MedAvail Holdings, Inc.
Q1 2022 Earnings Call Transcript

Published: 12 May 2022

[Operator:]

Hello, and a warm welcome to the MedAvail 2022 First Quarter Earnings Conference Call. My name is Lisa, and I will be your operator today. [Operator Instructions] And now have the pleasure handing over to your host today, Caroline Paul, Investor Relations to begin. Caroline, please go ahead.

[Caroline Paul:]

Thank you, and thank you all for participating in today’s call. Joining me are Mark Doerr, Chief Executive Officer; and Ramona Seabaugh, Chief Financial Officer. Earlier today, MedAvail Holdings, Inc., referred to as MedAvail or the company, released financial results for the first quarter ended March 31, 2022. 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, including statements or responses in addressing your questions 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 are in response to your questions 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, the ongoing military action launched by Russian forces in Ukraine or the impacts of other global economic conditions, including any economic effects stemming from adverse geopolitical events and economic downturn and inflation or interest rates 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 2022 are based upon our current estimates and various assumptions. Any forward-looking 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 in 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 periodic reports, including our Annual Report on Form 10-K and our quarterly report on 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, May 12, 2022. MedAvail disclaims any intention or obligation except as required by law to update or revise any financial projections or forward-looking statements whether because of new information, future events or otherwise. And with that, I will turn the call over to Mark.

[Mark Doerr:]

