TRxADE Health, Inc. (NASDAQ:MEDS) Q3 2022 Earnings Conference Call November 7, 2022 5:00 PM ET
Company Participants
Janet Huffman – CFO & Principal Accounting Officer
Surendra Ajjarapu – Founder, Chairman, CEO, Treasurer & Secretary
Conference Call Participants
Allen Klee – Maxim Group
Howard Halpern – Taglich Brothers
Operator
Good afternoon, and welcome to TRxADE Conference Call. [Operator Instructions]. Today with us, we have Suren Ajjarapu, Howard Dossand and Janet Huffman.
I would now like to turn the conference over to the speakers. Please go ahead.
Janet Huffman
Thank you, operator, and thank you for joining us today. I’d like to welcome you to our 2022 Third Quarter Financial Results Conference Call. Our press release announcing our 2022 third quarter financial results was issued after the close of market today and is posted on our website. We’ve also furnished such press release to the SEC on Form 8-K.
Statements made on this call and webcast will include forward-looking statements. These statements include, but are not limited to, our outlook for the company and statements that estimate or project future results of operations or the performance of the company, including the potential continued impact of COVID-19, increased interest rates and inflation on the company’s business and results of operations. These statements speak only as of the date hereof, and the company assumes no obligation, except as required by law, to revise any forward-looking statements that may be made in today’s press release, call or webcast. These statements do not guarantee future performance and are subject to risks, uncertainties and assumptions. For information on risks, uncertainties and assumptions that may cause actual results to differ materially from forward-looking statements, please refer to the press release, risk factors and documents we file with the Securities and Exchange Commission. These documents include but are not limited to, our most recent quarterly report on Form 10-Q and any subsequently filed periodic report or current report on Form 8-K.
In addition, during today’s call and webcast, we will discuss non-GAAP financial measures, which we believe are useful as supplemental measures of TRxADE’s performance. These non-GAAP measures should be considered in addition to, and not as a substitute for, or in isolation from GAAP results. You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results at the end of our earnings press release. Unless otherwise stated, all financial comparisons in this call will be to our results for the comparable period of fiscal 2021.
During the question-and-answer portion of today’s call, please limit yourself to no more than one question and one follow-up.
At this time, I’d like to turn the call over to Suren Ajjarapu, the company’s Chief Executive Officer. Suren, the floor is yours.
Surendra Ajjarapu
Thank you, Janet. We continue to see improvement in 2022 for our core TRxADE pharmaceutical exchange platform. Our nationwide footprint continues to grow, and we remain committed to the focus of exciting new ways to support a large growing network of registered users. With the development of technology and products for our local pharmacies, we are dedicated to supporting these pharmacies with new innovative products that better enable them to service their customers and strengthen loyalty to their local retail pharmacy.
On October 25, we announced our strategic business-to-business partnerships with multiple insurance brokerage firms, to offer access to telemedicine services for small to medium employer groups. In September, we announced our partnership with the Wakefern Food Corp. to deploy telemedicine services throughout ShopRite pharmacy-led locations in New Jersey, New York, Pennsylvania, Connecticut and Maryland. These new partnerships in the third quarter of 2022 help provide affordable and convenient access to the healthcare services. They also provide exciting new innovative partnerships to assist us in growing our local retail pharmacy business.
Before we do a more detailed walk through of our financial and operational results of the quarter, for those of you who are new to the company, I’d like to walk you through who we are, how we are digitalizing the retail pharmacy experience through the optimization of drug procurement, the prescription journey and patient engagement.
Prior to the launch of TRxADE, obtaining drug quotes as an independent pharmacy, was an extremely laborious and time-inefficient process with no insight or transparency into a fair market price or what others are paying for the same drug. Traditional wholesalers would provide unfavorable payment terms, slow delivery and create a difficult conundrum for the approximately 19,400 independent pharmacies nationwide.
We identified this market inefficiency, as well as the incredible potential in these independent pharmacies, which together maintain an estimated approximately $67.1 billion in annual purchasing power and proceeded to launch TRxADE.
We design, own or operate a business-to-business web-based market platform, bringing together the nation’s independent pharmacies with accredited national pharmaceutical suppliers to provide a uniquely efficient and transparent buying and selling process. Our platform let independent pharmacies know, that they are receiving a fair price from competing suppliers, on a fair payment terms often with the next-day delivery.
