Dan McFadden - IR Jim Schutz - CEO Bob Miller - CFO, COO.

Laura Engel - Stonegate Capital Sherry Grisewood - Dawson James Securities Andy Summers - Janus Gabrielle Zhou - Maxim Bob Robbins - Robbins Capital Management.

Good afternoon, and welcome to the Sonoma Fiscal Fourth Quarter 2017 Conference Call. My name is Carmen and I will be your coordinator for today’s call. At this time all participants are in a listen-only mode. At the end of the call, we will be holding a question-and-answer session with company management.

As a reminder, this call is being recorded for replay purposes. I will now turn the call over to Mr. Dan McFadden. Please proceed, sir..

Thank you, Carmen. Good afternoon and thank you everybody for joining us today. With me on the call are our CEO, Jim Schutz and our CFO and COO, Bob Miller. We will open the call with Jim’s update on our business strategy moving forward followed by Bob’s review of our financial results for the fourth quarter and fiscal year 2017.

This afternoon, Sonoma issued a press release detailing fiscal fourth quarter 2017 financial results and recent corporate developments. A copy of the release can be downloaded from our website, which is at sonomapharma.com, or you can call Investor Relations at 425-753-2105 and we will be happy to assist you.

Before we begin, I remind listeners that this conference call contains forward-looking statements within the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are identified by use of words such as expect, to expand, would and anticipate among others.

These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially, including risk inherent in the development and commercialization of potential products, the risk that potential clinical studies or trials will not proceed as anticipated or may not be successful, or sufficient to meet regulatory approvals, or receive the regulatory clearance or approvals.

The company’s future capital needs and its ability to obtain additional funding and other risk detailed from time to time in the company's filings with the Securities and Exchange Commission including the quarterly report on Form 10-Q and the annual report on Form 10-K.

Identified product applications and/or uses are intended to highlight potential applications for the investment community and does not infer that the company is marketing for these indications. The company does not provide any assurances that such applications will receive regulatory approvals.

Sonoma disclaims any obligation to update these forward-looking statements. So with that, I will now turn the call over to Jim Schutz, our CEO.

Jim?.

Thank you, Dan. For my portion of today's call I'll spend the next five minutes with a quick look back at our fiscal year ending March 31, 2017, a brief look ahead to several upcoming milestones in the next 12 months. Bob will cover our financials and then we'll open the call for Q&A.

Looking back over the last 12 months we had a solid fiscal year ending March 31, 2017, several highlights, our cash position was $17.5 million, up $10 million from the same period last year, product revenue for the year was up 44% compared to the last year.

In October 2016, we sold Latin American assets for $19.5 million in cash and a guaranteed minimum royalty of $2.5 million over the next 10 years. We received three new FDA approvals or clearances.

We're awfully proud of our R&D team, they're on a roll, we recently launched our new SebuDerm product for the treatment of seborrheic dermatitis and our intellectual property portfolio now totals 63 issued patents and 33 patent applications pending.

Specific to our dermatology business prescriptions filled at the pharmacy counter were up 86% versus last year. Our dermatology net revenue was up 87% for the year and we launched four new products and now have eight products in our sales bag.

Speaking of our sales force, three years ago we were a good R&D focused company and yet we out licensed everything to partners for their sales teams to sell our great products. It's become a great point of pride that as of March 31 we had 30 sales reps, two District Managers, and three senior leaders all facing our customers.

One interesting data point with respect our sales team, we do not hire rookies, our sales team averages 10.3 years' experience specifically to dermatology. We've deep relationship with our customer, dermatologists and hope to continue this hiring trend as we grow.

So, all in all we had a solid year ending March 31, 2017 and we think we're just getting started. Switching gears our next 12 months should continue to show strong growth. Bob and I'd like to highlight several upcoming milestones. One of our bright Wall Street gurus who covered dermatology for years-and-years said something interesting to us recently.

He said it's all about prescriptions-prescriptions-prescriptions, as prescriptions grow your stock price will rise. Have a bad prescription month and your stock price will fall. Bob and I think he's right, monthly prescription data available via Bloomberg is a great metric to measure our performance going forward.

We're expecting up to seven dermatology approvals in Brazil this upcoming fiscal year as you'll no doubt remember Brazil has become the world's third biggest market where beauty products after the U.S. and Japan, and in plastic surgery and dermatology procedures Brazils now the world's second biggest market after the U.S.

