TRxADE HEALTH, Inc. (MEDS) Q2 2021 Earnings Call Transcript

TRxADE HEALTH, Inc.  (NASDAQ: MEDS) Q2 2021 earnings call dated Jul. 26, 2021

Corporate Participants:

Howard Doss — Chief Financial Officer

Suren Ajjarapu — Chief Executive Officer

Analysts:

Allen Klee — Maxim Group — Analyst

Gene Mannheimer — Colliers Securities — Analyst

Howard Halpern — Taglich Brothers — Analyst

Presentation:

Operator

Good afternoon, ladies and gentlemen, thank you for standing by. Welcome to TRxADE HEALTH’s Second Quarter 2021 Earnings Conference Call. [Operator Instructions] Following the presentation, the conference will be opened for questions. The earnings press release accompanying this conference call was issued at the close of the market today. The quarterly report, which includes additional information regarding the Company’s results of operations for the quarter ended June 30, 2021 was filed with the SEC earlier today.

On our call today is TRxADE HEALTH’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’d 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 second quarter 2021 financial results conference call. Our press release announcing our second quarter financial results was issued after the close of the market today and is posted on our website. We’ve also furnished such press release to the SEC on Form 8-K.

Statements made on this call and webcast include forward-looking statements. These statements include, but are not limited to, our outlook for the Company and statements that estimate or project future results of operations or the performance of the Company, including the potential continued impact of COVID-19 on the Company’s business and results of operations. These statements speak only as of the date hereof and the Company assumes no obligation to revise any forward-looking statements that may be in today’s press release, call or webcast.

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

In addition, during today’s call and webcast, we will discuss non-GAAP financial measures, which we believe are useful to supplement measures of TRxADE’s performance. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP results. You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results, in our earnings press release.

Unless otherwise stated, all financial comparisons in this call will be to our results for the comparable period of fiscal 2020.

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

Suren Ajjarapu — Chief Executive Officer

Thank you, Howard. 2021 has been a year of foundation building, as we continue to drive our telehealth innovation, supporting the core strength of our pharmaceutical exchange platform. Despite the ongoing challenges to the pharmaceutical supply chain posted by the COVID-19 pandemic, we were able to drive strong incremental margin growth, while working to position the Company for future success in its complementary telehealth business segments. In addition, our exciting suite of affiliated services from our exchange platform to comprehensive telehealth solution continue to broaden our reach as a company empowering independent pharmacies with the 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 the Company, I’d like to walk you through who we are, 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 timing efficient process with no insight or transparency into a fair market price or what others are paying for the same drug. Traditional wholesalers would provide unfavorable payment terms, slow delivery and create a difficult conundrum for approximately 21,000 independent pharmacies nationwide.

We identified this market inefficiency as well as the incredible potential in these independent pharmacies, which together maintained around $73.7 billion in annual purchasing power and proceeded to large TRxADE. We designed, own and operate a business to business web-based market platform bringing together the nation’s independent pharmacies with 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 amongst suppliers leads up to a 10% reduction in a pharmacy’s total annual drug purchasing 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 or fulfilling a prescription at a loss.

Our revenue model is simple. We’re paid an administrative fee of up to 6% of the buying process on generic pharmaceuticals and up to 1% on brand pharmaceuticals that pass through our pharmaceutical platform similar to PayPal or Visa like model. To date, we have seen incredible success in garnering attention from independent pharmacies nationwide, validating our business model.

We currently have around 12,700 plus registered numbers on our platform with approximately 195 new registered members added in Q2. To further grow the exchange, we have begun to partner with group purchasing organizations, also known as GPOs, which allow us to secure dozens, if not hundreds of pharmacies at once. These GPO agreements can result in pharmacies purchasing a majority of their pharmaceutical from TRxADE rather than a smaller portions as many do, giving them an outsized impact on our transaction volume, therefore revenue growth. We announced our first GPO deal with QualityCare in May 2021, a GPO spanning 10 states and expect to land additional GPOs in the coming months. We expect these GPOs will continue to drive pharmacies to purchase more products to the platform.

We have leveraged our significant success since the launch of the aforementioned marketplace to move into additional complementary business, where we can leverage our strong retail pharmacy network and core competency in technology. These include Bonum Health, our telehealth subsidiary as well as the mail order performance and RX distribution.