We believe this radical price transparency, economy of scale and competition among suppliers, lead up to a 10% reduction in net pharmacies’ total annual drug purchase costs, with a drug-level savings of up to 90% on certain pharmaceutical products. Our platform saves pharmacists from having to manually compare prices across distributors, saving hundreds of hours of unnecessary labor annually, and eliminating negative reimbursement, or fulfilling a prescription at a loss.
Our revenue model is simple. We are paid an administrative fee of up to 6% of the buying price on generic pharmaceuticals and up to 1% on brand pharmaceuticals that pass through our pharmaceutical platform, similar to PayPal or Visa like model.
To date, we have seen incredible success in garnering attention from independent pharmacies nationwide, validating our business model. We currently have over 14,100 plus registered members on our platform, with approximately 291 new registered members added in the third quarter of 2022, compared to 195 for the third quarter of 2021.
Another exciting growth metric on our TRxADE platform, includes an 18% increase in the volume of sales processed across our platform in the third quarter of 2022 compared to the same quarter in 2021.
Subsequent to the third quarter, on October 7, we closed the sale of approximately $1.75 million of common stock, prefunded warrants and warrants. The net cash proceeds to the company were approximately $1.5 million. The company plans to use the cash proceeds for working capital, and to execute a strategic growth plan for our TRxADE platform and TRxADE Prime. The full details of information regarding the transaction can be found in our Form 8-K filed with the Securities and Exchange Commission on October 7, 2022.
I’d like to now turn the call over to our Chief Financial Officer, Janet Huffman, to walk through some key financial highlights from the third quarter of 2022.
Janet Huffman
Thank you, Suren. Let us discuss third quarter 2022 results. Consolidated revenues for the third quarter of 2022 decreased 6% to $2.4 million, compared to revenue of $2.6 million in the same quarter last year. This decrease in revenue is driven by the TRxADE Prime and Community Specialty Pharmacy subsidiary. The revenues generated by the TRxADE platform increased 6% in the third quarter of 2022, as compared to the same quarter in 2021. Although TRxADE Prime experienced an 11% decline in revenue for the third quarter of 2022, compared to the same quarter in 2021, there were several other important metrics that we work to improve.
In the third quarter, we adjusted the TRxADE Prime sales platform, implementing automation software and executing on initiatives to reduce overhead expense and improve gross margin. Initiatives to improve gross margin included, improved vendor pricing and vendor partnerships. This result of this focus was improved gross margin to a positive 3% compared to a negative 6% for the comparable third quarters of 2022 and 2021, respectively. Initiatives to reduce overhead expense included software automation and employee restructuring. As a result of these changes, overhead expense was reduced 68% for the third quarter of 2022, compared to the same quarter in 2021.
Moving forward, the company is working to grow TRxADE Prime revenues, with the foundation of reduced overhead and improved gross margin. The revenue decrease for Community Specialty Pharmacy in the third quarter of 2022 as compared to the same quarter in 2021, is partially driven by decreased sales in the last week of September, due to Hurricane Ian.
Gross profit in the third quarter of 2022 increased to $1.4 million or 58% of revenue, as compared to $1.3 million and 50% of revenue in the third quarter of 2021. The improved gross margin is due to the increased revenues generated by the TRxADE platform, and the improved gross margins of TRxADE Prime.
Operating expenses in the third quarter of 2022 were $1.8 million compared to $2.6 million in the same quarter last year. The expense decrease for these comparable periods, is partially due to a $630,000 bad debt expense recorded in the third quarter of 2021, increasing operating expenses for 2021, as compared to 2022. Other drivers are the 2022 decreased operating expenses in TRxADE Prime, previously discussed, and approximately $164,000 of bad debt recovery from the amounts written off in 2021.
Net loss in the third quarter of 2022 was negative $0.5 million or negative $0.06 per basic and diluted share outstanding, compared to a negative $1.3 million or negative $0.16 per basic and diluted share outstanding for the same quarter in 2021. Adjusted EBITDA, a non-GAAP financial measure, was negative $0.4 million compared to positive $0.7 million in the same quarter last year.
