Sharps Compliance Corp.
Q2 2013 Earnings Call Transcript
Published:
- Operator:
- Greetings, and welcome to the Sharps Compliance Corporation Second Quarter Fiscal Year 2013 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Deborah Pawlowski, Investor Relations for Sharps Compliance Corporation. Thank you, Ms. Pawlowski, you may now begin.
- Deborah K. Pawlowski:
- Thank you, Jesse, and good morning, everyone. We certainly appreciate your participation on our Second Quarter Fiscal Year 2013 Financial Results Conference Call. You should have a copy of the news that was released earlier this morning that details Sharps' financial results. If you do not have it, you may obtain a copy from the company's website at www.sharpsinc.com. On the call with me today are David Tusa, President and CEO of Sharps Compliance; and Diana Diaz, Vice President and Chief Financial Officer. David and Diana will provide formal remarks, after which we will open it up for questions. If you are listening via the webcast, you do have the ability to submit questions via the Internet. As you are aware, we may make some forward-looking statements during the formal presentation and 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 the 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 Securities and Exchange Commission, and can be found at our website or at sec.gov. So with that, let me turn the call over to David to begin the review and discussion. David?
- David P. Tusa:
- Thank you, Debbie, and welcome, everyone. I'll briefly review the second quarter and discuss our progress in our key targeted growth markets, and then I'll turn it over to Diana, who will review the financials in a bit more detail. But during the quarter, we continued our momentum with record core market revenue of $5.7 million for the second quarter of this fiscal year 2013. Our core revenue excludes the impact of the CDC contract, which was terminated in January of 2012. But notably, what drove our performance was a continued progress within our targeted professional pharmaceutical manufacturer and retail markets as we maintain our aggressive, yet focused sales and marketing efforts. Core billings which we believe to be an appropriate measure of our performance and progress were down about $400,000 compared with the prior year, reflecting a $700,000 impact from the termination of maintenance portion of the CDC contract. Excluding that impact, core market billings increased $300,000 or about 5% year-over-year to a record $5.5 million in the second quarter of fiscal year 2013. Compared with the trailing fiscal -- or the first quarter fiscal year 2013, core customer billings increased about $100,000 or 2% from $5.4 million in the trailing first quarter. Professional market billings, which represents just over 17% of the total billings, grew almost 32% to $1 million in the second quarter of fiscal year 2013, from about $720,000 in the prior-year period. The driving force behind the growth in the Professional market is the targeted telemarketing activities and website promotional programs offered via the inside sales and online sales channel. Billings through this channel increased almost 39% year-over-year to nearly $800,000 in the second quarter. We are building a strong awareness of our cost-effective solutions through inside and online sales channel through the professional market and believe we should continue to see substantial market inroads in the coming quarters. The pharmaceutical manufacturing market billings grew in the second quarter to about $900,000 as a result of the timing of customer orders and resupply orders from one of the 3 new patient support programs that we were awarded in fiscal year 2012. As we previously mentioned, once all 3 programs are fully rolled out, we estimate they have the potential to generate as much as $3 million a year in annual recurring revenue. Further, sales in this market can fluctuate measurably from quarter-to-quarter due to the variability in the timing of the orders associated with each quarter. Although we have not launched any new programs recently, we continue to believe that this market should be an area for growth as pharmaceutical manufacturers look for ways to improve patient interaction, monitor and potentially improve drug compliance and adherence. Now the retail market. The retail market grew 10% in the second quarter to about $1.4 million. This growth was driven by higher sales related to the flu shot business of about $122,000 in a market where we're the leader in providing retailers with solutions to design to manage medical waste generated as part of flu immunizations. Now sales were also higher by about $60,000 related to our consumer-focused products to Complete Needle Collection & Disposal System. These gains were partially offset by the lower sales of the takeaway environmental return system, the envelope of about $70,000 due to initial launches in the prior year. We've generated about $1.2 million in revenue since the launch of our unique Complete Needle Collection & Disposal System for individuals required to self-inject medications for their health and well-being. We believe we're making good progress of establishing this system as a standard of care for diabetics and other self injectors through the retail channel. In launch of the flu season, I know everyone have seen the news and reports in the media, as well as the CDC regarding the severity of the flu shot season. Sales of our Sharps Recovery system to retail pharmacies attributable to this year's flu season have increased about 40% year-over-year for the trailing 12 months. And over the past 4 years, we've seen the flu shot-related business nearly quadruple. Since we previously established our leadership position with retail pharmacy administering flu and other shots, the growth over the past 4 years has been driven by more and more shots