Sharps Compliance Corp.
Q2 2020 Earnings Call Transcript
Published:
- Operator:
- Greetings, and welcome to the Sharps Compliance Second Quarter 2020 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.I would now like to turn the conference over to your host Ms. Jen Belodeau, Investor Relations for Sharps Compliance. Thank you, you may begin.
- Jen Belodeau:
- Thank you. Good morning and welcome to the Sharps Compliance second quarter fiscal 2020 earnings. On the call today we have David P. Tusa, Company's President and Chief Executive Officer; and Diana P. Diaz, Vice President and Chief Financial Officer.David will review the company's business performance, operations and growth strategies, while Diana will review the financials. Immediately following their formal remarks, we will take questions from our call participants. As you're aware, we may make some forward-looking statements during the formal presentation and in the question-and-answer portion of this teleconference. These statements apply to future events which are subject to risks and uncertainties, as well as other factors that could cause actual results to differ materially from where we are today. These factors are outlined in our earnings release, as well as in documents filed by the company with the Securities and Exchange Commission. These can be found at our website or@sec.gov.So with that as the way, let me turn the call over to David. Go ahead, David.
- David Tusa:
- Thank you, Jen. Good morning and welcome everyone to our second quarter fiscal year 2020 earnings conference call.Our second quarter results continue the momentum of our strong start to the fiscal year 2020. With revenue growth of 18% to a record of $14.6 million in revenue also revenue - record customer billings of $14.9 million, enhanced gross margins and increased profitability. The company generated EPS of $0.06 and $0.10 per share for the second quarter of fiscal year to-date respectively. This compares to $0.05 per share for the corresponding prior year periods.We believe the strong growth and improved profitability generated in the last fiscal - three fiscal quarters is a direct result of our company's successful transformation from a medical waste mailback and flu business only company to a comprehensive solution provider to the healthcare related in retail markets with multiple solution offerings.The strong growth in the second quarter customer billings were driven by the following markets, Pharmaceutical Manufacturer, Home Healthcare and Professional. We also delivered substantial growth across each of the three key solution offerings and used medication management, route base and our traditional mailback offer with the mailback growth for the quarter primarily driven by strong pharmaceutical manufacturer billing.Now I believe it's very important to expand the fact that we've diversified the business from a flu only business and this is evidenced by the following. When you exclude flu related billings,customers billings increase 36%, 32% and 24% for the second quarter fiscal year to-date and trailing 12 month periods.This is reflective of our strategy to generate strong growth and markets outside of flu with a focus on increasing more predictable and recurring revenue businesses, such as MedSafe, the route-based and our mailback related pharmaceutical manufacturer business. Now Diane will go into a bit more detail on the growth by the individual markets later in the presentation.So from a solution standpoint, our route-based business grew 19% in the second quarter. If we began expanding our route-based presence a few years ago, as a compliment to the mailback offering and because we want to establish more predictable and recurring, consolidated revenue.Our increase route-based footprint also allows us to address larger volumes of medical waste, and related facilities. It also allows us to fill a need in the marketplace for the services to the small and medium quantity generator market. We believe there's a significant opportunity for continued growth in the route-based business.We continue to see strong demand for our unused medication solutions, which grew 72% in the quarter and 57% for the fiscal year to-date period. Our solutions in this segment include the MedSafe and the takeaway medication recovery system envelops. We believe we're the leader in the patient dispense ultimate user unused medication management business, which represents 16% of our overall billings in the second quarter of 2020.At December 31, 2019 we have an installed base of 4500 MedSafe collection receptacles for unused medications in retail, as well as hospital pharmacies, long term care, drug treatment, and law enforcement facilities.Our customers have returned and we have processed over 45,000 inner liners. To put that in perspective, a year ago we had 2900 in installed collection receptacles and return lines of 24,500. As we move to the second half of fiscal year 2020, we anticipate continued strong growth for this solution as we help industry address and hopefully solve the opioid crisis through prevention and proper disposal of unused medication, including control substances.Our mailback business grew 10% compared to the prior year quarter, and was positively impacted by the inventory bills for pharmaceutical manufacturer patients per programs. Any 3 sales were Takeaway Recycle System. Growth for these mailback solutions was partially offset by decreases in flu related orders compared to the prior year due to the timing of customer purchases.We made solid progress this quarter with our Takeaway Recycle System, which is designed to facilitate recycling of single used medical devices. Into December 2019 quarter as anticipated, we had a little over $500,000 in orders for the Takeaway Recycle System compared to 200,000 in the same quarter of the prior year.We continue to see strong demand for the Takeaway Recycle System and are working on a number of prospects, which we believe could positively impact the calendar year 2020. We're very excited to energize by the recent success and the significant growth we are experiencing and we remain intent on driving sustainable recurring revenue over the longer term as we create awareness of the company and its solution offerings.We are particularly focused on markets which we believe to be greatly underserved, and where we believe there's a significant opportunity to attract customers who are looking for alternatives to their current provider. We find that our focus on customer service, responsiveness, regulatory support, as well as reasonable contract terms are very important elements in securing new business and onboarding new customers.So with that, let's turn it over to Diana to cover the financial section in a bit more detail. And then afterwards, I want to make a few closing comments before we open up the call for the Q&A. Diana.
