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Edited Transcript of HROW.OQ earnings conference call or presentation 9-Nov-20 9:45pm GMT

·13 min read

Q3 2020 Harrow Health Inc Earnings Call La Jolla Nov 21, 2020 (Thomson StreetEvents) -- Edited Transcript of Harrow Health Inc earnings conference call or presentation Monday, November 9, 2020 at 9:45:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Andrew R. Boll Harrow Health, Inc. - CFO & Corporate Secretary * Mark L. Baum Harrow Health, Inc. - CEO & Director ================================================================================ Conference Call Participants ================================================================================ * Andrew Jacob D'Silva B. Riley Securities, Inc., Research Division - Senior Analyst * Brooks Gregory O'Neil Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good afternoon and welcome to the conference call covering Harrow Health's financial results and business update for the third quarter 2020. On the call joining me today, I have Harrow's chief executive officer, Mark Baum, and Harrow's chief financial officer, Andrew Boll. My name is Teran, and I'll be your operator for today's call. (Operator Instructions) 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.harrowinc.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 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's 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, Harrow will refer to non-GAAP financial metrics, specifically adjusted EBITDA and/or 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 Mark Baum to go over some prepared remarks prior to the question-and-answer session. Mark? -------------------------------------------------------------------------------- Mark L. Baum, Harrow Health, Inc. - CEO & Director [2] -------------------------------------------------------------------------------- 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 link to the stockholder letter is also available on the Q3 earnings press release we issued 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 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 were also pleased that 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 revenue growth and even more proud that during Q3 2020 versus Q3 2019, we also delivered a $2 million increase in gross profit. Continuing 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 escape velocity point. As we move into the fourth quarter and set our sights on 2021, we are hopeful our revenue trend, which currently looks V shaped, will quickly transition into a checkmark shaped 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 DEXYCU commissions 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 ImprimisRx, other Harrow businesses also continue to hit new and major milestones, and we expect to see more value inflection events 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 eye care-related health care assets. We believe this focus will better serve our stockholders. Now let's jump into the Q&A. I will pause to have our operator poll for questions. Operator? ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions). We'll take our first question from Brooks O'Neil with Lake Street Capital Markets. -------------------------------------------------------------------------------- Brooks Gregory O'Neil, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [2] -------------------------------------------------------------------------------- Congratulations on the terrific results. I guess I'll start 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 trying to say that we should see a better fourth quarter than third quarter? Or are you seeing something different than that? -------------------------------------------------------------------------------- Mark L. Baum, Harrow Health, Inc. - CEO & Director [3] -------------------------------------------------------------------------------- Well, thanks for the question, Brooks. No, I think what we're saying is that the months have progressively gotten better in sequence in terms of revenue, and that has continued into the fourth quarter. And the month of October was a great month and November, which is a very new month, has also been strong. So, I don't want to make any projections specifically about the fourth quarter other than to say that business still remains strong. -------------------------------------------------------------------------------- Brooks Gregory O'Neil, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [4] -------------------------------------------------------------------------------- Yes, that's great. That's very helpful. And then I love the focus on eye care, but I'm just curious if you could elaborate a little bit about how you came to the decision to do that. -------------------------------------------------------------------------------- Mark L. Baum, Harrow Health, Inc. - CEO & Director [5] -------------------------------------------------------------------------------- Yes. To be clear, if you look at where we've been very successful operationally, our strength lies in eye care. It has been in eye care for many years. And 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 1.5 years or so strategically to grow the ImprimisRx business and transition that business from exclusively being a compounding pharmaceutical business to really being an ophthalmic pharmaceutical business has caused us to believe 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, as I said, some of which could be transformative. -------------------------------------------------------------------------------- Brooks Gregory O'Neil, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [6] -------------------------------------------------------------------------------- Yes. That's great. And then I'm just curious on this topic. I think you had good success in some non-ophthalmic areas. Do you intend just to kind of limit your focus? Or is there some way you can envision taking advantage of the development prowess you have outside of eye care? -------------------------------------------------------------------------------- Mark L. Baum, Harrow Health, Inc. - CEO & Director [7] -------------------------------------------------------------------------------- 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 build an eye 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 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 are excited about the focus in eye care. 