Welcome to the NovaBay Pharmaceuticals 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, May 7, 2020. I would now like to turn the conference over to Yvonne Briggs. Please go ahead.

Thank you, operator. This is Yvonne Briggs with LHA. Thank you for participating in today’s call. Joining me from NovaBay Pharmaceuticals are Justin Hall, President and Chief Executive Officer; and Andy Jones, the company’s Chief Financial Officer. I’d 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. In particular, there is significant uncertainty about the duration and potential impact of the COVID-19 pandemic. This means that results could change at any time, and that the contemplated impact of COVID-19 on NovaBay’s operations and financial results and its outlook is the best estimate, based on the information available for today’s discussion. For a list and description of risks and uncertainties, please review NovaBay’s filings with the Securities and Exchange Commission at sec.gov. Furthermore, the content of this conference call contains information that is accurate only as of the date of the live broadcast, today, May 7, 2020. NovaBay 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 over the call to Justin Hall. Justin?

Thank you, Yvonne. Good afternoon to, everybody, and thank you for joining us. Apologies for the late start. The call center had trouble processing the dialers of interested investors dialing in, so apologize for the delays, but ready to get started now. I would like to start by welcoming Andy Jones to this call and also to NovaBay. Andy joined us as Chief Financial Officer earlier this week. Andy has more than 20 years of finance and accounting experience. And his background in the Life Sciences industry and public company accounting make him an excellent fit for NovaBay. It’s exciting to have a permanent team in place only one month after Jason’s departure. I would like to extend a special thanks to Lynn Christopher, who came out of semi retirement and stepped in seamlessly on a temporary basis at the beginning of April. I’m pleased to say that Lynn has agreed to stay on with us in a consulting role to support a smooth transition. At our headquarters in the San Francisco Bay Area, we are complying with the requirements of the shelter in place mandate with all of our employees having worked from home capabilities. Our entire organization, including the field sales team, is prepared to support a full – a return to full operations following the lifting of these restrictions. We are gratified to honor our commitment to the health and well-being of people everywhere during the COVID-19 pandemic by offering in-demand products at reasonable prices. We began selling KN95 masks through avenova.com less than two months ago, and are already nearing the milestone of 1 million units sold. As a point of clarification, these are not the N95 masks that are reserved for medical professionals in high-risk situations. These are KN95 masks that are designated as – that are designed and designated as sanitarian disposable masks for the general public. While many people across the country struggled to find masks, I’d like to remind everybody that we have masks in stock and they’re ready to ship out immediately. One of the biggest benefits to our mask offering is that customers can have them within a day or two of ordering. Also, less than a month ago, we announced a U.S. distribution agreement for a rapid point-of-care finger prick COVID-19 antibody test. Since then, many people have asked me for an update on the FDA Emergency Use Authorization, also known as the EUA. I’d also like everybody to know that, we also – that we did indeed file for EAU approval with the FDA on April 17 and we have had an FDA reviewer assigned to us. To date, the FDA reports that only 12 antibody tests have been authorized under an individual EUA, with most of those occurring just within the past few days. Over 200 antibody tests are currently in the queue for review. Because the FDA and other government institutions are changing their guidance almost daily, I cannot provide guidance to our investors, if or when we will receive FDA approval. We’re supposed to hear back from the FDA no later than may 15, however, they may require more data prior to clearing our test kits for sale. Even though we’re unsure about whether the FDA will throw additional regulatory hurdles our way, just know that we’re doing everything that we can to get approval and have been very aggressive with follow-up. In reviewing our financial results, net product revenue for Q1 was $1.9 million. This was a 30% increase over the prior year and was driven mostly by higher Avenova unit sales. We introduced Avenova as a non-prescription consumer product last June. And importantly, online sales accounted for more than half of all Avenova sales during the first quarter of this year, for the very first time. We continue to view the channels holding the greatest opportunity for Avenova going forward. We’re also having success with our strategy to diversify our product offerings and sales channels in an effort to offset industry-wide changes in prescription reimbursement that have – that has impacted Avenova in past years. You may recall that historically, the impact has been most pronounced on first quarter results, with the annual reset in health plan deductibles. We took actions in Q1 2019 by shifting our U.S. commercial strategy for Avenova to focus on sales opportunities with the best economics for NovaBay. This shift included a significant reduction in our sales force that have been promoting prescription of Avenova to eyecare professionals. This was followed by the launch of nonprescription Avenova directly to consumers with online sales. That said, online sales already lowered gross-to-net pricings and prescription