- Diana Diaz:
- Thank you, David.Second quarter fiscal 2020 revenue increased 18% to $14.6 million, as compared to $12.4 million in the second quarter of fiscal 2019, and increased by 7% sequentially compared to the first quarter of fiscal 2020. Route-based pick up billings for the second quarter of fiscal 2020 of $2.5 million are up 19% compared to $2.1 million in the prior year quarter and contributed 17% of total billings for the quarter.Our unused medication billings of $2.3 million are up 72% compared to the prior year quarter and contributed 16% of total billings for the quarter. Our mailback billings of $8.9 million are up 10% compared to $8.1 million in the prior year quarter, and contributed 60% of total billings for this quarter.Of the $1 million increase in unused medication billings, about $650,000 of the increase was related to our Medicaid program with the remainder related to our Takeaway Medication Recovery System Envelopes.Gross Margin improved to 33.5% in the second quarter as compared to 32.2% gross margin in the second quarter of last year. SG&A expense increased 22% to $3.6 million or 25% of revenue for the second quarter of fiscal 2020 compared to SG&A of $3 million or 24% of revenue in the same prior year quarter. The increase in SG&A compared to the prior quarter is related to continued investments in sales and marketing and increases in professional fees.Looking forward, we expect SG&A for the fiscal 2020 period to increase 15% to 16% over fiscal 2019. This is higher than the 5% to 7% annual SG&A increase we've experienced in the past. The reasons for this are as follows; first, we're investing more in the growth in earnings into additional sales and marketing expense to continue the momentum of revenue growth. Second, because of the significant increase in recurring revenue and corresponding visibility, we're more confident in the forecasted earnings and the ability to see return on the increased SG&A. And finally, our pipeline of opportunities is more full than ever and we want to accelerate closure.The company reported operating income of $1.1 million in the second quarter of 2020, compared to operating income of just over 800,000 in the second quarter of 2019. We recorded net income of a $1 million or $0.06 per basic and diluted share this quarter compared to net income of almost 800,000 or $0.05 per basic and diluted share in the second quarter of 2019. The company recorded EBITDA of $1.5 million in the second quarter of fiscal 2020 as compared to EBITDA $1.2 million in the same period of last year.Now let me provide some additional details around the quarter on a market-by-market basis. I'll start with a pharma manufacturer segment where we saw growth of 170% in the quarter and 95% for the fiscal year-to-date period. Currently we have 17 programs with 10 pharma manufacturers. These programs are designed to help our pharmaceutical manufacturer customers create additional touch points with their patients, and provide actionable data which could lead to improve drug adherence.We saw significant mailback inventory bills for several existing patient support programs during the second quarter, which contributed to the strong billings. One program in particular is growing significantly, adding new self injectable drugs and patient support programs which contributed to the strengthen billings for the quarter.And our field sales efforts are very focused on new patient support opportunities, as more and more drugs introduced into the marketplace are home self injectibles.Our Retail segment was essentially flat at $4.2 million for the quarter. As you may recall we experienced very strong flu orders for the September 2019 quarter which increased by $1.5 million over the prior year quarter. For the second quarter ended December 31, 2019 flu-related billings decreased by $900,000 which were offset by an increase in unused medication billings to the retail market.Of note for the overall 2019 flu season which we measure on a calendar year basis orders were very strong as demonstrated by an increase in flu-related orders for the trailing 12 months ended December 31, 2019 up 20%.Our Home Healthcare segment achieved billings growth of 21% in the second quarter and 45% for the fiscal year-to-date period. These increases are driven primarily by expanded relationship with the major healthcare distributor. We are encouraged by the growth in this market, which has traditionally experienced low to mid single-digit growth.Professional market billings grew 14% through a combination of our cost-effective and easy-to-use Sharps Recovery System, and the route-based pickup services. We've driven organic growth in this segment by addressing the small to medium quantity waste generator market. That is includes physicians, clinics, dentists, surgery centers, veterinarians and other healthcare providers.We believe the professional market is probably the most underserved in the small and medium quantity generator sector in the country. We're working diligently to increase awareness of our services to prospects looking for an alternative to their current provider. The inside and online sales channel which places a heavy focus on the professional market, increased billing by 17% in the second quarter of fiscal 2020, compared to the prior year.Now looking at key comparisons for the first six months of fiscal 2020, revenue increased 24% to $28.2 million, and customer billings increased 28% to $29.1 million. Professional market billings increased 13% to $8.5 million, retail billings increased 30% to $8.4 million, pharmaceutical manufacturer billings increased 95% to $3.2 million related to the timing of inventory builds for several customers, home healthcare billings grew 45% to $5.9 