Aytu BioPharma, Inc.

Good afternoon and thank you for joining us for the A2 Bioscience second quarter fiscal 2021 business update call for the quarter ended December 31st, 2020. With me this afternoon are A2's chairman and chief executive officer, Josh Disbrow, and chief financial officer, Dave Green. A2 Bioscience issued a press release earlier this afternoon with the details of the company's operational and financial results for the fiscal second quarter. A copy of the press release is available on the news page of the company's website at A2Bio.com. I'd like to remind everyone that today's call is being recorded. A replay of today's call will be available by using the telephone numbers and conference ID provided in the earnings press release. In addition, a webcast will be accessible live and archived on A2's website within the investors section under events and presentations at atubio.com. Finally, I'd also like to call your attention to the customary safe harbor disclosure regarding forward-looking information. The conference call today will contain certain forward-looking statements, including statements regarding the goals, strategies, beliefs, expectations, and future potential operating results of A2 Bioscience. Although management believes these statements are reasonable based on estimates, assumptions, and projections, as of today, February 11, 2021, these statements are not guarantees of future performance. Time-sensitive information may no longer be accurate at the time of any telephonic or webcast replay. Actual results may differ materially as results of risks, uncertainties, and other factors, including but not limited to the factors set forth in the company's filings with the SEC. A2 undertakes no obligations to update or revise any of these forward-looking statements. I would now like to turn the call over to A2 CEO, Joshua Disbrow.

Thanks, Omar. Good afternoon. Thanks for joining today's call. I'm excited to be speaking with you today as we report the highest revenue quarter in A2's history. We posted over $15.1 million in net revenue, which is up over our previous two quarters and up 377% over the same quarter last year. In Q2, A2's strategic transformation continued, and the progress we have made over the past four quarters has been exceptional. I'll remind you that Q2 represents just the third full quarter of integrating the ANOVA's consumer health business and the Seracor Prescription Pediatric Assets. And while we spent the last three plus quarters integrating and growing those businesses, in parallel, we continue to identify additional growth drivers and target acquisitions. That culminated in late Q2 with the signing of our definitive merger agreement with Neos Therapeutics, a specialty pharmaceutical company focused on commercializing ADHD brands. This merger, expected to close by the second calendar quarter of 2021, will create a specialty pharmaceutical company with pro forma annual revenue of over $100 million and a portfolio of unique Rx and consumer health brands. I'm happy to say that we're making very good progress towards the closing of the merger. In fact, just yesterday morning, we announced that the meeting date for the special shareholders meeting for both companies is March the 18th. So if both companies receive the requisite shareholder votes to approve the merger on March 18th, we'd expect to close shortly thereafter. We remain on track with our original timeline. Before I remind our listeners about the strategic rationale for the planned NEOS merger, I'll share some highlights from the current A2 business from the quarter. Again, we had our highest revenue quarter in company history with $15.1 million, a 377% increase over the same quarter last year. Contributing to that was the Consumer Health Division's all-time revenue high of $7.9 million and the RX Division's $7.2 million, just shy of an all-time high for that division. RX revenue of $7.2 is up 25% from last quarter. During the quarter, A2 continued to gain revenue scale and, importantly, realize operational efficiencies as demonstrated by a significant reduction in adjusted EBITDA. We posted a loss of just $1.7 Thank you Josh, and thank you all for joining us.

Overall, as Josh previewed, we are reporting a robust second quarter. Top line net revenue for Q2 was $15.1 million, representing an increase of 377% over the $3.2 million of net revenue reported for Q2 last year, and 12% sequential quarterly growth over Q1 of this fiscal year. Also, as important as top-line growth, we continue to make progress toward profitability. During the second quarter, our adjusted EBITDA loss was approximately $1.8 million, a more than $1 million improvement compared to last year's Q2 adjusted EBITDA loss of $2.9 million. Q2 gross profit was $9.1 million compared to $2.6 million in the year-ago quarter. Q2 gross profit margin was approximately 60% compared to 81% for Q2 last year. The lower than normal gross profit margin was driven by COVID-19 test kit sales, which generated lower margins than in prior quarters. But while test kits lowered overall gross margin, the test kit business required little operating resource and contributed nearly $900,000 of positive cash flow. Total operating expense, excluding cost of sales for Q2, was $14.7 million compared to $7.5 million last year for Q2. The higher level of operating expense supported a multiple of incremental top-line revenue. To make this point more clear, while operating expenses increased less than two times over Q2 last year, net revenue was nearly five times greater compared to Q2 last year. We also recognize approximately $1.2 million of transaction expenses in operating expense that was associated with the NEOS merger and is non-recurring. Without these transaction-related expenses, the revenue to operating expense ratio would be further improved. Additionally, our non-cash amortization expense for Q2 was approximately $1.6 million, compared to roughly $1 million in the year-ago quarter. So in summary, while operating expenses were higher this quarter, when we compare revenue to total operating expenses and factor out transaction costs and the incremental non-cash amortization costs, the comparison shows that we are running more efficiently today compared to prior periods. We have been able to accomplish the relative cost reduction and narrowing losses by removing duplicative costs from the acquired operations, using a larger revenue base to absorb proportionally less operating expense, and managing the business with a dual mandate of growth and cost control. Our bottom line loss for the quarter was $9.5 million, or $0.72 per share, compared to a loss of $214,000 or $0.12 per share in Q2 last year based on three-month weighted average shares outstanding of $13.3 million and $1.75 million respectively. Two below-the-line non-cash expense items totaling approximately $3.6 million contributed to the Q2 loss. There was a $3.3 million charge to adjust the contingent consideration liability and a loss of $257,000 connected to a debt for equity exchange. On the balance sheet, we ended the quarter with assets of $167 million, equity of $113 million, and approximately $62.3 million of cash. We also reduced liabilities by $3.8 million since June 30th, our most recent fiscal year end. Also during the quarter, we completed a $28.75 million public offering and issued 4.8 million new common shares. This capital infusion positions the company to pay down a substantial portion of the NEOS debt upon closing the merger with NEOS. Net proceeds from the offering were $26.2 million. In summary, for Q2 of this fiscal year, we are reporting much stronger results and improved financial positioning compared to the same quarter last year. We substantially increased revenue, reduced the adjusted EBITDA loss, and ended the quarter with a stronger balance sheet. As we move forward, we do so with a clear focus on top-line growth and the expectation for continued strides toward profitability. And with that, let me turn the call back over to Josh for some additional commentary. Josh? Thanks, Dave.