Executive Summary

Record quarterly revenue of $4.9M (+14% YoY; +13% QoQ) with gross margin expanding to 49% (from 40% in Q1), driving a two-year low EBITDA loss of $1.95M; diluted EPS improved to $(0.44) from $(0.55) in Q1 and $(0.67) in the prior-year quarter .
U.S. product revenue rose 7% YoY to $2.4M, while Latin America grew 32% YoY to $1.0M on Brazil launch shipments; dermatology prescriptions reached an all-time high (17,410), aided by mail-order channels now comprising ~42% of dermatology prescription shipments .
Cash declined to $4.0M from $7.7M in Q1, driven by working capital increases (receivables +$0.8M, inventories +$0.4M; largely international/Brazil), though management expects collections in the December quarter; EBITDA remains the primary cash burn proxy .
Stock reaction catalysts: continued margin expansion as mix shifts to higher-margin dermatology, adoption of mail-order channel (reduces rebates/substitution), and Brazil rollouts (acne/scar) alongside U.S. Epicyn cleanser launch plans .

What Went Well and What Went Wrong

What Went Well
- “Record high revenue” of $4.9M with higher gross profitability and lowest EBITDA loss in two years; company highlights strong demand and improved gross-to-net control via mail-order partners .
- U.S. mail-order penetration scaled to ~42% of dermatology prescriptions, reducing wholesaler inventory swing risk and rebate leakage; management cites positive physician/patient reception and better predictability of net revenue .
- International momentum: Brazil launch under NC Group/U.SK began (shipment of $248k in Q2) with additional product launches expected; management anticipates continued growth from Brazil and broader international network .
What Went Wrong
- Cash balance fell to $4.0M (from $7.7M) on EBITDA loss and working capital build (receivables, inventory, prepaids), highlighting liquidity sensitivity; company expects conversion in December quarter .
- U.S. dermatology net revenue declined 8% YoY despite underlying prescription growth, reflecting channel mix and gross-to-net headwinds (rebates/wholesaler inventory), though QoQ trends improved (+23%) .
- Ongoing exposure to managed care dynamics and prior swings from wholesaler inventory reduce top-line visibility, necessitating continued channel rebalancing (mail-order vs retail) .

Financial Results

Metric	Q4 FY2018 (Mar 31, 2018)	Q1 FY2019 (Jun 30, 2018)	Q2 FY2019 (Sep 30, 2018)
Total Revenue ($M)	$3.655	$4.369	$4.939
Gross Profit ($M)	$1.332	$1.731	$2.427
Gross Margin (%)	36%	40%	49%
Operating Expenses - GAAP ($M)	$6.081	$5.283	$5.079
Loss from Operations ($M)	$(4.749)	$(3.552)	$(2.652)
EBITDA (Non-GAAP) ($M)	$(3.717)	$(3.084)	$(1.950)
Net Loss ($M)	$(4.763)	$(3.458)	$(2.820)
Diluted EPS ($)	$(0.93)	$(0.55)	$(0.44)
Cash & Equivalents ($M)	$10.066	$7.685	$4.048

Segment/Geography Product Revenue

Region	Q4 FY2018 ($M)	Q1 FY2019 ($M)	Q2 FY2019 ($M)
United States	$1.362	$1.971	$2.426
Latin America	$0.912	$1.079	$0.997
Europe & Rest of World	$0.995	$1.045	$1.212
Total Product Revenue	$3.269	$4.095	$4.635

KPIs and Operating Metrics

KPI	Q4 FY2018	Q1 FY2019	Q2 FY2019
U.S. Dermatology Prescriptions Filled (units)	13,667	14,726	17,410
U.S. Dermatology Factory Units (units)	n/a	13,177	16,282
Mail-Order Share of Dermatology Units	n/a	20% (June); 28% (July)	~42% (quarter)
U.S. Dermatology Net Revenue ($M)	$0.779 (Q4)	$1.207	$1.484

Notes: EBITDA is defined as GAAP operating loss minus non-cash stock-based compensation and D&A; non-GAAP reconciliations provided in 8-K exhibits .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue/Top-line	FY2019/2020	None provided	Expect continued growth in animal health, acute care, and international; Brazil launches to support growth	n/a
Operating Expenses (cash)	FY2019	None provided	Expected to remain flat to down due to cost reductions	n/a
EBITDA (non-GAAP)	FY2019	None provided	Expect reduction in EBITDA loss as revenues grow and OpEx is controlled	n/a
Channel Mix	Near-term	None provided	Expand mail-order programs to reduce rebate costs/substitution; maintain retail relationships	n/a

Management does not provide specific numerical guidance; commentary is qualitative.