Looking at our balance sheet; cash and cash equivalents were $0.3 million as of September 30, 2022, compared with $3.1 million as of December 31st, 2021. The decrease in cash is mainly driven by spending on salaries and wages, $875,000 spent for inventory purchases for Community Specialty Pharmacy in May of 2022, $225,000 spent as part of a legal settlement in February of 2022 and $275,000 spent in connection with the formation of SOSRx LLC in February of 2022.
With that, I will turn the call back to Suren for closing remarks.
Surendra Ajjarapu
Thank you, Janet. In summary, we’re focusing on exciting new strategic partnerships to drive forward our core business, while diversifying our revenue base. Taken as a whole, I think we are building an incredible compelling healthcare ecosystem, allowing consumers access to affordable healthcare, while building an exciting value proposition for all stakeholders. I look forward to seeing what the future holds, as we continue our rapid pace of operational execution, creating sustainable long-term value for our fellow shareholders.
With that, I’ll turn it over to the operator to begin the question-and-answer session. Operator?
Question-and-Answer Session
Operator
[Operator Instructions]. Our first question comes from Allen Klee, Maxim Group.
Allen Klee
Good job on margins and cost control. For TRxADE Prime, can you talk a little strategically of how you think about where it’s going to go from where it is now in terms of — do you expect to grow the top line or lower, and is there more opportunity on the margin side? And how does this — explain again how this helps your customers?
Surendra Ajjarapu
Yes. That’s a great question, Allen. Thank you for the comment on the gross margin. Yes, our focus is not only the top line. We would like to focus on the gross margin, as well as the bottom line also. And that’s the reason we retooled our systems, that we implemented artificial intelligence, that can adjust the pricing and make sure the customers are well taken care. Currently, the pharmacies has to spend time, go to their primary vendors, then come back to our site searching, through our TRxADE Prime model where we can be able to give that access to the pharmacies before they can go to the primary contract, they can come on to our platform, search the drug and we can redirect to what kind of product they can buy on our platform, what kind of product they can go back to their primary. That way they can see upfront, what kind of product availability and margins that they can make, at the same time, increases our TRxADE Prime .
Allen Klee
That’s great. And then, are there — any update on Bonum Health? Any metrics you can provide? And then maybe, how you think about — with the Wakefern and ShopRite partnership, how you’re thinking about rolling that out?
Surendra Ajjarapu
So we’re still at a nascent phase in Bonum, as we mentioned, originally that we brought in Bonham Health, to empower our independent pharmacies to compete against these box chain stores that are out there like Walgreens and CVS. That traction is still not 100% up to our expectations. We’re still trying to struggle through that model, and I think as we mentioned in the second quarter, we’re looking for alternative ways and means of getting that Bonum Health, try to find a strategic buyer or a strategic joint venture opportunities. We’re still trying to give that access to our independent pharmacies.
Operator
Our next question comes from Howard Halpern, Taglich Brothers.
Howard Halpern
Congratulations on the margins. That was nice to see. Look, in terms — and I’ll follow on with Bonum Health, your engagement of insurance brokerage firms, is that potentially going to have a faster uptake than the pharmacy partners? Is it more geared to maybe small private businesses that might engage in Bonum Health?
Surendra Ajjarapu
That’s an excellent point, Howard. Yes, that’s our intention to go after uninsured, less than 50 people employee groups. So that’s what we’re — we are trying to push to the insurance brokerage forms. They’re already serving those self-insured or an employer — like uninsured employer groups, and that’s our hope, and that’s the reason we pivoted into these brokerage firms versus the chain drugstores.
Howard Halpern
And can you talk a little bit about where the — I know it’s early, but how the development of SOSRx joint venture is going? And when do you anticipate things to really start to get rolling in it?
Surendra Ajjarapu
Yes. The concept was good, but the adoption is still struggling, because the manufacturers are not used to dealing this kind of electronic platform. So they’re still going through the traditional opportunities or traditional way of doing business. If you look at it as — like a TRxADE, when we started our company back in 2010, it took us 3 years before we can get a first customer, similar fashion. SOSRx is there, the traction won’t be there if we don’t — and then we’ll be looking for alternative at and means, try to partner a JV or — looking at those kind of opportunities for SOSRx.
Howard Halpern
And just one last one. With the improvement and likely continued improvement in gross margins and how you restructured your overhead costs, can we anticipate with just some incremental revenue growth, that somewhere in the first half of next year, we might get to operational breakeven in — on the income line?
