Q4 2020 Harrow Health Inc Earnings Call
[music].
Good afternoon, and welcome to the Harrow Health's Q4, 2020 earnings conference call.
My name is John and I will be your operator for today's call.
At this time all participants are in a listen only mode. Later, we will conduct a question and answer session.
As a reminder, this conference call is being recorded.
I'd now like to turn the call over to Jamie Webb Director of Communications and Investor Relations for Harrow Health Jamie. Please go ahead.
Thank you John good.
Good afternoon, and welcome to Harrow Health's fourth quarter 2020 earnings Conference call.
Before we begin today, let me remind you that the company's remarks may include forward looking statements within the meaning of federal Securities laws.
We're looking statements are subject to numerous risks and uncertainties many of which are beyond Harrow health's control.
Risks and uncertainties described from time to time in its SEC filings such as the risks and uncertainties related to the company's ability to make commercially available its compounded formulation from technology and FDA approval of certain drug candidates in a timely manner or at all.
Harrow health results may differ materially from those projected Harrow 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.
Conference call contains time sensitive information and is accurate only as of today.
Additionally, Harrow will refer to non-GAAP financial metrics, specifically adjusted EBITDA <unk> adjusted earnings reconciliation of any non-GAAP measures with the most directly comparable GAAP measures is included in the company's letter to shareholders available on the website.
By now you Should've 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 www dot Harrow in Dot com.
Joining me on today's call are Harris, Chief Executive Officer, Mark L. Baum.
Gross Chief Financial Officer, Andrew Boll.
With that I'd like to turn the call over to Mark on to go over some prepared remarks prior to the Q&A session pork.
Thanks, Jamie and thanks for joining our call today.
I'd encourage everyone listening to review our fourth quarter 2020 earnings release and letter to stockholders, which was posted on the Investor Relations section of our website.
After the close of trading today.
We begin the Q&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 November.
The Harrow team showed financial and operating resilience for the fourth quarter of 2020, reflecting a continuation of the momentum we saw on the record setting third quarter of 2020 on both a year over year and sequential quarter basis key financial metrics continued to improve despite interim.
As we face during the fourth quarter related to COVID-19, resurgence and unpredictable weather. We also saw significant progress in terms of major milestones customer growth Prada.
Product development and the expansion of our revenue sources.
We were pleased to report that total revenues for the fourth quarter were $14 $6 million, an increase of 16% compared with the $12 6 million reported in the prior year period and slightly up from revenue of $14 4 million in the third quarter of 2020.
Gross margins have remained relatively consistent at 73% for the fourth quarter of 2020, compared with 72% in the fourth quarter of 2019, and 74 per cent and the third quarter of 2020.
Adjusted EBITDA for the fourth quarter of 2020 rose to a new record level of $4 million compared with $2 1 million reported in the prior year period and that represented a 33 on a 3rd% increase over the third quarter of 2020.
In the fourth quarter of 2020 segment contribution from Imprimis Rx for the quarter was $5 million, including non cash expenses related to depreciation amortization and stock based comp.
$434000 and that was compared to $2.2 million on the prior year period, and $4 7 million in the third quarter of 2020.
This important metric demonstrates the earnings power of the Imprimis Rx business separately from other Harrow businesses assets and liabilities.
As I reflect on the full year 2020, I am proud of how our team stayed true to our mission and continued to execute our strategy even in the face of the challenges and uncertainties brought on by the COVID-19 pandemic.
Early in the pandemic Harrow health took steps to manage its balance sheet and expense levels. We also worked aggressively to maintain our competitive advantages by strengthening our product and service offerings further improving the <unk> ex prescriber and patient experience advancing several key new product.
<unk> opportunities and beginning the process of expanding imprimis Rx beyond pharmaceutical compounding.
Those measures paid off resulting in a rapid return to pre COVID-19 performance levels and building a pipeline of new value drivers for our customers and stockholders alike.
During 2020, we began to exclusively focus on growing our eye care businesses as we seek to become eye care focused health care only since beginning our commercial operations in 2014, we have built our eye care business by selling innovative.
Pharmaceutical compounded products.
Only to institutional customers, such as doctors hospitals and ambulatory surgery centers today, we are positioned to expand beyond pharmaceutical compounding in the future. While we continue to organically grow our pharmaceutical compounding business.
