TRxADE HEALTH Inc. (MEDS) Q1 2022 Earnings Call Transcript

TRxADE HEALTH Inc.  (NASDAQ: MEDS) Q1 2022 earnings call dated May. 09, 2022

Corporate Participants:

Janet Huffman — Chief Financial Officer

Suren Ajjarapu — Founder, Chairman and Chief Executive Officer

Analysts:

Howard Halpern — Taglich Brothers — Analyst

Allen Klee — Maxim Group — Analyst

Robert Smith — Center for Performance Investing — Analyst

Presentation:

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to TRxADE Health’s First Quarter 2022 Earnings Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. Earnings press release accompanying this conference call was issued at the close of the market today; the quarterly report, which includes additional information regarding the company’s results of operations for the quarter ended March 31, 2022, was filed with the SEC earlier today.

On our call today is TRxADE Health’s Founder, Chairman and Chief Executive Officer, Suren Ajjarapu and Janet Huffman, 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’d like to turn the call over to Janet Huffman, the company’s Chief Financial Officer. Janet, the floor is yours.

Janet Huffman — Chief Financial Officer

Thank you, operator, and thank you for joining us today. I’d like to welcome you to our 2022 first quarter financial results conference call. Our press release, announcing our 2022 first quarter financial results, was issued after the close of market today. It is posted on our website. We have also furnished such press release to the SEC on Form 8-K.

Statements made on this call and webcast include forward-looking statements. These statements include, but are not limited to, our outlook for the company, and statements that estimate or project future results of operations or the performance of the company, including the potential continued impact of COVID-19 on the company’s business and results of operations. These statements speak only as of the date hereof and the company assumes no obligation, except as required by law, 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 filed with the Securities and Exchange Commission, including our most recent quarterly report on Form 10-Q and any subsequently filed periodic report, or current report on Form 8-K 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 as a substitute for or in isolation from GAAP results. You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results at the end of our earnings press release.

Unless otherwise stated, all financial comparisons in this call will be to our results for the comparable period of fiscal 2021. During the question-and-answer portion of today’s call, please limit yourself to no more than one question and one follow up.

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 — Founder, Chairman and Chief Executive Officer

Thank you, Janet.

We saw revenue improvement in our first quarter results for 2022 and our revenue base continues to return to the core TRxADE pharmaceutical exchange platform and away from the one-time personal protective equipment sales driven by the initial onset of the COVID-19 pandemic. Our nation-wide footprint continues to grow, as we relentlessly focus on exciting new ways to expand proportional wallet share within our large growing network of registered users while better enabling them to service their respective customers, their end users, further growing their loyalty to their local retail pharmacy.

Before we do a more detailed walk through of financial and operational results of the 2022 first quarter, for those of you who are new to the company, I would like to walk you through who we are and how we are digitalizing the retail pharmacy experience through the optimization of 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 time-inefficient process with no insight and transparency into a fair market price, or what others are paying for the same drug. Traditional wholesalers will provide unfavorable payment terms, slow delivery, and create a difficult conundrum for approximately 19,400 independent pharmacies nation wide. We identified this market inefficiency, as well as the incredible potential in the independent pharmacies, which together maintain an estimated approximately $67.1 billion in annual purchasing power and proceeded to launch TRxADE.

We design, own and operate a business-to-business, web-based market platform, bringing together the nation’s independent pharmacies with an accredited 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.

We believe this radical price transparency, economy of scale and competition among suppliers leads up to a 10% reduction in pharmacies’ total annual drug purchase costs with a drug level savings of up to 90% on certain pharmaceutical products. Our platform saves pharmacies from having to manually compare prices across the distributors, saving hundreds of hours of unnecessary labor annually and eliminating negative reimbursement of fulfilling a prescription at a loss.

Our revenue model is simple. We are paid an administrative fee of up to 6% of the buying prices of the generic pharmaceutical and up to 1% on the brand pharmaceuticals that 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 over 13,400-plus registered members on our platform with approximately 340 new registered members added to the first quarter of 2022, compared to 223 in the first quarter of 2021.

Another exciting growth metric on our TRxADE platform includes a 25% increase in sales volume processed across our platform in the first quarter of 2022, compared to the same quarter in 2021. TRxADE Prime has also experienced exciting growth in the first quarter of 2022. Comparing the first quarter of 2022 to 2021, reflects an increase in the number of orders processed by approximately 300% and units sold increased over 500%. We expect this growth to continue in 2022, as we expand our customer base to medical facilities and into the veterinarian-based [phonetic] industry.