We're planning a late summer, early fall launch for our recently FDA approved Loyon product for skin descaling which is a fancy way to say removing scales and plaque on various dermatosis.

You may remember we in-licensed Loyon from a German company, then our own regulatory team took their German clinical and recently received an FDA approval in March. Stay tune for more news on this interesting product. Speaking of new products and FDA approvals, our innovation plan should really start bearing fruit this year.

Our new chief strategy in marketing Officer Marc Umscheid the ex-Clorox guy has really pulled together a great innovation plan with the team. In the next 12 months we should have a great and we think perhaps even our best line up of new FDA approved derm and skin care products.

For competitive reasons we won't go into much detail now, but suffice to say we should have a very busy FDA schedule in the next 12 months. In addition our profit center businesses which we defined as our international division animal health and acute care are all breakeven now and trailing off cash so we can grow U.S. derm faster.

We expect continued wins from our profit center businesses building on some recent good news with Manna Pro, PetSmart and our recent hospital formulary GPO Health Trust Group.

And finally with our growing sales force new products from our own R&D and from our licensing efforts we march toward EBITDA breakeven with as Bob likes to point out more than sufficient cash to get us to EBITDA breakeven. So I spent a few minutes looking back at our fiscal year ending March 31, 2017.

A few minutes looking ahead for the next 12 months. And Bob if you will, we'll cover our financials..

Thank you, Jim. I'll first discuss the financial results of our fourth quarter and fiscal year ended march 31, 2017. Secondly, a review of the financial results of our derm strategy. And finally talk about our path to EBITDA breakeven driven by the 30 derm sales reps and their five senior managers, 13 of which have been recently hired.

Moving now to a review of our financial results for the fourth quarter and the fiscal year of 2017, and covering only the highlights with details in today's earnings press release. Total revenue was $4 million for the quarter ended March 31, 2017 compared to $2.6 million in the same period last year.

Total product revenue of $3.8 was up 60% over the same period last year with strong growth in U.S. dermatology, animal healthcare markets and in products sold to the new owner of the Latin America assets and assets at reduced and previously agreed to prices. More specifically during the fourth quarter U.S.

product revenue increased $451,000 up 32% to 1.8 million, mostly related to the increase in the dermatology product revenue and higher sales to the new animal healthcare partner, partially offset by flat acute care sales.

Total international product revenue was up $979,000 or 100% with increases in Mexico and Asia, partially offset by decreases in Europe and the Middle East. Revenue from product sold to Invekra is temporary as we mentioned before until Invekra sets up their own manufacturing facility.

We expect that revenue related to Invekra will be about $250,000 to $350,000 per quarter until they assume their own manufacturing. And we estimate that it will take about six to 12 months until Invekra manufacturers at their facility.

The gross margins have been significantly impacted by the historical separation of the discontinued operations and the very low margins of the Mexico sales to Invekra at a reduced price. Operating expenses minus non-cash expenses for the March quarter were 4.5 million, up 361,000 or 9%, compared to the same period last year.

The increase in cash operating expenses was due to the higher sales marketing and administrate of expenses in the United States related mostly to the increased number of our direct dermatology sales force.

On the balance sheet and Jim mentioned this earlier, our cash position at the end of March was 17.5 million, compared to 7.5 million last year, with minimal debt. Would have been our financial results of our dermatology efforts starting in October 2014 through the fourth quarter ending March 31, 2017.

As a preface to discussing these dermatology results starting from zero direct sales in late 2014, we have built a strong dermatology foundation over the past two plus years upon which we continue to grow on the future.

There are several ways to measure our success in derm market, one is through the sales of our products to our wholesale distributors, which are recognized as revenue when shipped to them, this is a common way of recognizing revenues. Our total U.S.

product revenue was 613,000 for the March quarter in 2015, 1.4 million in the March quarter of 2016 and 1.8 million in March quarter 2017, up 32% over the same quarter of last year. More specifically, our U.S.

dermatology net product revenue was 1.2 million for the quarter ending March 31, 2017, compared to 769,000 in the same period last year, an increase of 400,000 or 52%.

