Q1 2021 Harrow Health Inc Earnings Call

Good afternoon, and welcome to the Harrow Health first quarter 2021 earnings Conference call. My name is Colin and I'll 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 and as a reminder, this conference is being recorded I would now like to turn the conference over to Jamie Webb Director of Communications and Investor Relations for Harrow Health. Please go ahead.

Thank you operator.

Good afternoon, and welcome to Harrow Health's first quarter 2021 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 law.

Forward looking statements are subject to numerous risks and uncertainties many of which are beyond Harrow health's control, including 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 formulations and technologies.

And FDA approval of certain drug candidates in a timely manner or at all.

For a list and description of those risks and uncertainties. Please see the risk factors 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.

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.

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

Additionally, Harold 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 all day long.

Well on the website.

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 Www Dot Harel <unk> dot com.

Joining me on today's call are heralds, Chief Executive Officer, Mark L Baum, and <unk>, Chief Financial Officer, Andrew, though with that I'd like to turn the call over to Mark to go for 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 first quarter 2021 earnings release and to read our letter to stockholders, which was posted on the Investor Relations section of our website just after the close of trading today.

Before 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 March the first quarter of 2021 was our best financial quarter in company history.

On both a year over year, and a sequential quarter basis key financial metrics reached record levels.

Also continued our recent trend of progress in terms of major milestones customer growth.

Product development and the expansion of our revenue sources. In addition, since we last spoke in March we were able to accumulate a war chest of over $75 million, a new cash to fund our growth strategy.

We lowered our cost of capital in doing so.

And I might add debt, we managed to accomplish all of this without any dilution to our common stock holders. We are pleased to report that total revenues for the first quarter were $15 $4 million and that's an increase of 31% compared with the $11 8 million reported.

In the prior year period.

Up 6% from revenue of $14 $6 million and are for.

Fourth quarter of 2020.

Gross margin continued to improve reaching a record 75, 6% for the first quarter of 2021, compared with 69% and 73 per cent and the first quarter of 2020 and fourth quarter of 2020, respectively. Adjusted EBITDA for $3 million was another.

Record metric compared with the $414000 in the prior year quarter.

And $4 million in the fourth quarter of 2020 in the first quarter of 2021 segment contribution from Imprimis Rx was $5 $7 million, including noncash expenses related to depreciation amortization and stock based compensation of $383000.

That's compared to $1 5 million in the prior year period and $5 million in the fourth quarter of 2020. This important metric demonstrates the earnings power of the infamous Rx business.

Currently from other Harrow businesses assets and liabilities.

As I mentioned, our first quarter results were the best in our history. In addition, we are starting to see less week to week revenue volatility, giving us added confidence that we're headed back to consistent revenue growth, adding to my optimism is my belief that all of the pent up demand for ophthalmic procedures.

It had been delayed due to COVID-19 is just about to get on track again, which will not only result in increased revenues for our customers, but will also mean increased revenues for Harrow health.

We have also made great strides in our strategy to expand beyond pharmaceutical compounds.

Leveraging our market position and adding high value in terms of revenue per unit on gross margins F. D. A approved drugs in late stage drug candidates to our platform.

Our I point pharmaceuticals partnership to market execute continues to be mutually beneficial.

Bombing the prospective value and that's the validity of our expansion strategy. In addition, we are executing on our vision of serving eyecare customers directly through vision allergy, which we'll be launching regionally.

This week.

Knowledge is our direct to consumer eye care platform that delivers a simple and seamless user experience to help patients manage their chronic eye diseases. We are very excited about this revolutionary new technology that we believe will transform the way consumers access eye care products and services.

Forward to updating you as we roll out this exciting new business.

Now over the past year, we have painstakingly developed a strategy that we believe will assist us in growing the company and reaching our full potential.

Now with the positive changes to our cash position, we have adequate liquidity and the financial flexibility to pursue additional acquisitions and transactions, but to also meet future challenges.

Since the close of the first quarter, we have raised more than $75 million once again, all without diluting common stockholders.

