Welcome to the NovaBay 2019 First Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we'll hold a Q&A session. [Operator Instructions] As a reminder, this conference is being recorded, Thursday May 9, 2019. I would now like to turn the conference over to Bruce Voss with LHA. Please go ahead sir.

Thank you. This is Bruce Voss. And thank you all for participating in today's call. Joining me from NovaBay Pharmaceuticals are Justin Hall, Interim President and Chief Executive Officer; and Jason Raleigh, the Company's Interim Chief Financial Officer. I would like to remind listeners that comments made during this call by management will include forward-looking statements within the meaning of federal securities laws. These forward-looking statements involve risks and uncertainties that could cause actual results to be materially different from any anticipated results. For a list and description of those risks and uncertainties, please review NovaBay’s filings with the Securities and Exchange Commission. Furthermore, the content of this conference call contains information that is accurate only as of the date of the live broadcast, May 9, 2019. NovaBay Pharmaceutical undertakes no obligation to revise or update any statements to reflect events or circumstances, except as required by law. And now, I'd like to turn the call over to Justin Hall. Justin?

Thank you, Bruce. Good afternoon everybody and thank you for joining us. At NovaBay, we firmly believe that Avenova is the best product available to treat chronic bacterial infections that affect approximately 85% of patients suffering from dry eye. As such, we are fully committed to increasing our portion of this immense market. In recent months, there has been a significant acceleration in some trends within the reimbursement environment that have negatively impacted the sales of branded pharmaceuticals nationwide and Avenova is no exception. Most notably, the trend is towards higher deductible healthcare plans that we discussed on last quarter's call. Since then, we have worked aggressively to make Avenova affordable to patients through a rebate and coupon strategy that aligns a patient's out-of-pocket costs with an insurance copay for a branded pharmaceutical. As health plans reset each year, NovaBay has used rebates to cover a portion of the patient's out-of-pocket costs for Avenova. The results of the reset of health plans with even higher deductibles compounded by an unexpected loss of insurance coverage from some large national pharmacy chains had an even greater impact on both Avenova unit sales and gross to net pricing in the first quarter of this year than in previous quarters. Beginning with my tenure as interim CEO in mid-March, we are now adapting to this new environment by taking actions to increase sales of Avenova under a cost structure that makes sense for NovaBay. Among our initiatives is the expansion of our partner pharmacy program, which makes Avenova accessible through partner pharmacies in all 50 states. We've expanded this program to 16 partner pharmacies including eight partner pharmacies added during the past two months. Our partner pharmacies provide patients with a quality experience with a relatively short time between receiving the initial script and filling the prescription fast refills and home delivery. Patients using our pharmacy partners receive Avenova at affordable prices through pre-negotiated pricing with NovaBay without the use of rebates or coupons. This pre-negotiated price along with a reduction in coupon usage improves our gross to net and per script profitability. Currently, we have about one quarter of all unit sales going through partner pharmacies and have a goal of increasing that to half of all unit sales by mid-year. We are also taking actions to improve our in-office directed channel, in which eye care professionals resell Avenova directly to their patients. Our efforts here include a recent email campaign promoting the benefits to specialists of dispensing Avenova in their offices as they practice building opportunity that addresses the needs of patients with dry eye, while generating additional revenue for practitioners. It's a win-win. Our promotion provides eye care specialists with various strategies for incorporating Avenova into their practices, whether it be through in-office dispensing or directing patients to our partner pharmacies. Both of these options insured patients a quality experience and low out-of-pocket costs to increase our presence in all eye care specialist offices nationwide. We recently made purchasing Avenova even more convenient for doctors by enabling direct bulk ordering supplies. The in-office direct channel offers another benefit to NovaBay that of raising patient awareness about the product during routine office visits to their eye care providers. This awareness creates an ongoing demand for Avenova from satisfied customers and prime to pump our direct-to-consumer launch later this year, while we are very excited about this new distribution channel, I would love to share more information with you now. We can only provide details on this important initiative at the time of launch. Please stay tuned and keep an eye out for our press releases in the coming months. I'm especially excited to share these new strategies, because they're aimed at cost effectively increasing sales. They work in concert with the shift in our commercial strategy announced earlier this year to reduce costs of our sales organization as we focus on profitability. We have now deployed our 15 sales representatives in territories identified as having high prescribing eye care specialists and favorable health line coverage. These territories cover 26 metropolitan areas that were responsible for 95% of Avenova prescriptions in 2018. I'm pleased to report that our reps remain motivated and continue to forge strong customer relationships. As I mentioned before, our sales force is focused on moving as many scripts as possible to our partner pharmacies. This should have a significant impact on profitability, especially in some territories where insurance reimbursement is poor. I would like to turn the call over to Jason, our Interim CFO, to review our financial results. Jason?

