Trxade Group Inc. (MEDS) Q1 2021 Earnings Call Transcript

Trxade Group Inc. (NASDAQ: MEDS) Q1 2021 earnings call dated Apr. 26, 2021

Corporate Participants:

Howard Doss — Chief Financial Officer

Suren Ajjarapu — Chief Executive Officer

Analysts:

Allen Klee — Maxim Group — Analyst

Gene Mannheimer — Colliers — Analyst

Howard Halpern — Taglich Brothers — Analyst

Presentation:

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to Trxade Group’s First Quarter 2021 Earnings Conference Call. [Operator Instructions] Following the presentation, the conference will be open for questions. The earnings press release accompanying this conference call was issued at the close of market today. The quarterly report, which includes the Company’s results for operations for the quarter ending March 31, 2021 was filed with the SEC today.

On our call today is Trxade Group’s Founder, Chairman and Chief Executive Officer, Suren Ajjarapu; and Howard Doss, its Chief Financial Officer. The replay of this call and webcast will be available for the next 30 days on the Company’s website under the NASDAQ MEDS link. The Company’s website also includes more supporting industry information.

At this time, I would like to turn the call over to Howard Doss, the Company’s Chief Financial Officer. Howard, the floor is yours.

Howard Doss — Chief Financial Officer

Thank you, operator, and thank you for joining us today.

I’d like to welcome you to our first quarter 2021 financial results conference call. Our press release announcing our first quarter financial results was issued after the close of market today and is posted on our website. We have furnished such press release to the SEC on Form 8-K. Statements made on this call and webcast, including forward-looking statements. These statements include but are not limited to our outlook for the Company and statements that estimate or project future results of operations or the performance of the Company including the potential impact of COVID-19 on the Company’s business and results of operations. These statements speak only as of the date hereof and the company assumes no obligation to revise any forward-looking statements that may be made in today’s press release call or webcast.

These statements do not guarantee future performance and are subject to risks, uncertainties and assumptions. Please refer to the press release and the risk factors and documents we file with the Securities and Exchange Commission, including our most recent quarterly report on Form 10-Q for information on risks, uncertainties and assumptions that may cause actual results to differ materially from those set forth in such statements.

In addition, during today’s call and webcast, we will discuss non-GAAP financial measures, which we believe are useful as supplemental measures of Trxade’s performance. These non-GAAP measures should be considered in addition to and not a substitute for or in isolation from GAAP results. You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results in our earnings press release. Unless otherwise stated all financial comparisons in this call will be our results for the comparable period of fiscal 2020.

At this time, I’d like to turn the call over to Suren Ajjarapu, the Company’s Chief Executive Officer. Suren, the floor is yours.

Suren Ajjarapu — Chief Executive Officer

Thank you, Howard. 2020 was the breakthrough year for our more grinding health services IT company. As we continue to innovate, grow and expand our platform company and then that growth continued into the first quarter of 2021. We saw a 39% year-over-year growth in the first quarter of 2021 despite the ongoing challenges caused by the COVID-19 pandemic. I’m extremely proud of our team for their tireless efforts to drive forward our business, positioning us for success in the near term.

In addition, our exciting suite of affiliated services from our comprehensive telehealth solution to digital health passports enabling a safe reopening with an attractive pay-per-scan business model, continue to broaden our reach as a company, empowering independent pharmacies with technology to make them indispensable local health hubs.

Before we do a more detailed walk through of our financial and operational results for the quarter, for those of you new to this company, I’d like to walk you through who we are, how we are digitalizing the retail pharmacy experience through the optimization of the drug procurement, the prescription journey and patient engagement. Prior to the launch of Trxade, obtaining drug cohorts as an independent pharmacy was an extremely laborious and timing efficient process and a more inside our transparency into a fair market price for one of those who are paying for the same drug. Traditional wholesalers would provide unfavorable payment terms, slow delivery, create a difficult conundrum for approximately 1,000 independent pharmacies nationwide.

