses.

Other expense, net for the third quarter of 2023 was $641 thousand, compared with other expense, net of $171 thousand for the third quarter of 2022, with the increase primarily due to the amortization of discount and issuance costs related to convertible notes issued in May 2023 with no comparable expense for the third quarter of 2022.

The third quarter of 2022 included a non-cash gain on changes in fair value of warrant liability of $2.4 million, a non-cash loss on the modification of common stock warrants of $1.9 million, and a non-cash increase to accumulated deficit due to adjustment to Series B preferred stock conversion price of $5.7 million, with each related to the warrant reprice transaction completed in September 2022. There were no comparable items in the 2023 period.

Net loss attributable to common stockholders for the third quarter of 2023 was $1.8 million, or $0.37 per share. This compares with a net loss attributable to common stockholders for the third quarter of 2022 of $5.8 million, or $3.61 per share.

Nine Month Financial Results

Total sales, net for the nine months ended September 30, 2023 was $11.0 million, an increase of 2% from $10.8 million for the nine months ended September 30, 2022.

Gross margin on net product revenue remained relatively unchanged for the first nine months of 2023 at 55%, compared with 56% for the first nine months of 2022.

Total operating expenses for the first nine months of 2023 were $10.3 million, a decrease of 7% compared with $11.0 million for the first nine months of 2022. For the nine months ended September 30, 2023, sales and marketing expenses decreased by 13% and G&A expenses increased by 2%, both compared with the prior-year period. R&D expenses for the first nine months of 2023 were $64 thousand, versus $108 thousand for the prior-year period. Total operating loss for the first nine months of 2023 declined by 16% from the first nine months of 2022.

Other expense, net for the first nine months of 2023 was $1.3 million, versus other expense, net of $0.2 million for the first nine months of 2022, with the increase primarily due to the amortization of discount and issuance costs related to the convertible notes issued in May 2023 with no comparable expense for the nine months ended September 30, 2022.

The nine months ended September 30, 2023 included a non-cash gain on the change in fair value of warrant liability of $0.2 million, a non-cash loss on modification of common stock warrants of $0.3 million, a non-cash increase to accumulated deficit due to adjustment to the Series B preferred stock of $1.8 million, and a non-cash increase to accumulated deficit due to adjustment to the Series C preferred stock of $0.2 million. The nine months ended September 30, 2022 included a non-cash gain on changes in fair value of warrant liability of $4.5 million, a non-cash gain on change in fair value of contingent liability of $0.2 million, a non-cash loss on modification of common stock warrants of $1.9 million, and a non-cash increase to accumulated deficit due to adjustment to Series B preferred stock conversion price of $5.7 million.

Net loss attributable to common stockholders for the first nine months of 2023 was $7.5 million, or $2.27 per share. This compares with a net loss for the first nine months of 2022 of $8.1 million, or $5.32 per share.

NovaBay had cash and cash equivalents of $3.5 million as of September 30, 2023, compared with $5.4 million as of December 31, 2022. In May 2023, the Company completed a private placement of convertible debentures and warrants for aggregate gross proceeds of $3.0 million.

Conference Call

NovaBay management will host an investment community conference call today beginning at 4:30 p.m. Eastern time (1:30 p.m. Pacific time) to discuss the Company's financial and operational results and answer questions. Participants can pre-register for the conference call here. Callers who pre-register will be given a conference passcode and unique PIN to gain immediate access to the call and bypass the live operator. Participants may pre-register at any time, including up to and after the call start time.

Stockholders and other interested parties may also participate in the conference call by dialing 833-816-1121 from within the U.S. or 412-317-1862 from outside the U.S., and requesting the NovaBay Pharmaceuticals call.

A live webcast of the call will be available here and will be archived for 90 days. A replay of the call will be available beginning two hours after the call ends through November 30, 2023 by dialing 877-344-7529 from within the U.S., 855-669-9658 from Canada or 412-317-0088 from outside the U.S. and Canada, and entering the conference identification number 7329052.

About NovaBay Pharmaceuticals, Inc.:

NovaBay Pharmaceuticals, Inc. develops and sells scientifically created and clinically proven eyecare, skincare and wound care products. NovaBay's leading product, Avenova^® Antimicrobial Lid & Lash Solution, is proven in laboratory testing to have broad antimicrobial properties as it removes foreign material including microorganisms and debris from the skin around the eye, including the eyelid. Avenova Antimicrobial Lid & Lash Solution is available direct to consumer primarily through online distribution channels such as Amazon, and is also available by prescription and dispensed by eyecare professionals for blepharitis and dry-eye disease. DERMAdoctor^® offers more than 30 dermatologist-developed skincare products through the DERMAdoctor website, well-known traditional and digital beauty retailers, and international distributors. NovaBay also manufactures and sells effective, yet gentle and non-irritating wound care products. The PhaseOne^® brand is distributed through commercial partners in the U.S. for professional use only, and the NeutroPhase^® brand is distributed in China by Pioneer Pharma (Hong Kong) Company Ltd.