Thank you, Caroline. Good afternoon, everyone, and thank you for joining us. Following four months as CEO of MedAvail, I am more confident than ever by the tremendous opportunity we have ahead to deliver cost effective pharmacy prescription dispensing and prescription counseling at the point of care and directly address the gaps in appropriate medication utilization faced by value-based providers. During this call, I’ll start with the review of our first quarter performance and then turn to our business objectives. Ramona will then provide more details on our financial results. In the first quarter, we continued to focus on execution and we’re pleased by the strong momentum that we delivered across our businesses. Net revenue in the first quarter was $9.1 million, representing 126% growth year-over-year. Retail Pharmacy Services generated $8.8 million in revenue for the first quarter of 2022, representing 159% growth over the same period in 2021. While Pharmacy Technology revenues declined 130% year-over-year in the first quarter of 2022 to approximately $265,000. Pharmacy Technology revenue can be variable from quarter-to-quarter due in large part to customer purchasing patterns associated with enterprise level capital sales. Pharmacy Technology represents a significant growth opportunity for MedAvail and is a key component of our path towards profitability. As a reminder, we sell our hardware and importantly license our software and systems and provide maintenance to our platform, which creates highly predictable and profitable recurring revenue. In the first quarter, we achieved a milestone with the completion of our integration with Epic Willow and the availability of our MedCenter platform in the Epic App Orchard Gallery. The App Orchard program enables developers to integrate their healthcare IT solutions with the Epic EHR and allows healthcare providers who Epic Willow, Epic’s outpatient pharmacy management systems to access the MedCenter platform. As a result, we expect to expedite deployments with Epic health system customers and drive adoption across enterprise partners using Epic Willow. Notably, we are currently working with our first Epic Willow partner to complete our full integration, which we are targeting to be completed later this year. Currently, there are approximately 350 integrated delivery networks using the Epic Willow pharmacy software in the United States. Additionally, our technology team recently completed a rewrite of our MedDispense software that is intended to enable greater flexibility and faster deployments of our MedCenters. We believe that this new version of our software will enable an easier user interface to facilitate faster enhancements of our technology program for patients and providers. Finally, we welcome industry veteran, Matthew Broome, who joined our team to lead the initiatives in Pharmacy Technology. Matt will be instrumental in implementing and optimizing our strategies to accelerate the growth of this segment. As a former customer, Matt understands the strong value proposition that we offer with our MedCenter platform to improve provider satisfaction, reduce cost and positively impact patient medication access and outcomes. Turning to Retail Pharmacy Services and SpotRx are highly scalable hub and spoke pharmacy model. We ended the first quarter with 88 dispensing units, representing a 29% increase from 68 at December 31, 2021. Net cumulative deployment at the end of Q1 2022 was 92 units. We continue to drive our corporate strategy to leverage our expansion with current clinic partners and broaden our footprint as they continue to build their networks. For example, our partnership with Oak Street continues to grow. In the first quarter, we contracted to add four de novo sites in Arizona. One of our key target markets, which will utilize both of our existing Arizona hub pharmacies in Phoenix and Tucson. Oak Street entered Arizona in 2022 with value-based primary care centers located in Phoenix and Tucson for adults on Medicare. Importantly, Oak Street has agreed to deploy SpotRx in all of their clinics in Arizona in line with our past installation practices. And we are excited to continue to build our partnership and become Oak Street’s pharmacy partner of choice. Oak Street Health operates more than a 100 comprehensive primary care centers across 19 states for senior adults. Another example is our partnership with the IMA Medical Group and our growth alongside their network expansion. We previously highlighted then in the first quarter, we deployed and began installations for 11 SpotRx locations at IMA sites in Central Florida to enable SpotRx access to patients across the IMA network of 21 medical centers. Leveraging our pharmacy hub in Orlando, we are pleased to announce that we have plans to open five additional sites with IMA in Orlando and Tampa. The majority of these sites will be de novo clinics and continue partnership expansion with IMA to embed these medical centers directly into all IMA medical centers. With the SpotRx model, IMA patients will receive immediate access to prescriptions at the IMA medical centers, free contactless next day home delivery for all prescriptions and over the counter medications, follow up care calls from a local SpotRx pharmacist after receiving the prescription, refill reminder calls on all chronic medications to schedule free delivery or in clinic pickup and instant access to SpotRx pharmacist via kiosk or phone. As a reminder, IMA serves patients and medical centers across Central Florida with over 70 physicians and nurse practitioners, servicing over 40,000 Medicare patients. We are encouraged by this continue momentum with each of our partners that leverages our current hub pharmacy infrastructure. We anticipate most of these sites will be dispensing by late this year, expectingly ramping of revenue is anticipated to be longer in de novo sites as our partner clinics are building their patient panels and scaling the sites. Importantly, we believe we are effectively positioned to realize our large market opportunity and we are currently focused on three key objectives, one, increasing dispensing MedCenters and optimizing utilization to drive profitable growth, two, expanding pharmacy technology, leveraging Epic Willow and McKesson enterprise RX integrations, and three, producing costs across the enterprise. As part of our focus on driving profitable growth, recall, we previously laid out our objectives to achieve improved margins, driving prescription volumes, optimizing our prescription mix, reducing cost of goods sold and improving reimbursement. Part of our strategy is to standardize processes and reduce inefficiencies such as our reliance on ineffective vendors with respect to our patient contact center to drive efficiencies, cost savings and better patient care. We have also highlighted a procurement strategy for sourcing pharmaceuticals at optimal cost to drive utilization and the appropriate mix of medications. As an example, most recently, we benefited from the inclusion of hepatitis C antivirals as part of our efforts to add in high value specialty medications. Patients often face barriers to access these specialty medications such as obtaining prior authorization. Our team is leveraging our embedded pharmacy model powered by our MedCenter technology to directly address patient access to these medications in collaboration with providers while delivering any counseling needs at the point of care. While dispensing specialty medications can fluctuate quarter-to-quarter because of the high cost and relatively low volume, we are excited for the opportunity to use our data for purposes of determining the most effective medication mix to deliver better patient care. Overall, we delivered growth and expansion in the first quarter and made meaningful progress in pharmacy technology with the Epic Willow integration. As we march into the remainder of 2022, we continue to be focused on driving efficiencies and refining our operational strategies in order to deliver long-term profitable growth and maximize value for our shareholders. With that, I’ll now turn the call over to Ramona to provide a review of our first quarter financial results.