sales. While 50% of all Avenova units sold during the quarter came from the direct-to-consumer channel, it accounted for only 51% of total revenue. However, these sales were accompanied by a 45% year-over-year decline in operating expenses following the reduction of the size of our sales organization as a part of our strategic shift. So year-over-year improvement in operating loss was significant as it narrowed by 62% I’d also like to update everyone on our efforts to sell KN95 masks. As I mentioned earlier, for nearing the sale of our 1 million units, with most sales having occurred in April. This includes several large orders that we sold a discount pricing. Although I’m going to shy away from providing Q2 guidance, I can confidently say that we have done more in revenue during the month of April than we did in all of Q1. Margins on the masks are much less than that above Nova, but because we are – but that’s because we’re keeping with our commitment to offer these masks at the most reasonable price possible and with our pricing, reflecting the high transport costs of expediting shipping from China. Currently, most of the volume is attributable to large orders in the future growth and masks sales we expect in May, will come from large orders as well. While through sales through a website, we expect to remain fairly steady. These KN95 masks are effective at filtering out at least 95% of airborne particles, including micro organisms, dust, pollen and air pollution, making them ideal for wearing in public places. We have submitted our KN95 masks to the FDA for emergency use approval and are awaiting a response. While the EUA approval is not required to sell these masks, obtaining it will hopefully give our customers added comfort in the quality of our masks. In an effort to promote Avenova, along with the masks for $199, we’re offering a combo kit of 30 masks and two bottles of Avenova. Avenova with antimicrobial properties is a perfect complement to the mask purchase. In fact, we are finding that some companies are placing bulk orders of this combo pack for their employees as a gesture of goodwill. As I mentioned earlier, we submitted the fluorecare rapid point-of-care COVID-19 antibody test for emergency use approval. NovaBay has the exclusive U.S. rights to distribute this rapid test that determines the possible presence of COVID-19 antibodies in a person’s blood. This is a point-of-care test to be administered by healthcare professionals and will be marketed by our sales team only to healthcare professionals. This is not an at-home test. The test uses a drop of blood for the detection of the COVID-19 antibodies, with results available in approximately 10 minutes. The COVID-19 [ph] antibody test detect the presence of both IgM and IgG, which are antibodies, specifically generated by the body in response to a COVID-19 infection. IgM is usually the first antibody generated by the body in response to the coronavirus, then the IgG antibody is generated and replaces the IgM as the predominant antibody in response to the infection. Public health experts and leaders across our country are citing a critical need for masks testing and tracing procedures for those who have been infected with COVID-19. This single finger prick IgG, IgM testing could provide a cost effective way of detecting COVID-19 antibodies, with results available in minutes and is an important step in tracking the infection. The fluorecare test is very similar to other test kits on the market. How However, our differentiating factors include using a slightly larger specimen – blood specimen to improve accuracy at 20 microliters of blood as opposed to 10, shorter testing time 10 minutes as opposed to 20 minutes, and also the fact that the test itself contained without the need for additional materials, ancillary reagents or equipment, which comparable tests require. Should we secure approval from the FDA, our sales force will begin offering these tests to U.S. healthcare professionals. Please note that because of the ever-changing regulatory landscape, we cannot give guidance on the timeline for review or whether we will receive clearance for commercial marketing at all. We’re supposed to hear back from the FDA soon, but there’s a chance that they will require more data or testing before giving us clearance to sell the kits. The guidance put out by the FDA on just Monday of this week and as well as today make this almost a certainty. As an update on the pandemic impact on our Avenova business, we saw a slowdown in Avenova sales in our prescription and in-office direct channels, as patient visits and eyecare specialists virtually stopped. All working from home, our sales force is keeping engaged with the specialists through phone and e-mail contact to support sales following the lifting of shelter in place restrictions. You may recall that we previously announced the introduction of Refresh Consumer Branding for Avenova with a new packaging and reinvigorating messaging that emphasizes quality of life themes. With online sales becoming a growing percentage of the total, we are pursuing a strategy to cost-effectively expand our customer base through online sales. We are pleased by the reception to our refreshed branding and we’re open to the opportunity to increase sales through affiliate relationships, which are aligned with our growth strategy. And lastly, I want to reiterate our confidence in having sufficient supply of product. Avenova manufacturing has been uninterrupted at our two contract manufacturers. All raw materials and other supplies utilized in the manufacturing of Avenova are available from third-party suppliers and quantities we believe to be more than sufficient to meet our expected needs. Now, I’ll turn the call over to Andy to review our financial performance in more detail.

