MedAvail Holdings, Inc.
Q3 2021 Earnings Call Transcript

Published: 8 Nov 2021

[Operator:]

Hello, ladies and gentlemen, and welcome to today's conference call. My name is Natasha, and I'll be coordinating your call today. I will now hand you over to Caroline Paul from Investor Relations. Over to you.

[Caroline Paul:]

Thank you and thank you all for participating in today's call. Joining me are Ed Kilroy, Chief Executive Officer; and Ramona Seabaugh, Chief Financial Officer and Corporate Controller. Earlier today, MedAvail Holdings released financial results for the third quarter ended September 30, 2021. A copy of the press release is available on the company’s website. Before we begin, I’d like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results or performance or similar statements are forward-looking statements. All forward-looking statements, including without limitation, those relating to our operating trends and future financial performance, the impact of COVID-19 on our business and prospects for recovery, expense management, expectations for hiring, growth in our organization and reimbursement, market opportunity and expansion and guidance for revenue, gross margin and operating expenses in 2021 are based upon our current estimates and various assumptions. Also, management may make additional forward-looking statements in response to your question. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements and do not guarantee future performance. Accordingly, you should not place undue reliance on these statements and should not rely on them and making an investment decision without considering the risks associated with such statements. For a list and description of the risks and uncertainties associated with our business, please refer to the Risk Factors section in our most recent Form 10-K and Form 10-Q filed with the Securities and Exchange Commission. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, November 08, 2021. MedAvail Holdings disclaims any intention or obligation except as required by law to update or revise any financial projections are forward-looking statements, whether it because of new information, future events or otherwise. And with that, I will turn the call over to Ed.

[Ed Kilroy:]