million, assisted living buildings were essentially unchanged at $1.3 million and government billings increased 10% to $1.3 million.For the first six months of fiscal 2020, our mailback solutions represented 57% of customer billings and increased 21% over the prior year. For the same period our route-based pickup was 18% of customer billings and grew 22% over the prior year, and our unused medications was 16% of customer billings and grew 57% over the prior year. The inside and online sales channel which as I mentioned before is heavily focused on the professional market achieved a 13% increase in billings for the first half of fiscal 2020 compared to last year.Fiscal year 2020 year-to-date gross margin was 33.2% an improvement over the first six months of fiscal 2019 of 32.4%. SG&A expense increased 19% to $7.1 million in the first half of fiscal 2020. And as I mentioned before, we expect SG&A for the full fiscal year of 2020 to reflect an increase of 15% to 16% over the prior year, as we increase spending on sales and marketing related expenditures.Net income in the first half of fiscal 2020 was $1.7 million or $0.10 per basic and diluted share compared to net income of weighted $850,000 or $0.05 per basic and diluted share in the first six months of last year. Our balance sheet remained solid with $5.3 million in cash at December 31 2019, and working capital of $10.8 million.Now I'll turn the call back over to David.
- David Tusa:
- Thanks Diana.I want to leave everyone with a few key points before we turn the call over to Q&A. Four years ago, we made a strategic decision to move into the route-based business via acquisition and organic expansion. Today we have 46 trucks on the road servicing over 13,000 customers in 24 states and too soon to be in 31 states representing about 70% of the country. This line of business has grown from customer billings of 2.1 million in fiscal year 2016 to 10 million for the current trailing 12-month period.The route-based business is an excellent fit for our service offering and customer base, which we believe we have the opportunity to grow significantly. In late 2014, the DEA changed its rules to allow our collection receptacle and liner system to collect, transport and destroy unused patient dispense medications, including control substances. We believe weโre the first company to design and launch a DEA compliant collection receptacle operating under the DEA rules to serve retail pharmacies, pharmacies, hospitals, and long-term care facilities.The MedSafe solution is not only a great name, but it's also becoming weak to believe to be the standard in the industry as evidence by our leadership position. When coupled with our industry leading TakeAway Medication Recovery System Envelopes and other unused medication management solutions. We generated over 8.7 million in revenue over the trailing 12 months versus 2.7 million in fiscal year 2015 when the DEA rules changed.We believe we're just getting started with this line of business and we see tremendous potential to grow this business significantly while helping to solve the opioid crisis. About 10 years ago, we pioneered especially Mailback solution to be an integral part of pharmaceutical manufacturers patient support program. Our systems are designed to increase patient touchpoints improve the experience for home self-injecting patients, as well as create a branding opportunity for the manufacturer.Additionally, our programs provide valuable compliance data designed to improve drug compliance and adherence. Weโre the leader in this business with โ over the trailing 12-month period, generating almost 6 million in revenue in customer billings. The pipeline for new programs continues to build as more and more home self-injectable drugs are introduced to the marketplace. So, with that, I think you'll agree that with a variety of solutions we provide our company is not driven solely by flu-related business.As I mentioned earlier, when you exclude the impact of flu-related business, our customer billings have increased 36%, 32% and 24% for the second quarter fiscal year-to-date and trailing 12-month periods respectively. This reflects our strategy to generate strong growth in markets beyond the flu business, as well as growth from recurring revenue businesses such as a MedSafe, the route-based business and pharmaceutical manufacturer mailback.We're focused on the long-term and believe we have the opportunity to become a much larger company. With the number two medical waste management provider to the $1 billion small and medium quantity generator market, we also believe we're leading provider in developing the $1 billion ultimate use or unused medication management business in the country. We believe we have a runway for significant growth and we're well positioned to take advantage of our leadership position and further penetrate these margins.Finally, we're seeing and pursuing larger dollar opportunities with all of our solution offerings, as a result of the increased awareness of our company in the country as a full service provider, and as an alternative to our prospect current provider. Needless to say, we're very excited to see that our efforts to be innovators and problem solvers is very much paying up, but again, we believe we're just getting started.And one last thing is to take an opportunity to thank the management team and all our employees for their efforts in supporting the growth over the last few quarters. It's been very busy, and it takes a dedicated, committed and driven group of employees to deliver these results. We look forward to the challenges and opportunities ahead as we continue to build a much larger company.And with that operator, we could turn it over to Q&A.