In February 2022, the company announced a new venture with Exchange Health, LLC, SOSRx, LLC, a pharmaceutical market platform. This new venture SOSRx is an exciting addition to the TRxADE and provide additional availability to short-dated and overstocked that would otherwise be subjected to destruction. Our SOSRx market place brings the manufacturers and wholesalers together, providing an efficient and transparent buying and selling process. The TRxADE and SOSRx marketplaces deliver radical price transparency, economy of scale, competition that benefit the independent pharmacies and the wholesalers while expanding the selling potential for such market participants. We believe that TRxADE and SOSRx platforms provide the opportunity to deliver more affordable prescription costs for consumers. TRxADE anticipates growth in this joint venture in 2022, as more progressive manufacturers are expected to address the public need for enhanced medication accessibility and reliable supply of cost-effective pharmaceuticals.

In the capital market front, we continue to be proactive and presented at the Maxim Virtual Growth Conference on the panel, Technology Improving Healthcare, held on March 30. I’ll also be attending LD Micro Invitational, which will be held June 7 through June 9. We attended these conferences with a goal of enhancing broader investor awareness of our company.

Now, I would like to turn the call over to our Chief Financial Officer, Janet Huffman, to walk through some key financial strengths from the first quarter of 2022.

Janet Huffman — Chief Financial Officer

Thank you, Suren. Let us discuss the first quarter 2022 results.

Revenues for the first quarter of 2022 increased 6% to $3.2 million, compared to revenue of $3.1 million in the same quarter last year. The increase in revenue was primarily due to revenue generated by the TRxADE platform and TRxADE Prime. Gross profit in the first quarter of 2022 decreased 3% to $1.3 million or 41.2% of revenues, compared to $1.4 million or 45.3% of revenues in the same quarter last share. The decrease in gross profit is a result of Integra Pharma Solutions or TRxADE Prime.

Operating expenses in the first quarter of 2022 were $2.3 million, compared to $2 million in the same quarter last year. This increase was due primarily to increased salary and wages and legal expenses in the first quarter of 2022. Net loss in the first quarter of 2022 was $1 million or $0.12 per basic and diluted share outstanding, compared to $0.7 million or $0.08 per basic and diluted share outstanding for the same quarter in 2021. Adjusted EBITDA, a non-GAAP financial measure, decreased to negative $0.7 million, compared to negative $0.5 million in the same quarter last year.

Looking at our balance sheet, cash and cash equivalents were $1.9 million as of March 31st, 2022, compared with $3.1 million as of December 31st, 2021. The decrease in cash was primarily due to our IT initiatives, investments in our new venture with SOSRx, increased salaries and wages and increased legal expenses for the first quarter of 2022.

With that, I will turn the call back to Suren for closing remarks.

Suren Ajjarapu — Founder, Chairman and Chief Executive Officer

Thank you, Janet.

In summary, we’re focusing on exciting new strategic partnerships to drive forward our core business while diversifying our revenue base. Taken as a whole, I think we are building an incredible compelling healthcare ecosystem, allowing consumers access to an affordable healthcare while building an exciting value proposition for our stakeholders. I look forward to seeing what the future holds as we continue our rapid pace of operational execution, creating sustainable long-term value for my fellow shareholders.

With that, I will 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]

One moment, please. Your first question comes from the line of Howard Halpern with Taglich Brothers. Please proceed with your question.

Howard Halpern — Taglich Brothers — Analyst

Congratulations on the quarter. Top line results were good. My question is in regards to — I guess, both TRxADE and Integra were the Prime offering. Do you see sequential growth occurring from this point forward in those two segments?

Suren Ajjarapu — Founder, Chairman and Chief Executive Officer

Thank you, Howard, first of all.

Yes, that’s what our aim and we continue to see more TRxADE. I think this is the first time we have released our earnings and given you the volume increase on our platform and the number of orders and number of buyers on our TRxADE Prime. Those metrics, we will continue to provide going forward. So, I think you’ll see in our new press release those metrics also.

Howard Halpern — Taglich Brothers — Analyst

And my follow up would be – is there a way — now that you’re starting to gain volume and traction with customers in the Prime offering, is there a way to maybe improve gross profit margins in that segment?

Suren Ajjarapu — Founder, Chairman and Chief Executive Officer

That’s our growth. But, as you are aware, some of the TRxADE Prime, the shipping costs are a little bit higher because of — as you know every industry is affected by the inflation. So, we may see that. Probably, we cannot comment on that. But, all our anticipation of increasing that gross profit probably towards the third quarter or fourth quarter, how the economy behaves, inflation, and the transportation costs, I’ll be able to give you more definitive answer on that.

Howard Halpern — Taglich Brothers — Analyst

Okay. So, for right now, low-40s to mid-40s in gross margin is a safe bet going forward until things, sort of, normalize in the economy?

Suren Ajjarapu — Founder, Chairman and Chief Executive Officer

Yes.

Howard Halpern — Taglich Brothers — Analyst

Okay. I will jump back in the queue.

Suren Ajjarapu — Founder, Chairman and Chief Executive Officer

Thank you.