being administered in the retail or alternate site setting. We continue to receive flu shot orders that we believe will positively impact the March 2013 quarter as well. Now government. I believe many of you have seen the RFIs posted by the Veterans Administration related to the contemplated consumer medication return envelope program. Now in addition to responding to the RFIs, we participated in an Industry Day on January 22, hosted by the VA, as well as one-on-one meetings with VA decision-makers. Now the VA continues its market research to identify qualified vendors, as well as finalizing specifications of the program. In conjunction with this process, the VA has announced publicly, a tentative timeline for the program. This includes an RFP in March, responses due in April, and an award announcement in June 2013. We believe our takeaway environmental return system is uniquely qualified to meet all of the requirements of the program as currently presented. But we're saying this, we can provide no assurances that the VA will launch a program nor select Sharp Compliance as a vendor. Now our pipeline. We're building a solid pipeline of opportunities including significant activities through our joint marketing alliance with Daniels Sharpsmart. Excluding government, our pipeline of targeted opportunities currently exceeds $30 million in annual recurring revenue opportunities with about 60% of this number attributable to alliance type opportunities where both the mail back, pickup service and other services are integrated into the offering. What we've learned over the past few quarters is that we built this pipeline that a significant portion of our large dollar opportunities require the pickup service for some of the locations or facility in order to be able to serve the entire prospective customers. So far, we closed about $600,000 in annual alliance-related business, much of which has launched this month and will possibly impact the March 2013 quarter. We expect the alliance to drive revenue growth and expand opportunities as we transform the company into a comprehensive medical waste management provider for North America. With that, I'd like to turn it over to Diana, who's going to cover the financials in a bit more detail.
- Diana P. Diaz:
- Thank you, David. Gross margin was 29.7% in the second quarter of fiscal 2013, down 490 basis points from the prior-year period. The margin contraction reflected the impact of a number of items, including
- David P. Tusa:
- Thank you, Diana. Before we turn it over to the Q&A, I believe it's important to understand that the company and its growth opportunities have changed. We've evolved from a company selling mail backs, an organization selling comprehensive medical waste management services, while we've always sold regulatory support, program management, customer service in our mail back, the addition of the pickup service complements that offering. I also believe our timing is very good as prospective customers in the market for these types of services are looking for alternative providers as they strive to reduce costs and improve operational efficiency in their current health care environment. And with that, Jesse, let's open it up for questions.
- Operator:
- [Operator Instructions] Our first question comes from the line of Ryan Daniels of William Blair & Company.
- Kristina Blaschek:
- It's Kristina Blaschek for Ryan today. So to start, I wanted to talk a little bit more about the $30 million pipeline and your larger prospects. Can you share a little bit more color on this pipeline and what stage of discussions perhaps you're in with some of the opportunities. We're just trying to get a sense for perhaps timing of some of these opportunities?
- David P. Tusa:
- Let me tell you what we've done. Over the last year, I think, we've done a much better job of capturing the opportunities. We've launched, like many other companies, salesforce.com, and what we did is use this technology is able to allow us to capture all of the opportunities and by many, many different campaigns within each one of those opportunities. There's probably a good $5 million, $6 million of that $30 million that we think are probably in a later stage but that entire pipeline, really, when you look at it from a sales cycle standpoint, it could be some of the opportunities that are smaller, it could be 30 to 60 days, larger opportunities could be a 12-month sales cycle. So we're excited about the pipeline and capturing the opportunity. And at the same time, being able to measure the success along the way. But we're definitely seeing more and more opportunities moving to later stage.
- Kristina Blaschek:
- Okay, great, that's helpful color. And then, I guess moving onto the patient support program, you mentioned you received resupply orders from a patient support program that started in 2012. Can you share some information or data on how that program is going relative to your initial expectations? I guess I'm trying to get a sense for the size of the resupply order relative to the initial program size?
- David P. Tusa:
- Well, they're very -- they're very lumpy. They're lumpy type of orders. We make it -- pharmaceutical manufacturer, then order up $200,000, $300,000, $400,000 in product and then they draw down over -- it could be a 6-month period or 1-year period, just depending upon the patients and the need for the product. We have 1 of our programs where it's a split model where we actually generate some of the revenue on the backside when they return the unit. And I'll just tell you, that one's been a little bit slower than what we had anticipated. So while we had $900,000 in this particular quarter, I think, once they're kind of fully rolled out and up and running and the returns are closer our expectation, as we said, we think it will be about $3 million a year, kind of on an ongoing basis.