- Operator:
- [Operator Instructions] Our first question comes from the line of Gerry Sweeney with ROTH Capital Markets. Please proceed with your question.
- Gerry Sweeney:
- I wanted to focus on the growth SG&A and et cetera. Obviously, you got to higher SG&A and you also mentioned the pipeline is full. When we're looking at this speed up in spending where - is this more focused on the route-based or the pharma. Where do you expect this to sort of translate to in terms of revenue?
- David Tusa:
- We believe that it has the opportunity to affect all lines of business, whether it's unused medication via the MedSafe, whether it's route-based or whether it's the mailback of business. Thatโs a wonderful part of having all the solution offerings. And remember there is opportunities to cross sell a number of the opportunities within the same customer base. So, we look forward - continue growth across all lines of business.
- Gerry Sweeney:
- And then just on the comment is it - sounded like the pipeline is full. I mean, is this just a function of, as you said even earlier in your prepared comments, the Sharps name getting out there, maybe some of your potential client contracts running off with another provider. Just wanted to maybe bracket that comment a little bit and just see.
- David Tusa:
- Sure when you - I look at it if I mention the business at the same point when you look at the MedSafe, it's becoming more and more popular in the country it's both of unused medications. And the programs that we've had in place we believe are quite successful and are leading to other opportunities, and again, we're just really beginning in this country to address the opioid crisis through prevention, the unused medication collection and disposal. So we're not really taking the business from anyone, we're just selling into a marketplace that's now allowed to collect and properly dispose of unused medications.When you look at the route-based business, what I see in the route-based business is whatโs driving that growth is not only our name, and our continually improved awareness, it's also we're expanding the footprint. And when you grow the footprint, you can service the route-based directly a much higher percentage of the business. So when we look at the opportunities on the route-based side, when we can capture a significant portion of those servicing directly, then it becomes a new opportunity.And we're chasing a lot of those and we've expanded the infrastructure quite a bit. So that's what I think that's growing that business. On the pharma side, there is more and more self-injectable drugs that are being introduced in the marketplace. We've got a great program. We've got great people that support these programs. And I think that just continues to be more awareness of how the patients can be provided with the proper disposal. And at the same time, the pharmaceutical manufacturer can increase the awareness - Iโm sorry can increase the experience with the patient.
- Gerry Sweeney:
- On that last one - on the patient support and pharma manufacturing on the mailback. Can you talk a little bit maybe the progression of how that business rolls through. It sounds like there has been an inventory build, which sounds like this quarter maybe a little bit larger than some other quarters but how does it play out after that. Is there maybe the length of the contract, is there refilling or restocking. And then I guess you also mentioned - I think working with 10 companies or maybe 10 products, does that also offer an opportunity to expand even further?
- David Tusa:
- Right, right so when you think of the pharmaceutical manufacturer business, I think of two pieces. I think one the inventory builds and that's the first part. The second part is fulfillment, which are for fulfillment and shipping and getting the solution to the patients at home. But on the inventory build, they're really focused on the number of patients, the demands, the trends and keeping the inventory levels consistent with the demands from the patients. What we saw this past quarter is, we're seeing that some of our existing customers are launching additional programs.They may have more drugs self-injectable drugs in their portfolio, so they're adding the patients support programs ours to the additional patients of the additional drugs. So that increases the inventory as well because you have more patients on the program. So that's really what drives it. We're excited. We have a number of opportunities that are in the pipeline, we continue to lead this business and we think it's going to continue to be a - drive growth for us.