[Ramona Seabaugh:]

Thank you, Mark. Turning to our first quarter results. Net revenue for the three months ended March 31, 2022 was $9.1 million, a 126% increase from $4 million in the same period of the prior year. This was aided by a 159% increase in retail pharmacy services revenue over the same period in 2021. As we have indicated in the past, pharmacy technology revenue can be variable from quarter-to-quarter due in large part to customer purchasing pattern associated with enterprise level capital sales. As Mark mentioned, we ended Q1 2022 with 88 dispensing units, a 29% increase from 68 at the end of Q4 2021. Net cumulative deployments at the end of Q1 2022 was 92. As a reminder, we define dispensing units as sites that are live, that is have payer network acceptance, pharmacy board approvals and trained clinical staff or clinical account managers. Gross margin for the first quarter 2022 was 5.5% as compared to 7.9% in the first quarter 2021. Consolidated margins in the first quarter 2021 benefited from the higher contribution from the Pharmacy Technology segment. Our Pharmacy segment gross margin improved from 2.6% in the first quarter of 2021 to 4.1% in the first quarter of 2022. Total operating expenses for the first quarter of 2022 were $13.3 million, a 34% increase from $10 million in the first quarter of 2021. Our pharmacy operations and selling and marketing costs increased at the direct results of our growing pharmacy and MedCenter portfolio. General and administrative costs increased due to higher equity compensation and executive severance costs in the first quarter of 2022. Adjusted EBITDA, which we calculate by adding back interest expense, depreciation and amortization, stock-based compensation and exclude non-recurring expenses and other income to net loss is a loss of $11.8 million in the first quarter of 2022, compared to a loss of $8.9 million in the first quarter of 2021, reflecting growth in placement. We ended the first quarter of 2022 was $5.3 million of cash and cash equivalent. Subsequent to the end of the quarter on April 4, we completed our first closing of a private placement financing of common stock that yielded gross proceeds of approximately $40 million. The second closing is expected to subsequently follow on July 1, 2022, following the satisfaction or waiver of the conditions to closing and yield approximately $10 million in gross proceeds. We believe that we have sufficient capitals to fund that current operational needs. Turning to our outlook. We continue to expect 25 to 30 net dispensing units in 2022. Regarding our growth margin outlook, we remain focused on improving our adjusted gross margins and operating costs throughout the balance of 2022. And with that, I’ll turn the call back over to Mark for closing comments.

[Mark Doerr:]

Thank you, Ramona. Thank you for joining the call today. We look forward to updating you on our progress in the coming months. With that, we will now open it up to questions. Operator?

[Operator:]

Thank you. [Operator Instructions] Our first question today comes from Charles Rhyee of Cowen. Charles, please go ahead.

[Charles Rhyee:]

Yes, thanks. Thanks for taking the questions and congrats on the quarter here. Great progress being made. Maybe first if I could just, I don’t know, in the press release, I didn’t see if there’s a share count that you could share for the quarter.

[Mark Doerr:]

Thanks, Charles. I’ll let Ramona answer that question.

[Ramona Seabaugh:]

Hi, Charles. I don’t have the share count, okay, but we’ll get to that.

[Charles Rhyee:]

Okay. All right. So in that case, just wanted to move on here, obviously, a lot of great progress with your partners. Maybe talk about sort of the discussions with someone like an Oak Street, for example, the decision to pick Arizona after going with Michigan. Has there been any discussions with some of these companies in terms of partnering into their existing sites? Because it seems like right now, particularly with Oak Street, they’re all de novo. Cano seems a little bit – obviously a little bit more mixed. Just curious how those – what is the discussion like and any opportunities to move into existing places?

[Mark Doerr:]

Yes, Charles, it’s a great question. I think we have ongoing engagement with all of our partners around both de novo sites and existing sites. I think in the case of Oak Street coming to Arizona, they follow a specific pathway for de novo sites rather than acquiring new clinics in a new market. And so that’s why we’re following that pathway with them in the Arizona market versus where in a Cano setting where they’re having existing clinics in the Tampa market where we’ll actually be able to work with them on those. And so we’re balanced between de novos and existing sites and we’re balanced based on their progress. We’re also looking at additional markets with them, where they have existing sites that would make sense for us to potentially open up new hub pharmacies.

[Charles Rhyee:]

Great. That’s helpful. And maybe talking about IMA, I mean the 17 additional sites and the for de novo, was – sorry, five de novo. Was this always contemplated when you guys announced this partnership last year. So I guess, the question is, is this sort of on track with your expectations or is this perhaps moving faster than you might have anticipated?

