Welcome to the NovaBay Pharmaceuticals Second Quarter 2019 Release Conference Call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will hold a Q&A session. [Operator Instructions] As a reminder, this conference is being recorded today, August 8, 2019. I would now like to turn the conference over to Jody Cain. Please go ahead ma’am.

This is Jody Cain with LHA. Thank you for participating in today's call. Joining me from NovaBay Pharmaceuticals are Justin Hall, President and Chief Executive Officer; and Jason Raleigh, the Company's 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 Pharmaceuticals’ filings with the Securities and Exchange Commission. Furthermore, the content of this conference call contains time sensitive information that is accurate only as of the date of the live broadcast, August 8, 2019. NovaBay Pharmaceuticals 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, Jodi, and good afternoon everyone and thank you for joining us. I would like to begin by highlighting the early success of our new commercialization strategy for Avenova. For the second quarter, we reported Avenova sales of $1.6 million, which is up over 9% over the first quarter of 2019. This is particularly impressive considering that we achieved this growth with significantly fewer sales representatives following a 67% reduction in the size of our sales force. In fact Avenova gross-to-net pricing increased and operating expenses declined by 47%. You may recall that our new commercialization strategy is aimed at increasing Avenova accessibility and enhancing the patient experience. As previously discussed, the trend towards higher deductible health plans has significantly impacted branded prescription drugs and Avenova is no exception. Under our previous sales strategy, which relied primarily on doctor prescriptions, we made Avenova 40ml continuously available to patients at retail pharmacies regardless of the health insurance coverage for $60 or less through the use of coupons and rebates. Yet the proliferation of higher deductible healthcare plans necessitated the increased usage of our coupons and rebates to maintain Avenova’s affordability. To counter this trend under our new strategy, we expanded our partner pharmacy program to 16 partners with eight new partners added since the beginning of the year. We sell our Avenova to pharmacy partners at pre-negotiated prices, which significantly reduces the impact of rebates and coupons. Our pharmacy partners provide patients with a quality experience that includes easy access to Avenova in a relatively short-time between receiving the initial prescription and filling in as well as fast refills and home delivery. The combination of pre-negotiated prices along with a reduction in rebate and coupon usage improves our gross-to-net pricing and our per script profitability. I'm pleased to report that sales through this channel accounted for 52% of all prescription Avenova units sold in the second quarter, up from 38% in the first quarter. Turning now to our buy and sell channel, under which optometrists and ophthalmologists sell Avenova in the 20ml size directly to their patients at a suggested retail price of $30. This is a channel that's convenient for patients and provide eye care specialists with a new source of revenue. We saw relatively flat sales from this channel compared with Q1 despite an email campaign that provides these specialists with ways to incorporate Avenova into their practice and improves the ease of product ordering through our updated website. Revenue through this channel is relatively small when compared to our partner pharmacy channel. However, the high number of unit sales in this channel helps to give us an increased brand awareness, which is key to growing our third channel Avenova Direct. Avenova Direct is our new direct-to-consumer channel launched in mid-June through Amazon.com. This is the first time that we are offering prescription strength Avenova directly to the patient without a prescription. Avenova Direct provides us with stable gross-to-net pricing and provides customers with easy access to the 20ml product. This channel capitalizes on the trend of marketing pharmaceutical products directly to consumers, allowing them to forego a time consuming doctor visit and trip to the pharmacy. It also helps to offset costs in a high deductible healthcare environment. We are promoting Avenova Direct through social media campaigns with the help of an outside marketing consultant. We expect our greatest growth for Avenova in the future to come through this channel. Our efforts to support our goal of making Avenova accessible and affordable to all customers while ensuring appropriate economics for NovaBay. We were pleased with a traction that we've seen in the second quarter with a response of both eye care professionals and patients for Avenova Direct. We believe this new strategy will accelerate our time to profitability. Now, I'll turn things over to Jason. Jason?

