TRxADE HEALTH, Inc.
Q2 2021 Earnings Call Transcript

Published: 26 Jul 2021

[Operator:]

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to Trxade Health’s Second Quarter 2021 Earnings Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. The earnings press release accompanying this conference call was issued at the close of the market today. The quarterly report, which includes additional information regarding the company's results and operations for the quarter ended June 30, 2021, was filed with the SEC earlier today. On our call today is Trxade's Health's Founder, Chairman and Chief Executive Officer, Suren Ajjarapu; and Howard Doss, as Chief Financial Officer.

[Howard Doss:]

Thank you, operator, and thank you for joining us today. I'd like to welcome you to our second quarter 2021 financial results conference call. Our press release announcing our second quarter financial results was issued after the close of the 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 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 on the company's business and results of operations. These statements speak only as of the date hereof, and the company assumes no obligation to revise any forward-looking statements that may be in today's press release, call or webcast. These statements do not guarantee future performance and are subject to risks, uncertainties and assumptions. Please refer to the press release and the risk factors and documents we file with the Securities and Exchange Commission, including our most recent annual report on Form 10-K and the subsequently filed quarterly reports on Form 10-Q, including the Form 10-Q for the second quarter. For information on risks and uncertainties and assumptions that may cause actual results to differ materially from those set forth in such statements. In addition, during today's call and webcast, we will discuss non-GAAP financial measures, which we believe are useful to supplement 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 in our earnings press release. Unless otherwise stated, all financial comparisons in this call will be to our results for the comparable period of fiscal 2020. 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.

[Suren Ajjarapu:]

Thank you, Howard. 2021 has been a year of foundation building as we continue to drive forward telehealth innovation, supporting the core strength of our pharmaceutical exchange platform. Despite the ongoing challenges to the pharmaceutical supply chain posted by the COVID-19 pandemic, we were able to drive strong incremental margin growth while working to position the company for future success in its complementary telehealth business segments.

[Howard Doss:]

Thank you, Suren. Revenues for the second quarter of 2021 were $1.9 million as compared to revenues of $6.6 million in the same quarter last year. The decrease in revenue was primarily due to nonrecurring sales of personal protective equipment, PPE, in 2020 related to the COVID-19 pandemic. The supply chain disruption continued to affect the wholesaler supply of generic drugs. This has an effect on revenue from the platform where brands carry a lower fee than generics. The brand percentage of products through the platform increased in Q2, which has a direct effect on the revenue. Gross profit in the second quarter of 2021 totaled $0.8 million or 44.3% of revenues compared to gross profit of $2.0 million or 30.4% of revenues in the same quarter last year. The increase in gross profit percentage was a result of a greater percentage of the revenue from Trxade platform in 2021. In 2020, the larger share was from PPE sales, which carry a lower percentage gross margin. Operating expenses in the second quarter of 2021 were $3.4 million compared to $2.5 million in the same quarter last year. This change is primarily due to an inventory investment loss of $1.2 million in the current period. Net loss in the second quarter of 2021 was $2.6 million or $0.32 per basic and diluted share outstanding compared to a net loss of $0.5 million or $0.07 per basic share outstanding in the same quarter last year. Adjusted EBITDA, a non-GAAP financial measure, was negative $1.2 million for 2021 second quarter compared to positive $0.27 million in the same quarter last year. Looking at the balance sheet. Cash and cash equivalents were $4.5 million as of June 30, 2021, compared with $5.2 million as of March 31, 2020. I'll now turn the call back to Suren for closing comments.

[Suren Ajjarapu:]

Thank you, Howard. We continue to drive forward our core exchange business through exciting catalysts such as the addition of new group purchasing organizations, which we believe can drive a near-term return to operating profitability. We believe that this take in tandem with our complementary telehealth until health passport businesses position us for innovation-driven growth. I look forward to what the future holds as we continue our rapid pace of operational execution, creating sustainable long-term value for our fellow shareholders.

[Operator:]

. And our first question is from Allen Klee with Maxim Group.

[Allen Klee:]

For the Trxade platform, drug platform, 2 questions related to that. First, what's your thoughts on the timing for normalization of the mix between generics and branded? And then second, with your announcement of the QualityCare pharmacies GPO, where you can get a majority of the purchases relative to your traditional, can you help us understand, one, like are these -- were these existing customers or brand new ones? And then, can they switch over right -- is it exclusive or can they switch over right away or they have to wait a while for contracts with the big 3 to go away?

