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Sonoma Pharmaceuticals Reports Third Fiscal Quarter 2024 Financial Results

• Revenues increased 7% compared to quarter from prior year and 15% from prior quarter
• Improvement in gross margin for quarter of 19% compared to prior year
• Improvement in net loss for quarter of $1.0 million compared to prior year

"We are pleased to report increased revenues in the quarter ended December 31, 2023, both year over year and compared to the prior quarter," said Amy Trombly, CEO of Sonoma. "We are starting to see the results of our investment in research and development leading to new products as well as our efforts to add new distributors while supporting our existing distributors in expanding their offerings and territories. Our continued efforts to control costs have also positively impacted the bottom line. Along with improving margins, these trends point Sonoma in the right direction as we move into calendar year 2024 and our fourth fiscal quarter."

Business Highlights

Sonoma continued to expand its business by launching new products and building new partnerships while growing its existing distributor relationships:

• On January 23, 2024, Sonoma launched Lumacyn^TM Clarifying Mist, a new direct-to-consumer skincare product, in the United States. Lumacyn is an all-natural daily toner formulated with Microcyn technology to soothe the skin, reduce redness and irritation, and manage blemishes by reducing infection.
• On January 9, 2024, Sonoma announced an agreement with NovaBay Pharmaceuticals, Inc. for the sale and marketing of Avenova -branded products by Sonoma in the European Union. These products will be based on Sonoma's existing eye product Ocudox , and marketed through Sonoma's established European distribution network.
• On November 3, 2023, Sonoma launched its intraoperative pulse lavage irrigation treatment in the United States, a new application of its wound care technology developed in response to an unmet need for a non-toxic irrigation solution that can prevent infection and improve healing time.

Results for the Quarter Ended December 31, 2023

Revenues for the quarter ended December 31, 2023 of $3.2 million increased 7% compared to the same period last year. U.S. sales increased 14%, driven by increased sales of consumer-focused animal health care products and wound care products. European sales increased by 10%, reflecting increased demand for Sonoma's wound care products. Asia sales were up 2%, though these revenues tend to be choppy when viewed on a quarterly basis due to international customers placing larger but less frequent orders to benefit from quantity discounts and reduced shipping costs. Latin America was down 4%. Rest of World revenues decreased as a result of decreased sales in India as well as timing of orders. These sales also tend to be choppy and management expects sales to recover in the next two fiscal quarters.

For the quarter ended December 31, 2023, Sonoma reported revenues of approximately $3.2 million and cost of revenues of $1.7 million, resulting in gross profit of $1.5 million, or 47% of revenue, compared to a gross profit of $0.8 million, or 28% of revenue, for the same period last year. Gross margins increased by 19% for the quarter ended December 31, 2023 when compared to the same period last year as a result of overall product mix and higher costs of materials and transportation in the prior year.

Total operating expenses during the quarter ended December 31, 2023 were $2.3 million, down $0.4 million, or 14%, when compared to $2.7 million during the same period in the prior year, as a result of reduction of $900,000 in selling, general and administrative expenses from tightly managing expenses across all operations, and $350,000 of additional expenses for settling a long term contract in the prior year, which management expects to be a one-time event. The decrease was partially offset by an increase in research and development expenses, related to product development and expanded regulatory efforts in the U.S. and Europe to support new product releases.

Net loss before income taxes for the quarter was $0.9 million, compared to $1.9 million for the same period last year. EBITDAS loss for the quarter ended December 31, 2023 of $0.7 million improved by $0.9 million, compared to an EBITDAS loss of $1.6 million for the same period last year.

Results for the Nine Months Ended December 31, 2023

Revenues of $9.3 million for the nine months ended December 31, 2023 decreased by $1.0 million compared to the same period last year. Prior period revenues included $750,000 from the sale of machinery to a customer, which management expects to be a one-time event. Decreased sales in the United States were primarily due to a decline in sales of consumer-focused animal health care products over the nine-month period, as well as an overall retail market slowdown. The decline in Asia and Rest of World sales is due to international customers tending to place larger but less frequent orders to benefit from quantity discounts and reduced shipping costs. Management expects these trends to correct in the next few quarters.

