Good day, and welcome to the NovaBay Pharmaceuticals Second Quarter 2021 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Jody Cain. Please go ahead.

This is Jody Cain with LHA. Thank you for participating in today's call. Joining me from NovaBay are Justin Hall, Chief Executive Officer and General Counsel; and Andy Jones, 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. 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 the contemplated impact of COVID-19 on NovaBay's operations, its financial results and its outlook is the best estimate based on 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, August 12, 2021. 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 the call over to Justin Hall. Justin?

Thank you, Jody. Good afternoon, everyone, and thank you for joining us. Highly gratifying to begin this call by reporting record high quarterly unit sales, as more people are using Avenova today than ever before. Our Q2 financial performance was driven by record Avenova unit sales, and record revenue in the DTC channel for the fourth consecutive quarter. In fact, with the exception of one quarter last year during the height of the pandemic, we have consistently broken records in this channel since its inception in 2019. Amazon continues to be our largest source of online sales, complemented by growing sales through our own website. Our considerable DTC competency is reflected in our ever increasing sophistication in digital marketing. We now consistently launch fresh advertising campaigns across multiple electronic platforms with marketing techniques that include real time monitoring of performance metrics. This tracking allows for quick adjustments to placements and messaging to leverage what's working best, accelerate sales and maximize our return on ad spend. Our efforts to expand and improve our DTC channel are paying off, and we continue to see this channel as our highest growth potential for Avenova. DTC sales are coming from both first time users and our loyal customer base. Expanding our customer base is key to creating a reliable revenue stream as Avenova enjoys a very high rate of repeat business. We know we have strong brand loyalty because of the growing number of users who were utilizing the subscribe and save feature on amazon.com and avenova.com. We also know that our customer satisfaction is extremely high, as evidenced by Avenova's full five star rating by 70% of the 8,000 customers who have reviewed our product on Amazon with 84% of the ratings at four stars and above. Verified purchasers praise our product in written reviews with comments such as; I've suffered for years with dry eye and this is the only thing that has ever worked. I've literally tried everything else on the market. These customer reviews are especially rewarding because they are honest and unsolicited as required by Amazon. We can truly say that our product is making a positive impact in people's lives. Other contributions to the DTC channel have also come from walmart.com and from CVS wherever Avenova has been available both in stores and online since earlier this year. It's exciting to announce that CVS has recently expanded access to our product with Avenova now on the shelves of more than half of CVS's 10,000 stores nationwide. We are also capitalizing on the strong Avenova brand by launching complementary eye care products in the DTC channel. So far this year, we've added the Warm Eye Compress and the eye check illuminated eye examination mirror. The eye check is a portable, lightweight handheld mirror featuring 10 times magnification, and is specifically designed for at home visual resolution and magnification of the eye and surrounding area. Among its uses, eye check enables our customers to have an up close look at the effectiveness of Avenova on their lids and lashes. These ancillary products are meant to support the use of Avenova by both new and returning customers. Our Avenova lubricating eye drops are still slated to launch at the beginning of Q4. While sales have continued to grow through our DTC channel, we continue to focus on our pharmacy channel with our RX only product. We increased our focus on the prescription channel through our recently announced highly promising partnership with the nation's largest ophthalmic pharmacy ImprimisRx. Our new partner has had lots of success in commercializing high quality prescription ophthalmic drugs to its established customer base of 1000s of eye care specialists nationwide. Avenova is highly complementary to their newly launched cyclosporine eye drop Klarity-C. I firmly believe that patients who use Klarity-C and Avenova will experience better clinical outcomes if they use both products together. These two products have different mechanisms of action, but are completely complementary. Although, they were designed separately, it's almost as if the two products were created to be used together. In addition to their eye drops, their portfolio consists of hundreds of products used in ophthalmic surgical procedures. Avenova's antibacterial and anti-microbial properties make it ideal for pre and post-LASIK surgery and cataract procedures. This opens a significant market opportunity for Avenova, as cataract surgery is the number one surgical procedure in the United States with about 4 million procedures performed each year. ImprimisRx is involved in approximately 20% of all cataract surgeries in the U.S. So the market potential is huge. And we're excited to have a partner with such broad reach. The ImprimisRx sales force is already promoting Avenova and we expect to see a material impact from this new partnership in the fourth quarter. Avenova's high quality formulation has made it the number one physician recommended antimicrobial lid and lash spray and provides a foundation for continued growth. NovaBay was the first to launch a hypochlorous acid products into the large dry eye market. We continue to stand by our assertion that Avenova is best-in-class due to our patented pharmaceutical grade formulation. We have tested every hypochlorous acid lid and lash product we can find on the market and no other formulation has been found to be as pure as Avenova. As we said many times, Avenova is completely safe for regular use. It's the only lead and lash anti-microbial spray to be clinically proven to reduce the bacterial load on ocular skin surfaces, thus addressing the underlying cause of bacterial dry eye rather than just the symptoms. Turning now to CelleRx Clinical Reset. We very recently launched digital advertising campaigns for this product with creative messaging aimed at accelerating sales. These campaigns have the same high level of sophistication as our Avenova campaigns with real time tracking. Clinical reset is a truly exciting product that opens up a new category for pharmaceutical grade skincare. Our product is a gentle, calming and soothing facial spray that effectively removes barriers to cell turnover by disrupting the biofilm layer without stripping the skin. CelleRx is the answer to the dangerous idea of needing to scrub, repetitively wash and use harsh ingredients to have healthy glowing skin. Increasingly, researchers are realizing that the balance of oil and lipids in the skin's biofilm is exceedingly important to keeping it healthy. CelleRx addresses this balance. As a wholly new approach to skincare, adoption requires some education about its benefits. Our new digital media campaigns are focused on defining the role of CelleRx in a daily skincare routine with messaging that features all natural nondrying deep cleansing benefits and lifestyle testimonials from actual users. Like Avenova, we find a high level of customer loyalty in this product. CelleRx also provides us with relationships and competencies in the large skincare market, much like Avenova does in the ophthalmic market. These competencies are important as we actively negotiate strategic opportunities to broaden our product portfolio with complementary products. This is a top priority for NovaBay, as we look to build shareholder value by reaching profitability through growing revenue and a diversified product offering. We are positioned to capitalize on attractive opportunities by leveraging our sales channels, our marketing know-how and our administrative expertise. Now I'll turn the call over to Andy to review our financial performance in more detail.