While we recognize our derm revenue when we ship to our wholesalers, a second method to objectively gauge the Sonoma dermatology performance is the number of prescriptions filled for patients via the pharmacies, multiplied times the price paid to us by the wholesalers. This is traditionally called demand dollars.

This information is available to the public for a fee via several well-known databases and it's also widely shown via Bloomberg. It is shown on a weekly basis or monthly basis for all of our products and if you have an interest in following Sonoma more closely as an investor, we recommend that this is relevant information to follow.

According to the Symphony monthly data, the total prescriptions filled by patients via the pharmacy times the price paid to the wholesalers for all of our derm products was 2.5 million for the March quarter, 2017 quarter, up 1.5 million or 150% from 1 million for the same period last year.

The average quarter-over-quarter growth for the last four quarters for demand dollars was 28%. The growth in demand dollars for the March quarter over the December quarter was 7%. The number of prescriptions filed for the December and March quarters were both in the 13,000 unit range flat with the September quarter.

This seasonality occurred last year slightly modified for product launch last year in the March quarter.

The December and March quarters has historically grown at slower quarter-over-quarter growth than the other quarters due to seasonality, the high number of holidays, and derm conferences in the December and March quarters, and with the start of the year in January most managed tier programs with initial deductible stand to cause a delay in filling up prescriptions and cause higher rebates, most specifically related to the March quarter.

After this seasonality in December and March last year, we have recovered nicely with strong quarter-over-quarter growth from perception sales in the June and September quarters.

Regardless of these seasonality factors our prescriptions filled and demand dollars have grown dramatically since we started selling products, with our direct sales force from zero to over 13,000 prescriptions across at quarter and from zero to over 2.1 -- 2.5 million in demand hours for the March 2017 quarter.

There have been three primary factors which have generated the strong growth. First, in order of importance has been the quality, effectiveness, leadership and the number of our direct sales force. We started with 10 sales people in late 2014 and added 7 more in October 2015 to April 2016 time frame.

Most our 17 sales reps had quick sales ramps in the first 6 to 9 months reaching breakeven and the positive returns in their respected territories. After that the sales tend to grow at a more normal pace. The second factor for the high growth has been the launch and growth of eight products and product line extensions, which Jim mentioned earlier.

The last and the third reason has been our price increases. Since we have relatively large product sizes our price per gram of product is currently well below that of our competitive products.

For example Tobitcore [ph] a solid branded mid potencies topical steroid sells for about $4.50 a gram, a comparable generic sale for $2.67 per gram and our Alevicyn gel sells for a $1.11 per gram. What is our plan to achieve commercial EBITDA breakeven, our current primary financial objective.

Our plan to achieve EBITDA or breakeven includes the same three factors which I just mentioned and is very simple in concept including hiring of experienced and effective dermatology sales reps to achieve breakeven. Two, launch and grow new and current products.

And three, increase prices based on a pricing strategy of periodic planned and smaller changes, but remaining below the price per gram of our competitive products. I will discuss each of these factors in greater detail. Number one and the most important is to hire additional experienced and effective sales reps.

How many should be hire, how soon, and how much do they need to sell on average. We think the number of sales reps we need to achieve EBITDA breakeven is a total of 32 to the 35 reps, since September 30, 2016 we had 17 sales reps.

We have already added and trained 13 reps mostly in the latter half of recent March quarter, a 75% increase in the sales force. Those will be hired if needed in the next 6 to 9 months. We think that an aggressive hiring program like this one is the quickest path to EBITDAs breakeven.

Aggression to achieve breakeven with 32 sales reps sales reps need to sell a 1,000 prescriptions per quarter on average or in total sell 32,000 prescriptions per quarter. The on average is key since there are fairly wide variations in the size and potential between different territories, as a result our territories have different targets.

At 32,000 prescriptions filled the sales reps contribute enough income to cover the derm and corporate overhead. The second key factor in achieving breakeven is the launch and growth of new and current products.

we will be launching, as Jim mentioned earlier, a unique volume [ph] of product effective in reducing the scaling on dermatologist in the fall of 2017 and several line extensions for Ceramax, in the December and March quarters.

We have a robust current portfolio of eight products and line extensions for treatment of atopic and seborrheic dermatitis, scar management, surgical procedures and oral and infective for severe acne and [indiscernible] skin barrier and repair products. The sales force is now divided into two general categories.

