Q3 2020 Harrow Health Inc Earnings Call

Good afternoon, and welcome to the conference call covering Harrell helps financial results and business update for the third quarter 2020.

On the call joining me today I have hairless, Chief Executive Officer, Mark L. Baum.

And here I was Chief Financial Officer, Andrew <unk>. My name is Karen and I'll be your operator for today's call. Currently all participants are in a listen only mode. Later, we will conduct a question and answer session by.

By now you should have received a copy of the earnings press release. If you have not received a copy. Please go to the Investor Relations page of the company's website at Www Dot <unk> Inc. Dot com.

Before we begin today, let me remind you that the company's remarks include forward looking statements within the meaning of federal Securities laws.

Forward looking statements are subject to numerous risks and uncertainties many of which are beyond hero helps control, including risks and uncertainties described from time to time in its SEC filings.

The risks and uncertainties related to the company's ability to make commercially available its compounded formulations and technologies and FTC approval of certain drug candidates in a timely manner or at all four.

For a list and description of those risks and uncertainties. Please see the risk factor section of the company's most recent annual report on form 10-K, and subsequent quarterly reports on form 10-Q filed with the Securities and Exchange Commission.

Carol Health results may differ materially from those projected Harold disclaims any intention or obligation to update or revise any financial projections or forward looking statements, whether because of new information future events or otherwise.

This conference call contains time sensitive information and is accurate only as of today additions.

Additionally, Harold will refer to non-GAAP financial metrics, specifically adjusted EBITDA and adjusted earnings.

A reconciliation of any non-GAAP measures with the most directly comparable GAAP measures is included in the company's letter to stockholders available on the website.

With that I would like to turn the call over to Marc bomb to go over some prepared remarks prior to the question and answer session Mark.

Thanks for joining our call today.

I would encourage everyone listening to review our third quarter 2020 letter to stockholders, which was posted on the Investor Relations section of our website just after the close of trading today a.

A link to the stockholder letter is also available on the Q3 earnings press release, we issued today.

Before we begin the Q and a portion of today's call I'd like to quickly touch on a few items to provide some additional color on our business since we last spoke in August.

The third quarter of 2020 was the best financial quarter in the history of the company.

Our team delivered on revenues gross margins and nearly every other internal metric that we chart revenues in July were better than June and each subsequent month continued to improve resulting in total revenues in Q3 of $14.4 million a new record. We're also.

Please note while we achieved record revenues. We also achieved 74% gross margins a new record. We also had adjusted EBITDA of $3 million another record when compared to Q3 2019, I am proud of the $1.6 million of raw.

Revenue growth and even more proud that during Q3 2020 versus Q3 2019, we also delivered a $2 million increase in gross profit.

Renewing on with the efficiency theme going forward, we expect that each incremental dollar of revenue growth will yield an increasing percentage of operational earnings thus improving our adjusted EBITDA and margins a demonstration of what we like to call our financial ASCO.

Velocity point as we move into the fourth quarter and set our sights on 2021, we all hope for revenue trend, which currently looks V shaped will quickly transition into a checkmark shape trend line into 2021.

We believe this trend of growth will be driven by expanding our core business through new customer growth continuing to expand with the many thousands of accounts. We currently serve exciting new product developments in our pipeline and adding new revenue sources, such as DEXA Q Commission.

And other potentially transformative initiatives, we've been working on and hope to conclude in the coming quarters. In addition to the outstanding performance of Imprimis Rx Other Harold businesses also continued to hit new and major milestones and we expect to see more value inflection event.

In the coming quarterly periods importantly, once we complete the deconsolidation of Mayfield Pharmaceuticals, we intend to leverage our position in eye care and from a strategic perspective exclusively focus on investing in and developing I care related health care.

Our assets. We believe this focus will better serve our stock holders now, let's jump into the queue and eight I will pause to have our operator poll for questions operator.

Thank you ladies and gentlemen, we will now begin the question and answer session. If you do have a question. Please press star one on your telephone keypad at this time, if you're using a speaker phone, we asked that well posing your question you pick up your handset to provide the best sound quality.

Again, ladies and gentlemen, if you do have a question or comment. Please press star one on your telephone keypad at this time.

We'll take our first question from Brooks Oneil with Lake Street Capital markets. Please go ahead.

Good afternoon, Mark and congratulations on a terrific results.

Yes, I'll stay with a couple of questions I think I saw in the letter a comment.

About October and how you foresee the trajectory continue and I was just I want to be sure I understand what you mean by that are you are.

Are you trying to say that we should see a better fourth quarter, and then third quarter or are you, saying something different than that.

All right well. Thanks. Thanks for the question Brooks No I think what we're saying is that the months its progressive lead gotten better in sequence in terms of revenue.

And that has continued into the fourth quarter.

And you know the the month of October was a great month in November which is a very new month. It has also been strong so I don't want to make any projections, specifically about the fourth quarter other than to say that bureaus still remain strong.

Yeah, that's great that's very helpful and then.

I love the focus on I care, but I'm. Just curious you know if you could elaborate a little bit about how you came to the decision to do that.

Yeah <unk>.

To be clear if you look at where we've been very successful operationally our strength lies in eye care. It has lied in <unk>. It has been an eye care for for many years.

And you know I think that that's where we think we can drive the most value a lot of the work that we're we've been doing over the last a year and a half or so.