- Kristina Blaschek:
- Okay. That's very helpful. And if I could just ask one more if I may. You indicated that the quarterly SG&A run rate will increase about 5% going forward talk to account for increased sales-related personnel and marketing expenditures. Could you talk about the increase investment and if it's focused on any specific market?
- David P. Tusa:
- What it's focused on, first of all, is top-notch quality salespeople, bringing more sales folks into the organization that have experience in our core markets, our core -- all of our key markets. So it could be pharmaceutical manufacturer, retail or it could be markets like assist living long-term care, home health care, all of our traditional and core markets. So we're bringing more people into the organization as we see the opportunities grow and we're taking advantage of salespeople when they come available and we're bringing them into the company. And then also on the marketing side, spending more on the marketing side. I mean, our marketing is all about, Kristina, is just making the market aware of us as a provider of these services. One of the biggest challenges we have is just educate the marketplace if there's an alternative provider out there that can provide the services in a very effective manner and also save them money.
- Operator:
- The next question comes from the line of Kevin Steinke of Barrington Research.
- Kevin M. Steinke:
- Kevin Steinke, Barrington Research. David, just going back to the $30 million pipeline, has that increased significantly since the Daniels relationship and is a lot of that pipeline related to Daniels? I don't know how much you can break it down, but just kind of curious how that's impacted the pipeline?
- David P. Tusa:
- Well, when you look at it year-over-year, it's probably tripled from where it was just a year ago. And you're probably talking about 50% to 60% of that pipeline that's related what I'll call an alliance opportunity, Kevin. And what that means is that means an opportunity where we are providing regulatory support, program management, customer service, the mail back and the pickup for a comprehensive offering. So again, that's probably 50% to 60% of that pipeline, but the pipeline has definitely expanded significantly since we're able to offer the comprehensive services.
- Kevin M. Steinke:
- Okay, great. That's really helpful. Can you just give us an update on Complete Needle Collection & Disposal, how that's progressing, further opportunities that you see there? Just any color you could provide would be helpful.
- David P. Tusa:
- Well, you heard in the -- earlier, that part of the increase in the retail side was a result of the sale of more of the complete needle units which is good. I mean, we sell that throughout most of the retailers. One of the things that we're working on is -- and what we need to improve on is the actual return, the way that works is we -- part of the revenues generated when we sell the unit and other part is sold or is generated when the unit is actually -- the return label is printed and returned to us. That redemption rate is, we believe, is low right now. We're working hard to increase that redemption rate to drive more sales. But we're very pleased with where it is in retail and how we've quickly moved into the retail sector. And it is a product on the shelf in all your major pharmacies. We're working more on what we can do to improve that return redemption rate.
- Kevin M. Steinke:
- Okay, great. Any update on what the pharmaceutical pipeline looks like? Are you continuing to uncover new opportunities in that market?
- David P. Tusa:
- We do. That market probably has the longest sales cycle than any market that we have. Remember, when you're working with a pharmaceutical manufacturer, you're asking them to spend money on their patients that they've never spent before and while many of the states that their patients live, they do have laws requiring proper disposal, you still have to get in and work with pharmaceutical manufacturers and show them that they're going to generate a return on that investment. And that's what we've been able to do back in 2012 with a few programs and we're working with others, it's just a tougher sales, it's a longer sales cycle. So there's a number of them that we're pursuing but those are -- besides government, probably the most difficult to predict timing.
- Operator:
- The next question comes from the line of Brian Butler of Wunderlich Securities.
- Brian J. Butler:
- Just kind of the first question, just thinking of a high-level growth. I mean, through the first half, even after excluding the government contracts or the contract cancellation, growth has been kind of in that 3.5% range. Looking in the second half, just kind of the replacement of the government contract loss, you're somewhere at the 12% level for the third and the fourth quarter. I mean, is that realistic? Is that level of growth kind of out there that can be captured with the spending and the programs you're putting in place right now?
- David P. Tusa:
- I think it's a fair question, Brian. First, let me say this. I'd really be honest with you, I wasn't totally pleased with what we did in the second quarter. It's $5.7 million, our internal expectations were higher than this. It was adversely impacted by a couple of things
- Brian J. Butler:
- Okay, great. And then just kind of looking down at the segments. On the retail side, when you talk about the flu season, maybe you can provide a little bit more color. How is the third quarter for you guys shaping up versus the second, just kind of directionally, is one -- is the third quarter going to be much bigger, I know the second quarter was kind of very good but could you give a little bit more color on that?