- Gerry Sweeney:
- One last question and then I'll jump back in line. On these meds, I think earlier, you sort of projected about 1100 of MedSafe entering the calendar year feels like you're might be ahead of that pace. Is that still a good number or is there been a speed up in some of the deployments and I'm talking with the pharmacy partner that you're working with?
- David Tusa:
- Sure, I think well let's talk about it, if you don't mind, let's talk about MedSafe for all customers. And if you look at it from that standpoint, which I think is a really good way to look at it calendar year, we look at it from a calendar year basis, because our customers typically have calendar year budgets about 1,300 in calendar year 2018. In calendar year 2019, about 1,600 in calendar 2019 so in - 2020, that we think we have the opportunity in calendar year 2020 to exceed that 1,500 or 1,600 MedSafe installation number in calendar year 2020.So we have a lot of customers, we have a lot of customers including the one that you mentioned. And we really look at it from an aggregate standpoint, but we're very pleased to have the 4,500 and growing out there, 45,000 liners returned and that's only going to increase.
- Operator:
- Our next question comes from line of Kevin Steinke with Barrington Research. Please proceed with your question.
- Kevin Steinke:
- So I just wanted to, sure yeah, I wanted to follow-up on the pharmaceutical manufacturer discussion. I thought it was interesting that you talked about growth within an existing program, helping to drive the results in the quarter. So maybe just talk about that opportunity a little bit more in terms of the opportunity to expand with existing customers is a potential growth driver in addition to adding new programs.
- David Tusa:
- Sure, we have 17 programs with 10 manufacturers, so obviously some of the manufacturers multiple programs. And again as they continue - to see continued success on the programs and what it can do for the patients. They're looking at adding other drugs that's what happened. We could see more of that going forward. I think what you'll probably see, more of our new programs. We're chasing a number of new programs and we have a lot of efforts focused on that. So growth on both sides were probably going forward probably in new programs more than the other.
- Kevin Steinke:
- And maybe talk about TakeAway Recycle. You had roughly half million of billings in the quarter. And you mentioned continued strong prospects - so for that service. So do you feel like this offering is now at the point where it could be a real business and a real growth driver going forward? I know you - wanted to give it a few quarters to see how it was taking hold, but it sounds maybe like there is some momentum there that provides some optimism for the future. So - just any more commentary around that would be helpful?
- David Tusa:
- I think we're close and hopefully soon we'll be there. We've had a tremendous amount of interest in the TakeAway Recycle. And just to make sure that everyone understands what that is our TakeAway Recycle system is all about the recycling of single use devices. It's keeping the devices out of healthcare. So it's taking the devices out of healthcare, breaking it down to its individual components and putting it into a recycle stream. And what this is, this is an alternative to what traditionally some healthcare facilities do with reprocessing.Where they clean it, and they introduce it or they back into healthcare. We keep the devices out of healthcare and recycle them in a sustainable manner. We have a tremendous amount of interest from a number of large companies that are looking at launching this we're in later stage discussion with a number of them. And I think we have an opportunity for this to become a real business. Probably weโll know more over the next quarter or two, but we've been very, very encouraged with the amount of interest that we've received from the industry.
- Kevin Steinke:
- Okay, sounds good. And the home healthcare front, you mentioned again, some contribution to the growth from the expanded relationship with a large healthcare distributor. Is that do you expect that contribution to kind of level off as we go over the next couple quarters or - is there more opportunity for that relationship to contribute, billings in the next couple quarters here. I mean, just trying to think about, how we should expect growth in home healthcare to look, going forward and maybe any other prospects for new business in that sector going forward?
- David Tusa:
- Sure, that's a great question. We've been really pleased obviously, with the expansion of our homecare healthcare that's been a single-digit growth, probably low single-digit growth for years and years. We're really pleased with the growth. We're working with this large healthcare distributor. We're working with them every day to help with the awareness of the mailback it's primarily mailback business, where we've seen the growth.And we think the opportunity to continue to show stronger growth than what we've had in the past. I think it's probably a little bit too early to be able to.
- Diana Diaz:
- I agree.