[Mark Doerr:]

Yes, Charles, I think when the original agreement was signed in the fall timeframe, it was for four initial clinic site. Once we began to implement and our partner IMA was able to see the benefits from having the SpotRx pharmacy embedded in their clinics. They wanted to accelerate the partnership, which is what we expected. And that opened up the additional 17 through the end of last year sort of contracting and getting them ramped up this year and it’s now opening up the rest of their site as they bring them online. So that’s where the five additional clinics will get added. So they’re similar to sort of an Oak Street where they want us to be in each one of their clinics. And obviously that benefits us because they’re in the Central Florida market, which lines up very nicely around our Orlando hub.

[Charles Rhyee:]

Great. Thanks for that. Hey, just wanted to, obviously, you’ve kind of reiterated sort of your outlook for net dispensing sites and margins. Ramona, just looking at the OpEx, G&A kind of had a step up here. How should we think about overall OpEx as we move through the course of the year and then similarly around stock-based compensation?

[Ramona Seabaugh:]

Thanks. Yes. As we look at Q1, we had some costs associated with the transition of the new senior management team, as well as conversion from a third party development resource for a new vendor. However, that will not be expected to continue into the remaining quarters. I would say, there’s about maybe 10% to 15% Oak statement in the expenses in Q1. So for the rest of the quarters, you can adjust appropriately. As far as the stock-based compensation, all of those were disclosed when the executives came on board. And then just to get to your other question, your earlier question, I apologize, it was 32.9 million roughly in outstanding shares as of March 31, 2022.

[Charles Rhyee:]

Great. That’s helpful. I’m sorry. And I might have just missed it just now. So you’re saying in the G&A line, there’s about 10% to 15%. That was sort of one time that will kind of come off. Was that in the G&A or is it…

[Ramona Seabaugh:]

Yes, that will not continue. That’s correct.

[Charles Rhyee:]

Okay. And then I guess lastly for me, really, as we think about moving through the course of this year, Mark, the technology side has always been, I think an opportunity for the company, and I know you and I have spoken about it in the past, where this could – there’s a lot of places where this – that the MedCenter would make a lot of sense for health systems to implement. I know you’ve brought on a lot of new leadership to help in this regards. Can you kind of give an update here, what’s going on this side of the business and sort of how to think about the outlook for this going forward here?

[Mark Doerr:]

Yes. I appreciate the question and I appreciate the acknowledgement. We’ve brought on a new sales leader, as well as a VP of Sales to focus on technology, first and foremost, that we announced before, also very excited to have Matt Broome join the technology group. He’s actually the Executive Vice President, GM over the entire business, former customer. So he understands the product very well, the value proposition and any potential innovation that we need to do to increase that value proposition to set our sales team up for success. Also, like we talked about, we’ve completed the Epic app integration work, and now we’re going to do our first Epic partner full integration. That’ll allow us to just understand, how fast will actually be able to deploy. It’ll help us build a playbook for deployment and reduce the time to implementation. I really do feel like the team’s building a pipeline. We have a lot of inbound request for information and we’re moving those through our sales funnel appropriately. I do believe it’s going to take some time to set that up and build. So what we’re doing in this year is really setting up 2023 for substantial growth. And I believe we’ve said this before this current year, we anticipate that the revenue will be very similar to the revenue from 2021 for the technology business itself.

[Charles Rhyee:]

That’s helpful. And so just to be clear, right, the Epic integration that you guys have been working on, that’s really geared for the technology business. I guess, most group practices don’t really run Epic as often. Is that a fair way to think of it? And then also maybe any kind of progress on integrating with Cerner and some of the other major hospital EHRs.

[Mark Doerr:]

Yes. I think, when I think about Epic Willow, I mean, there’s about 350 integrated delivery networks, right, health systems that leverage that pharmacy management system component of Epic. And that’s really our target audience. So roughly 350 sites, but they have multiple places where you could place the MedCenter inside of a site, think urgent care, think emergency room, et cetera, and so the community based practices that they participate in. And so we think there’s a large opportunity in that group in and of itself. And the other thing is we do have the interface with the McKesson enterprise system, which previously was not being advertised and sold. And so we’ve made an effort to actually identify and go after that particular market as well. So we’re trying to expand inside of the two integrations we have and then we’ll let customer demand really drive what our next integration point will look like whether that’s to your point Cerner or some other ambulatory, EHR, product that that really will be driven by customer demand.