- David P. Tusa:
- While we talked about the flu shot season, kind of trailing '12 is the ordering patterns are almost different every, every year. For instance, last year, calendar year, the March quarter of 2012, that's right?
- Deborah K. Pawlowski:
- Yes.
- David P. Tusa:
- That was $1.3 million, $1.4 million, because they were starting to order up in the March quarter for the flu shot season. Now in this March quarter, they may do that again, they may order up in the June quarter, but we will see in the March quarter some pickup just related to the severity of the flu shot season. I think, already, we've already seen in January, about $0.5 million, $400,000, $500,000 in orders that are coming in because of the severity of the flu shot season. So if they order up again early in the March quarter like they did last year, then the March quarter should look really good from a retail standpoint. If they don't do until the June quarter, then it'll be reflected in the June quarter. That's why you really kind of have to look at it on almost a calendar year type basis to see the impact of the flu shot season.
- Brian J. Butler:
- But looking sequentially, it looks like the seasonal impact from the stronger flu season is a little bit stronger in the third quarter. Is that a fair statement at the least?
- David P. Tusa:
- Well, sometimes it is, sometimes it isn't. It just depends. This past quarter, it was the -- past calendar year, it was the March quarter that was a heavy quarter. Traditionally, it's been the September quarter but they seem to be ordering earlier, in the March and June quarters in advance. Most of our customers actually order up in advance, we're shipping to the distribution center, and the distribution centers send it to the stores. We do have one that orders on a real-time basis where we ship it directly to the stores. So again, if they order up early in the March quarter, you'll see an impact in the March quarter and they do it in the June quarter, but again, we really look at it overall from -- on maybe a calendar year to calendar year basis to truly get an impact and kind of smoothing out the effects of the difficulty in the ordering patterns.
- Brian J. Butler:
- Okay. And then also one last on the retail part. Can you give any color on an update on sponsorship programs? Just kind of what's done in the second quarter? And then what the outlook/schedule is, kind of on the mail back programs on the retail side?
- David P. Tusa:
- They started off strong when we did -- we launched that Novo program and we've had a couple of other sponsorships, but it's been kind of slow on the sponsorship. And what we've been doing is encouraging the consumer with $5 off coupons and -- but the sponsorship is not as heavy as what we had hoped for. We're actually redesigning the actual unit itself to stress more about the importance of the -- not throw the unit in the trash and making sure it's returned and returned for the proper treatment. But while we're working on some sponsorship programs, it's been slower than what we had anticipated.
- Brian J. Butler:
- That's fine. Just a couple of hopefully quick kind of housekeeping ones. In your other category on billing and I might have missed this in your prepared remarks. What's in the other again? And what caused that to be down $200,000 in the second quarter?
- David P. Tusa:
- What was the value?
- Diana P. Diaz:
- It's -- some of our other markets are agriculture and some commercial and those usually have a little bit more lumpy ordering patterns quarter-to-quarter.
- David P. Tusa:
- So what did we have? We have a $200,000 order in the other for the prior-year period?
- Diana P. Diaz:
- That's correct.
- David P. Tusa:
- And then we didn't have it this quarter. Again, it's lumpy. So they ordered upfront and we'll see a lumpy order sometime in the future.
- Brian J. Butler:
- All right. And thinking about that further into 2013, I mean, or for all of 2013 is you're still -- is that going to be some growth in that area or is that -- is there something that's just not recurring that's going to be down? I mean, I think you did about $1.1 million in 2012. I'm just trying to see if this is going to be an area that's going to be a drag?
- David P. Tusa:
- I think that you can probably expect a similar number for '13. I don't think you're going to see a significant increase or decrease in that, but it's kind of a catchall for other markets that are not defined in the schedule.
- Brian J. Butler:
- Okay. That's great. That's what I've been looking for and then last, do you have cash from operations number and a CapEx spending number for the quarter?
- David P. Tusa:
- The CapEx is about $0.5 million. And what is it? The EBITDA is $150,000 for the quarter.
- Diana P. Diaz:
- Yes.
- David P. Tusa:
- But we're on track from a CapEx standpoint, as we've always said, that we can run this business with CapEx of $1 million or less and we're on track with that.
- Brian J. Butler:
- Okay. Because it looked you're about cash flow breakeven in this quarter. I mean, just based on where your cash on the balance sheet ended up.
- David P. Tusa:
- It's about -- well, we take the impact of like receivables and payables, I look at it more from an EBITDA standpoint, it's about $150,000 loss, which is essentially breakeven from a cash standpoint from operations.
- Operator:
- The next question comes from the line of Joe Munda of Sidoti.
