Good afternoon, and welcome to the Conference Call Covering Harrow Health Financial Results and Business Update for the Fourth Quarter of 2018. My name is Davona, and I will 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. 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 at www.harrowinc.com. Before we begin today, let me remind you that the company's remarks include forward-looking statements within the meaning of Federal Security Laws. Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond Harrow Health's control, including risks and uncertainties described from time-to-time in the SEC filings, such as the risks and uncertainties related to the company's ability to make commercially available it's 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 factors 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. Harrow Health results may differ materially from those projected. Harrow Health 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, Harrow will refer to non-GAAP financial metrics, specifically adjusted EBITDA and/or adjusted earnings. A reconciliation of any non-GAAP measures with the most directly comparable GAAP measures is included in the company's press release available on the website. With that, I would like to turn the call over to Mark Baum, Chief Executive Officer of Harrow. Mark?

Thanks for joining us today as we discuss another record quarter for Harrow Health. In terms of consolidated revenue, gross margins, and even more important the significant net income, we recorded as a result of our stake in our first Project 15 business, Eton Pharmaceuticals, which successfully IPOed late last year. Project 15 is an initiative we began in 2017. Project 15 is a value bridge for our market-leading pharmaceutical compounding business allowing us to take medicines we know well through an FDA approval process. Project 15 involves founding and funding new companies to develop these assets. The goal is for Harrow to own large equity stakes in Project 15 businesses and royalty rights in many of the drugs, they develop. The 15 by the way, in Project 15 refers to a $15 Harrow stock price, which is the sustained level at which Harrow Senior Management's performance-based equity awards vest. The financial impact of Project 15 during Q4 of last year, and in 2018, in general was profound. And here's what I mean. As some of you know, we set a consolidated revenue run rate target for our pharmaceutical compounding business of $100 million in 2021. And we believe we will deliver 25% operating margins for this business. Given our growth trajectory, we continue to have line of sight to this target. But think about this, in the fourth quarter of 2018, following the Eton IPO we were able to realize a gain of $21 million, the equivalent outcome of Harrow selling $100 million in goods and realizing a 21% net margin. This drove net income for the full year 2018 of $14.6 million. The Eton IPO along with other Project 15 deconsolidation events has led to the creation of Harrow now owning more than $50 million in equity in…

Hey, everyone. I'd also like to thank you for joining our call today. For the year ended December 31, 2018, revenues were $41.4 million. We recorded gross margin of 60%, operating loss of $5.2 million and net income of $14.6 million or $0.67 per basic share. Compared to 2017, revenues were $26.8 million, gross margin of about 50% and a net loss of $12 million. Importantly during 2018 we were able to bolster our balance sheet as well, doubling our asset balance compared to last year, with our asset balance at December 31, 2018 at nearly $50 million compared to about $24 million in 2017. As Mark mentioned, during the fourth quarter of 2018, we were able to build upon the strong growth we've seen in recent quarters. Total revenues for the fourth quarter were $11.4 million, compared to $7.3 million a year ago, a 55% increase. Total cost of sales for the fourth quarter 2018 was $4.1 million, yielding a gross profit of $7.3 million and a gross margin of 64% compared to a gross profit of $3.9 million the prior year and a gross margin of 53%. Once again, revenue growth was driven primarily by our ImprimisRx ophthalmology business with a steady increase in revenues associated with our chronic care formulations. Operating expenses totaled just under $9.5 million which result in a loss from operations of just over $2.2 million, during the fourth quarter of 2018. Our fourth quarter operating expenses included over $2 million in costs associated with settling and defending legal matters. Compared to the fourth quarter of last year we reported operating expenses of $6 million and an operating loss of $2.2 million. Our adjusted EBITDA loss for the fourth quarter and 2018 was $264,000 which is a departure from the third and second quarters,…

Thanks, Andrew. And thanks to our customers and employees for making our continued growth possible. The Harrow team has never been more enthusiastic about our direction and strategy. Our operating business continues to grow and is poised to begin producing sustainable profits. We continue to execute on Project 15 creating focused pharmaceutical businesses, building a portfolio of retained equity stakes and a potential stream of cash flow from royalties. I look forward to providing additional updates in the coming quarters on the progress of all Harrow businesses. And one day as we continue to execute, I hope to amend the name Project 15 to project 25 or beyond. Operator, please open the line to questions from today's participants. Operator?