Thank you, Caroline and good afternoon, everyone and thank you for joining us. We are encouraged by our strong top line performance of 15% sequential revenue growth from the second quarter of 2021. As a reminder, our business model has two segments; retail pharmacy services consists of sales from the operation of our technology-enabled high touch retail pharmacy, and pharmacy technology revenues comprised of the sale or provision of these technologies to large customers to support their own pharmacy operations. Our retail pharmacy sales segment generated $5.4 million of revenue in the third quarter of 2021, representing 149% growth over this period in 2020 and a 21% increase from the second quarter of 2021. Our pharmacy technology revenues decreased 93% year-over-year in the second quarter of 2021 to approximately $350,000. Notably 2020 included a one-time benefit of $4.7 million recognized in conjunction with the accounting for a non-recurring commercial agreement from 2018, excluding this one-time accounting adjustment, pharmacy technology revenues increased 51%. After a challenging first half of the year, we saw momentum return and made meaningful progress during the third quarter, signing partnerships and expanding into new sites with existing clients. We remained focused on growing with clinic operators that have large numbers of sites to maximize the potential of our land and expand strategy. We deliver a unique value proposition to our partners with our SpotRx embedded pharmacy model. These care providers are focused on improving both medication adherence and patient satisfaction, and we are delivering results to them each and every day. Our real time operationalize data identifies at-risk patients and enables tracking by patient, clinic and lean state. By evaluating metrics such as proportion of days covered or PDC scores, we are able to place patients on auto-refill, work with clinicians to prevent hospitalizations and perform a number of other operational actions that are valuable to our partners. These are important metrics to our client in the Medicare market, as we can help influence their star ratings and therefore their level of reimbursement from CMS. To that end, beginning with new clinic installations, we had a strong third quarter. We deployed 14 new SpotRx med centers in clinic site. The 14 new clinic deployment in the third quarter were led by clients such as Health, Access Health and CareMore as we continue to expand with our value-based care clients. Geographically, we installed three sites in Arizona, two in California, and nine in Florida. We also remain on track with our expectation to have 45 new in-clinic deployments by yearend 2021. We continue to execute on business development, delivering expansion within our current deployed states in the third quarter, as well as new partnerships. We continue to work with our clients planning further geographic expansion as we grow with them. In September, we signed an agreement with IMA Medical Group, a growing network provider of medical and wellness services to embed our SpotRx pharmacy model into an initial four clinics with an objective to improve medication access and adherence for IMA patients. IMA serves patients in 21 medical centers across Central Florida. As announced today, we also signed an agreement with InnovaCare, a leader in transforming care delivery to offer patients access to our SpotRx kiosks, career home delivery and support by our clinic account managers at initial three InnovaCare locations in the Orlando area. InnovaCare manages more than 500,000 lives, including more than 150,000 dual eligible beneficiaries across over 30 clinics. This continued expansion in Florida, one of our key states with a large and concentrated market, demonstrate SpotRx's strong value proposition to Medicare patients and value-based care providers. Importantly, with these new deployments and new partnerships, we are building the foundation for scalable and sustainable new growth with large and growing value-based care providers. Our pharmacy technology segment continues to represent a significant opportunity for MedAvail. Clients such as Sam's Club, Kaiser and Texas Health Resources continue to operate our technology in their production environments and are working closely with us as they move forward. Previously, we did announce that we started development of a full integration with the Epic electronic health record software. This capability plus to expedite deployments with the many health customers who have Epic installed and reduce the time from signing a deal with MedAvail to deployment of our pharmacy technology. Today, we have multiple clients such as Texas Health Resources and Providence Health that have installed or are -- and intend to take advantage of this integration work. Most importantly, this immigration work opens the market for installed Epic users to us as prospects for our pharmacy technology. Currently, there are approximately 350 integrated delivery networks using the Epic pharmacy software in the United States. We are also adding sales resources to accelerate the Epic opportunity. The integration work is currently scheduled to be completed in the second quarter of 2022. Turning to our 2021 outlook; we continue to expect net revenue to be at least $21 million. The timelines we are seeing from physical installation to first dispense remain unchanged from the last quarter. Further excluding the one-time benefit previously mentioned, we continue to expect to deliver revenue growth in excess of 100% in 2021, and expect to maintain this top line growth rate in 2022, given the demand we see for our offerings and our ongoing expansion into new geographies. Finally, as we announced in September, we are excited to have Ramona Seabaugh join our leadership team as CFO. Ramona brings over 20 years of experience with pharmacy and healthcare services organizations leading strategic growth initiatives, Ramona's expertise will be invaluable in executing our strategy to drive strong operational and financial performance. We are pleased with our growth as we continue to build and execute against our business development strategy and we are excited about our opportunity ahead. The Medicare advantage market continues to grow quickly and we are to be the leading on-site pharmacy partner to the top risk bearing clinic operators in the marketplace. With that I'll now turn the call over to Ramona to provide a review of our third quarter financial results.

[Ramona Seabaugh:]