In 2021, we are focused on driving forward adoption channels to broaden the reach of our Bonum Health Telehealth partnerships, signing strategic partnerships with the brand name nationwide stores such as Big Y, Kinney Drugs, ProAct, Brookshire Grocery and SpartanNash and most recently, Winn-Dixie to build a truly national platform of partners to complement our immense independent pharmacy network. Approximately 500 stores offer Bonum Health services to thousands of users in all 50 states, and we expect a continued growth in the quarters to come in, as we ramp up our strategic partnerships and anticipate an increasing number of employers turning to our turnkey telehealth solution.

Bonum Health Telehealth in the second quarter had approximately 7,724 application downloads with an approximately 6.3% patient registration rate. The total application downloads for the year at over 12,900 with an approximately 6.8% patient registration rate. Many of our relationships are still in the rollout phase, but we expect these numbers to increase into 2022. 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 business directly into the Bonum Health virtual electronic medical records, and remote patient monitoring. These product enhancements, paired with our digital marketing strategy that we are ramping up, provide us with accelerated access into new key markets alongside our enterprise retail partners.

Our new subsidiary, MedCheks, which has developed a health passport app, has encountered headwinds, as the government, local, national and international continue to change the requirements regarding COVID-19, which include testing and mask mandates. We’re evaluating the next steps needed for any additional rollouts at this time.

On the capital market fronts, we were proactive throughout the second quarter of 2021, attending two investor conferences: the LD Micro Invitational and the Planet MicroCap Showcase, all with the goal of enhancing broader investor awareness of our bar growing [Phonetic] company.

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

Howard Doss — Chief Financial Officer

Thank you, Suren. Revenues for the second quarter of 2021 were $1.9 million, as compared to revenues of $6.6 million in the same quarter last year. The decrease in revenue was primarily due to non-recurring sales of personal protective equipment (PPE) in 2020 related to the COVID-19 pandemic. The supply chain disruption continued to affect the wholesaler supply of generic drugs. This has an effect on revenue from the platform where brands carry a lower fee than generics. The brand percentage of products through the platform increased in Q2, which has a direct effect on the revenue.

Gross profit in the second quarter of 2021 totaled $0.8 million, or 44.3% of revenues compared to gross profit of $2.0 million or 30.4% of revenues in the same quarter last year. The increase in gross profit percentage was a result of a greater percentage of the revenue from TRxADE platform in 2021. In 2020, the larger share was from PPE sales, which carry a lower percentage gross margin.

Operating expenses in the second quarter of 2021 were $3.4 million, compared to $2.5 million in the same quarter last year. This change is primarily due to an inventory investment loss of $1.2 million in the current period.

Net loss in the second quarter of 2021 was $2.6 million, or $0.32 per basic and diluted share outstanding, compared to a net loss of $0.5 million or $0.07 per basic share outstanding in the same quarter last year. Adjusted EBITDA, a non-GAAP financial measure, was negative $1.2 million for 2021 second quarter compared to positive $0.27 million in the same quarter last year.

Looking at the balance sheet, cash and cash equivalents were $4.5 million as of June 30, 2021 compared with $5.2 million as of March 31, 2020.

I’ll now turn the call back to Suren for closing comments.

Suren Ajjarapu — Chief Executive Officer

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

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] And our first question is from Allen Klee with Maxim Group. Please proceed with your question.

Allen Klee — Maxim Group — Analyst

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

Suren Ajjarapu — Chief Executive Officer

Sure. Allen, that’s a great question. Thank you. First and — first, let me answer your pandemic question. Still as India — most of the generics comes from the Indian subcontinent and some of the APIs come from the Chinese country. So, as we still see on the variance — Delta variant is prevalent in those countries, we still see the supply chain issues. But at the same time on the demand side, usually in the month of June and before the prices goes up in July, the more brand sales happen. As you’ve seen, our branded percentage revenue is less than 1% versus the generic, so we got double whamming on that revenue front for the pandemic, and as well as the supply chain.

Your second question is where we can see the GPO. As we started in May 2021 this partnership, it takes a little time to understanding the process and show them the value. So we try to see probably towards end of this 2021 and beginning of 2022.

Allen Klee — Maxim Group — Analyst

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

Suren Ajjarapu — Chief Executive Officer

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

Allen Klee — Maxim Group — Analyst

Thank you so much. I’ll jump back and ask some questions later.

Suren Ajjarapu — Chief Executive Officer

Sure. Thank you.

Operator

[Operator Instructions] Our next question is from Gene Mannheimer with Colliers Securities. Please proceed with your question.

