SNOAW Sonoma Pharmaceuticals Inc

Sonoma Pharmaceuticals, Inc. (Nasdaq: SNOA), a specialty pharmaceutical company dedicated to identifying, developing and commercializing unique, differentiated therapies to millions of patients living with chronic skin conditions, yesterday announced financial results for the fiscal year 2019 and the fourth quarter ended March 31, 2019.

“We are pleased with the results for the fourth quarter ended March 31, 2019 and the overall year-over-year revenue growth. We have significantly slowed our cash burn and continue to build a sustainable business,” said Bubba Sandford, CEO of Sonoma Pharmaceuticals. “Our track record in dermatology has improved substantially and our efforts to grow revenues while containing expenses resulted in one of our strongest quarters to date.”

Business Highlights

In December 2018, the Company hired Bubba Sandford as Chief Executive Officer and Interim Chief Financial Officer. During his first three months in office, Mr. Sandford identified and implemented significant cost-cutting measures, including right-sizing the administrative headcount. The Company is continuing to streamline and improve its production processes while remaining focused on revenue growth. As part of its growth strategy, in December 2018, the Company  launched EpicynTM, a prescription facial cleanser which helps achieve clear skin and provide relief from irritation for patients with acute and chronic dermal lesions. In May 2019, the Company sold certain animal health product rights and assets for the Asian and European markets for $2.7 million. In addition to providing capital, this transaction was part of the Company’s strategic decision to focus on its core business of U.S. dermatology.

Results for the Quarter Ended March 31, 2019

Total revenue of $4.4 million for the fourth quarter ended March 31, 2019, increased by $727,000, or 20%, from $3.7 million for the same period last year. Product revenues of $4.1 million for the fourth quarter ended March 31, 2019, were up by 26%, or $837,000, when compared to $3.3 million in the same period last year, largely as the result of an increase of $200,000 in our dermatology revenue and an increase of $500,000 in international revenue.

During the quarter ended March 31, 2019, Sonoma reported total revenues of $4.4 million and cost of revenues of $2.5 million resulting in total gross profit of $1.9 million, or 43% of total revenue, compared to a gross profit of $1.3 million, or 36% of total revenue in the same period last year. The increase in gross profit, as a percentage of revenue, was primarily due to strong growth in U.S. dermatology sales where profit margins are higher.

Total operating expenses during the fourth quarter of fiscal year 2019 were $4.6 million, down $1.5 million, or 25%, as compared to the same period in the prior year. This decrease in operating expenses was primarily due to lower employee costs resulting from a reduction in headcount combined with cost-cutting across all divisions. 

Net loss for the fourth quarter of fiscal 2019 was $3.2 million, down $1.6 million, or 33%, compared to the same period last year. EBITDA loss for the fourth quarter of fiscal 2019 of $2.3 million, was down $1.4 million, or 38%, compared to an EBITDA loss of $3.7 million for the same period last year. 

As of March 31, 2019, Sonoma had cash and cash equivalents of $3.7 million.

Results for the Year Ended March 31, 2019

Total revenues for the year ended March 31, 2019 of $19.0 million increased by $2.3 million, or 14%, as compared to $16.7 million for the year ended March 31, 2018. Product revenues for the year ended March 31, 2019 of $17.9 million increased by $2.2 million, or 14%, as compared to $15.7 million for the year ended March 31, 2018. This increase was primarily the result of growth in product revenue of $668,000, or 8%, in the United States, growth in product revenue of $955,000, or 32%, in Latin America, and growth of product revenue of $595,000, or 14%, in Europe and Rest of World.

For the year ended March 31, 2019, Sonoma reported total revenues of $19.0 million and total cost of revenues of $10.1 million, resulting in total gross profit of $8.9 million or 47% of total revenues, compared to a gross profit of $7.3 million or 44% of total revenues, for the same period in the prior year.

Total operating expenses during fiscal year 2019 were $20.1 million, down $1.4 million, or 6%, as compared to the same period in the prior year. This decrease in operating expenses was primarily due to lower employee costs resulting from a reduction in headcount combined with cost-cutting across all divisions. 

Net loss during fiscal 2019 was $11.8 million, down $2.5 million, or 18%, compared to the same period last year.  EBITDA loss for fiscal 2019 of $9.2 million, was down $2.0 million, or 18%, compared to an EBITDA loss of $11.2 million for the same period last year. 