- Joseph P. Munda:
- Real quick, you guys touched on the RFI, the vet hospital opportunity. Can you remind us, what is the size of that contract opportunity and any idea on the structure of that contract if you guys were to be the choice for that contract?
- David P. Tusa:
- Well, let me tell you what I know. First of all, this is the -- we launched this pilot with the VA in 2010. And what this represents is the potential for the ultimate rollout of that pilot across the Veterans Administration, focused primarily on the takeaway -- from the takeaway envelope, which facilitates the disposal of unused medications. So they issued the first RFI a few months ago and the second one shortly thereafter. And you can -- the RFIs is public and you can find -- it's pretty easy to find, just google consumer medication envelope program and you'll find it on the government website. But when you look at it, what you'll is it's a very comprehensive program. It's much more than just selling envelopes. There's very strict requirements regarding the program and it's designed to make it as easy and most convenient for the veteran. Now -- and by the way, when you find that, when you find the RFI and you read through there, that our program meets or exceeds all the requirements listed in that RFI, I'll say that. Now as far as the structure and the size, we don't really know other than as a benchmark, we know it's about 6 million patients under care by the VA that receives their medications from the VA. So if every one of those 6 million receives 1 envelope a year, it'd be roughly $15 million to $20 million. So you can kind of play with the math and play with the numbers, and if half of them participated, they may receive 2, but that's kind of the, I guess, the total impact if they rolled it out entirely across the VA. So that's all we know. We don't really know anything more than that. Again, we participated in all of the activities and the VA continues to do its market research. We think we're uniquely positioned of this program but we don't -- we won't know until we know.
- Joseph P. Munda:
- Do you know how many other people are competing for this contract?
- David P. Tusa:
- No. The way it works by the way, in both the commercial setting and in the government setting, the groups usually have what's called a strategic acquisition group, a procurement group and really handles it independent from the business folks that are trying to procure their products and services. So they work independently and they're out there working independently of the business folks trying to make sure that they find all vendors that can provide top quality products and services that they're looking for. And so they're pretty tight-lipped about it but we'll more over the next couple of few months.
- Joseph P. Munda:
- Okay. And I have one question for Deborah regarding gross margin. You spoke about some facility expense, I guess, rehabilitating some of the facilities. Are we -- when are -- first of all, how much of that contributed to the gross margin? And second, when is that supposed to go away?
- Diana P. Diaz:
- Well, Joe, this is Diana. The gross margin impact from the treatment facility cost was probably the smallest component with an impact on the gross margin. And just because of the level of our revenue, it will impact gross margin when it comes in. We have periodic maintenance that's out at the facility every other quarter or so and it just so happened that we had some this quarter. There's not anything big going on and so that's -- does that answer your question?
- Joseph P. Munda:
- Yes, that's perfect.
- Operator:
- The next question comes from the line of Wyatt Carr of Monarch Bay Securities.
- Wyatt Carr:
- This is Wyatt Carr with Monarch Bay. The first one, you've talked a lot about this RFI, are you seeing any competition from veteran-owned firms, and do these firms -- are they able to meet their kind of requirements that the VA's mapped in?
- David P. Tusa:
- I really don't know, to be totally honest with you. I do know that they're out there talking to folks that they think that may be able to do this. Again, we know that -- I'll tell you this, we've been selling -- we've probably sold well over 1 million of these envelopes over the last couple of few years into both the retail sector and to the VA. We've been selling them as well to the VA. So we think we're well-positioned, we have a history of success with the VA, we have all the proper facilities and permits and meet all of the requirements. So I really don't know, I just know that we're well-positioned and we meet the requirements of the RFI. But that's no guarantee that, again, that they'll launch a program or they'll select us.
- Wyatt Carr:
- Great, David. And as far as you see it, this is a competitive situation, is that correct?
- David P. Tusa:
- Sure. I mean, anytime, they're the ones with the government, they're going to do what they can to make sure that it's competitive. But I just want to say something else. While this opportunity is important to the company and it would be a large dollar opportunity, we believe it'll be a large opportunity for the company. Although it's important, I think what is even more important than this is the growth of our core businesses. I'm very, very excited about the opportunities in all of our core markets, professional market, from manufacturers, and just all of our core business that we see everyday that's part of that pipeline that I mentioned earlier. I think, while government is important, and it will be a great opportunity for us, I think the long-term value of this company, the growth opportunities for this company are growing opportunities, more and more opportunities and driving revenue in the core business recurring revenue, recurring revenue business. So we're very focused on that, on that core business and we're participating in the government RFI. And again, it will be great to get that business, but we're not losing sight of the growth in the core side.