- David Tusa:
- To say that it's going to be the growth levels we've seen recently. But we're very, very much encouraged and think that that we will see higher growth from the prior years in what - with this new relationship.
- Kevin Steinke:
- And then lastly, in addition to the higher sales and marketing investments, driving growth in SG&A, you've called out some higher professional fees the last couple quarters. Just trying to get a sense as to how meaningful those have been to the SG&A in the first half of the fiscal year here, and maybe if those continue or if those kind of trail off as we move over the next couple quarters?
- David Tusa:
- We had some professional fees, we brought in a new patent firm, and we incurred in the December quarter about $100,000 to $150,000 in professional fees to come in and to look at some of the pending patents that we have and see if there is opportunities to tweak those, improve those and try to move the process along with respect to the patents. We had that I don't think we're going to have much and more of those going forward, but that did impact the December quarter.
- Kevin Steinke:
- If I could just follow-up on that I mean, if you have any more sense as to how that effort is going to play out or you know just still kind of in an evaluation phase - in terms of the patents?
- David Tusa:
- Well - and the patents are related primarily to the MedSafe and we're moving further and further along. It's a long process that always takes longer. We really you know, at this point can't make any conjecture over whether weโll be successful or not. But we're pushing them along and we'd love to protect the technology that we developed as the innovator with the MedSafe. So, we don't know yet, but we think it's worthy of spending some dollars on to try to see if we can get this issue, but no assurances that we will.
- Operator:
- Our next question comes from line of Brian Butler with Stifel. Please proceed with your question.
- Brian Butler:
- Just, first one on the flu business I mean it looks like the season has been pretty bad. If we look at kind of the roll into your third quarter for 2020 what has been kind of the order demand? I mean typically the third quarter is the weakest, is that still playing out that way, is the strength of the season adding to maybe some more upside here?
- Diana Diaz:
- So yes, I would agree that the March quarter is typically the lowest in flu orders. Last year, we had to send about 400,000 of flu orders in the March quarter. But you know on a trailing 12 months basis which is really the flu season. The flu orders were up 20%.
- David Tusa:
- What would be the March quarter so far we've had what a couple hundred thousand.
- Diana Diaz:
- Couple hundred thousand yeah.
- David Tusa:
- We had a couple hundred thousand we've seen but - we typically see in the flu business which is a slowdown in the March quarter. So 400 in the entire quarter of last year.
- Diana Diaz:
- Yes.
- David Tusa:
- And so far 200,000 within the first month of the current March quarter.
- Brian Butler:
- On the MedSafe piece of the business it looks like, the demand for the liners is kind of kicked up. I mean, just kind of on the data that you've given on processed. It looks like in the - second quarter of 2020 you processed maybe somewhere around 7,000 liners and that seems higher than - you were probably averaging somewhere around 4,000 to 4,500 in 2019?Is something changed there are you seeing more demand for the liners now that the base is kind of hit some critical mass or is there something else or were there just a big, restocking order somewhere in there?
- David Tusa:
- No it's a beautiful part about the business I mean once you get more and more collection receptacles out there the liners increase and increase exponentially. So you're right but it's just the normal turns that are expected with the inner liner. So beautiful part about the business is recurring revenue generated from those liners once you get the MedSafe in place.
- Brian Butler:
- Okay, and then on the professional side of business, can you a little color on the growth, was that all new customer growth that 14% or was there some price in there or was it also increased demand from kind of the current customer base?
- David Tusa:
- Always primarily new customers that we're adding.
- Brian Butler:
- Are you seeing any pricing pressure out there?
- David Tusa:
- Not really, we really haven't seen much in the way of changes on the pricing side.
- Brian Butler:
- And when you talked about kind of expanding that footprint in the Professional segment or the route-based I should say. Is that how much bigger can you get with your current kind of infrastructure before you have to make a CapEx spend?
- David Tusa:
- Well we've been and we've talked about up to 24 states, 55% of the population, we're in the latter stages of moving into the Midwest. It's going to add another seven states and the footprint will capture roughly 70% of the population. We're doing that organically moving into those areas. And again it's really important, because as we go after larger and larger opportunities, the prospect we want to see that we can - services those directly.So we've done that so far with three acquisitions, and everything else has been organic. And at some point in time, we'd like the opportunity to backfill those potentially via acquisition, whether it's acquisitions in these areas or tuck-ins. But right now, we thought it was important to have a presence in those areas, so we can - start with the prospects and the customers.