The first group is 17 sales reps, which have been with Sonoma for 1 to 2.5 years, have demonstrated a quick six to nine months sales ramp to achieve positive returns in their territory, the quickest was three months. Generally, after that as I mentioned earlier, after that quick surge, the growth will be at a more normal pace.

In the September 2016 quarters, these 17 sales reps sold on average 814 prescriptions for that quarter, not too far from the thousand unit breakeven target level. The second group of reps are those who have been recently hired and trained, mostly in the lateral half of March 2017 quarter.

Similar to the 10-year reps, while starting at zero, the newbies do work, but experienced reps, should also demonstrate a quick six to nine months strong sales reps, which means that we should exhibit strong overall prescription quarter-over-quarter growth in the September, June and December quarters probably in that order.

The December quarter as I mentioned earlier will be damp and by the seasonality impact, which, by this seasonality impact. Like other sales groups after the six to nine months spurt the growth will continue and its more normal rate.

To verify some of these comments, the prescriptions filled, for those of you who not been looking at them for the last eight weeks shown on Bloomberg have demonstrated a nice upward trend. A key metric to watch as we drive to EBITDA breakeven as a ratio of average prescriptions filled for sales rep per quarter.

In the first nine months with 10 sales people that ratio grew from zero to 716 prescriptions filled per quarter, per sales rep than as we added seven new sales people, this ratio dipped down to 481 and then bounced back to 814 as I mentioned in the September quarter. As new sales reps at that time exhibit their strong six to nine months sales ramp.

With the addition of 13 new sales people, mostly in March quarter 2017, the average dips down again in March and probably the June quarter, but we are assume increasing as the new reps progress up their strong six to nine months sales ramp. During this time, our overall prescriptions filled as I mentioned should grow quickly.

As mentioned earlier, our breakeven level occurs when our reps achieve the average 1,000 prescriptions per rep per quarter assuming 32 sales reps. That's the possible time of achieving the EBITDA breakeven. Let me make it clear that we are not indicating breakeven in this specific quarter in the future.

While we are saying is; One, our prescriptions for the March quarter were about 13,000 and have been growing at an average quarter-over-quarter growth rate for the fourth quarters at 13%.

And two, if and I want to emphasize, if our prescriptions filled grow at a quarter-over-quarter growth rate average of 13% to 20% starting from a March quarter than we should achieve the breakeven in the range of June to December 2018 timeframe. Let me now make some general comments about the plan to achieve either breakeven.

We believe and we mentioned this before this quick expansion is the fastest way to achieve fab breakeven and we expect to use about 10 million of our 17.5 million of non-diluted cash to achieve this breakeven.

Therefore, we do not expect to completing dilutive funding in the near future except those owners of the trading warrants who choose to exercise their positions in the stock as the stock price goes up. The gross margins will improve as we increase the U.S.

dermatology revenue which has 80% to 85% gross margins and at the breakeven level we should have a blended gross margin in the range of below 70% level.

Looking at the big picture, in order for us to achieve EBITDA breakeven we estimate that our total net revenue should be in the 6 million to 6.5 million per quarter range and that the prescriptions filled as we've mentioned a couple of times should be in the 32,000 to 35,000 range.

Our last general comment on our journey to breakeven is that we will update you on our progress on each quarter earnings call and if needed we'll adjust our assumptions and the impacts of those changes.

As mentioned on previous calls we continue to believe that Sonoma remains a strong investment candidate for the valued investor even with the recent increase in the stock price who is looking for a strong growth in revenue and a strong cash position.

With respect to valuation I would like to end with three points, one our cash position at 17.5 million is a high percentage of our market cap of about 32 million I think today and number two our product revenue growth was growth at 48% from the last 12 months ending March compared to the same period last year, in the future investors should expect to see continued strong revenue -- dermatology revenue growth as the additional 13 new sales rep follow an already demonstrated sales ramp.

And three, we have laid out a clear plan to breakeven.

As we get closer to the breakeven point our market cap and stock price should in theory increase, also at the time of breakeven our net revenues should be in the annualized 23 million to 25 million range and derm companies tend to tout a revenue multiple three to five times, thus a potential investor can benefit not only from the strong derm product growth and reaching breakeven, but also from the potential expansion of the multiple without having to worry about stock dilution.