Thank you, Justin and good afternoon everybody. Let me start with our Q2 top-line results. Avenova product revenue for the second quarter of 2021 was $1.9 million. That's up 65% versus the prior year, with total net sales of $2.1 million for the quarter. In the 2020 quarter, we reported total sales of $4 million, which included $2.8 million in KN95 masks sales. We are very proud that we were able to supply much needed PPE during the early days of the pandemic last year. However, we do not anticipate any such future sales now that supply shortages have narrowed. The increase in Avenova revenue for Q2, 2021 was driven by a record $1.3 million in Avenova OTC sales up 117% from the prior year. As Justin mentioned, this is remarkable growth and a continuation of a trend of record quarterly sales since we launched the OTC product. Gross margin for the second quarter of 2021 was 71%. That's up considerably from 49% from the prior year, with the improvement mainly due to the lack of sales of the lower margin KN95 masks in the second quarter of this year. Total operating expenses in the second quarter of 2021, were $3.4 million that compares with $3.0 million for the prior year period. Specifically G&A expenses for Q2, 2021 of $1.6 million were relatively flat with $1.5 million for Q2, 2020. Sales and marketing expenses were $1.8 million that compares with $1.4 million for Q2, 2020. The increase was primarily due to higher spending on marketing programs for both Avenova and CelleRx as we look to continue to capitalize on these market opportunities. The increase in sales and marketing expense this year was offset in part by a reduction in field sales headcount when comparing the periods. We are focused on the OTC and physician dispense channels as part of our emphasis on cost effective marketing that includes an in-house sales team. We're also excited about the opportunity to expand in the prescription market through our partnership with ImprimisRx. Non-cash net loss of fair market value of warrant liabilities for the 2020 second quarter was $3.8 million. You might recall that we eliminated the warrants underlying this expense as part of our effort to improve our balance sheet last year, and there was therefore no comparable expense in this year's second quarter. Net loss for the 2021 second quarter was $1.9 million or $0.04 a share. This is an improvement from the net loss of $4.5 million or $0.15 a share last year, which reflects higher margin product sales and our elimination of the warrant liability in the second half of 2020. And now turning briefly to our year-to-date results Avenova revenue for the first six months of 2021 of $3.5 million represents a 29% increase over the prior year. Total revenue was $3.9 million, compared with $5.9 million last year, which included $3 million of KN95 masks sales that were non-recurring. Gross margin improved to 73% for the six months in 2021 and improvement from 55% for the six months in 2020. With the improvement again due to higher Avenova sales and no lower margin mask sales in this year. For the first six months of 2021, sales and marketing expenses increased by 16%, largely due to an increase in the investment in digital marketing for Avenova and CelleRx. G&A expenses were relatively aligned between the years and R&D expenses declined modestly all compared with the first six months of 2020. Net loss for the first six months of 2021 was $3.4 million or $0.08 per share. This is an improvement from the net loss for the first six months of 2020 of $6.1 million or $0.21 per share, which included a non-cash loss for the warranty liability of $3.6 million. Lastly, our balance sheet remains strong with no significant debt obligations. And as of June 30, 2021, we had cash and cash equivalents of $10.3 million. We continue to have sufficient funds to meet planned operating needs well into and beyond 2022, allowing us to comfortably execute on all 2021 initiatives to drive adoption of Avenova and CelleRx. And with that, I'll turn it back to Justin.