In April we sold approximately one 5 million shares of our three and a half million share position in Eton pharmaceuticals common stock with net proceeds to Harrow of approximately $9 $6 million from the sale.

Also in April we closed an underwritten registered public offering of $50 million aggregate principal amount of $8, 625% unsecured senior notes that are due 2026.

And then in May and closed on the underwriters over allotment option to purchase an additional $5 million aggregate principal amount.

Those securities.

In total the senior notes offered resulted in net proceeds for the company of approximately $52 $8 million in May. We also closed on the $11 million series B preferred offering with net proceeds of $10.7 million, we used $15 $5 million.

Oh for a loan agreement with S. Debbie Kaye funding LLC and the balance will be used to finance future acquisitions investments in expanding our manufacturing and distribution capabilities building out an analytical lab to lower our postproduction quality assurance and quality control costs and for general corporate purposes.

<unk> funding future strategic product acquisitions related investments and working capital now.

Now, let's take your questions I will pause to have our operator poll for questions operator.

Thank you everyone now begin the question and answer session.

To ask a question you May Press Star then one on your Touchtone phone.

If youre using a speakerphone please pick up your handset before pressing on keys.

Withdraw your question. Please press Star then two.

Once again that is star then one to ask a question and at this time, we will pause momentarily to assemble the roster.

Yeah.

And our first question today will come from Andrew just silver with B Riley FBR. Please go ahead.

It's B Riley Securities now, but thank you good afternoon, and I hope, everyone is well and congrats on the quarter.

Hum on the compounding cite just a few quick questions for me I'll start on the on the compounding side of the business I was really curious on on what Youre seeing driving the growth is it volume based or pricing base and I know you were going into new regions and among other initiatives before the pandemic started.

So I was just curious if you're also seeing success in entering new areas.

And obtaining a new physicians too.

Yeah, Andy Thanks for the question.

I think there were two metrics that we reveal on the press release that highlight the answer one we definitely did open up new accounts, new larger accounts and Ah I think the the other big reason is our revenue per five O three be order.

Hit an all time high that was also.

In the shareholder letter it hit $2118 per order, which you know is a huge factor as well. So those those are those factors I think contributed to the record revenue number and we also talked.

<unk> talked about the number of units shipped which did hit an all time high as well we shipped in the first quarter nearly 500000 units ER.

Which was once again, an all time record so lot of units.

On a lot of revenue per order and then we also were able to increase our customer account is more physicians ambulatory surgery centers and hospitals join the platform.

So on the on the 503 D side. If my memory serves me correct. That's that allows stocking orders that are ambulatory surgery centers to take place do.

Do you do you think that any sort of.

Stocking related windfalls took place during the first quarter or is that.

So really a sustainable rate as we're going into the second quarter and in the back half of the year because it I mean, it's it's.

Materially ahead of what we were.

Looking for you to be at at this point.

Yeah, I think we saw some of that in the fourth quarter anecdotally, it's really hard to tell whether that is a stocking or not we did speak to some accounts on the fourth quarter and we heard that there was a little bit of of these stocking.

Issues happening as more and more offices opened up I have heard less of that in the first quarter, but you know that's that's of course possible I think that this is a you know a good a good rate in terms of Ah you know baseline beginning this year for unit volumes and revenue.

Per worker.

And in customer accounts.

Alright, that's great to hear and just moving over to vision Ology. A you may have mentioned this but and was jumping between calls.

So how have you been able to really identify the physician network that you're going to be utilizing and have you identified also like the core direct to consumer.

Products that fit.

For the Venology model, yet I, obviously, I know you can use your own compounding facilities, but there's obviously a little bit of a business shift as you as you move into the direct to consumer model versus primarily focus on ambulatory surgery centers.

Yes for vision Ology is is obviously a direct to consumer but it's it's really I think what's interesting about the model is is that.

It's it's virtual to local.

And so while it is the case that we're going to take care of patients using the software that we've built to make sure that they have access to medications and have access to to physicians every single patient in our model is actually paired with a local doctor.