With that I'll turn it over to the operator for Q&A..

Thank you. [Operator Instructions] and our first question is from the line of Laura Engel with Stonegate Capital. Your line is now open..

So, I wanted to as just -- obviously, a lot of information and a lot of exciting things going on, with the products in the pipeline it looks the launch at the Loyon -- is that how you say it? Loyon, skin descaler, that's the next kind of big thing, could you tell us -- I've been looking and I've read through the release, it's -- just a little bit more about the market opportunity and kind of what some of the other current options are which I couldn't find any as far as what's out there to be replaced..

So, your pronunciation is dead bang right, Loyon. It's a skin descaler for various dermatoses, if you can picture a product that descales the egg shell like psoriasis covering to that ugly disease or the itchy scaly skin associated with dermatoses.

There is not a great product selection for dermatologist currently in the United States, which is why we are excited by this product. At the risk of reputation we in-licensed with from a German pharma company. We got it through the FDA using their clinicals and our sales team is really excited by sell of the product..

Okay great.

And then as far as -- it looks like -- so that will be fall, do you think its possibly could see one more this calendar year and then can you summarize again you said what the expectation was for going forward the metric as far as other additional launches?.

Yes, so we did see fall -- late summer, early fall for Loyon. I think I shared with you Lauren not to be coy, but we've got to really active FDA schedule coming with some really interesting products and approvals. So I'm not going to be more detailed on that timeline.

But the answer [indiscernible] to the question, are we anticipating any additional color [multiple speakers] now in December..

Well I think the Ceramax -- looking at the very end of our fiscal year, there should be some Ceramax line extensions. That should come pretty close to near the end of the fiscal year..

Fiscal, not calendar..

[Operator Instructions] And our next question is from the line of Sherry Grisewood with Dawson James Securities. Your line is open..

Actually two short questions. Congratulations on a great quarter.

I wanted to understand whether that $834,000 of revenue to Invekra is more of a one-time thing or is that going to be a quarterly supply number? What's the repeatability of that revenue?.

First of all, good question. First of all, the total 834,000 is a little bit higher than what would be considering normal. Which can certainly -- we would concern the normal range between 250,000 and 350,000. And that is price paid to us at a very reduced price to that the now owner Invekra of the Latin America assets for manufacturing the product.

Once they start their own -- and they are in the process to setting up their own manufacturing, but we think it's going to take from six to 12 months to do that at this point. So we would expect that 250,000 to 350,000 a quarter would exist as long as we are manufacturing. So it would be the six to 12 months.

Does that answer your question?.

But the 834,000 was a bit of an outlier?.

Yes it was an outlier, exactly. There were some prices that we are agreed to ahead of time, prior to the deal, that were at a little bit higher price. And they've all been flushed through the system at this point..

My second question sort of on launch and follow up a little bit on the person ahead me question, and that is, at this point, considering the range of products that you are developing for the prescription derm market, what is the profile or what will be the profile products that you might be looking to either in-license or acquire or launch next year and is there a change in the mix of that profile of products compared to which you have now?.

Good question, that seemed like that had multiple parts, Sherry, so why don’t we break it. So the ideal target product, we are not looking to jump into Phase 2 clinical, we like something that's much closer to commercial. Our sales team has a -- especially the lead guy has a really good nose for new products.

He takes many of our ideas to key opinion leader, doctors all around the country and vets them terrific feedback. What else can I say on the target products, we have our great line currently of topical, we have one systemic that may give you a hint of where we would like to go in the future.

And then the second half of that question, Bob, why won't you -- she was talking about the mix..

I talked to -- we -- one of our strategies from Day 1 has been to diversify into different technologies other than just the Microsin [ph] technology. We've done a pretty good job of that we think with our severe acne Mondoxyne product and our Ceramax product and now we are adding the Loyon product.

So what's really interesting is, when we have a national salesforce that we have now, we get an awful lot of people coming and knocking on a door and asking us if we have an interest in the products -- in their products, which they sell, which gives us a lot of leverage and looking at new products and potentially adding new products to our line.

And so that’s a really positive. In terms of our Microsin products, we think there is some opportunities there just because a lot of the -- there is a lot of recognition now coming around that a lot like atopic dermatitis is connected to Stuporous and so that’s a really interesting opportunity for us or the Microsin technology products..