The next major phase of development of Harrow health will leverage our market position and add high value in terms of revenue per unit on gross margins F. D. A approved products and late stage drug candidates ophthalmic drug candidates to our platform.
Our first strategy proof point was the transaction, we completed with <unk> pharmaceuticals to market to execute but we are working diligently to further expand heroes value by acquiring additional high value products and technologies and by deploying new Eyecare services, which will drive the net.
<unk> major phase of our growth at Harrow.
This year, we'll also see the launch of vision allergy or direct to consumer eye care subsidiary that we've been diligently developing over the past three years to give some context before I had ever heard of the word COVID-19 I had a strong conviction that with the help of new telemedicine technology other soft.
We're tools and mobile diagnostics, the provision of eyecare goods and services would move closer and closer to the consumer the end user the patient with the help of drew Livingston, the cofounder and former CEO of Doxy me, which is the world's largest SaaS based telemedicine business.
Other we have been able to build vision ology and what we have trademarked in what we call eye care as a service, which with the help of a network of local eyecare professionals. Many of whom are our customers know, we will deliver a simple and seamless user experience to help patients.
Manage their chronic eye diseases, our goal is to drive value transparency and access to eye care through vision allergy, which is launching regionally during the second quarter I look forward to updating you on our progress in rolling out this exciting new business now, let's take your questions I will.
Pause to have our operator poll for questions operator.
Thank you ladies and gentlemen, the floor is now opened for questions. If you have any questions or comments. Please indicate so now by pressing star one on your Touchtone phone per.
<unk> start who are moving from the Q should your question to be answered and lastly, while posing for questions. Please pickup your handset if listening on speaker phone.
Please hold while we poll for questions.
And your first question is coming from Brooks O'neil.
Your line is live.
Oh, good afternoon, everyone debt is Brooks O'neill, but.
I'm not too offended by the operator, so we'll just get by day.
So.
Let's start off by talking just a little bit about the COVID-19 resurgence impact in Q4.
Bad weather.
Sort of what you guys are seeing now here in Q1, and obviously everyone's focused on what the impact of reopening might be on your business.
Well thanks for the question Brooks.
I promise I promise I will never call you Brook.
Thank you.
That isn't that is unless you asked me too.
Right.
Which case I will.
But.
Let's talk about Covid resurgence.
Look it's we're about.
10 days away from the anniversary of when.
There were stay at home orders mandatory stay at home orders. So it's been a full year of COVID-19 are being.
Being in our lives in a major way, it's certainly in our lives at Harrow because.
We're in the eye surgery business.
And to this day.
There are many markets that.
Are still impacted markets, particularly markets like California, as an example, and.
It is the case that many offices around the country or not.
In states that are open are not operating at full capacity.
So all of that said, what I think is really promising about what we've been able to accomplish as a team is that despite the impact of COVID-19, which continues to this day.
We've been able to actually get the train.
Back on the tracks grow our business take ground.
Add to our customer base, the number of customers who purchased from us.
And do other creative things like.
Transact with I point Pharmaceuticals. So we're really excited I think to a to a very certain extent as more and more people are vaccinated and patients feel comfortable getting back into the doctor's office.
We're expecting to see this backlog of cataract surgeries from the last 12 months or so start to feather in and we believe will be a beneficiary of that so to a certain extent we are kind of a.
On a reopening play.
And we expect that we will see some benefit as I said as these surgeons come back online at a 100%, but without question. There has been impact there continues to be impact.
And the weather certainly doesn't help but thankfully the storms pass the snow melts.
And we're really excited about.
The balance of the year.
Great.
Let me just ask you.
Just say I'm personally very excited about the shift to an eye focused.
<unk>.
That makes a lot of sense to me, but I'm trying to be sure I understand how you think about milk and.
In particular as.
Assets you hold that do that strikes me is consistent with your strategic direction that I'm. Just curious how you think about handling those assets going forward.
Sure.
I tried to lay this out in our stockholder letter, which I would encourage everyone to read but.
We burst if you will eat and surface and melt because we had really great pharmaceutical assets that we wanted developed and we wanted to use external capital to do that and we want advantage on management team and in each instance to focus exclusively on exclusively on the development of that.
Assets.
The upshot for US is that we have a really nice set of assets and the term in terms of equity in those businesses.
Eaton has kind of been.