We identified this opportunity as well as an incredible potential in these independent pharmacies, which took us maintain around $73.7 billion in annual purchasing power proceeded to launch Trxade. We designed, own and operate a business to business web-based market platform bringing together the nation’s independent pharmacies with aggregator national pharmaceutical suppliers to provide a uniquely efficient and transparent buying and selling process. Our platform lets independent pharmacies know that they are receiving a fair price from competing suppliers and a fair payment terms and often with next day delivery service.

We believed this radical price transparency, economy of scale and competition amongst suppliers leads up to a 10% reduction in a pharmacy’s total annual drug purchase costs, the drug level savings of up to 90% on certain pharmaceutical products. Our platform saves pharmacists from having to manually compare prices across distributors, saving hundreds of hours of unnecessary labor annually and eliminating negative reimbursement for fulfilling a prescription at a loss. Our revenue model is simple, they are paying an administrative fee of 6% of the buying price on a generic pharmaceutical and up to 1% on brand pharmaceuticals and pass through our pharmaceutical platform similar to PayPal or Visa like model.

Today, we have seen incredible success in garnering attention from independent pharmacies nationwide validating our business model. We currently have around 12,100 plus registered members on our platform, with 223 new registered members added in Q1. We have leveraged our significant success since the launch of aforementioned marketplace platform to move into adjacent complementary business where we can leverage our strong retail pharmacy network and core competency in technology. These include our Bonum Health, our telehealth subsidiary, as well as the Milagros Pharmacy [Phonetic] and Rx Distribution which acts as an enabling infrastructure for Bonum Health business to business platform.

With that, we have been anything but idle in 2021 and have been pounding the pavement to broaden the reach of our Bonum Health partnerships, signing strategic partnership with the brand name nationwide stores such as Kinney Drugs, ProAct, Brookshire Grocery Company, SpartanNash and most recently, Big Y Foods, to build a truly national platform. Approximately 500 plus stores offer Bonum Health services to thousands of users in all 50 states and we expect continued growth in the quarters to come as we ramp up strategic partnerships and anticipate an increasing number of employers turning to our turnkey telehealth solution.

We continue to integrate exciting new solutions into the Bonum Health offering, including a direct-to-patient prescription drug coupon platform through our partnership with SingleCare. The capability to stream patient lab results directly into the Bonum Health virtual electronic medical records, and remote patient monitoring. These product enhancements, paired with our digital marketing strategy, which we are ramping up, provide us with accelerated access into the new key markets alongside our enterprise retail partners.

I’m particularly pleased to announce our new subsidiary MedCheks, the next important step in our paid income branding of leading IP Health services companies. MedCheks will offer digital Health Information Solutions, starting with the Health Passport app that’s being launched as a peace of mind solution to safely and securely reopen the global economy. To add up MedCheks, we brought on-board technology expert, expert James Ram, there is no one better suited than James as he has leadership experience in the travel, tourism, national security and location-based entertainment industry. Under his leadership, the MedCheks digital Health Passport will leverage well state of the art encryption and blockchain technology to conceal all private health data allowing the secure exchange of information between passport holder and verifier.

We are evaluating initial rollout locations domestically and internationally with the pay-per-use model. I think we all will agree that the MedCheks would be a significant revenue driver in 2021. As we continue to scale exciting new affiliated services such as our telehealth platform on our recently announced digital Health Passport initiatives, we anticipate continued top-line growth in the coming quarter. On the capital markets front, we were proactive throughout the first quarter of 2021 attending four investor conferences, the HC Wainwright Global Lifescience Conference, the Roth Growth Conference, Maxim Group Emerging Growth Conference and the Planet MicroCap Showcase, all with the goal of enhancing broader investor awareness of our Company.

I’d like to now turn the call over to our Chief Financial Officer, Howard Doss to walk through some key financial highlights and the first quarter of 2021.

Howard Doss — Chief Financial Officer

Thank you, Suren.