Thanks, Andy. Let me summarize why we're excited about NovaBay future and the prospects for growth and profitability. First, we launched fresh digital marketing campaigns in ancillary products earlier this year in order to accelerate Avenova DTC sales by expanding our customer base. Our new sophisticated digital marketing programs are producing results as evidenced by consistent quarter-by-quarter increases in unit sales. We monitor various metrics in real time, which allows us to evaluate the effectiveness in reaching targeted demographics and making adjustments. This in turn allows us to optimize our ad spend. We have a strong foundation upon which to build having already established Avenova as the premier antimicrobial lid and lash spray. Secondly, consumers have more access to Avenova than ever before with our product on the shelves of nearly half of all CVS stores nationwide. Third, we're opening up new opportunities in the prescription channel through our partnership with ImprimisRx, which has a track record of success promoting prescription ophthalmic products. In addition to promoting Avenova for patients with blepharitis, MGD and other dry eye symptoms. The ImprimisRx sales force is already promoting Avenova in tandem with their other prescription ophthalmic products for pre and post-surgical use for LASIK procedures and for cataract surgery. Fourth, we plan to begin marketing of a new line of licensed products in the eye care space that will be offered in our physician dispensed channel. And finally, we are actively negotiating opportunities to support profitable growth through acquisition or licensing of ophthalmic and skincare products. Our established presence in these markets, are experienced commercial organization and strong balance sheet give us the confidence that now is the opportune time for us to pursue these strategic transactions. We're excited to focus on future profitability with the addition of new products that grow and diversify our revenue. With that 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'd like to mention that we'll be presenting at the H.C. Wainwright Global Investment Conference being held September 13th through the 15th. We invite you to view the webcast of our presentation which will be posted to our corporate website at the beginning of September 13. Okay, operator, we're ready for the first question.

Our first question today comes from Jeffrey Cohen with Ladenburg Thalmann. Please go ahead.

Hi Justin and Andy, this is actually Daphne on for Jeff. Thank you for taking the questions. First, maybe I'll just start with that collaboration with Harrow/ImprimisRx. Can you quantify that opportunity a bit more for us and how does revenue recognition work for you, are they providing that you wanted - are you providing it to them with a discount or how is that working?

Yes, so I tried to allude to the total market opportunity during the call today. They just have recently started it. So we have a monthly call set up with our management to gauge the demand going forward. So hard to quantify what that is, but this opportunity is beneficial in a number of different ways. You know, for us just on our side, even without their sales force promoting it. We really needed a nationwide pharmacy partner that had the ability to ship Avenova, prescription Avenova in all 50 states. And we didn't have that prior to ImprimisRx. We had a network of local pharmacies that did the fulfillment. So I think streamlining the availability with a very - I think sort of high end operational company like ImprimisRx is going to put - the product in the hands of patients, much more cheaply and much more easily. I say it's hard to quantify because we have two real opportunities with them. One is in the pre and post-surgical use case. And so like I mentioned that is an incredibly large opportunity, and they're the largest player in the ophthalmic space there. And so, they do - and I think they have publicly said this, but they do over 100,000 prescriptions just in that space quarterly, and so if we can grab even 10% of that, I think will be poised to see a lot of growth in that channel. And that's through our own promotion of it. And also they are sales force of 20 to 25 people, and Avenova is now a part of their sales pitch.

That's great. Thank you so much for that additional information. Perhaps, I'll just switch over to my marketing questions quickly. Could you talk to us a bit about your marketing strategies and how they - how you changed the messaging between new customers and repeat customers? Has that changed at all since last quarter, or Q4? And then, are you noticing any additional trends in terms of customer stickiness? And then lastly, could you also just remind us about your lag between running an actual campaign and then recognizing revenue. I know, it can be a couple weeks to a couple of months, so I'm hoping you can provide us a bit more color there?