- Wyatt Carr:
- Got you. And the initiative on aggressive sales and marketing initiatives, what is your sales count personnel at this point and how many do you expect to add?
- David P. Tusa:
- What we have is we have field -- we just added 2 field sales folks, I think we're up to 8 on the field sales. And what the field sales are focusing on larger dollar opportunities. We also have, on inside sales, we have about 6 people on the inside sales. What they're doing is they're fielding inbound and then they're obviously focused on outbound as well, the smaller opportunities that you can sell on the phone. And the other initiative, which is the third initiative, which has been driving significant growth is the Web initiative. Believe it or not, we do quite a bit of business through our Web and we think we've got a great website that captures you, that educates you quickly on the alternative to traditional methods of medical waste disposal. And then moves to sell you, even online, the products and services that can facilitate the medical waste disposal for your business. So really, those 3 are what we're focused on and we want to invest more money. Now we want to add a couple of more people on the inside sales and we're also looking at maybe 1 or 2 more on the field sales and then at the same time, looking to invest more on the Web marketing.
- Wyatt Carr:
- Okay, great. And just my last question. In the quarter, second quarter billings were basically flat and you basically talked about the holiday season and the impact. Was there anything else that was impacting you such as Obama Care or something else that might have caused things to go flat in the quarter sequentially?
- David P. Tusa:
- No, no, no. You're right about professional market, the slowdown in the holiday season. And we also had a large home health care order that if it would've come in 4, 5 days earlier, would generate another couple of hundred thousand in revenue for us. So really, those were the impacts that we saw in the quarter. And again, the growth should have -- with our internal expectations, should have been higher.
- Wyatt Carr:
- Okay. And then for Diana, this is on the -- accounts receivable were up in spite of the revenues being basically flat sequentially, was there something specific going on in the receivables?
- Diana P. Diaz:
- It just relate -- depends on the timing of the sales order whether they came in December, October, November. What that timing is compared to the last balance sheet date, which was June.
- Operator:
- The next question comes from the line of Walter Young of Thompson Davis.
- Walter H. Young:
- My question has 3 parts. And I'm trying to understand the Daniels opportunity and the 3 parts are
- David P. Tusa:
- Okay. Let me hit the first one, Walter. First, the sales cycle. These are larger dollar opportunities where they're individual smaller quantity generators but there maybe 300, 400 of them, it could be 500 of them. So although we talked about it in small quantity, the opportunity obviously is much larger in terms of dollars. Now what drives that sale cycle? It's the contract with their existing provider. So the contract period could be ending, the contract could be 6 month out, it could be a year out but what we find typically is it usually start about 6 months to 1 year before the contract or existing contract expires before they'll start talking to other service providers. So -- and that's what we typically find, if you look at the pipeline, if you look at the opportunities, the larger ones are going to be closer to sales cycle, as long as 6 months, it could be 12, it could be 14 months. Now the smaller ones are usually shorter because they'll agree to talk or accept a proposal much closer to the end date of their existing contract. On the revenue breakdown, let me just address it this way. What we're doing is we're meeting the need of the market and the prospective customer. And what are they looking for? They're looking for regulatory support, compliance, program management. They're looking for customer service and then they're looking for a mail back or a pickup or a combination thereof, which usually in most cases, is a combination thereof. So we put a comprehensive proposal together for the customer, it includes all of that. So as far as the Daniels piece of the -- or our piece of it, it's usually about half, it could be 40%, 50% of it, it could be the Daniels pickup service and the other 50%, 60% of it, it could be all of our services, as well as our mail back. So when we're going after this larger dollar opportunities, that's typically how they look. We're not going to -- we won't go after something where 90% of it is a pickup, we're going after the opportunities where we think we can provide a unique value in that the customer, prospective customer has many different sized facility. And it's the best way to save them money and improve operational efficiency by allowing the smaller facilities to focus on the mail back and the larger ones to focus on the pickup if that's the most competitive -- I'm sorry, the cost effective manner of servicing them.
- Walter H. Young:
- Okay, good. And then this average recurring nature of the contract?
- David P. Tusa:
- Everything we're working on is annuity business. I mean, the generation of medical waste doesn't stop, so when we talk about an annual opportunity, that's annual recurring revenue. For instance, we mentioned earlier that we've closed about $600,000 of alliance-related business, that's recurring revenue. We just -- we look at it or we look at these of what the annual contract value would be.
- Walter H. Young:
- And it couldn't be expanded by 10%, 20% the next year? It's pretty much that's what this contract is?