Thank you. And our next question comes from the line of -- from Andy Summers with Janus. Your line is now open..

Couple of questions, so first, what can you say about how well this product Loyon has performed in the markets where it's currently sold today, like for example how big is it in a country like Germany?.

Yes, at the risk of replication, we in-licensed from a German pharma company, it's only available in Germany, we'll be the first to introduce it in the U.S. To give you a comparable, they have a very big sales force and they sell by their estimation about $10 million per year in the European market for a similar product.

Now mind you Andy, they have a broader indication than we do here in the stage, we are happy with the first step of the indication, but we'd eventually like to go back to the FDA and broaden ours also. So it's a good interesting product that sells well there.

Our indication is a little bit more narrow here in the states and we would like to broaden with the FDA..

Okay, what are you missing in your label versus what they have in their label?.

They have a full brown psoriasis -- descaling of psoriasis. We very much like to get that in the states..

What do you have to do to get that?.

Go back to the FDA -- we haven't given the timeline to go back to the FDA on it other than to say that we've got great clinical coming from this German Pharma company since they got through the European equivalent of the FDA and they built up a nice data packet of clinicals.

So we're parsing through those clinical's to figure out how to get back in front of the FDA with new data..

I see okay. Okay, and then you mentioned earlier --..

It was FDA's 510(k) kind of application at this point. So it wouldn’t take forever, and now we also has a credited device too, which has our own product for atrophic dermatologist..

Okay, great. And then you mentioned earlier that you expect to have seven products approvals on Brazil in fiscal year '18.

Can you just give us some color around your go-to-market strategy in Brazil are you planning to do the loan or do you need a partner or just how exactly do you expect that to play out?.

We're definitely going to partner Brazil, we have zero intentions of building sales force in Brazil ourselves we really do have a laser focus on building U.S. derm and keeping that beholding. Go-to-market strategy is through a partner, the claims are interesting, the portfolio is interesting and we're fishing and chopping out. .

So you would expect to start a partnership before these approvals start to commend?.

Probably after -- and this is based upon my experience, if I were in their shoes why not wait to see what the final labels and indications are before you signed anything..

Okay, and you'll just -- you'll partner all seven of these at the same company or you'll buy multiple partners and how will that work?.

Yes, stay tuned. We've had strong interest on handful of them, so we may do exactly that, but will keep you posted..

Okay, great. And then the last question from me.

You've sort of hinted at your pipeline throughout this call, but just to be very specific, do you guys have any NCEs in your pipeline or is everything to sort of reformulations?.

It's a good question. So NCE is a new chemical entity, we have just read a really interesting document from one of our regulatory focus on NCE opportunity.

But to be fair Andy NCE's and NDA's are expensive and time consuming and we do have interesting opportunities in our pipeline, but we'd rather get to breakeven first and Bob you are really strong from that point, will you hammer that point because I think you do it well. .

Yes, well we think it's something that we will like to look at the lower cost in Orphan drug type of alternative, but we want to get the breakeven first, and that's a key for us at this point in time. We may do small types of things it would lead to the orphan drug kind of alternatives.

The other thing that in terms of the question you just ask about the potential partnerships. We don’t really include any potential partnerships in our path to breakeven and to the extent if we have a partnership like in Brazil for the derm area, that would actually improve our ability to get to breakeven sooner..

With some upfront cash payments or do you not expect any upfront?.

While we may get some upfronts, but looking more at the breakeven more of the continuous flow of revenue and cash that would -- that they would generate..

And Bob is a really big fan of profit sharing mechanisms. So even if we had to give up on some of upfront cash, that we would make more in long run and I tend to agree with him..

Okay, If I could just squeeze in one, last one. So for most companies EBITDA breakeven does not equal cash flow breakeven. But I think in your case, correct me if I’m wrong, because you’re not going to be a tax-payer for so long and you don’t have debt that requires interest payments.

Your EBITDA and cash flow breakeven timeline should be roughly the same, is that a fair statement?.

Close, and because we don’t have a really big working capital requirement or CapEx requirement. It’s pretty close, probably lag about a quarter..

Okay. Perfect..

So that’s, but not very far, the lag isn’t very much..

Okay. Great. I’ll get back in queue. Thank you.