It's gone in a different direction under the leadership of Sean Brynjolfsson. He has made that company in his own eyes.
And.
Are they in the eye care business no are we really excited about what Sean is building absolutely are we even more excited that we own three 5 million shares of that stock most certainly.
Is it a critical eye care asset no it's not.
But.
We will decide down the line what to do with our ownership interest, but I'm really happy that.
Eaton is in terrific shape has great leadership.
The same is true with.
Surface and milk and milk by the way their initial indication for their melt 100 program is in fact for ophthalmic surgery.
So it is it is a very very much connected to what we're doing here.
And the eye care.
World So.
I hope that answers your question, but we are we see great things with Eaton.
Really exciting fairly imminent things going on with surface. They have some really interesting programs that are going to read out in the next 12 months and the same is true with milk. So we're happy to be shareholders of all three of those businesses as well as royalty owners and for programs that are being developed by surface and milk.
Cool.
Yes, one more mark Thank you for taking my question so.
Again, I'm excited about the outlook for <unk>.
Fully decided on how you might seek to monetize your investment in that platform, but just tell us.
Your sort of current thoughts of.
Do you think you'll spin that out as a separate company will it stay a part of.
And permits.
You're thinking about that right this minute.
Yeah. So you know.
We developed the vision allergy platform because from the moment, we started Harrow.
Operationally.
Myself, Andrew our entire team.
Is 100% customer and patient centric I mean, we are as a team completely obsessed with delivering an amazing experience for our customers.
Customers and historically the way that we have and when I say customers I mean patients actually the people who use our products. Our parents grandparents cousins et cetera, who benefit from the innovation that we've been able to bring to the market.
So we are really focused and I like to use the word obsessed with delivering a great user experience for those people. The end users the patients and we've done that historically through institutional customers.
Hospitals doctors on ambulatory surgery centers. It is a natural progression for us to get closer to the end user of the customer and we're going to do that by partnering with local doctors to deliver an incredible experience.
I care experience and that's really because for the consumer eye care really hasnt changed that much on.
50 years, and it's going to change we believe when we roll this business out in terms of how we finance it we have the resources right now.
To do the work to make this what we believe to be a really valuable business. So we're going to make the investments at the Harrow level right now.
And and.
Figure out what our customer acquisition costs are and get a better idea of what the long term expected value is of a new relationship that we create with the patient.
And once we have all of that data.
We will be able to determine better how we ultimately finance the business but.
We're going to be we believe first to market with a platform like this and there isn't any one out there you know the HIMSS the hers the teller docs on the other telemedicine companies are not really in eyecare.
But we're going to hopefully be first to market with an exciting platform and we believe as we roll this out and learn more about how the business operates a very valuable platform.
One that will be a subsidiary of Harrow for now okay. Perfect. Thanks, a lot and congratulations on continued progress. Thank.
Thank you Brooks.
Okay.
[laughter].
Okay. Your next question is coming from Andrew Desilva from B Riley Andrew Your line is live.
Yeah, Thanks for taking my questions and congrats on the strong quarter.
No.
Let's start off with the infamous Rx on that side of the business today could you just touch on how initiatives to bring in additional approved of branded drugs is going and then can you give any insight into how conversion from try moxie to execute is charting is that resonating the way.
We discuss or what you were thinking previously.
Sure Andy Thanks for the questions.
We are.
We have been working on and currently have four active initiatives to bring in either approved products or near approved products.
The Harrow umbrella that we can then commercialize through one of our channels.
And then there is another.
Service oriented.
Program that work and so it's a total of five and they're at various stages of engagement.
Some are quite close.
Others less so.
But we believe that we will get some.
Over the line can't guarantee that we'll get any over the line book, but there is there is a.
A strong likelihood that we get.
One of these done and maybe more and over time, it's not necessarily about even these five programs.
That were engaged with now it's really just in the big picture the idea of that.
On the platform will benefit the business will benefit and ultimately our shareholders will benefit from bringing on these high value FDA approved products.
So we're very focused there and we're going to get something done.
In terms of.
The first proof point of that we can actually do that.
You mentioned, the <unk> partnership with I point and debt in.
In terms of conversions of that.
Of our <unk> customers to execute.
It does take longer to convert customers you know the sales cycle is a little bit longer.
But I'm really pleased with the progress that we made particularly in the fourth quarter, which was really.