Thank you, Ed. I am very excited to be joining MedAvail and look forward to partnering with the team as we continue to execute on the business growth strategy. Turning into our third quarter results, net revenue for the three months ended September 30, 2021 was $5.8 million a 19% decrease from $7.1 million in the same period of the prior year. As mentioned earlier, this decrease was due to the completion of a non-recurring commercial agreement in the three months ended September 30, 2020 was associated revenue of $4.7 million. This decrease was offset by 149% increase in retail pharmacy services sales. As we have indicated in the past, pharmacy technology sales can be variable from quarter to quarter, due in large part to processing patterns associated with these enterprise level capital sales. As Ed mentioned, during the third quarter, we deployed 14 med centers in the retail pharmacy services segment compared to 11 in the third quarter of 2020. Gross margin for the third quarter of 2021 was 3% flat sequentially from the second quarter and 70% as compared to the prior year period. Gross margin in the third quarter of 2020 includes the one-time non-cash benefit of $4.7 million recognized in conjunction with the accounting of a non-recurring completed commercial agreement from 2018. Excluding this one-time benefit, gross margin for the third quarter of 2020 was 11%. Total operating expenses for the third quarter of 2021, were $11.2 million, a 60% increase from $7 million in the third quarter of 2020. This expected increase in operating expenses was driven primarily by investments in personnel, facilities and other expenses necessary for the continued build out of our operating focus, including the launch of operations in Florida. Additionally, we continue to make accelerated investments to automate additional workflows important to our customer service capability, including our investments in compliance packaging. Adjusted EBITDA, which we calculate by adding back interest expense, depreciation and amortization, stock based compensation and exclude non-recurring expenses and other income was a loss of $10.1 million in the third quarter of '21 compared to a loss of $5.1 million in the third quarter of 2020 reflecting the various initiative and investments in growth you've heard us talk about. We ended the third quarter of 2021 with $35.9 million cash and cash equivalent. We now have approximately 32.8 million shares of common stock outstanding and we expect to have a weighted average share count in the fourth quarter of approximately 32.9 million shares. Turning to our outlook for 2021, we continue to expect at least $21 million net revenue and 45 new in-clinic deployments this year. Regarding our gross margin outlook, we remain focused on improving our gross margins throughout the balance of 2021 as we continue to execute on the initiatives we have previously discussed. And with that, I'll turn the call back over to Ed for closing comments.

[Ed Kilroy:]

Thank you, Ramona. Thank you for joining the call today. With the return of momentum in the third quarter, we look forward to updating you on our progress as we continue to execute in this expanding market. And with that, we will now open it up for questions. Operator?

[Operator:]

Now we take our first question from Charles Rhyee of Cowen. Charles, your line is now open. Please go ahead.

[Charles Rhyee:]

Yeah, thanks a lot. And thanks for taking the questions. Maybe Ed, if I could first ask obviously a strong number of deployments here in the third quarter. Can you give an update on where we're at so far here in the fourth quarter, clearly getting to 14 here you need, less deployments as some of these, it looks like about 18 to get to your target of 45, any update where we're are -- where we're at here sort of mid quarter.

[Ed Kilroy:]

I would just say Charles, that we are on track to deliver the 45 for the full year as we outlined. And, we have a good line of sight into those as you would fully expect. We will be deploying throughout the quarter and so, they're happening on a monthly basis. So again, we are reconfirming the 45.

[Charles Rhyee:]

Okay, great. Thanks. another question here is, I think last quarter you talked about changes in the board of pharmacies that has caused some delays to get sites really up and running any kind of update there. I think you had talked about 8-week to 12-week delays. Wondering if that has -- some of those timelines have improved at all.

[Ed Kilroy:]

We haven't seen any changes Charles and don't -- I'm not anticipating any for the balance of the year. Obviously, we take that into consideration as we are moving forward and deploying right now. And just as a note, in Florida, there isn't the board of pharmacy inspection as there are in California and Arizona and Michigan. And so, we can move a little quicker in Florida, but there's been no change to the other states that we mentioned earlier.

[Charles Rhyee:]

And then maybe just two quick ones, one is on utilization just revenues came in better than we were expecting. Have you seen volumes kind of come back? I know other companies have talked a little bit about some delays in elective procedures as well as maybe some higher COVID related expenses. Just curious what you're seeing there? And then lastly, maybe a question for you, Ramona, as you kind of come here and start working with the team, what are you -- what would you list in terms of your priorities as you think about, helping MedAvail here taking the next step. Thanks.

[Ed Kilroy:]

So, thanks, Charles. So I'll just jump in with the -- from a clinic volume perspective, and I'll say patient visits. We have seen improvements quarter to quarter. I would expect to see those to continue into the fourth quarter as well. You did comment on the board of pharmacy approvals, which we continue to see similar timelines as we've discussed previously. Obviously we've taken that into consideration in any planning but the -- what we, are seeing is the traffic patterns improve which is very encouraged against we come into the back half of the year or last part of the year, I should say, Ramona?