Thank you, Justin, and good afternoon, everyone. Starting with our Q1 top line. Net sales for the first quarter of 2019 were $1.5 million, compared with $2.9 million for the prior year period. The decrease in sales is primarily due to lower unit sales and the lower net selling price of Avenova that Justin mentioned. In reviewing Q1, 2019 sales by channel, Avenova sales into the retail pharmacy channel were $1.2 million or 85% of the total, while sales through our in-office direct channel were $218,000. Gross margin on net product revenue for the first quarter of 2019 was 77% compared with 91%, the year ago period. With the decrease due to lower product revenue, operating expense for the first quarter of 2019 were $5.2 million versus $5.1 million for the first quarter of 2018. Of note, we instituted a reduction enforce in late March. So our Q1 expenses do not reflect the implementation of this measure. We expect a cost savings of $3.6 million over the course of 2019 related to the reduction in force. This figure includes reductions in salaries, benefits and bonuses. In reviewing Q1 expenses by line item, sales and marketing expense were $3.5 million compared with $3.4 million for the prior year period, with the slight increase due to headcount as well as an impairment charge related to our fleet leases. This was partly offset by lower sample production for our international distribution partner. G&A expenses for the first quarter of 2019 and 2018 were unchanged at $1.6 million for both periods. And R&D for Q1 2019 were $85,000, up from $46,000 in the year ago period. The increase is primarily due to higher usage of consultants to support our patent registry and post market clinical efforts. The non-cash loss on the fair value of warrant liability for Q1 2019 was $57,000, which compares with a non-cash gain of $214,000 for Q1, 2018. Non-cash loss on the embedded derivative, associated with the convertible note, for the first quarter of 2019 was $0.6 million compared with no loss or gain in the prior year quarter. We are working with our auditors and outside consultants regarding the valuation of the convertible note, which may cause a variation in the financials reported in our Form 10-Q. We reported a net loss for the 2019 first quarter of $4.8 million or $0.28 per share. This compares with a net loss for the 2018 first quarter of $2.2 million or $0.13 per share. In reviewing our balance sheet, we had cash and cash equivalents of $2.9 million as of March 31, 2019. With that, I'll turn the call back to Justin.

Thanks, Jason. With all that said, we have a very strong foundation for Avenova in the dry eye market with more than 850,000 prescriptions filled since the launch of the product in 2014 and more than 15,000 prescribing physicians, yet we have barely tapped the large addressable market for bacteria related dry eye. We have an exceptional product in Avenova that’s easily use, soothing to the eye and clinically proven to reduce bacteria on the ocular surface, but yet and most importantly it is not an antibiotic. In summary, we're taking steps to adapt to an industry-wide change in the reimbursement environment to make Avenova accessible and affordable to all patients under appropriate economics to NovaBay. For example, we have expanded our partner pharmacy program to ensure Avenova’s availability at the best pricing to patients under a contracted, per unit revenue for NovaBay. We have deployed our field representatives in territories that are profitable or nearing profitability. We have increased access for eye care specialists to our in-office direct sales channel, allowing them to resell Avenova to their patients. And we plan to further broaden access through a new direct-to-patient sales channel. We are focused on programs that will drive revenues through the most efficient sales channels with the goal of achieving positive cash flow and profitability. We have the support of our current majority shareholders and Board members who have pledged additional financial resources as we execute on our strategy. We're affirming our financial outlook for 2019 as follows. We expect net sales for 2019 to be in the range of $6 million to $8 million with potential upside from several strategic initiatives that I just mentioned. As in years past, we expect the reset in health plan deductibles to have the greatest impact on sales in the first quarter and we expect net sales to increase in each subsequent quarter throughout the year. As we gain clarity in the coming quarters, we may adjust our outlook for 2019 net sales. We also expect to begin realizing the benefits of our reduction in force implemented earlier this year starting in the second quarter, and we expect to significantly narrow our operating expenses and reduce our cash burn from 2018 levels. With that overview of our business and our plans, I thank you for your attention. Operator, we're ready to take questions.

[Operator Instructions] Our first question comes from Ed Woo with Ascendiant Capital. Please go ahead with your question.

Yeah. Thank you for taking my question. My question is, is the reorganization complete in terms of the organizational structure going forward?

Hi, Ed. Yeah, it is. So, we are always fine tuning the organization, but we did do our major reorg in mid-March, and we don't expect another major one going forward.

What about the sales force productivity? Do you believe that it should be ramping up? Or do you think that it's already at a state that you guys are happy with?

Well, we're always happy with more unit sales of course. But as I mentioned, during the call, the 15 are covering 98% of the territory where our scripts came from last year. So, I do expect sort of a leveling out, because we do have coverage of all the major areas, but it will be harder for the 15 to cover the same territory with the same cadence of visiting doctors. So, a leveling out I think is expected with a minimal amount of growth. But I think that those scripts are somewhat inelastic and we'll see how it goes, especially in the second quarter, because that'll be the real litmus test of what the script business looks like going forward.

Well, thank you for answering my question and I wish you guys good luck. Thank you.

Thanks Ed.

[Operator Instructions] There are no further questions at this time. Please proceed with your presentation or any closing remarks.

Once again thank you for joining us today and your interest in NovaBay. We look forward to updating you on our next call in August to discuss our financial results for the second quarter of 2019 and report on our second quarter progress. Have a good day. Thank you.

Ladies and gentlemen, that concludes your conference call for today. We thank you for your participation and ask that you please disconnect your lines.