[Suren Ajjarapu:]

Sure, Allen. That's a great question. First of all -- first let me answer your pandemic question. Still as India, most of the generics comes from the Indian subcontinent and some of the APIs come from the Chinese countries. So as we still see the variants -- Delta variant is prevalent in those countries, we still see the supply chain issues. But at the same time on the demand side, usually in the month of June, and before the price goes up in July, the more brand sales happen. As you've seen, our branded percentage revenue is less than 1% versus the generic. So we got double whamming on that revenue front for the pandemic and as well as the supply chain. But your second question is where we can see the GPO. As we started in May 2021, this partnership, it takes a little time to understanding the process and show them the value. So we try to see probably towards end of this 2021 and beginning of 2022.

[Allen Klee:]

Great. Okay. And then on Bonum Health, you signed up Winn-Dixie, which sounds like that could potentially be very material. And on top of the others, you gave some good statistics. I think I might have missed them, but you said what the penetration rates were. Could you maybe just say them again? And then like what is that -- like how many how many potential customers do you have that could go into your telehealth so we can think about, given these beginning penetration rates and as they grow, what that could mean?

[Suren Ajjarapu:]

Sure. Let me give you the numbers first, and then I'll jump back into the actual partnerships. In the second quarter alone, we have 7,724 application downloads with approximate 6.3% patient registration rates. When we look at the total application downloads for the year, it's 12,900 with an approximate 6.8% patient registration rate. These numbers are primarily with our own growth. We haven't even considered or we haven't even seen the partnerships’ materials like the level members because we have to move through the retail levels. For example, Winn-Dixie, we just sign up, even though our main focus is for the uninsured and underinsured patients. By the time it reaches to the retail level and able to address this need, it takes a little bit of time, that’s the reason we’ll probably see majority growth, as I mentioned, in 2022.

[Operator:]

. Our next question is from Gene Mannheimer with Collier Securities.

[Gene Mannheimer:]

Suren and Howard, thanks for the update. I wanted to just delve in a little bit more into that platform business. You talked about the weakness there with respect to fees on branded pharma being lower than generics. When I think about that, the price of the branded drug is also much, much higher than the generics. So maybe you can talk a little bit in terms of blended rate, how did the fees shake out on a combined basis or blended basis relative to historical patterns?

[Suren Ajjarapu:]

Sure, Gene. I will address it. I'll let Howard also tag along after that. If you look at the sales volume from our first quarter to second quarter, we definitely see an increase of the percentage when come to the revenues, it has dropped down because of, as I mentioned, blended it, then we're close to 3% in the blended rate. That's the reason if you -- 3% of the 1.9 is the actual revenue that you're getting. Howard, do you want to add anything else?

[Howard Doss:]

Yes. No, Gene, I think you're right on there. The dollar volume of product that went through the system is higher because the brands carry a higher price. But that higher price still does not reflect -- does not help when we're getting such a low percentage on the transaction through the system. So the blended rate was lower this quarter than in previous quarters.

[Gene Mannheimer:]

Okay. No, that makes sense. And I wanted to follow up on the prior question, considering the various telehealth contracts you've signed with Big Y and Winn-Dixie, Spartan and others, when does this begin to appear in revenue and where will there be a separate telehealth line item? And when would it become material enough for us to see that and be able to track that?

[Suren Ajjarapu:]

Sure. We're anticipating probably in the first quarter of 2022. We'll try to make it as a separate line item. Until that time, it's an adoption phase. As I mentioned, there's more and more rollouts are happening in these big partnerships. It has to trickle down from a corporate to the retail store. And that's what we can see the conversions into purchase registrations and subscriptions and so on and so forth, and we can be able to give you first quarter 2022.

[Gene Mannheimer:]

Okay. That's helpful. Thanks. And last one for me then. With respect to some of the other initiatives you have in, say, the digital health passport or MedCheks, as you call it, how do we think about the revenue opportunity there? It seems that there's a lot of competition emerging with Clear and several others. So just wondering how you're positioning there.

[Suren Ajjarapu:]

Yes. As I mentioned, we have a lot of headwind for the MedCheks, specifically because if you look at the Florida or other states, you cannot ask any -- whether it's an employer or whether restaurants, you have a penalty almost like a $5,000 if you ask, have you taken a vaccination. With that kind of political environment and mask mandate may be coming in the future, we see a lot of headwinds, but our revenue model is per scan basis. But right now, if unless until it is government sponsored, even App Stores or not -- we are live in Apple but still having struggles with Android to make it up and running unless until it is mandated by the government. So to answer your question, it's a per scan basis. The revenue model did not change for the vaccination, but our eventual growth, you'll see it in the health passports carrying the health records and so on and so forth that probably pushed all the way through 2022 towards the end of it.