Revenues for the first quarter of 2021 increased 39% to $3.1 million as compared to revenues of $2.2 million in the same quarter last year. The increase in revenue was primarily due to higher sales by the company’s Integra Pharma Solutions subsidiary. Gross profit in the first quarter of 2021 totaled $1.4 million or 45% of revenues compared to gross profit of $1.6 million or 74% of revenues in the same quarter last year. The decrease in gross profit was primarily attributable to the cost of personal protective equipment related to product sold in the current period, while the revenues from the Trxade platform have no cost of sales.

Operating expenses in the first quarter of 2021 were $2 million compared to $1.5 million in the same quarter last year. This change is primarily due to IT development, legal expenses and marketing expenses related to the recently launched Bonum Health and MedCheks platforms. Net loss in the first quarter of 2021 was up $0.7 million or $0.08 per basic and diluted share outstanding compared to net income of $0.2 million or $0.03 per basic share outstanding in the same quarter last year.

Adjusted EBITDA, a non-GAAP financial measure decreased 244% to negative $0.5 million for the first quarter compared to positive $0.4 million in the same quarter last year. Looking at the balance sheet, cash and cash equivalents were $5.2 million as of March 31, 2021 compared with $5.9 million as of December 31, 2020. We do not currently foresee a need for further capital to support our business. I’ll now turn the call back to Suren for closing remarks.

Suren Ajjarapu — Chief Executive Officer

Thank you, Howard. Throughout the year, we continue to drive forward our business achieving several key milestones, in our internal roadmap with a focus on innovation and development to our various complementary growth opportunities. We believe we are incredibly well position as we stand today. First to monetize several emerging revenue streams, in addition to the steady progress made by our high margin core exchange platform. This is an exciting time for Trxade and I look forward to a growth through operational execution in the months ahead, as we see — as we seek to create sustainable long-term value for our shareholders.

With that I’ll turn it over to the operator to begin the question-and-answer session. Operator?

Questions and Answers:

Operator

Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions] Thank you. Our first question comes from Allen Klee with Maxim Group. Please proceed with your question.

Allen Klee — Maxim Group — Analyst

Good afternoon. It was good to see the number of new pharmacy customers that is dropping to the bottom line total number, I’m assuming that means that you’re not seeing kind of the attrition you saw last quarter but focusing on the Trxade platform segment. Could you talk about what you’re hearing from your customers in terms of the impact of the pandemic on kind of a less sales volume in light of flu and cold season but how the outlook would be for them of spending for drugs going forward and the outlook to kind of be adding new pharmacies? Thank you.

Suren Ajjarapu — Chief Executive Officer

Sure. Good afternoon, again. Thanks, Allen. That’s a good question. But it is still an impact of COVID, there is a lot of supply chain disruptions especially these pharmacies make a lot of money on the generics that make worry less on the brand. So they have to different on the brand sales versus generic sales, we saw that in the first quarter we probably may continue to see in the second quarter, probably that can change depending on how it’s going to impact as you guys are seeing. The biggest generic manufacturers are in India, currently, there is a big impact from COVID in India and other raw material comes from China has also impact.

So to answer your question, we may see — continue to see this COVID impact, but the outlook is probably towards the third and fourth quarter and going into 2020 as we keep on doing the vaccinations here domestically as well as in India and other parts. We see the outlook is improving.

Allen Klee — Maxim Group — Analyst

Okay, thank you. I’ll go back in the queue and ask some questions later. Thank you.

Operator

Thank you. Our next question comes from Gene Mannheimer of Colliers Securities. Please proceed with your question.

Gene Mannheimer — Colliers — Analyst

Thanks, good afternoon, Suren, Howard. Hey, of the 12,100 members that you talk about, how many of those are actively generating revenue today?

Suren Ajjarapu — Chief Executive Officer

We continue to see positive activity, if you go all 90 days, probably around 8,000 to 9,000. But even if it takes us 12 to 15 months even though they sign up as a member before they actually buy on to our platform.