Strategically to grow.

The from Us Rx business and transition.

That business from exclusively being a compounding pharmaceutical business to really being up foamix pharmaceutical business.

His his.

Caused us to believe that that we can create a tremendous amount of value. If we just focus on eye care and we have great relationships in that space and some exciting things that we hope to conclude here in the coming quarters, a as I said some of which could be transformative.

Yeah, that's great and then I'm.

I'm just curious on this topic I think you had good success in some non alembic areas do you intent just to try to limit your focus or is there. Some way you can envision taking advantage of.

Development prowess you have.

Outside a bike here.

Well, certainly we see opportunities that are outside of eye care.

I think our board and shareholders that we've spoken to are really interested in our ability to to build it.

And I care business.

To take advantage of the relationships that we have so that's where we're going to focus we have had success outside of eye care I. You know I would I would say that building Eaton was a great success so far.

But I think our board and many of the shareholders. We've spoken to we're excited about the focus in eye care.

And and as I said based on what we have in the Hopper, we're very excited about the eye care business and the ability to grow the business and I think drive a lot of shareholder value.

Sure that makes sense sure. Let me ask one last one and then I'll hop.

I I'm guessing you don't want to say a lot about the transformative.

Central development down the road, but.

Can you say whether.

All the things you're working on right now we're late I care pharmaceutical products.

Are you thinking there might be good opportunities for the company. They go bought broader than pharmaceutical products.

Yeah, I I don't want to comment on the specific products you know I I did say in the a in the letter that we're focusing on eye care goods and services. So you know it. It certainly may fall outside of you know, making a bottle of eye drops.

We were really excited about our vision allergy business for example, and the potential for that business to grow so.

We're going to stick with eye care and that's an exciting area for us and we've got some really interesting things I hope to conclude in and we're going to do a lot less talking I'm not that we do that much talking and in a lot more doing so we're going to convert a this activity to economic accomplishment and we're going to focus on.

Economic accomplishment in eye care.

That's great Congratulations I love it. Thank you very much. Thank you. Thank you Brooks.

As a reminder, ladies and gentlemen, if you do have a question or comment. Please press star one on your telephone keypad at this time well take our next question from Andrew Dsilva with B. Riley. Please go ahead.

Thank you very much for taking my questions and congrats on the snap back so it really surprised by getting to record levels I'm sorry, if you already answered. This I was on a different <unk> cops call just now but just to start can you give us a little bit of color just on how to segment breakout looks for the quarter ophthalmology.

Oh, I thought three be versus AE and ER or other.

Other revenue things like that or if you have information related to compounded products versus.

FDA approved product revenue that you recognized.

Andrew do you want to.

Touching on that.

Go ahead, yes that hey, Andy Thanks for the question I'll try to get all of them.

In regards to the segment of revenue, we we stopped breaking out ophthalmology and non applaud your revenue.

Well, we did report 10.2 million in revenue out of our five or three B facility during Q3, which was a company high.

And then in regards to sort of non competent sales we had other revenues of.

14007, but 7000 of that was related to the the next Q commissions and 7000 and licensing revenue.

Okay, great and it's good to hear and as far as that goes.

I'm, assuming it was very backend weighted as far as are you starting to actually roll out officially done third quarter or is it fair to assume that that.

Start to progress that even more as we're into the fourth quarter now and then I remember we had a discussion relating to Derek you and just a patch pass through status has there been any update on on that potentially being able to be extended.

Yes. So we you know obviously there was a an election here you know in the last couple of weeks and.

We assume that there will be some sort of stimulus that's what's up for discussion its bipartisan by cameral I believe to extend pass through in some way shape or form, but there's no guarantee we continue to believe that that will occur assuming there is.

Further stimulus so I don't want to speculate as to the overall outcome. There the final outcome, but we do believe that if there is stimulus that will that will extend pass through in one way or another.

As far as decks accused sales go there was a a learning curve for our sales organization. There was a a ramp obviously, we started with a very small number.

Of accounts that we went out to.

Actually went out to the top 57 accounts.

And we've made tremendous progress actually what I, what I'm excited about is that many of the largest tri moxi customers. In fact, the largest tri moxi customers are now using to execute so we've made great progress there.

Made enough progress to cause the I point folks to ask us to open up our offering to a much larger segment of the overall tri moxi customers about 60, or so days sooner than we had originally contracted to do so we had enough success.

To where they got excited about what we're doing and we're excited about what we're doing and we think that as we get further into the fourth quarter and certainly into next year.

On to start to see revenues from execute sales commissions go up so it's a real exciting part of our business, but we're also hopeful obviously to do some of these other deals and continue to grow our portfolio of ft approved products in due course.

Okay, Great I'll take everything else off line. Thank you very much and best of luck wasn't up here.

Thank you Andy we appreciate thanks, Sandeep you listening.

What's more ladies and gentlemen, if you do have a question or comments. Please press star one on your telephone keypad at this time.

Star one on your telephone keypad.

That appears to be all the questions that we have for today I would like to turn the conference call back over to Mark L. Baum CEO apparel health for any closing remarks.

Thanks again for attending our call today, and let's hope that our nation's recovery continues to flourish over the coming months and until then please stay healthy happy and prosperous do you have any investor related questions. Please email I are at Harrow Inc. Dot com that's I.

Car at Harrow Inc. Dot Com this will conclude our call. Thank you.

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