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 in the fairly near term. -------------------------------------------------------------------------------- Brooks Gregory O'Neil, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [8] -------------------------------------------------------------------------------- Let me ask one last one and then I'll hop. I'm guessing you don't want to say a lot about the transformative potential developments down the road. But can you say whether all the things you're working on right now relate to eye care pharmaceutical products? Or are you thinking there might be good opportunities for the company that go broader than pharmaceutical products? -------------------------------------------------------------------------------- Mark L. Baum, Harrow Health, Inc. - CEO & Director [9] -------------------------------------------------------------------------------- Yes. I don't want to comment on the specific products. I did say in the letter that we're focusing on eye care goods and services. So, it certainly may fall outside of making a bottle of eye drops. We're really excited about our Visionology 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, and we're going to do a lot less talking, not that we do that much talking, and a lot more doing. So we're going to convert this activity to economic accomplishment, and we're going to focus on economic accomplishment in eye care. -------------------------------------------------------------------------------- Brooks Gregory O'Neil, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst [10] -------------------------------------------------------------------------------- That's great. Congratulations. I love it. -------------------------------------------------------------------------------- Operator [11] -------------------------------------------------------------------------------- (Operator Instructions). We'll take our next question from Andrew D'Silva with B. Riley. -------------------------------------------------------------------------------- Andrew Jacob D'Silva, B. Riley Securities, Inc., Research Division - Senior Analyst [12] -------------------------------------------------------------------------------- Congrats on the snapback. Really surprised by getting to record levels. Sorry if you already answered this. I was on a different conference call just now. But just to start, can you give us a little bit of color just on how the segment breakout looked for the quarter, ophthalmology, 503B versus A and other revenue, things like that? Or if you have information related to compounded products versus FDA-approved product revenue that you recognized. -------------------------------------------------------------------------------- Mark L. Baum, Harrow Health, Inc. - CEO & Director [13] -------------------------------------------------------------------------------- Andrew, do you want to touch on that? Go ahead. -------------------------------------------------------------------------------- Andrew R. Boll, Harrow Health, Inc. - CFO & Corporate Secretary [14] -------------------------------------------------------------------------------- Yes. Andy, I'll try to get all of them. In regards to the segment of revenue, we stopped breaking out ophthalmology and non-ophthalmology revenue. But we did report $10.2 million in revenue out of our 503B facility during Q3, which was a company high. And then in regards to sort of non-compounded sales, we had other revenues of 14,000, about $7,000 of that was related to the DEXYCU commissions and $7,000 in-licensing revenues. -------------------------------------------------------------------------------- Andrew Jacob D'Silva, B. Riley Securities, Inc., Research Division - Senior Analyst [15] -------------------------------------------------------------------------------- Okay. Great. That's good to hear. And as far as DEXYCU goes, I'm assuming it was very back-end weighted as far as you starting to actually roll out officially during the third quarter. Is it fair to assume that you started to progress that even more as we're into the fourth quarter now? And then I remember we had a discussion related to DEXYCU and just a pass-through status. Has there been any update on that potentially being able to be extended due to pandemic? -------------------------------------------------------------------------------- Mark L. Baum, Harrow Health, Inc. - CEO & Director [16] -------------------------------------------------------------------------------- Yes. So we -- obviously, there was an election here in the last couple of weeks, and we assume that there will be some sort of stimulus. That's what's up for discussion. It's bipartisan, bicameral, 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 some 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 extend pass-through in one way or another. As far as DEXYCU sales go, there was a learning curve for our sales organization. There was 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'm excited about is that many of the largest Tri-Moxi customers -- in fact, the largest Tri-Moxi customers are now using DEXYCU. So, we've made great progress there, made enough progress to cause the EyePoint 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 were doing, and we're excited about what we're doing. And we think that as we get further into the fourth quarter and certainly in the next year, we're going to start to see revenues from DEXYCU 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 FDA-approved products in due course. -------------------------------------------------------------------------------- Operator [17] -------------------------------------------------------------------------------- (Operator Instructions) 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 of Harrow Health, for any closing remarks. -------------------------------------------------------------------------------- Mark L. Baum, Harrow Health, Inc. - CEO & Director [18] -------------------------------------------------------------------------------- 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. If you have any investor related questions, please e-mail ir@harrowinc.com. That's ir@harrowinc.com. This will conclude our call. Thank you.