Thank you. [Operator instructions] And our first question will go from Andrew D'Silva from B Riley FBR.

Good afternoon. Thanks for taking my question. And congrats on all the progress you made last year. Just right off the bat, I just want a couple quick bookkeeping questions. So related to the diluted share count, could you just let me know what you were using for the fourth quarter. And then I was just looking at your K, I noticed CapEx inched up a little bit and, excluding the 900,000 in non-recurring OpEx expenses, that also inched up a little bit. I was just curious if there was some investment in the compounding business that you didn't highlight earlier.

Andrew, you want to take that one?

Sure. So Andy in regards to Q4 diluted number, right around 24.3 million is the share count. And then CapEx in Q4, we did invest in our compounding facilities in New Jersey. We added some additional equipment. We also expanded our footprint out there as well, added some square footage and additional clean room space.

Okay, great. I remember a while ago we were talking about possibly being able to expand into new states with various facilities, whether it be the 503 A in New Jersey or California or the B in New Jersey. Is that part of that initiative, you're expanding out so that you can better - have better capacity to service states that you weren't in previously?

Well, it is. We invested in a piece of equipment, and I've actually alluded to it on prior calls, that will allow us to really quintuple our output out of the 503 B facility in New Jersey. So that's part of the investment and what that allows us to do is go far beyond even $100 million revenue target. It really doesn't affect the states that we ship in. We service all 50 states, and we're going to continue to service all of those markets. We, as a practical matter, needed more space. It's sort of a good - it's a good problem to have. But the facilities in New Jersey and total now are about 30,000 feet in total. So we did grow our facility, but these are really good problems to have. And they set us up very well for the intended future growth over the coming years.

Okay, great. That makes a lot of sense. Just to move over to the Project 15 spin off businesses. Do you have any sense when we should be thinking about the next IPO? Probably Surface I think is next one you mentioned. And then do you have a defined timeline internally with everything else or right now you still getting the other three organized?

Thanks for the question. The next IPO, I really can't comment on. We have investors in Surface that hold a larger stake than even we do. And so we respect their input, certainly in the direction of that business. We have a much larger stake in Melt. And one of the things we've looked at is how the market has reacted to the success of the Eton IPO. Certainly that's something we're interested in. We've heard from a number of our shareholders, they like the fact that will be able to mark the business - the investment to market. And so looking at public versus private as part of our strategy is something that we're considering and we will probably be able to say more about that over the next couple of quarters. In terms of the timelines for the next transactions, an interesting thing has happened. And it's sort of success begets success. And we have had very interesting opportunities come to us over the last three or four months that we've been reviewing. And the opportunity to work on those deals is exciting. We don't really see an end to the quality of the deals and are really gated by our access to capital and personnel and those sorts of resources. But we're excited about the success we've seen with Project 15. And I think importantly, others who have, who've been sitting on the outside and who have seen it, who want to maybe work within that template within this platform are excited about it as well. So we're going to do a lot of work on Project 15 over the coming quarters. We'll talk a lot more about that. But it's all enabled and it's complementary to obviously our ophthalmology compounding business.

Perfect. Thank you for the color. And then just so last question is related some of the recent regulatory guidance and related statutory regulations that have been out there. I was just curious if the 503A and 503B guidance that recently was put out. If you had any thoughts related to it, and how it benefits your business? And then related to the memorandum of understanding with the 503A, if there's been a sort of clarity or an update on that, too, and that's last question for me. Thank you very much.