- David P. Tusa:
- Well, what we typically do is what we do is go in and make a commitment to the customer that our revenue increases as our business grows, maybe they expand and maybe they add 20 or 30 facilities and then the business would grow. We work with them to minimize price increases in administrative and other type charges that you typically see in the industry. So we make a commitment to them over a period of time and we work with them, by the way, very, very proactively to minimize the waste that needs to be treated as medical waste and we have...
- Walter H. Young:
- So are they 1 or 2-year contracts?
- David P. Tusa:
- They could be anywhere from 1 to 3 years and what we have typically seen in our business is that sign-up that we think we'll be very, very happy with the service, the responsiveness and the cost related to this. So we just want to get them to signed up, 1 to 3 years, and I think we've done a great job of being able to retain customers.
- Operator:
- The next question comes from the line of Walter Schenker of MAZ partners.
- Walter Schenker:
- To go off on tangibles, which I'm surprised hasn't been brought up. In talking about the share buyback, the term opportunistic was used, it seems to me that there will be a question at the end. It seems to me that with your stock near its multiyear low, given your growth prospects and having watched many companies announce share buybacks and then do nothing, why wouldn't you just have a regular buyback in place where within certain price parameters, which what many companies do, you're in the market everyday buying stock. And as the price moves up, you can reduce the amount of stock you're buying and it still leaves you the flexibility if there is a block around or something you can buy. I mean, if you want to buy it at $2.5 or you donβt, why wouldn't you be in everyday as opposed to whatever opportunistic means, which I'd be happy to have you explain?
- David P. Tusa:
- Sure. No problem. First of all, the program that we're -- that the board has approved and that we're launching is -- has a lot of regulatory parameters around it. For instance, you can't buy or you can't participate during windows. So for instance, when we announced it, that we really are not able to start buying until about 2 to 3 days after earnings release, which is today. So what -- the way the rules work is a few days after the earnings release, then you can buy and there's parameters, limitations. It's 25% of the average trading volume for the last 4 weeks, exclusive of blocks, which you can purchase one block a week. So we are moving forward with that. And that over the next few days, we'll take a hard look at the share price and make a decision on buying and I expect that we will.
- Walter Schenker:
- Okay. I mean, because those regulatory rules have been in effect for a long time. All companies who do buybacks, in one form or another, live with them. Again, it seems to me that if you are as optimistic as you seem to indicate going forward, and given your stock price, it's hard to understand why having announced that you wouldn't be -- and you haven't done it yet, so I understand, but there'll be another update at the next conference call, in 3 months, to find out what you've actually done. It seems to me you have the opportunity within those parameters everyday to have a broker buying some stock and it would seem to me, within price parameters, you can surely set it up to do that?
- David P. Tusa:
- Well, we are. We're going to do that here in a few days. We're hoping the brokers to do just that.
- Operator:
- The next question comes from the line of Craig Hoagland of Anderson Hoagland and Company.
- Craig Hoagland:
- A couple of quick clarifications. The complete needle product was being stocked in national chains in Q1. Was any of that -- did any of that volume continue to Q2, and are those rollouts now complete?
- David P. Tusa:
- Yes, the rollouts were in all of the major -- we're in all of the major -- in many of the regional retail pharmacies. So it's pretty much everywhere. And I guess, where was the deal, what was it like, what quarter, was it December quarter?
- Diana P. Diaz:
- Well, we were complete with the rollout in the September quarter and we're starting to see reorders at this point. And so it seems to be moving through the retail pharmacies.
- David P. Tusa:
- Go to the diabetic section of your local pharmacy and there's a real good chance you're going to see that complete needle on the shelf.
- Craig Hoagland:
- Right, okay. So definitely, Q1 was the last quarter there were initial stocking orders of size?
- David P. Tusa:
- September quarter, right.
- Diana P. Diaz:
- Yes.
- Craig Hoagland:
- Okay. And in terms of the Pharma business, you've talked previously about approximately $3 million of new programs sold in 2012, and then there were some older programs that might have totaled $1 million a year that were in reorder mode. Are those programs still ongoing? And is there reason to -- if these new programs did run at $3 million, is there reason to expect that based on the current book of business, the pharma revenue would be higher than that?
- David P. Tusa:
- No, no. Once they're fully rolled out, then we expect to see as much as $3 million, and they're all rolled out, not totally, we're not seeing the full impact yet but we still expect to see that.
- Craig Hoagland:
- There were programs that preceded those?