[Ramona Seabaugh:]

Thanks Ed. Hi, Charles. Yeah, coming into this role, I see some maybe key areas for us to focus on will be to clearly our continued top line growth in both segments of our business. We want to continue to drive programs around our efficiency and productivity within our operating units. Example, we have an agreement with McKesson to start deploying fulfil by the end of this year. And then finally we will continue to focus on improving our overall financials with the company and reducing our overall cash burn. So those probably are the three buckets that we will spend the majority of our time.

[Charles Rhyee:]

That's great. It's I can just follow up on partnering with McKesson. Would that alleviate the need for your central pharmacies to do some of the refill work, and that would leave that to McKesson? What would your central pharmacy would be doing more first fill prescriptions then?

[Ramona Seabaugh:]

So yeah, go ahead. Sorry Ed.

[Ed Kilroy:]

What McKesson is going to be doing for us Charles is packaging the medication into say 30-day, 60-day, 90-day Biles . We would then process that order in our pharmacy. So what it's doing is saving us the pill counting into the breakdown by customer and then also the inventory management, because they would be managing the inventory at their end.

[Charles Rhyee:]

I see. Okay. And what kind of financial…

[Ed Kilroy:]

Its labor reduction?

[Charles Rhyee:]

Right. So it that I would say that more next year.

[Ed Kilroy:]

Yes, you would, because we're just beginning to roll it out. And we're evaluating right now, the percent of our refills that would be driving through that process. Obviously, we want to maximize it, but I don't have a specific number right now on dollar savings, but we certainly are counting on this to improve our productivity as we move into 2022.

[Charles Rhyee:]

Great. All right. Thank you.

[Operator:]

Thank you, Charles. We take our next question from Brooks O'Neil of Lake Street Capital Markets. Brooks, your line is now open. Please. Go ahead.

[UnidentifiedAnalyst:]

Hi guys. This is Travis Spangler filling in for Brooks. And thanks for taking my question. I see that InnovaCare has signed to open three SpotRx locations in Florida, and given that InnovaCare operates more than 30 clinics, can you discuss the opportunity to get into the other 27 clinics or so?

[Ed Kilroy:]

I would say that we are in discussions with all of our enterprise customers with regards to continued growth. So, I can't speak for InnovaCare's internal plans, but we -- the offering we have can have a direct impact on patient adherence and satisfaction, which is very important to them as a business. So we are going in there with an expectation that we will have the right to earn that business.

[UnidentifiedAnalyst:]

Got it. And one more question. Do you guys see a shift in your home delivery option or do patients like the opportunity to pick up their medications at the end of the clinic visit?

[Ed Kilroy:]

It's, a little of both when we have the patients that are on chronic medications, some of them choose to pick it up when they're visiting the clinic, others prefer to have it career home delivered. Certainly when we see first fills we do see a large number of those filled at the site itself, but the chronic medication for patients can choose either channel to receive their refills.

[UnidentifiedAnalyst:]

Sounds good. Thanks you guys for answering my questions.

[Operator:]

Thank you, Brooks, we also have a followup question from Charles Rhyee of Cowen. Charles, your line is open. Please go ahead.

[Charles Rhyee:]

Thanks guys for taking the follow up here. Ed, want to talk about the commitment here kind of seeing a 100% growth in revenue for next year. When you look at that number, where do you think the puts in takes are to kind of achieving that? And clearly it looks like we're tracking at least in line with maybe not a little better on deployments, which means some of those sites can be generating revenues, ramping sooner than maybe we had been expecting. What do you think are kind of swing factors that we should think about as we kind of round out this year and into next year?

[Ed Kilroy:]

Well, I think Charles obviously the deployment of the go-live of the 45 we have put in this year, we'll have put in this year is very important. So the timing of the go live of those will be important. And then, I'll say the cadence as we get into next year of quarterly deployments. As you know we haven't provided any guidance for next year yet in volume of sites. But you do know from this year that the vast majority of our certainly the first half sites that we deployed were deployed in the last part of June. So there was not a lot of benefit of those. So we're hoping that as we move into this year or in 2022, I should say that we have a smoother cadence based on the number of clients we have in the Jarvis we're operating in. So that'll be very key for us as we get into 2022, but the main driving factor will be continued scaling at the sites that we have -- we exit this year with within the ground.