Yes, so we are constantly changing our marketing and campaigns, and that ability to quickly pivot both on messaging and brand and the graphic, not to mention the platform, whether that be a search engine like Google or a social media platform like Instagram or TikTok or Chat, those are some of our newer ones that we're expanding into, as well as doing educational videos on YouTube. So we actually change those constantly and all the time. One thing that, we find very - I think useful with returning customers is changing that message, but always being in front of them. So, no matter sort of where they are reminding them that, that they know and love and need Avenova, but we do it in a number of different ways. So the message never gets stale. So we see that success or failure of some of these messaging and advertising campaigns in real time. So if an advertising campaign is not producing the results, that we want either for brand awareness or conversion, we just stop spending on that, and then shift it over to something that is performing well. So as far as revenue recognition, as soon as it results in a sale in our direct to consumer channel, that revenue is recognized, because it's a sale. And so I think as far as stickiness, one thing that we are very lucky to have is a product that regardless of our marketing or sophistication in our online ad campaigns, we have a product that people just once they start, they really, really like and it's built into their daily routines. So sometimes when people can't - one reason why the CVS partnership is really nice is because people travel, and if they don't have their Avenova when they're on the road, or they run out, they kind of freak out sometimes and they're like, I have to have this, I have to have this as a part of my daily routine. And when I don't have it, I'm unhappy, I feel a difference with my eyesight and having the ability to just go into a CVS store and pick it up off the shelf. I think is great. We've gotten a lot of really positive customer feedback about that. But I think that just goes to the stickiness to the product that we have a lot of returned customers. I wouldn't even call them return customers. They're just - they're Avenova loyal 100%.

Okay, thank you. That kind of segues into my next question, which is around CVS. Can you just remind us where that's located in the store? I would assume it's with eye products, but I just want to get a reminder?

Daphne, it's actually very hard in the CVS store to choose where it is in the store. So we are in the ophthalmic section with other eye drops, so like the Visine eye drops. Typically when I have gone to look for it in the CVS store, this section is right outside of the pharmacy. But I would love it if it was over by the fake eyelashes, if it was, you know, over by the mascara and eyeliner. I mean, there are so many places within the CVS store that it can be. But for now, if you're going to CVS store, you have to go to the ophthalmic section with eye drops. And that's usually right outside of the pharmacy.

I see, got it. Okay, thank you for that. And then finally, I guess I just want to ask, do you see any alternative channels for CelleRx at what point do you think it would make sense to move to a different channel? And would you ever be able to leverage your relationship with CVS to put CelleRx kind of in that eyelash and beauty section of CVS as well? Thank you.

Yes, so I would love it if CelleRx could make it into a brick-and-mortar store. We're trying to be a little bit selective about our partner from that aspect. We spent the first half of this year doing a lot of market research because we certainly didn't want to throw away money or put this out into the market without really knowing what our target demographic was. And through our market research, we found that our target demographic, the people who are most likely to buy this product, do not buy their beauty products on Amazon, and they don't buy them at CVS, they tend to buy them on the proprietary website of the manufacturer. So that is where we placed CelleRx now and where we placed our main emphasis and access to CelleRx.

Our next question will come from Edward Woo with Ascendiant Capital. Please go ahead.

[Harry Yang] here filling in for Ed Woo. Just wanted to ask, besides some of the products you guys mentioned, like the I-Chek mirror, what other products or areas are you guys thinking about expanding into or adding to broaden the portfolio?

So you're going to have to stay tuned for that. We are working on a couple different deals right now. And we'll be making those announcements in the coming weeks. So we do have some additions. But our proprietary products that we have right now are - that are complementary to Avenova are the NovaWipes and the Warm Eye Compress that really I think competes head-to-head with Bruder. We don't say it in our marketing, but we say it around the office, our mask is better than Bruder that's our tagline. And in the I-Chek because, you know, it's very hard to see your eye up close and even though symptoms with the use of Avenova may be getting better, there's also a visual difference of the lids and lashes and the I-Chek allows people to track their progress using Avenova and there is a visual difference to the eye and the lids and lashes that you can't really see just by looking in a mirror. So the I-Chek is specifically designed for people to track their progress with Avenova. And then as I mentioned earlier, we do have a dry eye lubricating drop that is Avenova branded and that will be coming out later this year.

Ladies and gentlemen, this will conclude our question-and-answer session. I'd like to turn the conference back over to Justin Hall for any closing remarks.

Thank you once again for joining us and your interest in NovaBay. We look forward to updating you during our next call in November when we'll discuss our third quarter financial results and business progress. In the meantime, please have a nice day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.