[Operator:]

And our next question is from Howard Halpern with Taglich Brothers.

[Howard Halpern:]

In terms of, I guess, your partnerships with Bonum Health out there, are you working now with these partners to begin promotions within their stores as we head into the third and fourth quarters of this year in anticipation of sign-ups for next year?

[Suren Ajjarapu:]

Sure. Howard, that's an excellent point. Yes, we are working on a rollout of each individual partnerships and give our marketing efforts and they are marketing our program at the same time. We are also marketing to the common goal to increase these memberships. Yes, we expect to see more and more as these rollouts happen, and we try to see the more and more patient registrations.

[Howard Halpern:]

And in terms of -- I know you've made a lot of IT investment in the first half of the year. Is that going to continue at the same rate? Or should we model down a little bit that type of expense in the second half of the year?

[Suren Ajjarapu:]

As we are tapping it down, yes, there will be less expenses. But if you look at the balance sheet, we cleaned up most of our non -- if we look at the non-GAAP based things that we have wrote -- write-off a lot of amounts, but not the IT infrastructure development and IT investments that we're doing for the future growth of these products. So it may taper down a little bit, but not that much.

[Howard Halpern:]

Okay. And just from my understanding on the GPOs, that's going to be under the Trxade platform and carry the same type of margins or percentage of the transactions? Or is it going to be more negotiated?

[Suren Ajjarapu:]

It should be carrying if it's there on the platform and the gross margin should be the same because it's a tech platform. We won't be carrying any inventory at that time toward.

[Howard Halpern:]

Okay. And just one last one. I know you talked about the blended rate of 3%, but are you still seeing a good volume of transactions pass through your system, even if it's slanted more towards branded products?

[Suren Ajjarapu:]

Yes. As I mentioned earlier, when compared to first quarter, we have at least -- I don't know the exact percentage. Howard, help me out. But definitely, we saw the increase

[Howard Doss:]

Yes. We don't really give the number of the dollar volume that goes through the system. But yes, we had higher volume going through the system in the second quarter than the first quarter and transactions as well.

[Operator:]

Your next question is from Allen Klee with Maxim Group.

[Allen Klee:]

I just wanted to follow up on the GPOs. Is the way to look at that is that these are all new pharmacies and that -- but you have to wait until you can -- that they may have a contract with the big 3, so when that contract ends, then you have the potential. So there's a timing issue? Or is it something that can happen sooner?

[Suren Ajjarapu:]

It's a timing issue, but at the same time, we're trying to overcome as the contracts are getting in the renewal phase. And that's the reason it's important to sign those GPO programs early enough so that we can make them conversion this year itself.

[Allen Klee:]

Okay. And anything else you're hearing maybe from your customers on the independent pharmacies just in terms of how they're thinking about business coming back and how much maybe they would think about using yourselves versus not using you guys?

[Suren Ajjarapu:]

I'll answer that in twofold. One, when we started this business in the beginning of this year, there were 21,000 independent pharmacies. If we look at after 6 months, actually, independent pharmacies from 2020 -- sorry, March of 2020 to today, actually, the new independent pharmacy number has increased. So the number of independent pharmacy is increased. And at the same time, as we are focusing for our platform on the clinic side and clinical like podiatrist and other smaller regional chains. So we expect to grow not only in the pharmacy side, we expect to grow on to this clinical side of the business also. To answer your question, what we see is, as I mentioned, it's a supply chain issue, but it's coming out of the pandemic. And this -- the business should go back to normalcy towards the end of the year unless until Delta variant has a majority impact locally here and as well as internationally.

[Operator:]

And we have reached the end of our question-and-answer session. I'll now turn the call back over to Suren Ajjarapu with any final remarks.

[Suren Ajjarapu:]

Thank you, operator. I would also like to thank all of you guys joining for our earnings conference call. We look forward to continuing to update you on our ongoing progress and growth. If we're unable to answer any of your questions, please reach out to our IR firm, MZ Group, who will be more than happy to assist and organize a call with us. Thank you.

[Operator:]

Thank you for your participation. You may now disconnect. Have a good day.