Thank you, Andy. Yeah, the, I think any comments related to the guidance documents that have come out recently, my only comment would be that the FDA is really making good on what it said it was going to do? And under Dr. Gottlieb's leadership they've said they were going to do X and they've done X. They've put guidance documents out. Consistently they've created a framework, that we work within. And we don't see the guidance documents really impacting what we do as they currently stand. So that isn't, as I said, impacting our business. In terms of the MOU, the MOU which is not finalized, MOU, memorandum of understanding, once again, the FDA's draft document is a document we can work with and that works well with our business model. We are - for [ph] FDA guidance documents were for the FDA inspections that we receive. We think it's good for the long term future of our business. And so as I said, FDA has said they were going to do certain things and they've made good on them and we can work within the framework that they've laid out so far. Importantly, though, and I think this is really critical, the FDA has really stressed the importance of the physician and the patient relationship and that physicians and patients be in charge of determining what's really important for a patient's care. And I don't see the FDA changing that concept as well.

Great. Yeah, that's actually a very important point. Thank you for mentioning that as well and then good luck going forward. And thanks for taking my questions.

Thank you, Andy.

[Operator Instructions] We'll go next to Brooks O'Neil with Lake Street Capital Market.

Good afternoon and congratulations on all the progress. So Mark, you mentioned some of the capital spending and improvements in New Jersey and the opportunity that opens for you to continue to grow revenue aggressively. I noticed in the fourth quarter gross margin was 64%. And I think your longer term target had been 60%. Do you have any new comments about what realistic objectives might be for the growth of ImprimisRx and the profitability of that business?

Well, thanks for the question. First of all, we're taking more space. And you know this is not space on Park Avenue in New York. This is relatively low cost space, but we need more space because business is good. The reason why we're investing in automation and robots to help quintuple our output is because business is good. These are really good problems to have we think. And what we've been able to do, and I think I've mentioned this in the past is, we've actually been able with essentially the same workforce and really fewer hours on a weekly basis to produce more and more product. And that's good for gross margins. It's also good for example, for our workforce, they have a four by 10 work week. So they work four days on the production side and they like that. So that we have happier employees to which is really nice. On gross margins, we set a 60% growth target, a 60% gross margin target last year. We said we would get there and of course, in the second quarter we hit it and the third quarter we went to 61%, but for the last few quarters, I've set a different target. I've said that we should see gross margins hit 70% or better in the medium term. And what I think you've seen with the 64% number this quarter is us making good on our belief that we can get better when it comes to gross margins. And we should continue to get better over the coming quarters. It's not going to be linear and happen overnight, but we do think that we should see gross margins with a seven handle going forward. At some point in the next few quarters.

Okay, that's great. And then obviously, you mentioned the more aggressive strategy with regard to outstanding litigation. Just can you refresh our memory about where you stand today with regard to remaining litigation and I know you can't predict exactly when you might resolve those but is it your hope to attempt to resolve them during 2019 or do you think it'll take longer than that.

Yeah, we haven't really commented on the specifics of any particular matter. We did comment on the call and I think this is the case that our expectation is that litigation will wind down after the first half of the year. It should wind down and we should normalize our costs in that department, consistent with what they've been historically. So when that happens, and I do believe it's going to happen, I mean, this litigation is not going to continue. And I was very clear on the call that it is a high priority to reduce these expenses. And we have implemented a plan aggressively in the fourth quarter to do that. And we are clearing the deck on these matters that we were prosecuting as plaintiffs by dismissing those matters. We're working very aggressively with state agencies about resolving other matters that have been pending. And as I said also on the call it, or Andrew may have said that we have settled a civil matter that was lingering for a couple of years. So we are clearing the deck. We intend to reduce these costs, and the hope is that when we get into the second half of the year, the bloom of the business will be there to shine in the numbers and that we won't have these litigation matters hanging out, at least the ones that are serious.

Great. That's fantastic. Thanks, Mark. Congratulations. Keep up the good work.

Thank you, Brooks. We appreciate it.

There appear to be no further questions at this time. I would like to turn that back over to Mark Baum for any additional or closing remarks.

Great. Thank you. Just want to thank everyone for attending. We appreciate your support. And if you have any investor related questions, please contact our Investor Relations associate, John Patton. His direct number is 858-704-4587. This will conclude our call.

Thank you. This does conclude today's conference. We thank you for your participation. You may now disconnect. Thank you and have a great day.