Gene Mannheimer — Colliers — Analyst

Okay. Okay, helpful to understand that. And you touched on this briefly with the last question, but I mean I do note your platform revenue was down sequentially in the year-on-year. You talked about COVID impact there. So I’m just wondering has there been any change in your take rate or your administrative fee that you collect on the platform to account for the revenue decline.

Suren Ajjarapu — Chief Executive Officer

So as you’re aware about, our administrative fee is 5% on the generic side and less than 1% on the brand. So the more the pharmacies brand more brand, our revenue will fall even though the topline transactional volume may increase, but our revenue will fall. So it’s, whether if they add more generics, we make the more revenues as the brand drugs.

Gene Mannheimer — Colliers — Analyst

Okay. So, you’re suggesting then if I’m hearing you right that due to the COVID situation in India and elsewhere, there was a bias toward more branded drugs in the quarter, so therefore you wouldn’t, you wouldn’t collect as much on those. Is that right?

Suren Ajjarapu — Chief Executive Officer

That’s correct.

Gene Mannheimer — Colliers — Analyst

Okay, great. And with respect to the PPE revenue, which looks to be the majority of the revenue in the Integra units this latest quarter. My sense was that that was winding down as it was — those types of sales weren’t something you necessarily wanted to be in that business but it looks like that there was a resurgence of that in the quarter. So I’m just trying to, for modeling purposes, trying to understand where that number is going to wind up for the balance of the year? Any help you can provide there would be great. Thanks.

Suren Ajjarapu — Chief Executive Officer

Sure. Gene that’s not the majority chunk. I’ll let Howard answer but it’s more still 70%, 75% [Technical Issues] came from our traditional platform which was only 20% or 22% revenue came from our PPE sales. So it’s winding down whatever we left off on the inventory would get thrown off that, so we’re not actively pursuing any PPE business and we still stick to core to our technology business, that’s the reason if you look at from the last quarter to this quarter, our gross margin improved from 30, mid 30s to now 45%. So we’re faring away in the PPE business as we focus on the technology side.

Gene Mannheimer — Colliers — Analyst

Okay. Great, thank you.

Suren Ajjarapu — Chief Executive Officer

Thank you.

Operator

[Operator Instructions] Our next question comes from Howard Halpern with Taglich Brothers. Please proceed with your question.

Howard Halpern — Taglich Brothers — Analyst

Good afternoon, guys.

Suren Ajjarapu — Chief Executive Officer

Good afternoon, Howard.

Howard Halpern — Taglich Brothers — Analyst

So with the spending on technology and marketing, should we continue to anticipate, now this $2 million in SG&A — SG&A costs to be maintained throughout the next couple of quarters.

Howard Doss — Chief Financial Officer

Yeah, as we are continuing to put investment into the our — both the platform, Bonum Health and MedCheks that’s how we are positioned, yes, unless until they start generating cash with our expenses is a little bit. Correct.

Howard Halpern — Taglich Brothers — Analyst

Okay. And you know now you have, I guess 500 stores offering Bonum Health, with all your efforts going on, when do you really see everything starting to gel in and gain some meaningful revenue in — for Bonum Health and then I guess MedCheks will follow after that.

Suren Ajjarapu — Chief Executive Officer

So the bottom Howard, even though we engage this pharmacies for the 500 stores, now, it’s the actual time these stores are actually pushing to their existing customer base. Talking about Bonum Health, when they’re walking into the stores, that’s where it’s a product that we introduced into the stores and at the same time the stores also introduces a new product. That’s the reason you haven’t seen any of those revenues in — by the way in the first quarter or we don’t anticipate in next couple of quarters probably towards the end of the year. We’ll try to see the revenues and downloads and so on and so forth improvements taking our traditional independent pharmacies plus these chain stores as I mentioned Kinney and SpartanNash and Big Y and those kind of stuffs.

