Good afternoon, and welcome to the Conference Call covering Harrow Health’s Financial Results and Business Update for the First Quarter of 2020. On the call joining me today I have Harrow Health's Chief Executive Officer, Mark L. Baum and Harrow's Chief Financial Officer, Andrew Boll. My name is Kristie and I will 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 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 Web site at www.harrowinc.com.

Before we begin today, let me remind you that the company’s remarks include forward-looking statements within the meanings of federal security 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 formulation 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 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 press release available on the Web site.

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?.

Thanks for joining our call today. Hopefully, everyone has had a chance 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 Q&A, I'll highlight a few items that may be on investors' minds.

Just after we reported fourth quarter results two months ago, in the middle of what was a fairly strong quarter like nearly every business in the United States, we saw dramatic shift in our economy, which our company was not immune from, when non-essential surgeries were halted or ophthalmologists and optometrists customers stopped seeing patients, causing a hit to the last two weeks of the quarter.

This continued into April. However, in May, as states have begun to reopen, we've started to see orders return, although, not at the pre-COVID-19 level. As a leader and shareholder of Harrow Health, my job in part is to think about the future of our business.

However, during this crisis, the entire Harrow management team has been focused on three key things; one, keeping our employees safe; two, reinforcing our balance sheet and extending our cash runway; and three, working harder than ever to ensure that we emerge stronger once the COVID-19 downturn abates.

Regarding the first point, we implemented protocols to ensure the safety of our employees, and for some employees deployed infrastructure to allow them to work from home. We then completed numerous scenario analyses to plot our expected cash requirements.

We collaborated with vendors and employees to keep our balance sheet stable, delaying certain payments, including previously earned bonuses to all executives, employees and fees to our Board of Directors and management. As you know, we secured an extra $1 million from our lender SWK Holdings.

Finally, we received approximately $2 million from the paycheck protection program that has helped keep our hard working employees employed during this crisis. We are proud that we've been able to keep our team intact ready for what we believe may be a strong snapback in demand for opthalmic formulations.

With the above in mind, ophthalmology revenue for the first quarter of 2020 was flat, coming in at $11 million compared to $11 million for the first quarter of 2019. Total revenue was $11.8 million compared to $12.3 million last year.

Without the disruptions we experienced at the end of March, we believe we were on course for about $13 million in revenue during the first quarter. Gross margin was 69%, remaining close to our long-term target and an improvement upon the 68% for the same period last year.

Adjusted EBITDA remain positive in the first quarter at $414,000 compared to $753,000 for the first quarter of 2019. An unexpected positive in the fourth quarter was our sterile injectable wellness portfolio, which was able to fulfill an unmet need in the battle against COVID-19.

While we certainly expect ophthalmology to improve post pandemic, we were pleased to see a slight spike in our wellness business during the second quarter.

During this challenging time on top of getting our balance sheet stabilized and focusing on our wellness products, we've been working to improve our customer experience, including making it easier than ever to do business with ImprimisRx and giving our commercial team more visibility than they've ever had.

We've also rolled out an exclusive agreement with Doxy.me to provide telemedicine services to our customers. This was a great success. And in the first 10 days, over 500 physicians and 125 new physician customers signed up. I have never been more enthusiastic about our ImprimisRx business and the value that it delivers to the market.

Our shareholder letter covers other exciting near-term opportunities, such as progress with Surface, which now has three INDs filed, Melt’s progress with its patented non-opioid, non-IV conscious sedation development platform and the expected launch of our Visionology business.

In the coming weeks, we’re expecting a status update for our temporary pass through application for one of the surgical formulations within our ImprimisRx portfolio. We also continue to actively work on in licenses of FDA approved products and other new patented formulations to sell through our ImprimisRx platform.

Any of these events or others could be significant value catalysts, and we hope to deliver good news on these activities before our next call. I strongly believe that our business has never been better-positioned to again generate record highs for revenue, gross margin and adjusted EBITDA like we did in 2019.

And there are reasons to be hopeful, because in states that have begun the reopening process, we are beginning to see orders and these revenues are somewhat ahead of our more optimistic models. So this perhaps bodes well for the coming quarters. Without further ado, let's jump into the Q&A. I'll pause to have our operator poll for questions.

Operator?.

Thank you [Operator Instructions]. And our first question comes from Andrew D'Silva with B. Riley FBR. Please go ahead..

I'm glad to hear everyone sounding healthy. Just a couple of quick ones from me. In the first quarter, you highlighted that during the fourth quarter you had a couple of technological issues, you rolled out a new implementation.