About Sonoma Pharmaceuticals, Inc.Sonoma Pharmaceuticals is a specialty pharmaceutical company dedicated to identifying, developing and commercializing unique, differentiated therapies to millions of patients living with chronic skin conditions. Sonoma offers early-intervention relief with virtually no side-effects or contraindications. The company believes its products, which are sold throughout the United States and internationally, have improved patient outcomes for more than six million patients by treating and reducing certain skin diseases including acne, atopic dermatitis, scarring, infections, itch, pain and harmful inflammatory responses. Sonoma’s vision is to be a catalyst for improved care and increased access for all patients.The company's headquarters are in Petaluma, California, with manufacturing operations in the United States and Latin America. European marketing and sales are headquartered in Roermond, Netherlands. More information can be found at www.sonomapharma.com.

Forward-Looking StatementsExcept for historical information herein, matters set forth in this press release are forward-looking within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, including statements about the commercial and technology progress and future financial performance of Sonoma Pharmaceuticals, Inc. and its subsidiaries (the “company”). These forward-looking statements are identified by the use of words such as “continue,” “reduce,” and “expand,” among others. Forward-looking statements in this press release are subject to certain risks and uncertainties inherent in the company’s business that could cause actual results to vary, including such risks that regulatory clinical and guideline developments may change, scientific data may not be sufficient to meet regulatory standards or receipt of required regulatory clearances or approvals, clinical results may not be replicated in actual patient settings, protection offered by the company’s patents and patent applications may be challenged, invalidated or circumvented by its competitors, the available market for the company’s products will not be as large as expected, the company’s products will not be able to penetrate one or more targeted markets, revenues will not be sufficient to meet the company’s cash needs, fund further development and clinical studies, as well as uncertainties relative to varying product formulations and a multitude of diverse regulatory and marketing requirements in different countries and municipalities, and other risks detailed from time to time in the company’s filings with the Securities and Exchange Commission. The company disclaims any obligation to update these forward-looking statements, except as required by law.

Sonoma Pharmaceuticals™ is a trademark or registered trademark of Sonoma Pharmaceuticals, Inc. All other trademarks and service marks are the property of their respective owners.

SONOMA PHARMACEUTICALS, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(In thousands, except share and per share amounts)
		March 31
		2019				2018
ASSETS
Current assets:
Cash and cash equivalents		$	3,689			$	10,066
Accounts receivable, net			3,481				1,537
Inventories			3,409				2,865
Prepaid expenses and other current assets			1,694				1,547
Current portion of deferred consideration, net of discount			223				239
Total current assets			12,496				16,254
Property and equipment, net			727				1,136
Deferred consideration, net of discount, less current portion			1,103				1,322
Other assets			122				494
Total assets		$	14,448			$	19,206
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	1,255			$	1,272
Accrued expenses and other current liabilities			1,501				1,406
Deferred revenue			47				147
Deferred revenue Invekra			55				59
Current portion of long-term debt			322				230
Current portion of capital leases			141				147
Common stock liability			270				–
Total current liabilities			3,591				3,261
Long-term deferred revenue Invekra			356				443
Long-term debt, less current portion			12				32
Long-term capital leases, less current portion			–				144
Total liabilities			3,959				3,880
Commitments and Contingencies
Stockholders’ Equity
Convertible preferred stock, $0.0001 par value; 714,286 shares authorized at March 31, 2019 and March 31, 2018, respectively, 1.55 shares issued and outstanding at March 31, 2019 and no shares issued and outstanding at March 31, 2018			–				–
Common stock, $0.0001 par value; 24,000,000 and 12,000,000 shares authorized at March 31, 2019 and March 31, 2018, respectively, 1,316,335 and 685,747 shares issued and outstanding at March 31, 2019 and March 31, 2018, respectively			2				1
Additional paid-in capital			184,074				176,740
Accumulated deficit			(169,238	)			(157,440	)
Accumulated other comprehensive loss			(4,349	)			(3,975	)
Total stockholders’ equity			10,489				15,326
Total liabilities and stockholders’ equity		$	14,448			$	19,206