Thank you, Justin, and good afternoon, everyone. It’s a pleasure to be speaking with all of you and to be part of the NovaBay team. Let me start my financial review with Q1 top line results. As Justin mentioned, net product revenue for the first quarter of 2020 increased 30% to $1.9 million from $1.5 million for the prior year quarter. The increase was primarily the result of an increase in the number of Avenova units sold, partially offset by a decrease in net selling price, largely due to lower insurance coverage by national payers. In response to this ongoing pricing pressure, we launched Avenova Direct in June 2019, which helped to stabilize Avenova unit sales, but has a lower net selling price. As Justin mentioned earlier, while 57% of all Avenova units sold during the quarter came from direct-to-consumer channel, it accounted for only 51% of the total revenue. Net product revenue for the first quarter of 2020 also included $176,000 in sales of KN95 masks and $173,000 from a shipment of NeutroPhase to our distribution partner, China Pioneer Pharma Holdings. We expect to report more substantial sales of KN95 masks in Q2. Gross margin on net sales for the first quarter was 69%, compared with 77% in the year ago period, with the decrease due to lower gross-to-net pricing. Operating expenses for the first quarter of 2020 decreased 45% to $2.8 million from $5.2 million a year ago. This decline reflects the strategic shift in NovaBay’s U.S. commercial organization in March 2019, which included a reduction to the sales force. In reviewing Q1 expenses by line item, sales and marketing expenses were $1.6 million, a 56% decrease from $3.5 million a year ago. The decrease was primarily due to lower headcount, partly offset by an increase in direct marketing expenses. G&A expenses for the Q1 were $1.3 million, which represents a 20% decrease from $1.6 million a year ago, with the decline due to lower headcount and the departure of the company’s interim CEO/CFO in the first quarter of 2019. R&D expenses for Q1 2020 were $9,000, which compares with $85,000 in the year ago period. Operating loss for the first quarter of 2020 was $1.5 million, which represents a 62% improvement from the $4.1 million operating loss in the first quarter of 2019. The non-cash gain on the fair value of warrant liability for Q1 2020 was $137,000, which compares with a non-cash loss of $57,000 for Q1 2019. Other expense, which consists primarily of interest expense, was $186,000 for the first quarter of 2020, and this compares with $60,000 for the first quarter of 2019. The increase was a result of debt issued during the first quarter of 2019, which was outstanding for the entire first quarter of 2020. The net loss attributable to common stockholders for the 2020 first quarter was $1.6 million, or $0.06 per share. This compares with a net loss for the 2019 first quarter of $4.2 million, or $0.25 per share. In reviewing our balance sheet, we had cash and cash equivalents of $5.7 million as of March 31, 2020. With that, I’ll turn the call back to Justin.