And I think that's what makes the model different we certainly are leveraging the more than 10000 physicians that we serve in nearly every populated county across the United States and so vision allergy very much leverages. The network of physicians that we've built up from our Imprimis Rx business in terms of the product mix.

You know.

We're definitely interested in the dry eye space for sure but were having probably the worst allergy season I think on record. So we're very much interest in and the allergy space as well, it's a great model for us as Dan It's presbyopia down the line and there are other.

Chronic care conditions, very large market opportunities that I think fit in very well with the vision allergy brand the software and the network that we're creating but I do want to highlight I'm really excited because this is you know three years in the making and we are launching this week. So it's really exciting.

This time around here on everybody's pumped up we loved the software that's been built and we're excited about the products that we're gonna be initially offering it as a regional launch.

So we're gonna be working out the Kinks as we kicked this off but it is happening and it is happening this week.

That's great. Congrats on that last question for me is which related to partnering activity.

And potential M&A, obviously, you raised a very specific amount of money, particularly.

With the preferred shares earlier this month.

Can you talk around why is that particular number was important to res and on the.

The potential strategic side should we expect acquisitions.

Acquisitions of products to kind of resemble debt execute and style or and reach or could it be something different like I'm, taking a bigger position in one of your D. Consolidated entities debt is looking to potentially raise additional capital this year.

Yeah. So the amount of capital that we raised you know I don't think there is.

A connection there between.

Any of the transactions that we're doing your firm actually was instrumental in and and helping US there and so we're certainly grateful for the great work that our B Riley Securities did.

And helping US build this war chest of cash which is consistent with what we've said to our shareholders over the last three or four quarters that we intended to execute this strategy and has identified and in our letter to stockholders. Many many also.

Many would oftentimes ask how are you going to execute on a transaction given your balance sheet your cash position and so I think those.

Questions should should have been answered when were able to close on these transactions I will say that we didn't move.

Move this cash on your balance sheet to two it's not going to be money in the mattress I'll, just say that and so we have <unk>.

Several active engagements a debt that are in various stages of completion can't guarantee any one of them will be complete.

Completed, but we did raise this cash as I said it is not going to be money on the mattress, we intend to put it to work and we do have a fairly decent record of investing capital.

In our business when we've had that opportunity and and you know we're excited to do that and hopefully no more than one transaction this year.

In terms of the this the area that we'll be investing in you know our ophthalmic business is focused on surgical we're focused on chronic care conditions and then you know meeting specific acute needs that happened within within an office and so you know on the surgical side.

There are only a few areas that we're really interested in cataract and refractive obviously glaucoma.

And retina surgery, so products that serve those markets and on the chronic side glaucoma dry eye my BOMA <unk> gland dysfunction presbyopia.

Allergy there are a number of areas. There. So we're going to stick with what we know we know the the ophthalmic space pretty well, we know where we're strong.

And you know where.

We're excited to execute the strategy I think good things are coming.

Great great. Thanks for the color and congrats on the quarter and I'm looking for the same how you deploy that capital.

Thank you Andy.

And once again, if you'd like to ask a question. Please press Star then one.

And this will conclude the question and answer session I'd like to turn the conference back over to Mark Baum for any closing remarks.

Thank you in closing let me once again acknowledge and thank the Harrow family all of our employees for their hard work and devotion to the company. It has truly been a team effort by talented professionals, who demonstrate every day that the impossible can be possible. When we worked together with.

A focused commitment to serving our customers dedication to innovation and incredible determination. It is this focus that makes me confident in our future and looking forward with its on I'm looking forward with excitement to the remainder of the year before we close the call I would like to remind all Harrow shareholders on this call.

To submit your vote for the upcoming Harrow Health annual meeting, which is on June 3rd two.

21. Thank you for attending today's call. If you have any investor related questions. Please email Jamie Webb at Jay Webb W. E. B B at Harrow, Inc. Dot Com and this will conclude our call.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.

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