Thank you. And our next question is from the line of Jason Kolbert with Maxim. Your line is now open. .

Hi guys, it’s Gabrielle Zhou for Jason. Congratulations on a solid quarter. I just have a question on the derm prescrips [ph]. Can you discuss more in detail the increased in derm prescrips in the quarter and the year. And how many prescrips are there per quarter and what’s the rate of growth? Thank you..

So, our rate of growth in prescriptions for the last four quarters and that’s ending in March was about 13% quarter-over-quarter on average for the last four quarters. It’s been because of the seasonality that I mentioned before, it’s been -- it’s actually declined, just because it’s been more flat for the last two quarters anyway.

Prior than that was something like was up in the 20%, 19%-20%, level prior to that. We think that that's just because of the hiring of an increase in our sales people by 75%, our sales reps.

And we also know there is a pretty expected six to nine month fairly quick ramp for those 17 sales people, that we think there should be -- the growth should be higher than 13% quarter-over-quarter going over the next two to three quarters.

Does that answer your question?.

Yes. I appreciate the insight..

Thank you. And our next question is from the line of Bob Robbins with Robbins Capital Management. Your line is now open. .

My question has to do with Europe and the rest of the world. You break down in the quarter, when we released toward the end shows that it’s about 60% as big as the United States in revenues. And it’s growing on a three-month basis about a little less than have the U.S.

rate, we know you are emphasizing in U.S., but it’s only growing 10% in the 12 months full year revenues versus 51% growth in the U.S.

Tell us more about what the strategy really is there and at what point would Europe and the rest of the world, perhaps be growing a lot faster and which countries might need that?.

Great question Bob one and I put split it.

I’ll take Europe, you take rest of the world?.

Okay. .

On Europe, as you know Bob, primarily our European revenue is from acute care sales, it’s a solid business for us, we have terrific partners there. But we’re just getting started in the dermatology business. Fair warning European dermatology pricing is not as robust as U.S. dermatology pricing.

But we remain really enthusiastic about moving into that space because it affords us higher product margin opportunities in European derm, why don’t you answer ROW?.

Okay I think our ROW, we see a lot of potential, but as a small company our strategy in the big picture with the international business is that it's a business unit that should be generating cash and it does even after we've sold Mexico or Latin America for $20 billion.

So in taking that out it still is pretty close to breakeven in generating cash at this point. There we tried to use partners, almost all of our international activities are through partners, we're not going to change that, because what that enables us to do is generate cash.

We don't have to spend all the money on sales and marketing like our partners would do. And that's -- we're going to continue that model.

So, we think that longer term that [technical difficulty] pointed out, there is higher growth in the U.S., we actually have higher gross margins, but at the same time we have really good operating profit margins in the rest of the world and in Europe, simply because we don't have a high G&A component.

So, our purpose in [technical difficulty] is to really generate cash, and we think that that'll grow but just not nearly as quickly. At best we think that that ratio would probably be in 80% to 60% range -- 80% or as we grow more in the later years in the derm business versus the international.

Does that answer your question?.

I'll be fine for now. Thank you very much..

[Operator Instructions] And I'm not showing any further questions, so I would like to turn the call back to management for any final remarks..

Hey thank you all for joining the call and for your continued support.

We feel that Sonoma is in the best shape we've ever been for several reasons; One, we've effectively executed the turnaround strategy in a very attractive dermatology market with a strong experienced and effective sales team, a robust and unique product portfolio and a growing product pipeline.

As Bob has said repeatedly, our next step is driving to commercial breakeven which should increase our shareholder value. Two, our current cash position at $17.5 million enables us to step on the gas in our growing derm business without dilution to shareholders and while using only part of our cash.

Three, our commercial EBITDA's breakeven plan which is simple includes; One, hiring new sales rep which we now have 30; Two, the launching of new products and continued growth of existing products; Three, gentle price increases consistent with comparable products.

We believe we have the foundation and all the building blocks to achieve breakeven without further dilution to shareholders. So, we look forward to sharing our progress as we build to becoming a pure play multi technology dermatology company and achieving our purpose of relentless passion for healing.

We hope you can turn in in August for our earnings call for the quarter ending June 30, 2017. Operator thanks very much..

You're welcome, and ladies and gentlemen this concludes our program for today. You may all disconnect. Have a wonderful day..