[Charles Rhyee:]

That’s great. And I’m sorry, maybe if I can ask about then you talked about building the pipeline, you’re getting inbounds, I guess two questions around that your existing sales force, how much do you have to complement or add to, to be able to take advantage of these kind of inbounds and building this pipeline. And then second on the implementation side, is this – is it the same kind of team to that you have currently that implements at the clinics that can also implement at a health system or is it a very different skill set that’s needed?

[Mark Doerr:]

Yes. So if you question on the sales side, we’re actually restructuring the team slightly, we’re bringing in account management to actually help our sales team as they are transitioning a partner from sort of the sale into the integration and implementation phase. And so we think that’s going to be a significant help to the existing team such that we don’t have to augment our current sales team. We’ll keep monitoring inbound. So if the pipeline gets larger, the sales team can support. We would certainly add, but at this point we don’t have kind of site that we’ll need to add sales as we’ve added in account management. And then on the implementation front, we do have a team that’s already focused on implementations for technology sales. So there’s no need for us to add additional resources there. At this point again, we think we’re largely scaled appropriately for the implementations that we have, and we have the skill set inside such that we can ramp up and ramp down. And those skills are transferable, whether we’re implementing a clinic or whether one of our SpotRx clinics or whether we’re going to implement a technology sale, they’re largely very similar and the minimal differences, our team can actually flex between the two business segments.

[Charles Rhyee:]

Great. And then I apologize just to keep going on here, but when we think about the dispensing sites, so you have 88 dispensing sites in the market. I know when you guys did the raise, you kind of gave some details around sort of what the median revenue per site was versus sort of the 75th percentile, which kind of gets you to the million dollar per dispensing site kind of bucket. Can you give us some characteristics around the new sites that you’re going into particularly let’s say in this first quarter? How do you feel about sort of what the revenue opportunity the – is on the current sites and so – and maybe tied to that, what are you seeing in sort of the utilization environment? I know some of the hospital companies had kind of maybe revise a little bit on their assumptions for utilization. Just curious your thoughts there on what you’re seeing.

[Mark Doerr:]

Yes. I’ll take a question and I’ll let Ramona add any specific she wants, as far as the sites that we’ve brought live largely have been in the Florida market and we track them on a weekly basis against our expectations. And again, the majority of those sites are tracking app or above our expectations such that the entire market is at least at what we would’ve expected at this point. And again, that market’s fairly young for us being less than a year old obviously. And so what we do is track our expectations, which is aligned to sort of what we talked about in the first quarter around those historical ramps. And I think that is a reflection on the work that the team’s done to qualify and quantify each one of those individual clinics such that they’re performing with within the range of expectations. I think on the utilization side, we’ve seen utilization, I think come back sort of the pre-COVID market based on what we’re hearing from our partners, with their patient visits and that, that component and then also what we’re seeing on the prescription side coming out of not only our new clinics, but our new SpotRx MedCenters, as well as our existing base. Ramona, I don’t know if you have anything else you want to add.

[Ramona Seabaugh:]

No, Mark, that’s all, you covered everything.

[Charles Rhyee:]

Great. And then maybe one for Ramona then. Just in inflationary pressures, obviously, wage inflations, supply chain issues, curious anything particularly as you think for manufacturing new MedCenters, anything there do you consider as we think about sort of the forward outlook and your expectations for OpEx?

[Ramona Seabaugh:]

Sure. Yes. As we continue to monitor the market and the inflation pressures, we have not yet seen a large impact to our business. We’ll continue to monitor that where we feel good about where we are today with the components we’ve put in place to risk mitigate any inflation with respect to MedCenters, cetera. And with the labor market, we’ve been very fortunate to be able to fill our position at the rates that we’ve expected. So far, we have not had a large impact, but we continue to monitor and be on top of that issue.

[Charles Rhyee:]

Great. Thanks a lot. I really appreciate all the comments.

[Mark Doerr:]

Thanks, Charles.

[Operator:]

Thank you for your questions, Charles. I’ll now hand back the call to Mark Doerr for any final remarks.

[Mark Doerr:]

I want to thank everyone for attending the call this evening. Have a good night and take care.

[Operator:]

Thank you for joining today’s conference call. You may now disconnect your lines.