- Brian Butler:
- Okay, I guess that puts me into my another question on capital deployment. How much capital is being spent on kind of expanding that footprint, when you think of that and 2020. And then also what is kind of the pipeline of deals that are out there or that you may be looking at can you give some color around the acquisition market?
- David Tusa:
- First of all, there's not a lot of capital expenditures when you move into a new market. You rent a facility and you rent trucks and you hirer drivers there is some capital but not a lot when you move into a new geographic area. We maintain the list on the acquisition side the pipeline of acquisition candidates.We stay in contact with them and we've increased the efforts in talking to - with some of these folks about potentially about an acquisition. Look, we're not going to look - that will slow us down in moving into these additional geographic areas.
- Brian Butler:
- All right, one or two more here on the pharmaceutical - you guys were probably close to - it looks like you're about on maybe a $6 million base depending on how the rest of the year turns out. But I mean, this is seen that level maybe two, three years ago I mean, if you go back four years ago, you were probably close to 4.5 million, 5 million on an annualized base. What - is this kind of the base here or is it still going to be you expect it going forward to kind of be choppy where after a couple years, you have some good growth and some programs coming, some programs go? I guess I'm just trying to understand the sustainability of the customers you have versus the growth that you're able to get?
- Diana Diaz:
- So I mean I think we see that these customers are continuing to grow their programs. They're continuing to have patients that are utilizing the services, and on a short-term basis, we expect our goal anyway is about $1 million a quarter for the pharmaceutical manufacturer market in terms of billings for the third and fourth quarters each.
- Brian Butler:
- And then last one on the SG&A. I know you talked about it helping all the businesses, but when you think about I guess in aggregate like that, and increasing it 15% to 16%. I mean, the idea that that's supporting 15% to 16% top line growth. I mean, how are you thinking about the incremental margins. I mean, the operating leverage of the business, is that still running or potentially able to run in the - call it the 30% to 40% range?
- David Tusa:
- Well, I think that additional investment in sales and marketing is very, very, very important to keeping this momentum, driving increase in revenue. And if we don't do that then I don't think that you'll see the kind of increases we've seen in the past, as I mentioned before the pipeline is quite full. So we want more efforts on the sales and marketing going after these opportunities. But we're very, very focused on revenue growth - continued strong revenue growth and again with a significant element of it focused on recurring revenue.
- Brian Butler:
- Okay, and one last one if I can sneak it in. Just the home health, that new customer relationship, is that a recurring business, so you kind of had a pace of call the $2 million, $2.5 million of quarterly revenue, is that sustainable or should we think about that going away in 2021, or the back half of 2020. Or is that real durable, is that recurring kind of business?
- Diana Diaz:
- So you may recall in the first quarter, there was a stocking order, and that part will probably not recur but the current level that we had in the December quarter is normal, ongoing business, hopefully increasing over time, but that's the level that we would expect to see going forward.
- Operator:
- Our next question comes from line of Joe Munda with First Analysis. Please proceed with your question.
- Joe Munda:
- So, David, I just wanted - a lot of the questions that I wanted to ask is already been asked and answered. But I wanted to follow up on the processing the TakeAway med device that's an interesting offering. So to get some clarity there, essentially, you're keeping the products out of from getting into the hands of the reprocessors. And can you give me or give us some color on maybe the types of devices for example that you guys are collecting and how, I guess walk us through how it works to make sure those devices don't end up in the hands of a reprocessor?
- David Tusa:
- That's a good question. What has happened over the last few years is there's been an effort to not reuse single use devices. And this is part of it is, that's great, let's not use them for what we're going to do with them. So it's really a fell, if two main issues. One, keep getting the single use device from going back into healthcare, keeping it away from the reprocessor. And then the other one is from a sustainability standpoint what are we doing with that from a sustainability standpoint make sure that it would nevertheless go in potentially to the land sale. And it's been an hot issue, you can go and see how healthcare facilities are looking more and more ways of not reusing single use device.
- Joe Munda:
- What I'm getting at is how - you have a box in the room, that there are putting the device in that specific doesn't the reprocessor also have a box in the room like how do you make sure that the doc puts it in for the - wherever it is puts it in your box versus their box?
- David Tusa:
- Shortly after the protocol of the healthcare persona that surgery center or the hospital or the device manufacturer, I mean, you could be talking about anything from a laryngoscope to very complex scope that's being used in a surgery setting, but we're working with major device, single use device manufacturers, who are trying to use this as a way to satisfy the requirements of the hospital, the needs of the hospital at the same time to help push their devices obviously.