Surendra Ajjarapu
As you’re aware, Howard, we cannot predict that soon, but we’re definitely working towards that positive numbers, both the top line as well as the bottom line. We’re working towards that.
Operator
[Operator Instructions]. We proceed with Allen Klee, Maxim Group.
Allen Klee
Okay. So your business going after group purchasing organizations, I know that’s a longer-term opportunity, but any update on how that’s progressing?
Surendra Ajjarapu
I’m sorry, Allen, could you repeat that question, please?
Allen Klee
Yes. GPOs, just kind of an update on how that’s progressing? Working with them to be the primary provider of drugs?
Surendra Ajjarapu
Yes. We’re still bringing as we speak, that’s the reason you saw the number of members at $2.95 in the third quarter alone, when compared to $191 million in the third quarter of 2021. So the adoption is still slowly growing, but we are trying to give them the variety of drugs like, increasing the breadth of the catalog, that’s what we’re focusing. As we improve that catalog, I think we expect more and more GPO purchases to our platform.
Allen Klee
Okay, great. Can you give an update on last — I think it was last quarter, you talked about Integra Pharma Solutions signing a distribution agreement with GALT Pharmaceuticals. Kind of where — what’s the status of that?
Surendra Ajjarapu
As I mentioned earlier to Howard, the manufacturers have tough time understanding the electronic platforms. So that’s still going very slow. So probably in the middle of next year or towards the third quarter of next year, we see some kind of results from that partnership.
Allen Klee
Okay. And then — so your operating expenses came in for the quarter at, around $1.8 million. Is that a reasonable run rate to think about for the next few quarters, or…?
Surendra Ajjarapu
Yes, I think that’s pretty much — so unless and until you anticipate exponential growth in the TRxADE Prime model, but we may have to have some more new people into that. But I think that’s pretty much standard at this time. Yes.
Allen Klee
Okay. And then I apologize, my last question, I missed there was something said — well, 2 things; one, there was something said about the impact of a hurricane in the last week. What area was impacted by that? And can you quantify what the impact was?
Surendra Ajjarapu
Yes. I will address first and I’ll let Janet explain. So Community Specialty Pharmacy is a consumer-based division, people have to walk into the stores and stuff, that’s what affected. Even though Tampa directly not got hit, but most of the federal buildings and evacuation zones have been announced, and so we may have — we had to shut down a warehouse and a pharmacy, and that’s impacted our business. Janet, if we can add anything else on to that?
Janet Huffman
No, that’s correct. So the last week, we were unable to fill prescriptions. But those patients all did come back in the subsequent quarter. So it was — it impacted the last week of Q3 with us having the pharmacy close and not being able to fill those prescriptions.
Allen Klee
Do you have a sense of how much of a revenue impact that might have had?
Janet Huffman
I do not have an exact number. The revenue impact for Community Specialty Pharmacy was partially driven by that last week of sales in September, and then also some revenue adjustments as well that are just standard adjustments that you see with payer contracts. So I don’t know the exact number for the Hurricane Ian impact.
Allen Klee
Okay. And are there any other kind of onetime impacts that might have been in the quarter?
Janet Huffman
Are you talking about revenue specifically?
Allen Klee
Revenue or cost? For example, I think you might have a bad debt recovery, did that happen in this quarter or…?
Janet Huffman
Yes. So we had — in 2021, I referenced in my section there, there were $630,000 bad debt write-off for TRxADE Prime. And this year, we started recovery on that debt write-off. So in the third quarter, we recovered $164,000 of that debt write-off. Other than that, I cannot think of any significant onetime that we didn’t already know.
Operator
Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to the speakers for any closing remarks.
Surendra Ajjarapu
Thank you, operator. I would also like to thank you — all of you for joining our earnings conference call. We look forward to continuing to update you on our ongoing progress and growth. If we were unable to answer any of your questions, please reach out to our IR department, who would be more than happy to assist. For any of you who may have joined the call in progress, remember that the replay of this call and webcast will be available for the next 30 days on the company’s website, under the NASDAQ-MEDS link, and for more information regarding the financial information disclosed on this call and webcast, including a non-reconciliation of non-GAAP financial information — sorry, reconciliation of non-GAAP financial information can be found in our press release, which we filed after the close of the market today. Thank you all.
Operator
The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect. Have a nice day.
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