- David P. Tusa:
- There are. There's a few programs that have preceded. We do have a few other ones that we occasionally see, receive stocking orders on.
- Craig Hoagland:
- Okay. So $1 million estimate for those old ones might too high?
- David P. Tusa:
- Probably so.
- Deborah K. Pawlowski:
- Operator, Iβm afraid weβre running out of time. Could you give us one more follow-on question, Craig, and then we can take one more.
- Craig Hoagland:
- Oh sure. I was just curious if you could comment on how the Professional market sales have gone in the month of January?
- David P. Tusa:
- There -- well, I'll just say this. We've -- for the month of January, so far, we have total sales order of, like I said, close to $2 million. We did see a pick up in the Professional side after the December quarter, but we really need to see how February, March rolls out to see how it's going to perform for the quarter. But we definitely did see a pick up after the holiday season.
- Operator:
- And our final question of the day comes from the line of George Walsh of Gilford Securities Incorporated.
- George Walsh:
- David, are there any small quantities, service opportunities with Daniels -- within Daniels' existing customer base at this point?
- David P. Tusa:
- George, there's so many opportunities that we have out there. What we're really focused on is opportunities where there can be significant element between both the mail back and the pickup. And that's where we're focused on. We've got a prospect list and that's what we're really focusing in on first and foremost, rather than trying to maybe pickup some small business from some existing Daniels customers. We need the pipeline for the new opportunities and we have that, neither one of us have a relationship with are much greater.
- George Walsh:
- Okay. And is that -- when you talk about people looking for alternatives, that's what you're focusing on?
- David P. Tusa:
- That's right.
- George Walsh:
- Alternatives, in terms of maybe their current provider and having a combined services, small quantity, pick up and mail back service?
- David P. Tusa:
- That's right. We're -- the contracts may be coming up in for renewal in 6 months to a year. And they're -- we're in there because they're looking for potential alternatives to the existing provider. And by the way, we have situations as well where we come in with the mail back and the pickup. And occasionally, we've also brought in a haz waste provider as well, some of these facilities required hazardous waste disposal, we have an alliance with a haz waste company as well. But What we do is we provide a single point of contact for that customer, they work with us, they work with our sales people, they work with our customer service on all of their needs for the whatever services they need, whether it's a mail back, a pick up, or a haz waste. So they're looking to save money, they're looking for regulatory support and they're looking for a single point of contact, one contract.
- George Walsh:
- And when you speak of pipeline, I mean, what we're dealing with here is the value of some of these contracts if you could -- if they went with an alternative that are up for renewal over the next year or 2...
- David P. Tusa:
- That's right. That's correct.
- George Walsh:
- Okay. So that's the quantification of that over the next -- I think, $30 million you said that would be over the next year?
- David P. Tusa:
- Well, over the next year, 18 months, is generally the time period throughout there. Now and 18 months from now, when their contracts, existing contracts would up for renewal, we have the opportunity. Now we're obviously working with them well in advance of the contract renewal but yes, that's what that represents.
- George Walsh:
- Yes. But that's what you identified and are talking to right now in one way or another?
- David P. Tusa:
- That's correct.
- George Walsh:
- Okay, great. And anything else with Daniels in terms of business moves forward, as you're working together, other expansions of the marketing alliance or how you guys are working together?
- David P. Tusa:
- What we're working on is -- and again, for competitive reasons, I don't want to talk about it much. We're working on a number of different opportunities, all of them in our core business and ones that we think that could capture North America, meaning Canada, as well as the United States. So we're not talking about it too much yet, there's other opportunities we're working on that we think whether it's expanding the relationship with an existing customer that we have or whether it's just launching new programs, we have programs that expand up in Canada as well.
- Operator:
- We have reached the end of our question-and-answer session. At this time, I would like to turn the floor back over to David Tusa for any closing comments.
- David P. Tusa:
- Thank you, Jesse. In closing, I'd like to note that I am regularly amazed with the access that we have as a small company to major organizations and government agencies across the country as a result of the uniqueness of our offering, their recognition of our flexibility and responsiveness and the clear market need for alternative solutions for medical waste and unused medication management. All of us at Sharps are driven every day to close new sales and grow this company significantly. Through all of this, I believe, we have to maintain our entrepreneurial spirit but nonetheless, establish a structure designed for scale. Also to enforce priorities to properly employ our resources. Our board and management team are committed to the continued growth of Sharps and furthering our leadership position in the medical waste management arena. We appreciate your continued interest in Sharps and hope you share our excitement about the potential of the company.
- Operator:
- Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.
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- Q1 (2022) SMED earnings call transcript
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