For the nine months ended December 31, 2023, Sonoma reported revenues of $9.3 million and cost of revenues of $5.6 million, resulting in gross profit of $3.7 million, or 39% of revenues, compared to a gross profit of $3.6 million, or 35% or revenues, in the same period last year. Gross profit margin in the prior year was assisted by the sale of $750,000 of machinery to a customer, which management expects to be a one-time event.

Total operating expenses during the nine months ended December 31, 2023 of $6.9 million decreased by $0.1 million, or 1%, compared to $7.0 million during the same period last year.

Net loss before income taxes for the nine months ended December 31, 2023 was $3.8 million, compared to $3.8 million for the same period in the prior year. EBITDAS loss for the nine months ended December 31, 2023 of $2.7 million improved by $0.1 million, compared to an EBITDAS loss of $2.8 million for the same period last year.

About Sonoma Pharmaceuticals, Inc.

Sonoma Pharmaceuticals is a global healthcare leader for developing and producing stabilized hypochlorous acid (HOCl) products for a wide range of applications, including wound care, animal health care, eye care, nasal care, oral care, and dermatological conditions. The company's products reduce infections, itch, pain, scarring and harmful inflammatory responses in a safe and effective manner. In-vitro and clinical studies of hypochlorous acid (HOCl) show it to have impressive antipruritic, antimicrobial, antiviral and anti-inflammatory properties. Sonoma's stabilized HOCl immediately relieves itch and pain, kills pathogens and breaks down biofilm, does not sting or irritate skin and oxygenates the cells in the area treated assisting the body in its natural healing process. The company's products are sold either directly or via partners in 55 countries worldwide and the company actively seeks new distribution partners. The company's principal office is in Boulder, Colorado, with manufacturing operations in Guadalajara, Mexico. European marketing and sales are headquartered in Roermond, Netherlands. More information can be found at www.sonomapharma.com. For partnership opportunities, please contact businessdevelopment@sonomapharma.com.

Forward-Looking Statements

Except 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 "expect," "continue," "believe" 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, as well as uncertainties relative to the recent pandemic and economic development, 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 , Microcyn , Lumacyn^TM and Ocudox are trademarks or registered trademarks of Sonoma Pharmaceuticals, Inc. All other trademarks and service marks are the property of their respective owners.

Media and Investor Contact:

Sonoma Pharmaceuticals, Inc.
ir@sonomapharma.com

SONOMA PHARMACEUTICALS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except share amounts)

SONOMA PHARMACEUTICALS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Loss
(In thousands, except per share amounts)
(Unaudited)

SONOMA PHARMACEUTICALS, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP MEASURES TO NON-GAAP MEASURES
(In thousands)
(Unaudited)

(1) Income (loss) from continuing operations minus non-cash expenses (EBITDAS) is a non-GAAP financial measure. The company defines operating income (loss) minus non-cash expenses as GAAP reported operating income (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. Non-GAAP measures should not be considered a substitute for financial measures presented in accordance with GAAP. Non-GAAP measures are not always consistent across, or comparable with, non-GAAP measures disclosed by other companies.

(2) Net income (loss) minus non-cash and one time expenses is a non-GAAP financial measure. The company defines net income (loss) minus non-cash expenses as GAAP reported net income (loss) minus depreciation and amortization, stock-based compensation, forgiveness of PPP loan 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. Non-GAAP measures should not be considered a substitute for financial measures presented in accordance with GAAP. Non-GAAP measures are not always consistent across, or comparable with, non-GAAP measures disclosed by other companies.

(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. Non-GAAP measures should not be considered a substitute for financial measures presented in accordance with GAAP. Non-GAAP measures are not always consistent across, or comparable with, non-GAAP measures disclosed by other companies.

SONOMA PHARMACEUTICALS, INC. AND SUBSIDIARIES
PRODUCT RELATED REVENUE SCHEDULES
(In thousands)
(Unaudited)

The following table presents the company's disaggregated product revenues by geographic region:

SOURCE: Sonoma Pharmaceuticals, Inc.