Harrow, Inc.

Q1 2021 Earnings Conference Call

5/11/2021

spk02: Good afternoon and welcome to the HARO Health first quarter 2021 earnings conference call. My name is Cole 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 HARO Health. Please go ahead.
spk00: Thank you, Operator. Good afternoon and welcome to Harrell 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 laws. Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond Harrell 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 factor 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. Harold Health's results may differ materially from those projected. Harrell 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, Harrell referred to non-GAAP financial metrics, specifically adjusted EBITDA and or adjusted earnings, 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. 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.heraldinc.com. Joining me on today's call are Harold's Chief Executive Officer, Mark Elbaum, and Harris Chief Financial Officer, Andrew Vaughn. With that, I'd like to turn the call over to Mark to go over some prepared remarks prior to the question and answer session. Mark?
spk04: 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. We 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 in new cash to fund our growth strategy, and we lowered our cost of capital in doing so. And I might add that we managed to accomplish all of this without any dilution to our common stockholders. We are pleased to report that 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, and up 6% from revenue of $14.6 million in the 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% in the first quarter of 2020 and fourth quarter of 2020, respectively. Adjusted EBITDA of $4.3 million was another record metric compared with the $414,000 in the prior year quarter and $4 million in the fourth quarter of 2020. In the first quarter of 2021, segment contribution from ImpromiseRx was $5.7 million. including non-cash expenses related to depreciation, amortization, and stock-based compensation of $383,000. 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 ImpromissRx business separately from other HARO 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 are headed back to consistent revenue growth. Adding to my optimism is my belief that all the pent up demand for ophthalmic procedures that have 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 compounding by leveraging our market position and adding high value in terms of revenue per unit and gross margins, FDA-approved drugs, and late-stage drug candidates to our platform. Our iPoint Pharmaceuticals partnership to market Dexacute continues to be mutually beneficial and is confirming the prospective value and thus the validity of our expansion strategy. In addition, we are executing on our vision of serving eye care customers directly through Visionology, which will be launching regionally this week. Visionology is our direct-to-consumer eye care platform that delivers a simple and seamless user experience to help patients manage their chronic eye disease We are very excited about this revolutionary new technology that we believe will transform the way consumers access eye care products and services. I look 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 1.5 million shares of our 3.5 million share position in Eaton Pharmaceuticals Common Stocks. with net proceeds to HARO 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, closed on the underwriters over allotment option to purchase an additional $5 million aggregate principal amount in those funds. In total, the senior notes offered resulted in net proceeds to the company of approximately $52.8 million. In May, we also closed on an $11 million Series B preferred offering with net proceeds of $10.7 million. We used $15.5 million to pay off our loan agreement with SWK 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 post-production quality assurance and quality control costs, and for general corporate purposes, including funding future strategic product acquisitions, related investments, and working capital. Now, let's take your questions. I will pause to have our operator pull for questions.
spk02: Operator? Thank you. And we will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. Once again, that is star then 1 to ask a question. And at this time, we'll pause momentarily to assemble the roster. And our first question today will come from Andrew DeSilva with the Riley FBR. Please go ahead.
spk01: It's B. Riley Securities now, but thank you. Good afternoon, and I hope everyone is well, and congrats on the quarter. On the compounding side, just a few quick questions for me. I'll start on the compounding side of the business. I was really curious on what you're seeing driving the growth. Is it volume-based or pricing-based, 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 new physicians too.
spk04: Andy, thanks for the question. I think there were two metrics that we reveal in the press release that highlight the answer. One, we definitely did open up new accounts, new larger accounts. And I think the other big reason is revenue per 503B order hit an all-time high. That was also in the shareholder letter. It hit $2,118 per order, which, you know, is a huge factor as well. So those – those factors I think contributed to the record revenue number. And we also talked about the number of units shipped, which did hit an all-time high as well. We shipped in the first quarter nearly 500,000 units, which was once again an all-time record. So a lot of units, a lot of revenue per order, and then we also were able to increase our customer account as more physicians, ambulatory surgery centers, and hospitals join the platform.