The last couple of months of the fourth quarter were really the first couple of months that we actually had it we had our people trained up they were out in the field, making making our calls.
And even in a COVID-19 environment, we did really well and I think I point, we were grateful that they acknowledged that we made a material impact in the fourth quarter.
I think that that trend is going to continue by the way I think we're going to.
C more and more conversions of.
Some of our customers and they may not necessarily be just try moxie customers, but other customers that may want to benefit from what execute offers so.
But it is it is it is not like flipping on a light switch. It's a it's it takes time and our team though is doing a superb job I'm really really proud of the job they're doing in and I think I point is quite happy with the job that we're doing as well.
Yeah, great great to hear that great insight on.
And keeping with <unk> on the regulatory side I believe there are at least recently was guidance tied to the bulk list and then.
The Mou as well or any impact to core products markets and or how we should be thinking about revenue as 2021 zone.
Yes, so the Mou that was recently published.
We believe that our home state of New Jersey intends to sign the Mou and.
We've heard that from very reliable sources. So we do not believe there'll be any impact from the Mou on the business and in terms of <unk>.
F D a.
<unk>.
And.
Regulatory action on.
Uh huh.
Various ingredients, we too do not believe that there will be any impact.
On on our offerings and that will be able to continue to service the customers that we have now and that will bring on down the line with with our.
Products, we've been through this before by the way. This is not the first time that the FDA.
Has come out and and challenge the use of certain ingredients and that's okay. That's the FDA doing its job our job is to always be compliant and we have alternative formulations, great formulations that we've done a lot of market.
Work on and that we believe will be well received with our customers. So we don't anticipate any.
Any impact.
Okay useful. Thank you and then just last question.
As it relates division knowledgeable obviously on Justice stat.
I believe that's a fairly similar business model, obviously, you're within ophthalmology direct to consumer twist on it.
So can you get stuff, just where you are setting up the infrastructure and things like physician network platform et cetera, and then how should we think about products being distributed.
Through vision allergy, what will it be largely the same offering that influenced our ex has or will it be a narrower left or will it has other proprietary branded offerings that debt maybe infamous Rx currently doesn't have it.
Yeah. So vision ology is going to be entirely focused on helping.
Helping patients manage chronic eye disease. So.
<unk> vision allergy for example isn't in the surgical market at all.
We want to help patients who are suffering from glaucoma are dealing with a challenging dry eye disease.
We intend to offer formulations.
And services that can help patients.
With presbyopia.
Allergy chronic.
Chronic eye conditions.
And so we will use some of the technology some of the drug formulation assets that we have.
But there will be also new formulations that have never been seen in the market.
But it's important to note debt vision ology is not about prescription medications exclusively vision Ology is a service and vision ology is partnering with local doctors, we're partnering with eyecare professionals in order to make this service available and to leverage the software the tech.
Knowledge that we've been building for quite some time, so it will extend beyond.
The prescription medication.
And it does involve.
The use of of technology that has not been seen in is really even beyond I think what you see with the HIMSS or hers and some of these other markets. So we're really focused on.
Helping manage these diseases.
Not just buy it.
Going online and having a telemedicine visit and having a prescription sent you. This this exceeds that offering the value to the consumer far exceeds just a prescription medication.
Alright, thanks for the color on the best of luck to share.
Thank you so much Andy.
If there are any remaining questions or comments. Please indicate so now by pressing star one.
Okay, I would like to turn the conference call back over to Mark Baum for any closing remarks.
Thanks again for attending our call today in closing, let me again express my gratitude to the employees of the Harrow family for their unwavering hard work dedication and loyalty delivered day after day in the face of an extraordinary year full of challenges brought on by a global health crisis. Thanks to.
The team approach of all of our employees, we have made significant progress on many levels and we are excited about the future prospects of our company as we begin this next major phase of our growth and development our pipeline of potential transformative transactions is strong and I am confident that our.
Efforts will lead to new opportunities and the addition of new ophthalmic products that will continue to contribute to our success. If you have any investor related questions. Please contact Jamie Webb at Jay Web that's J W. E B b at Harrow.
Inc. Dot com this will conclude our call. Thank you.
Thank you ladies and gentlemen, this does conclude today's conference call. You may now disconnect. Your phone lines at this time and have a wonderful day.
Thank you for your participation.