Howard Halpern — Taglich Brothers — Analyst

Okay. So, so basically as we enter, I guess the end of the year and into next fiscal year, you anticipate the revenue generated from these high-margin areas will produce you will have the leverage that you’ll get towards operating income and GAAP profitability in 2022.

Suren Ajjarapu — Chief Executive Officer

That’s what we hope, and we are trying to continue to improve our bottom line. Correct.

Howard Halpern — Taglich Brothers — Analyst

Okay, okay. Well, keep up the good work, guys.

Howard Doss — Chief Financial Officer

Thank you, Howard.

Operator

Thank you. Our next question comes from Allen Klee with Maxim Group. Please proceed with your question.

Allen Klee — Maxim Group — Analyst

Hi, yeah, going back to Integra, I was just trying to understand, you said that 75% came from your traditional platform. Did you imply by that that the growth in Integra came from the traditional more than from PPE and then also on that, last quarter you talked about the new offering of Trxade Prime and you had some startup costs associated with that. Could you talk about kind of how that went for the quarter?

Suren Ajjarapu — Chief Executive Officer

Sure the Trxade Prime is still at the nascent stage, so that we need to still need to get some licenses like VAWD which is called VAWD where it continues to go into that salaries and what not. So that’s the reason you haven’t seen the big impact of the Trxade Prime but there is some revenue, but it’s the — the program has not fully has taken in shape. We anticipate that it will take in shape in second and third quarters.

Allen Klee — Maxim Group — Analyst

Okay. But the increase in the first quarter from Integra Pharma, did this come from the 70% to 75% traditional type or was it —

Suren Ajjarapu — Chief Executive Officer

Yeah, when I mentioned on a total 100% revenue, 70% to 75% is our traditional B2B platform data revenue and remaining 20% to 25% is created from Integra, then 100% PPE out of the Integra, so Integra traction — Integra has some revenues were a little PPE and the platform revenue of B2B that comprises 100% of our revenue of $3.1 million.

Allen Klee — Maxim Group — Analyst

Okay, great. And then with Bonum Health, you talked about adding two new features to with streaming the lab results to your electronic medical records and remote patient monitoring, could you go into that a little bit more specific like what this does for customers and what you’re actually doing with Patient Monitoring?

Suren Ajjarapu — Chief Executive Officer

So those programs are still under development. But eventually, what, where we are going with this is, for example, the patients are taking the tests, testing, COVID testing and as well as the vaccination even though metrics offers a full blown vaccination but sometimes we go into the clinics or doctors’ offices. Those are those that will be updated and at the same and remote monitoring is — some of these doctors, they need to do for the Medicare patient they have to visit the patient, 15 to 18 times. Those are the things, especially in the COVID area that they want to, the doctors monitoring them remotely and they are using the Bonum Health remote monitoring tool.

So that’s still under development. Hopefully the second quarter we will see the actual remote monitoring using Bonum Health in these doctor’s offices.

Allen Klee — Maxim Group — Analyst

Okay, great. And then last question on community — your community segment, can you just give us an update of where, where that stands and how you’re making out with getting state licenses.

Suren Ajjarapu — Chief Executive Officer

Sure. As I mentioned on the Community Specialty pharmacies, we’re going to use that as a new product line as our beat our best right and it’s continuous currently we have around four state licenses and we are in the process of getting up 30 to 35 state licenses for that.

Allen Klee — Maxim Group — Analyst

Okay, great, thank you so much.

Suren Ajjarapu — Chief Executive Officer

Thanks Allen.

Operator

Thank you. There are no further questions at this time. I would like to turn the call back to Suren Ajjarapu, Chief Executive Officer for any closing comments.

Suren Ajjarapu — Chief Executive Officer

Thank you, operator. I would also like to thank you all of you joining for our earnings conference call. We look forward to continuing to update you on our ongoing progress and growth. If we are unable to answer any of your questions, you can talk to our IR firm MZ Group, who will be more than happy to assist. Thank you all.

Operator

[Operator Closing Remarks]