Gene Mannheimer — Colliers Securities — Analyst

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

Suren Ajjarapu — Chief Executive Officer

Sure, Gene. I will address it, and let Howard also tag along after that. If you look at the sales volume from our first quarter to the second quarter, we definitely see an increase of the percentage. But when compared to the revenues, it has dropped down because of — as I mentioned, blended rate. I think we are close to 3% in the blended rate. And that’s the reason, if you three times — 3% of the $1.9 million is the actual revenue that you’re getting.

Howard, do you want to add anything else?

Howard Doss — Chief Financial Officer

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

Gene Mannheimer — Colliers Securities — Analyst

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

Suren Ajjarapu — Chief Executive Officer

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

Gene Mannheimer — Colliers Securities — Analyst

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

Suren Ajjarapu — Chief Executive Officer

Yeah. As I mentioned, we have a lot of headwind for the MedCheks specifically, because if you look at the Florida or other states, you cannot ask any whether it’s an employers or whether restaurants, you have a penalty, almost like a $5,000 if you ask, have you taken a vaccination. With that kind of a political environment and mask mandates maybe coming in the future, we see a lot of headwinds, but our revenue model is per scan basis. But right now, if [Indecipherable] sponsored even app stores or not, we are live in Apple, but still having struggles with Android to make it up and running unless until it is mandated by the government.

So to answer your question, it’s a per scan basis. The revenue model did not change for the vaccination, but our eventual growth, you will see it in the heath passport carrying the health records and so on and so forth. That probably pushed all the way through 2022 towards the end of it.

Gene Mannheimer — Colliers Securities — Analyst

Okay, great. Thanks again.

Suren Ajjarapu — Chief Executive Officer

Thank you, Gene.

Operator

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

Howard Halpern — Taglich Brothers — Analyst

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

Suren Ajjarapu — Chief Executive Officer

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

Howard Halpern — Taglich Brothers — Analyst

And in terms of — I know you’ve made a lot of IT investment in the first half of the year, is that — is that going to continue at the same rate, or should we model down a little bit that type of expense in the second half of the year?

Suren Ajjarapu — Chief Executive Officer

As we’re tapering it down, yes, there will be less expenses. But if you look at the balance sheet to be cleaned up most of our non — if you look at the non-GAAP based things that we have wrote write-offs, a lot of the amount, but not the IT infrastructure development and IT investments that we’re doing for the future growth of these products or so. It may tapper down a little bit, but not that much.

Howard Halpern — Taglich Brothers — Analyst

Okay. And just for my understanding on the GPOs, that’s going to be under the TRxADE platform and carry the same type of margins or percentage — percentage of the transactions, or is it going to be more negotiated?

Suren Ajjarapu — Chief Executive Officer

It should be carrying, if it’s there on the platform. The gross margin should be the same, because it’s a tech platform, we won’t be carrying any inventory at that time.

Howard Halpern — Taglich Brothers — Analyst

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

Suren Ajjarapu — Chief Executive Officer

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

Howard Halpern — Taglich Brothers — Analyst

Okay.

Howard Doss — Chief Financial Officer

Yeah, we don’t really give the number of the dollar volume that goes through the system, but we had a — we had higher volume going through the system in the second quarter than the first quarter and transactions as well.

Howard Halpern — Taglich Brothers — Analyst

Okay. Okay. Thanks, guys.

Operator

Your next question is from Allen Klee with Maxim Group. Please proceed with your question.

Allen Klee — Maxim Group — Analyst

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

Suren Ajjarapu — Chief Executive Officer

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

Allen Klee — Maxim Group — Analyst

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

Suren Ajjarapu — Chief Executive Officer

I’ll answer that in two-fold. One, when we started this business in the beginning of this year, there were 21,000 independent pharmacies. As we look at after six months, actually independent pharmacies — from 2020 — sorry, March of 2020 to today, actually new independent pharmacies number have increased. So the number of independent pharmacies increased.

And at the same time, as we are focusing for a platform on the clinic side and clinical like podiatrist and other smaller regional chains. So we expect to grow not only at the pharmacy side, we should expect to go on to this clinical side of the business also. To answer your question, what do we see. It is — as I mentioned, it’s supply chain issue, but it’s coming out of the pandemic and the business should go back to normalcy towards the end of the year unless until Delta variant has a majority impact locally here and as well as internationally.

Allen Klee — Maxim Group — Analyst

Great. Thank you so much.

Operator

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

Suren Ajjarapu — Chief Executive Officer

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

Operator

[Operator Closing Remarks]