I was just curious if there's anything lingering there or if you were able to completely work out all the kinks? And then just as it relates to traction within the market, were you able to effectively regain to exactly where you were prior to that technical mishap? Obviously, removing for COVID-19 at the back half of the first quarter..

In terms of those IT issues that we experienced in the fourth quarters and whether we worked out those kinks, I can absolutely say that we did. And the systems are working better than ever.

In fact, over the last six weeks or so we've made additional improvements without a hitch to those systems and that's giving us more visibility into the business, better access to what customers are buying and insights into how we can get greater density within an account to grow our surgical business, as well as other products that we offer from the ImprimisRx portfolio.

Those are critical factors by the way as we seek to add FDA approved products into the platform, that we really have tremendous visibility into who our customers are, we have over 9,000 customers, so a very large customer base.

In terms of the traction that we were able to regain, I mean one of the bright spots and I tried to highlight it in the letter is that despite the fact that February has fewer days than any other month, fewer shipping days. For the month of February, we're hitting record revenues on a daily basis during that month.

So, we were on track, I would say in the month of March. But for this COVID-19 slowdown, we're on track to hit 15 million bucks for that month. So, we were doing really well going into March. February is a great month. So, we made up for those technical glitches. And we were on a good glide path towards more records.

And that's where I think we're going to eventually be. As I said in the letter, we need our country to reopen. There seems to be a strong interest on patients to get back into these offices and have these procedures done that they have avoided over the last six weeks or so..

Yes, great to see that your month of February just back the envelope in our model. Our model was much stronger. I was trying to get them give and takes relative to what was going on earlier effectively last year, but that's good to hear.

And then when we think about just the reopening as CMS started to implement it on a state-by-state basis, and you mentioned that in your prepared remarks.

Can you let us think or give us some insight into how we should handicap that? Has it been effectively just a pretty slow reopening restart, or in the states that have started to reopen? Has there been a bolus in any sort of way of either orders or patients coming in? And also just be kind of curious as it relates to stocking, because I'm sure some of the ambulatory surgery centers that you did shift to earlier maybe the compounded products are beyond use or the big spiders, things of that nature would be just interesting data points?.

Yes, so I'll try and address the last part first. And to be clear, the key to these relationships and the partnerships that we've made with physicians and surgery centers across the country is to work with them. And so clearly, there's some inventories that may have expired, and we're working with them.

And so there are immaterial costs connected to that. So these immaterial inventory write downs are certainly going to happen. But as I said, they're immaterial to us and they're very material though to our customers. And so we're, we're only too happy to work with them to make sure that they have the products they need to reopen.

In terms of the reopening. I know, there's you know I’d say 20, I think there's 29 or so states that that are going to be opening at some level for elective procedures very soon, certainly in the next couple of weeks. And I know some executives have tried to handicap percentages that they expect revenue to come back at.

And I kind of handicap it a little bit different. I've kind of created this continuum from disruption to sort of chunky revenue, to initial consistency, to consistency and then growth.

And I would say right now, we're certainly in the chunky revenue phase of that getting into the initial consistency with some accounts as states like Texas for example were starting to see a little bit more consistent ordering patterns. But I think the key for us is that the business is not going away.

These people are going to need these procedures and they're going to need a vision care. So we expect them to occur. And as I said in the letter also, lot of these offices that we're talking to they're -- certainly, there won't be summer vacations. I think that's done.

And a lot of offices are talking about unprecedented things, such as working double shifts to take care of the expected volume. So, these procedures are going to come back. We have high confidence. We just need the country to reopen and to do so in a safe and responsible way..

And the last question was related to the pass-through status that you highlighted for one of the infamous compounded products.

Would this be a situation or a product that we should think of that would fall under the three year pass through status under Medicare Part B? Or is it more of that opioid product pass through status has perpetual kind of like what Pacira has? And that's the last question for me. Thank you very much..

If I think if I answered it accurately, would give away the product. But needless to say, it's an exciting opportunity. There's no guarantee obviously but it is definitely a needle mover for us, and it's something that we're going to know about hopefully fairly soon.

July 1st is the expected date when pass-through if it was granted would become effective. So, we should know here fairly soon. But CMS, as we understand it, has bigger fish to fry right now. They're working on telemedicine and other initiatives connected to COVID-19. But we're confident they'll get around to completing their work on our application.

And we're hopeful that we'll be able to serve more patients as a result of that work..

And that does conclude our question-and-answer. So I would like to turn the conference call back over to Mark L. Baum, CEO of Harrow Health for any closing remarks..

Thank you, and that will conclude our call. If you have any questions, feel free to reach out to Jon Patton or investor relations associate. His phone number is 858-704-4587. We'll look forward to speaking to you next time. And until then, please stay safe and we'll get through this. This will conclude our call..