SONOMA PHARMACEUTICALS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME(In thousands, except per share amounts)(Unaudited)
			Three Months EndedMarch 31,							Year Ended March 31,
		2019				2018				2019				2018
Revenues
Product		$	4,106			$	3,269			$	17,881			$	15,663
Service			276				386				1,089				995
Total revenues			4,382				3,655				18,970				16,658
Cost of revenues
Product			2,328				2,140				9,334				8,669
Service			179				183				756				679
Total cost of revenues			2,507				2,323				10,090				9,348
Gross profit			1,875				1,332				8,880				7,310
Operating expenses
Research and development			327				476				1,518				1,575
Selling, general and administrative			4,252				5,605				18,620				19,924
Total operating expenses			4,579				6,081				20,138				21,499
Loss from operations			(2,704	)			(4,749	)			(11,258	)			(14,189	)
Interest expense			(7	)			(9	)			(33	)			(40	)
Interest income			51				173				190				258
Other income (expense), net			(104	)			(178	)			(239	)			(307	)
Loss before income taxes			(2,764	)			(4,763	)			(11,340	)			(14,278	)
Income tax expense			(458	)			(50	)			(458	)			(50	)
Net loss		$	(3,222	)		$	(4,813	)		$	(11,798	)		$	(14,328	)
Net loss per share: basic and diluted		$	(2.45	)		$	(8.45	)		$	(12.77	)		$	(28.49	)
Weighted-average number of shares used in per share calculations: basic and diluted			1,318				570				924				503
Other comprehensive loss
Net loss		$	(3,222	)		$	(4,813	)		$	(11,798	)		$	(14,328	)
Foreign currency translation adjustments			69				425				(374	)			203
Comprehensive loss		$	(3,153	)		$	(4,338	)		$	(12,172	)		$	(14,125	)

SONOMA PHARMACEUTICALS, INC. AND SUBSIDIARIESRECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES(In thousands)(Unaudited)
		Three Months EndedMarch 31,								Year EndedMarch 31,
		2019				2018				2019				2018
(1) Loss from operations minus non-cash expenses EBITDA loss:
GAAP loss from operations as reported		$	(2,704	)		$	(4,749	)		$	(11,258	)		$	(14,189	)
Non-cash adjustments:
Stock-based compensation			301				908				1,635				2,500
Depreciation and amortization			106				124				453				490
Non-GAAP loss from operations minus non-cash expenses EBITDA loss		$	(2,297	)		$	(3,717	)		$	(9,170	)		$	(11,199	)
(2) Net loss minus non-cash expenses:
GAAP net (loss) income as reported		$	(3,222	)		$	(4,763	)		$	(11,798	)		$	(14,328	)
Non-cash adjustments:
Stock-based compensation			301				908				1,635				2,500
Depreciation and amortization			106				124				453				490
Non-GAAP net (loss) income minus non-cash expenses		$	(2,815	)		$	(3,731	)		$	9,710			$	11,338
(3) Operating expenses minus non-cash expenses
GAAP operating expenses as reported		$	4,579			$	6,081			$	20,138			$	21,499
Non-cash adjustments:
Stock-based compensation			(300	)			(875	)			(1,545	)			(2,331	)
Depreciation and amortization			(52	)			(57	)			(221	)			(211	)
Non-GAAP operating expenses minus non-cash expenses		$	4,227			$	5,149			$	18,372			$	18,957

(1)		Loss from operations minus non-cash expenses (EBITDAS) is a non-GAAP financial measure. The Company defines operating loss minus non-cash expenses as GAAP reported operating loss minus operating depreciation and amortization, and operating stock-based compensation. The Company uses this measure for the purpose of modifying the operating loss to reflect direct cash related transactions during the measurement period.
(2)		Net loss minus non-cash expenses is a non-GAAP financial measure. The Company defines net loss minus non-cash expenses as GAAP reported net loss minus depreciation and amortization, stock-based compensation, and non-cash foreign exchange transaction losses. The Company uses this measure for the purpose of modifying the net loss to reflect only those expenses to reflect direct cash transactions during the measurement period.
(3)		Operating expenses minus non-cash expenses is a non-GAAP financial measure. The Company defines operating expenses minus non-cash expenses as GAAP reported operating expenses minus operating depreciation and amortization, and operating stock-based compensation. The Company uses this measure for the purpose of identifying total operating expenses involving cash transactions during the measurement period.

SONOMA PHARMACEUTICALS, INC. AND SUBSIDIARIESPRODUCT RELATED REVENUE SCHEDULES(In thousands) (Unaudited)
The following table shows the Company’s product revenues by geographic region
		Three Months EndedMarch 31,
		2019				2018				$ Change				% Change
United States		$	1,666			$	1,362			$	304				22	%
Latin America			957				912				45				5	%
Europe and Rest of the World			1,483				995				488				49	%
Total		$	4,106			$	3,269			$	837				26	%

		Year Ended March 31,
		2019				2018				$ Change				% Change
United States		$	9,040			$	8,372			$	668				8	%
Latin America			3,962				3,007				955				32	%
Europe and Rest of the World			4,879				4,284				595				14	%
Total		$	17,881			$	15,663			$	2,218				14	%

Media and Investor Contact:

Sonoma Pharmaceuticals, Inc.
ir@sonomapharmaceuticals.com