Forward-Looking Statements

This release contains information about management's view of the Company's future expectations, plans and prospects that constitute forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the fact that they do not relate strictly to historic or current facts. Such forward-looking statements are based upon management's current expectations, assumptions, estimates, projections and beliefs. These statements include, but are not limited to, statements regarding our business strategies, commercial progress, current and potential future product offerings, the continuing contribution of DERMAdoctor, expanded access to our products through new and existing sales channels, and any future revenue, and the timing of such revenue, that may result from selling these products, as well as generally the Company's expected future financial results. These statements involve risks, uncertainties and other factors that may cause actual results or achievements to be materially different and adverse from those expressed in or implied by these forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, risks and uncertainties relating to the continued contribution of DERMAdoctor's business to the Company's business (and further related impairments to goodwill and intangible assets), the size of the potential market for our products, the Company's products not being able to penetrate one or more targeted markets and the Company's ability to continue as a going concern and revenues (or the execution on capital raise opportunities) not being sufficient to meet the Company's cash needs. Other risks relating to NovaBay's business, including risks that could cause results to differ materially from those projected in the forward-looking statements in this press release, are detailed in NovaBay's latest Form 10-K/Q filings with the Securities and Exchange Commission, especially under the heading "Risk Factors." The forward-looking statements in this release speak only as of this date, and NovaBay disclaims any intent or obligation to revise or update publicly any forward-looking statement except as required by law.

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Avenova Purchasing Information

For NovaBay Avenova purchasing information:

Please call 800-890-0329 or email sales@avenova.com

Avenova.com

DERMAdoctor Purchasing Information

For DERMAdoctor purchasing information:

Please call 877-337-6237 or email service@dermadoctor.com

DERMAdoctor.com

Financial tables follow


NOVABAY PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value amounts)

	September 30,			December 31,
	2023			2022
	(Unaudited)

ASSETS
Current assets:
Cash and cash equivalents	$	3,472		$	5,362
Accounts receivable, net of allowance for credit losses ($3 and $19 at September 30, 2023 and December 31, 2022, respectively)		916			1,973
Inventory, net of allowance for excess and obsolete inventory and lower of cost or estimated net realizable value adjustments ($556 and $499 at September 30, 2023 and December 31, 2022, respectively)		3,493			3,437
Prepaid expenses and other current assets		333			560
Total current assets		8,214			11,332
Operating lease right-of-use assets		1,526			1,831
Property and equipment, net		97			119
Goodwill		348			348
Other intangible assets, net		2,166			2,280
Other assets		501			489
TOTAL ASSETS	$	12,852		$	16,399

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Current liabilities:
Accounts payable	$	947		$	1,080
Accrued liabilities		1,869			2,724
Convertible Notes, net		1,270			—
Operating lease liabilities		485			453
Total current liabilities		4,571			4,257
Operating lease liabilities-non-current		1,244			1,588
Total liabilities		5,815			5,845
Commitments & contingencies
Stockholders' equity:
Preferred stock, $0.01 par value; 5,000 shares authorized;
Series B Preferred Stock; 6 and 12 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively		302			570
Series C Preferred Stock; 1 and 2 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively		1,675			2,403
Common stock, $0.01 par value; 150,000 shares authorized, 6,529 and 2,035 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively		65			20
Additional paid-in capital		170,675			165,713
Accumulated deficit		(165,680	)		(158,152	)
Total stockholders' equity		7,037			10,554
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	12,852		$	16,399


NOVABAY PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Sales:
Product revenue, net	$	3,255		$	3,816		$	10,971		$	10,743
Other revenue, net		10			10			28			18
Total sales, net		3,265			3,826			10,999			10,761

Product cost of goods sold		1,427			1,451			4,919			4,735
Gross profit		1,838			2,375			6,080			6,026
Operating expenses:
Research and development		11			41			64			108
Sales and marketing		1,715			1,835			5,086			5,860
General and administrative		1,228			956			5,135			5,049
Total operating expenses		2,954			2,832			10,285			11,017
Operating loss		(1,116	)		(457	)		(4,205	)		(4,991	)


Non-cash gain on changes in fair value of warrant liability		—			2,414			216			4,470
Non-cash gain on changes in fair value of combined derivative liability		—			—			40			—
Non-cash gain on changes in fair value of contingent liability		—			—			—			219
Non-cash loss on modification of common stock warrants		—			(1,922	)		(285	)		(1,922	)
Other expense, net		(641	)		(171	)		(1,298	)		(178	)

Net loss		(1,757	)		(136	)		(5,532	)		(2,402	)

Less: Increase to accumulated deficit due to adjustment to Series B Preferred Stock conversion price		—			(5,657)			(1,802	)		(5,657)
Less: Increase to accumulated deficit due to adjustment to Series C Preferred Stock conversion price		—			—			(194	)		—
Net loss attributable to common stockholders	$	(1,757	)	$	(5,793	)	$	(7,528	)	$	(8,059	)

Net loss per share attributable to common stockholders (basic and diluted)	$	(0.37	)	$	(3.61	)	$	(2.27	)	$	(5.32	)
Weighted-average shares of common stock outstanding used in computing net loss per share of common stock (basic and diluted)		4,692			1,604			3,311			1,514

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NovaBay Pharmaceuticals Reports Third Quarter 2023 Financial Results