Thanks, Andy. In summary, we’re delighted to be working with our global supply network to secure products that can help our communities during the COVID-19 pandemic, while advancing our sales and marketing strategy for Avenova. Like all of you, we’re looking forward to the lifting of shelter in place restrictions and returning to a more normalized business operation. Overall, our strategy remains consistent. We will continue to focus on consumer online sales of Avenova and the reception has been strong with more than half of Q1 sales coming through that online channel for the first time. With the impact of COVID-19 other prescription in in-office direct channels, we expect an increasing percentage of Avenova sales to be generated through the online channels in the upcoming quarters. We are targeting of ophthalmic and skincare products in line extensions that will allow us to leverage our sales force and our position to spend sales channel under economics that makes sense for NovaBay, and we are always evaluating new products to support cost-efficient growth. Like all companies during these unprecedented times, we’ll continue to assess our plans as circumstances evolve. With that overview, I thank you for your attention. Operator, we’re now ready to take questions.

[Operator Instructions]

While we’re waiting for the first question, I want to encourage everyone to check out our new branding by going to avenova.com, the first manufacturing run with our new packaging is being completed later this month.

Our first question will come from the line of Jeffrey Cohen with Ladenburg.

Hi, Justin and Andy, how are you?

Great. How are you?

Good. Thanks.

It’s Cohen. Nice to meet you, Andy. So a pretty efficient readout for the quarter. I’ve got four or five questions. So first one is a quick one. Did you apply for the PPP?

We have not applied for that.

Okay, thank you. So…

Oh, I – Jeff, I’m sorry. I misunderstood your question. The PPP, the Payroll Protection Program. So, yes, we have applied for that and we have disclosures in the Q regarding that.

Okay, thank you. Talk a little more about this point-of-care test as far as the manufacturer and what types of capabilities that they have, if there’s any data that they have, or you have to talk about that a little bit, please?

Yes, sure. So, we entered this market, I think, with a little bit of caution, just knowing how complex it is. And then also, with the heightened scrutiny, not only by customers, investors, but also just politically and the general public. So, for years, Pioneer has been our distributor of our American-made products in China. And earlier this year, when the COVID-19 pandemic really took hold around the world, they came to us and said, “Hey, why don’t we turn this relationship on its head, and maybe we can source some products for you to sell in the United States.” And so I said, “Sure, we’re definitely open to it.” But the really good thing with having a partner like that in China is that, they are on the ground over there and familiar with all the manufacturers, and they have years of business experience and a very broad network. And they were able to bring forward several different options for these test kits. And we evaluated all of them very carefully and found, I think, a very reputable manufacturer of these test kits and negotiated in agreement with them. And so the test kits that we finally landed on is this antibody test, which is, I think, a very effective and popular antibody test and it is already being sold in China and around the world. And we’re just doing our part to try and get it into the United States. Do you want more information on the test kits? Or is that sufficient? Maybe we lost you.

Sorry about that. So on the masks, you said, April larger that Q1. I guess, that’s the best we’re going to get and how this may look?

So, a couple thing about the masks quarters. We’re trying to move to larger volume bulk orders for the most part. And so if May pans out the way that we anticipate and I caveat this with any one of these larger orders can fall through sort of at any minute and that will drastically change the number if any of these large orders don’t come in. However, if the large orders do come in, as we expect them to, that we have purchase orders for the volume in May, will be – maybe double that of April. And also a caveat that is, as the volume grows and the orders are larger, we discount them further, right? So, if you’re buying more masks, we will, of course, try and charge lots for those. But we do expect growth in May over April.

Okay, got it. And then on to Avenova, I’m trying to get some more information as far as what’s going on now. How would you measure the how sticky is your business? What kind of retention rates are you seeing from the online channel?