- Joe Munda:
- So their reps are encouraging them to put them into your boxes, essentially?
- David Tusa:
- Absolutely.
- Joe Munda:
- Okay. And then I guess my last question you read in the news that Hysteria we saw with Ebola, now it's Coronavirus, about a few years ago, people were looking for different solution providers whether it's masks now that are being sold out, doctors now, are you having any conversations with any of these providers about potential orders or anything or is this just more hysteria, you think, but you're not going to see any potential impact as a result.
- David Tusa:
- Well, we all know that this coronavirus it's in the early stages and currently there is no vaccine. We're communicating with our customers should there be a surge and say flu shot. We reach out to them and we've communicated them and let them know that we're obviously ready to facilitate disposal of syringes, whether it be flu shot or any kind of other immunizations. But to-date, we really have not seen significant orders that are directly related to this, but it's early and we continue to talk to our customers about the potential needs.
- Operator:
- [Operator Instructions] Our next question comes from line of Michael Hoffman with Stifel. Please proceed with your question.
- Michael Hoffman:
- Thank you, David. I just want to augment a couple of questions that Brian had started. When you think about the installed base of the MedSafe, what is your view if I took a five year view of the physical installed base that you could get to given the ongoing investment - incremental investment in G&A?
- David Tusa:
- Well, if you look at some of the trends and look at what you have right now, and some of the trends you could - I think you could conservatively see that we could add maybe 1,000 to 2,000 of these MedSafe a year based upon what we're currently saying. Hopefully, there could be an uptick is, there is more state programs that are launched. And you have more retailers and others that jump into it.
- Michael Hoffman:
- And then to your point of once it's installed, the liner turnover, where the more mature places they've been installed, what's the pace of turnover on liners, so we get a sense of, if we're building that stair step model of at 1,000 liners are turning over at XYZ rate and watch this sort of trends and be able to sort of map that.
- David Tusa:
- So that's really good question and is true as the MedSafe stays out longer in the facility than the turns of the inner liners increase, and it just depends on the type of the facilities, but probably anywhere from a lower two or three to maybe to as many as five or six a year.
- Michael Hoffman:
- And then on the collection side of the business, how would you frame within the majority of the places you've been your densification of your model, and where are we on that sort of opportunity to densify, so that we start getting this sort of consistent operating leverage. I mean, I get the new customer growth, and I understand the strategy around that and going from 24 to 30, 31 markets but where are we in that densification in your view?
- David Tusa:
- Yes, that's great question. There is two things we're doing, one, we're increasing that footprint, so we can service more customers and we are focused as well on density in areas that we currently service with what our marketing team does, and I think they do a great job at - really good job of geo-targeting opportunities to areas where we believe we have the opportunity to increase the density.So we're focused on both of those. So hopefully, we'll see that majority of that growth that we're seeing on the route-based businesses areas where we have the opportunity to increase the density and you're not really add more trucks and drivers, you're just adding more pickups to existing route.
- Michael Hoffman:
- And then lastly just to closer loop on the coronavirus, so, no opportunity at the moment in the sense of nobody is turning around going, hey, send me a whole bunch more vaccines therefore, you get more disposal. But is there on a practical basis any other role given the speed at which this seems to be moving and the infection rate is happening without actually knowing that there is expose people. Is there a role for Sharps in addressing this particular pandemic or as a growing pandemic and then just disposal?
- David Tusa:
- Sure, well, a couple of things. One, I mean there is not a vaccine yet. And if there is one, there would definitely be an opportunity. The other thing is the CDC continues to encourage folks to go out and get a flu shot if you have not received a flu shot, so potentially could get to pick up from there as well. It's just really early, we're in discussions with our customers, and we'll see,
- Michael Hoffman:
- Okay, so just to be clear, it's still flu shot related. There is not some other opportunity given the speed at which this is moving at the moment. So it would be a surge in flu shots. Okay. Thank you. Thank you for taking the extra questions. I appreciate it.
- Operator:
- Thank you. Ladies and gentlemen this concludes our question-and -answer session. I'll turn the floor back to Mr. Tusa for any final comments.
- David Tusa:
- Well, thank you operator. We appreciate everyone participating in the call and we look forward to speaking next quarter. Thank you for your support.
- Operator:
- Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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