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4 FY2018; Q1 FY2019)	Current Period (Q2 FY2019)	Trend
Mail-order channel adoption	Program implemented to mitigate rebate/wholesaler impacts; highlighted as key strategy	~42% of dermatology prescriptions via mail-order; 20% in June, 28% in July earlier	Accelerating adoption
Gross-to-net/rebates	Q4 pressure from deductible resets; plan to reduce impact via mail-order and payer engagement	Rebates “stabilized” with mail-order; program lowers co-pays and controls rebate costs	Stabilizing
International/Brazil	Signed NC Group/U.SK pact; Brazil approvals in FY2018	Brazil acne launch underway; $248k shipment in Q2; additional product launches expected	Ramping
Dermatology prescriptions	Q4 weakness from inventory/rebates; underlying demand cited	Prescriptions hit record 17,410 (+12% YoY; +18% QoQ)	Strong demand
Margin mix	Q4 gross margin 36% due to low-margin LatAm and U.S. derm decline	Gross margin improved to 49% on U.S. volume and higher-margin Brazil mix	Improving
Sales force/product launches	33-person U.S. derm sales force; new products (Ceramax lotion) coming	U.S. Epicyn Antimicrobial Facial Cleanser planned; Brazil Gramacyn acne product launch; clinical acne data supportive	New SKUs launching
Regulatory/legal/shareholder	None flagged in Q4	S-1/A filed; board evaluating Montreux Equity Partners letter; limited commentary	Corporate actions under review

Management Commentary

“Total revenue was $4.9 million…a record high…we think we're just getting started” (Jim Schutz, CEO) .
“This is our lowest EBITDA loss in the last two years…caused by higher revenue, higher gross profitability, and…lower operating expenses [QoQ]” (Bob Miller, CFO) .
“Our mail-order program…represented 42% of our unit sales in the September quarter…we believe this diversification reduces the risk of inventory reductions” (Jim Schutz, CEO) .
“Shipments to Brazil…were $248,000…they far exceeded what their contractual agreement was…we expect to see good, strong growth” (Bob Miller, CFO) .
“All three [acne] studies confirmed statistically significant reductions…with p-values ranging from 0.1% to 0.02%” (Bob Miller, CFO) .

Q&A Highlights

Mail-order penetration: rose to “a little over 40%” of units in the September quarter (from ~20% in prior comments) .
Rebates: management said rebate costs have “stabilized” with mail-order and a cash-pay program that lowers co-pays and controls rebate spend .
Brazil growth: $248k shipment in Q2 for acne; scar product launches next; partner “far exceeded” contractual commitments; expectation of continued strong growth .

Estimates Context

Wall Street consensus (S&P Global) for Q2 FY2019 revenue and EPS was unavailable via our data access at the time of analysis; therefore, no beat/miss assessment versus consensus is provided.

Key Takeaways for Investors

Mix and margin inflection: gross margin expanded to 49% as U.S. dermatology volume recovered and Brazil mix contributed; continued mix shift and mail-order adoption should support margin durability .
Demand indicators strong: prescriptions reached an all-time high, with factory units rebounding QoQ; underlying demand appears healthy despite prior gross-to-net noise .
Channel strategy is working: ~42% mail-order penetration reduces substitution and rebate drag, improving net revenue predictability and cash economics per script .
International optionality: early Brazil contribution with seven products licensed provides a second growth engine; watch for sequential build from acne and scar launches .
Liquidity watch: cash fell to $4.0M due to EBITDA loss and working capital build; collections expected in December quarter, but execution on working capital and OpEx control remains critical .
Near-term catalysts: U.S. Epicyn cleanser launch, Brazil scale-up, and sustained mail-order expansion could drive revenue growth and further EBITDA loss reduction .

Supporting detail:

Q2 FY2019 8-K press release and financials .
Q2 FY2019 earnings call transcript (operational commentary, prescriptions, mail-order, Brazil) .
Prior quarters for trend: Q1 FY2019 8-K/press release and call ; Q4 FY2018 8-K/press release .

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