So I – I think we’re lucky to have a product right now that has antimicrobial properties. So, in normal times, this is marketed to ophthalmologists and optometrists. But this – Avenova with its antimicrobial properties, is a very popular thing. So when people are scrambling for hand sanitizer and rubbing alcohol, we have a very powerful antimicrobials that is in stock and ready to ship out. So I think, fortunately for us, we have a product that is going to remain in demand during this COVID-19 pandemic.

Okay. And then along those lines, is there any anecdotal evidence or have you heard any reports or talk to any docs or hospitals or folks that are using the hydrochloric acid on the mask spraying either the interior part or the exterior part?

Yes, absolutely. I – I’m glad that you asked. I tried to fit a little bit of that into the call, because Avenova really is a perfect pairing with the masks. So even though the masks that we have are meant to be sanitary and disposable and you wear them one day and then the next day you put on a fresh clean mask, the mask can be sprayed with Avenova for a multiple day use and for sanitizing. And so, not only end customers, but Avenova believers, as I like to call them, people, doctors, who have been prescribing Avenova for years, have been coming to us and saying like, “Look, you really got to do a combo pack and sell these things together, because it’s butter and jelly the two really do go very well together.” So, not only are people buying Avenova for their eyecare needs, but also for all of their sort of sanitation needs, spraying it on their masks, spraying it on their face, around their nose, around their eyes, and I think really utilizing the full antimicrobial benefit.

And the folks that are using on masks, are they found – are they using it once a day or once, maybe per shift, or how are they using it?

Yes. It’s funny that you asked that, Jeff, because I think one thing that we have seen, I think, just in our society, in general, right now is, this fear of germs is turning normal people into complete hypochondriacs. So people I think, spray it all the time, sort of throughout the whole day. I think anytime they feel like using it, they spray it. So it’s not normally, we and doctors tell patients to use Avenova on their eyes once in the morning and then once in the evening before going to bed. People are now using it all throughout the day. And pretty much just whenever they feel like using it and for some people that’s every five minutes, some people do every hour and some people it’s just kind of when they go in and out of their home.

Okay, got it. That’s super helpful. Thanks for the info. I appreciate it.

Sure.

The next question will come from the line of Ed Woo with Ascendiant Capital.

Thank you for taking my question. My question is more on other products that you’re looking at. I know you guys previously said that, obviously, with the masks and definitely with antibody tests, have you guys come across other things that you guys may expand into?

Yes. That’s a really great question. And I tried to allude to this in the call without giving a lot of information before anything has materialized. But we’re always looking and we have been looking quite diligently for sometime for another product to drop in the hands of our sales folks, because I think that, they could do a really strong job co-marketing a – another product along with Avenova. So with that said, it is a little bit difficult to find a product that fits well and is complimentary to Avenova, because Avenova is our core competency, and I would love our any product line extensions to be in line sort of with our core values around antimicrobial and dry eye pharmaceuticals. So I think, we’re being careful and judicious in evaluating the opportunities. But we have been looking for additional products that drop in the hands of our sales folks.

As you guys have developed your, I guess, supply chain, has that opened up for more product introduction?

Yes. So we – this is sort of a tale as old as time for anybody who is looking for additional products to drop in the bags of their sales folks. Sometimes, the product is perfect, but then the business opportunity and economics are not. So, we have found sometimes a business opportunity, that’s great, but a product that we’re not crazy about and vice versa. So we haven’t come across the one that is sort of the magic fit, that fits both of those. But we are continuing to look at it. And as we grow and also really, I think, activate our global network, more opportunities are definitely popping up for us.

Great. Well, thank you and I wish you guys good luck.

All right. Thank you.

Thank you.

With that, we are showing no further audio questions.

Thank you, once again, for joining of us, and thank you for your interest in NovaBay. We look forward to updating you during our next call in August to discuss our financial results for the second quarter of 2020. In the meantime, have a great day and stay safe.

This does conclude today’s conference call. We thank you for your participation and ask that you please disconnect your lines.