spk01: So on the 503B side, if my memory serves me correct, that allows stocking orders at ambulatory surgery centers to take place. Do you think that any sort of stocking-related windfall took place during the first quarter, or is that... you know, really a sustainable rate as we're going to the second quarter and in the back half of the year? Because, I mean, it's materially ahead of what we were looking for you to be at at this point.
spk04: Yeah, I think we saw some of that in the fourth quarter, anecdotally. It's really hard to tell whether that is stocking or not. We did speak to some accounts in the fourth quarter, and we heard that there was a little bit of these stocking uh, issues happening as more and more offices opened up. I have heard less of that in the first quarter, but, um, 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, uh, you know, baseline beginning this year for unit volumes, uh, and revenue per order, uh, and, and customer counts.
spk01: All right. That's great to hear. Um, And just moving over to visionology, you may have mentioned this, but I was jumping between calls. 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 consumer products that fit the visionology model yet? Obviously, I know you could use your own compounding facilities, but... there's obviously a little bit of a business shift as you move into the direct-to-consumer model versus primarily focused on ambulatory surgery centers.
spk04: Yeah, so visionology is obviously direct-to-consumer, but it's really, I think what's interesting about the model is that 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, they have access 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 10,000 physicians that we serve in nearly every populated county across the United States. And so Visionology very much leverages the network of physicians that we've built up through our Imprimis RX business. In terms of the product mix, you know, we're definitely interested in the dry ice space for sure, but we're having probably the worst allergy season, I think, on record. And so we're very much interested in the allergy space as well. That's a great model for us, as is presbyopia down the line, and there are other chronic care conditions, very large market opportunities that I think fit in very well with the Visionology 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 a really exciting time around here. Everybody's pumped up. We love the software that's been built and we're excited about the products. that we're going to be initially offering. It is a regional launch, so we're going to be working out the kinks as we kick this off. But it is happening, and it is happening this week. That's great. Congrats on that.
spk01: A last question for me is related to partnering activity and potential M&A. Obviously, you raised a very specific amount of money, particularly with the preferred shares earlier in this month. Can you talk around why that particular number was important to raise? And on the potential strategic side, should we expect acquisitions of products to kind of resemble DexaQ in style or in reach? Or could it be something different like, you know, taking a bigger position in one of your deconsolidated entities that is looking to potentially raise additional capital this year?
spk04: Yeah, so the amount of capital that we raised, you know, I don't think there's a connection there between any of the transactions that we're doing. You know, your firm actually was instrumental in helping us there, and so we're certainly grateful for the great work that B. Reilly Securities did in 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 as I identified in our letter to stockholders, 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 have been answered when we're able to close on these transactions. I will say that we didn't move this cash onto our balance sheet to, to, uh, it's not going to be money in the mattress. I'll just say that. And so we have several active engagements, uh, that, that are in various stages of completion. Can't guarantee any one of them will be completed, but we did raise this cash. As I said, it is not going to be money in the mattress. We intend to put it to work and we do have a fairly decent record of, of investing capital. in our business when we've had that opportunity. And, you know, we're excited to do that and hopefully, you know, more than one transaction this year. In terms of 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 happen within an office. And so, you know, on the surgical side, there are only a few areas that, that we're really interested in cataract refractive, obviously glaucoma, um, and retina surgery. So products that serve those markets and on the chronic side, glaucoma, dry eye, my bony and gland dysfunction, presbyopia, um, 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, uh, You know, we're excited to execute this strategy. I think good things are coming.
spk03: Great, great. Thanks for the color. Congrats on the quarter, and I'm looking forward to seeing how you deploy that capital. Thank you, Andy.
spk02: And once again, if you'd like to ask a question, please press star then 1. 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.
spk04: Thank you. In closing, let me once again acknowledge and thank the Harrell 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 work 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 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, 2021. Thank you for attending today's call. If you have any investor-related questions, please email Jamie Webb at jwebb, W-E-B-B, at harrowinc.com. And this will conclude our call.
spk02: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.
Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

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