[Charles Rhyee:]

And is it fair to think, obviously this year, most of the deployments were back half weighted because of, switching of the contract manufacturer, can you just quickly update us that and would you expect then the cadence of deployments going forward here in '22 and beyond starts becoming more even throughout the year? Or is there any kind of seasonality that you might expect in terms of how some of these, your clinic partners think about deployments?

[Ed Kilroy:]

So the contract manufacturing is going very well, so that is not an issue as we go into 2022. With regards to the seasonality, we don't see a seasonality, although I would say that early in the first quarter, people aren't usually deploying in late fourth quarter of the next year. They are slowing things down a bit into mainly a holiday season and hours of operation. So, other than that, there's really no seasonality that we see from a deployment perspective. And then as I said, we haven't provided guidance for next year, but we certainly will be expecting to have a smoother cadence as we move through 2022.

[Charles Rhyee:]

Great. And then maybe if I could just ask one more here, obviously a lot of efforts here in Florida sounds like a very fertile ground to be to making inroads in. I know Texas has been on the radar for you guys, any update on how you're thinking about where their state expansions.

[Ed Kilroy:]

So you're absolutely correct. Florida is a very, very significant market for us. And based on the signing we'd done in Florida so far, we've got a very large footprint within that state, just looking at the sites that our current clients have, there's a significant opportunity. Most of those clients, certainly not all, but most of the Florida clients, as well as other clients, we have ever presence in Texas. So that is a state that we are having discussions with our customers about that state, but there's also a couple of others that are in play as well. So, we have to think about the growth path that we're on and how many states we want to open up at one time. But we're certainly having very active discussions on a number of states with Texas, certainly being one of the key ones as we've talked about before.

[Charles Rhyee:]

Sorry, if I just ask one more here. If we think about the rate, the deployment schedule and sort of the cadence of it, assuming that all your partners are willing to deploy quickly, what is right now, your capacity maybe in a quarter to be able to deploy, because, clearly that 14 this quarter, I think he did 12 basically at the end of the second quarter. What do you kind of think of as sorry, your max capacity in terms of resources to be able to deploy currently, and maybe your plans for expansion of that capacity?

[Ed Kilroy:]

Yeah, I'm not going to declare a specific max Charles, because it really is driven by as we deploy. In a site the actual installation, physical deployment of the technology is not usually the longest part of the plan. It's the education of the staff that we're -- the clinic we're going into. It's our hiring and training of our cam. So our clinic account managers. And so, we have ramped up our recruiting capability, our education training capability but it's usually the rate and pace that the client wants to move. And as we see more demand move faster than we'll have to ramp up our internal skills to do that which again, it's not a physical installation, it's more of us hiring and putting the -- our people on the street and training and educating the staff of each of the clinics, but as you noted, we did 14 and we more than that in the fourth quarter to get to our 45 for the year,

[Charles Rhyee:]

Is it possible to exceed 45 or is that just more of a timing issue on the roadmap you have with your partners because given that you seem like you did a little bit more in the third quarter, then you kind of were indicating last quarter does that free up kind of space to do a few more or is it just -- it's just kind of set here?

[Ed Kilroy:]

What I would say Charles is we're not -- we're not changing the 45 guidance right now.

[Charles Rhyee:]

Okay, great. Thanks a lot.

[Operator:]

Thank you very much, Charles. We have no other questions. So I will hand back to Ed for any closing remarks.

[Ed Kilroy:]

Thank you all for taking your time in joining us. And we look forward to updating you on our next call. Have a nice evening.

[Operator:]

This concludes today's call. Thank you for joining. You may now all disconnect your lines.