Operator

[Operator Instructions].

One moment, please. Your next question comes from the line of Allen Klee with Maxim Group. Please proceed with your question.

Allen Klee — Maxim Group — Analyst

Yes, hi. So, for the venture with Exchange Health, SOSRx, help us understand how — when we’re going to see — and how we should expect — when the contribution from that could be material in 2022?

Suren Ajjarapu — Founder, Chairman and Chief Executive Officer

Sure. Thanks, Allen.

We just started that in February. We may not see towards the end of the year or beginning of next quarter of that impact because, as I mentioned, it’s a technology platform, got to educate both manufacturers and wholesalers or a big box chain, kind of grocery chains, and stuff like that. So, we’ll continue to create adoption for our technology. But, probably towards the end of this year or beginning of next year, we’ll see the results.

Allen Klee — Maxim Group — Analyst

Great. And then, kind of the same question on Bonum Health and group purchasing organizations?

Suren Ajjarapu — Founder, Chairman and Chief Executive Officer

We still have to see some of the traction and we continue to pound on those group purchasing organizations. The product availability is the key for them to jump into the marketplace, as they’re aware because they want to buy 100% through us. We may see that results coming towards the second quarter also — sorry — third quarter and fourth quarter.

Allen Klee — Maxim Group — Analyst

Okay. Thank you so much.

Suren Ajjarapu — Founder, Chairman and Chief Executive Officer

Thank you.

Operator

Your next question comes from Robert Smith with Center for Performance Investing. Please proceed with your question.

Robert Smith — Center for Performance Investing — Analyst

Good afternoon, thanks for taking my call. My question is — so, first, can you give me an idea with the continuing losses and diminishing cash, how you would think about financing your growth strategies?

Suren Ajjarapu — Founder, Chairman and Chief Executive Officer

Thanks, Robert. We continue to operate as far as the new technology investment that we’re doing, probably, we look for — as I mentioned, the growth towards our existing platform will support our new initiatives.

Robert Smith — Center for Performance Investing — Analyst

Yes, but your cash position continues to decline. So, what are your strategies for financing the growth of the business and running continuing losses? I mean, where you’re going to get that capital from?

Suren Ajjarapu — Founder, Chairman and Chief Executive Officer

I think we have an existing capital base that will sustain us going forward. So, we’ll keep looking at other avenues at this time. But, right now, we’re not looking to do any capital raise.

Operator

Your next question is a follow up from Howard Halpern with Taglich Brothers. Please proceed with your question.

Howard Halpern — Taglich Brothers — Analyst

Just I noticed when I was looking at the queue that revenue in the specialty pharmacy area dipped a little bit. Was that just a one-time event, or was there an event that caused that to happen and it’s going to rebound back to normalcy because you’ve been sort of flat normally going in and around that. And this time, it dipped a little bit.

Suren Ajjarapu — Founder, Chairman and Chief Executive Officer

Yes. Going forward, as I mentioned, our focus is primarily for our marketplace and then TRxADE Prime. The reason for that reduction — maybe the first quarter or the last month of the March, it’s a one-time dip. I don’t see it — pretty much, it’s flat. But, it’s — 100% TRxADE Health is focusing on the platform marketplace for the existing wholesaler to pharmacy and going forward also the manufacturers to the wholesaler, both will be — our marketplaces with the the highest priority for us.

Howard Halpern — Taglich Brothers — Analyst

And one just follow up on that. Do you — with the focus now, what you’ve talked about the TRxADE platform, are operating expenses — where are they going to normalize down to – around that $.2 million area or a little bit less than that going forward? Are you able to make that adjustment?

Suren Ajjarapu — Founder, Chairman and Chief Executive Officer

I think as we’ve all seen, the salary increases, wage increases to keep the sustainability to meet the existing inflation had an effect on our employee salaries and stuff. So, I think that’s — normally, it just needs around $2 million range.

Howard Halpern — Taglich Brothers — Analyst

Okay, thanks.

Suren Ajjarapu — Founder, Chairman and Chief Executive Officer

Thank you.

Operator

Ladies and gentlemen, we have reached the end of the question-and-answer session, and I’d like to turn the call back to Mr. Suren Ajjarapu for closing remarks.

Suren Ajjarapu — Founder, Chairman and Chief Executive Officer

Thank you, operator.

I would also like to thank all of you for joining our earnings call today. We look forward to continuing to update you on our ongoing progress and growth. If we are unable to answer any of your questions, please reach out to our IR department, who would be more than happy to assist. For any of you who may have joined the call in progress, remember, 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, and that more information regarding the financial information are disclosed on this call and webcast, including reconciliation of our non-GAAP financial information can be found in our press release, which we filed after the close of the market today. Thank you, all.

Operator

[Operator Closing Remarks]