Thank you, Justin, and good afternoon everyone. Starting with our Q2 top-line, net sales for the second quarter of 2019 were $1.8 million compared with $2.8 million for the prior year period. The decrease is primarily due to lower unit sales and a lower net selling price of Avenova. Avenova sales were $1.6 million for the quarter with the remaining $200,000 being generated from a NeutroPhase stocking order by China Pioneer Pharma Holdings. In reviewing Q2 2019 sales by channel, Avenova sales into the retail pharmacy channel were $1.3 million or 84% of Avenova sales, while sales through our in-office direct channel were $209,000. We saw a modest contribution to sales from our Avenova Direct channel on Amazon.com, which launched in mid-June. Gross margin on net product revenue for the second quarter of 2019 was 77%, which included gross margin of Avenova sales of 84%. This compares with gross margin of 83% for the year period ago, which comprised mainly Avenova sales with the lower amount of NeutroPhase sales. Operating expense for the second quarter 2019 decreased 37% to $2.8 million from $4.4 million for the prior year period, reflecting the strategic shift in our U.S. commercial organization in March, 2019. This is in line with our previously stated expectation to reduce operating expenses in 2019 related to the reduction in force. In reviewing Q2 expenses by line item, sales and marketing expense were $1.5 million, a 48% decrease from $3 million for the prior year period. The decline was primarily due to the reduction in sales headcount along with lower marketing expenses. G&A expenses for the second quarter of 2019 were $1.2 million a 12% decrease from $1.4 million a year ago. And R&D expense for Q2 2019 were $32,000, down from $61,000 in the year period ago. Operating loss for the second quarter of 2019 was $1.4 million, a 34% improvement from the operating loss of $2.1 million for the second quarter of 2018. The non-cash loss on the fair value of warrant liabilities for Q2 2019 was $487,000, which compares with a non-cash gain of $490,000 for Q2 2018. Non-cash losses on the embedded derivative associated with the convertible note for the second quarter of – 2019 was $246,000. The convertible notes are associated with a loan completed in March, 2019. So there is no comparable gain or loss for the prior year period. Other expense for the second quarter of 2019 was $387,000, compared with other income of $5,000 in the prior year period. The other expense was due to interest on the promissory note issued in February 2019 and the amortization of discount and issuance costs related to the convertible note issued in March, 2019. We reported net loss for the 2019 second quarter of $2.5 million or $0.14 per share. This compares with a net loss for the 2018 second quarter of $1.6 million or $0.09 per share. Turning to our six months results, net sales for the six months ended June 30, 2019 were $3.3 million, compared with $5.7 million for the six months ended June 30, 2018. Gross margin on the product revenue was 77% for the first half of 2019, compared with 87% for the first half of 2018. Operating expense for the first half of 2019 decreased 16% to $8 million from $9.5 million for the first half of 2018. Operating expense for the first half of 2019 included sales and marketing expense of $5.1 million, G&A expense of $2.8 million and R&D expense of $116,000. Non-cash loss on the fair value of warrant liabilities for the first six months of 2019 were $544,000, versus a non-cash gain for the first six months of 2018 of $704,000. Non-cash loss on the embedded derivatives associated with the convertible note for the first six months of 2019 was $246,000. Other expense for the first six months of 2019 was $447,000, compared with other income of $9,000 for the same period of 2018. The net loss for the six months ended June 30, 2019 was $6.7 million or $0.38 per share compared to a net loss for the first six months of 2018 $3.7 million or $0.22 per share. In reviewing our balance sheet, we had cash and cash equivalents of $3.7 million as of June 30, 2019. The company raised $1 million through a related party loan in February, $2 million through a convertible loan in March, and $0.4 million in May and $2.4 million in June through private placements of common stock. And finally, we are affirming our 2019 outlook. We expect net sales for 2019 to be in the range of $6 million to $8 million. We are still evaluating the impact of introducing Avenova Direct of Avenova sales through our prescription and buy and sell channels, and may decide to revise our revenue outlook later in the year as we gain greater visibility. As expected we began to realize the benefits of the reduction in force on operating expense in the second quarter and expect a significant reduction in our operating expenses from 2018 levels. With that I'll turn the call back to Justin.

Well, as you can see, Q2 was very transformative for the company. Certainly did a whole lot and had a lot to report. I’d like to take a moment to share my optimism and enthusiasm with everybody about Avenova and the company. NovaBay is selling a unique product that's loved by medical professionals and their patients, despite many cheap copycats trying to emulate Avenova’s success in the marketplace. Avenova is the only truly pure hypochlorous formulation on the market today. Feedback from doctors and patients reinforce that Avenova is the best product to treat chronic bacterial infections that affect approximately 85% of all dry eye sufferers. Avenova is easy to use, soothing to the eye and clinically proven to reduce the bacteria load on the ocular surface, but most importantly is not an antibiotic. Avenova is free from bleach impurities found in other hypochlorous acid products and is safe for long-term use, which is important and it's what makes us different in the marketplace. Beyond just Avenova, I’m also excited to announce the of CELLERX in the United States in late 2019. We just started our first manufacturing run of CELLERX and we are developing our new sales strategy that we're going to announce later in Q3. CELLERX is a unique topical solution based on the same pure hypochlorous formulation found in Avenova and is specially designed to gently clean and ease discomfort following aesthetic dermatology and plastic surgery procedures. Among the advantages of CELLERX for acute skin care, it is shown to be effective against bacterial infections and biofilm which impair wound healing. Additionally, pure hypochlorous acid is known to be – is known to have potential broad spectrum anti-microbial effects and is totally safe for human use. We see the opportunities to market CELLERX as a post treatment for a variety of cosmetic laser surgeries including laser resurfacing, chemical peel, liposuction, tattoo removal, laser hair removal and microdermabrasion. I look forward to providing details on our launch plan during our third quarter call. In summary, we are pleased with the initial results of our strategic shift in adapting to industry-wide changes in the reimbursement environment. We're making headways in our goals to make Avenova accessible and affordable to patients under appropriate economics to NovaBay. We are focused on programs that will drive sales to the most efficient sales channels with the goals of achieving positive cash flow and profitability. We've expanded our partner pharmacy program to ensure Avenova’s availability at the best price to all patients under contracted per unit pricing for NovaBay that's a win-win for everybody. We have deployed our field representatives in territories that are profitable or nearing profitability. We are taking actions to increase our sales in our in-office direct sales channels that allow eye care specialists to resale Avenova to their patients. We launched our director-to-sales – our directed-to-patient sales channel making prescription strength Avenova available without a prescription to U.S. customers through Amazon.com. As stated before, I believe that this channel represents the greatest growth opportunity for Avenova. Our commercial – our commercialization sales strategy is expected to significantly reduce operating expenses and cash burn as we move forward in 2019. More than anything else, I would like to thank the entire NovaBay team for their dedication in advancing our strategy, while we continued to pursue a goal of profitability, our second quarter marked a major step in the right direction. With that overview of our business and plans, I thank you for your attention. Operator, we're ready to take questions.

While we're waiting for the first questions, I want to mention that I will be presenting at the 2019 Disruptive Growth Conference in New York on September 4th and 5th. I hope to see some of you there. And operator, if there are no questions at this time, I think we'll end the call.

[Operator Instructions] And I'm showing no audio questions at this time.

Thank you once again for joining us today and your interest in NovaBay. I look forward to updating you during our next call in November to discuss our financial results for the third quarter of 2019, and report in on our progress. In the meantime, 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 line.