TRxADE HEALTH, Inc. (MEDS) Q3 2021 Earnings Call Transcript

TRxADE HEALTH, Inc. (NASDAQ: MEDS) Q3 2021 earnings call dated Oct. 25, 2021

Corporate Participants:

Howard Doss — Chief Financial Officer

Suren Ajjarapu — Chief Executive Officer

Analysts:

Allen Klee — Maxim Group — Analyst

Howard Halpern — Taglich Brothers — Analyst

Nathan Weinstein — Aegis Capital — Analyst

Presentation:

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to TRxADE HEALTH’s Third Quarter 2021 Earnings Conference Call.

[Operator Instructions] The earnings press release accompanying this conference call was issued at the close of the market today. The quarterly report, in which includes additional information regarding the Company’s results of operations for the quarter ended September 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 third quarter 2021 financial results conference call.

Our press release announcing our third quarter financial results was issued after the close of market today and is posted on our website. We also have 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 made in today’s press release, call or webcast. These statements do not guarantee future performance and are subject to the 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-Q, including the Form 10-Q for the third quarter, 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 2020.

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 would 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.

We saw strong margin improvement as our revenue base returned to the core TRxADE pharmaceutical exchange platform in the third quarter, seeing an expected drop-off in the first-time personal protective equipment sales recognized in 2020, which were driven by the initial onset of the COVID-19 pandemic.

Our nationwide footprint continues to grow. We have relentlessly focused on exciting new ways to expand proportional wallet-share within our large, growing network of independent pharmacy members, while better enabling them to service their respect customers, the end-users, further growing their loyalty to their local retail pharmacy.

Our telehealth subsidiary, Bonum Health, has continued to grow as well, building a foundation that we believe we can build upon for years to come, not only offering an advanced telehealth offering, but concurrently allowing consumers to retain their own healthcare data in a secure, compliant manner. This provides an exciting opportunity, leveraging our large, established national footprint of retail partners to drive the growth.

Before we do a more detailed walk through our financial and operational results for the quarter, for those of you new to the Company, I’d like to walk you through the who we are, how we are digitalizing the retail pharmacy experience to the optimization of drug procurement, prescription journey and patient engagement.

Prior to the launch of TRxADE obtaining drug cohorts as an independent pharmacy was extremely laborious, time-inefficient process where there’s no insight or transparency into 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 $74 billion in annual purchasing power and proceeded to launch TRxADE.

We design, own, 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’re receiving a fair price from competing suppliers and a fair terms and often with next day delivery. We believe this radical price transparency, economy of scale and competition amongst the suppliers leads up to a 10% reduction in pharmacy total annual drug purchase costs with a drug level savings of up to 90% on some 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 are paid an administrative fee of up to 6% of the buying price on a generic pharmaceutical 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 over 12,950 registered members on our platform with approximately 250 new registered members added in the third quarter alone.

To further grow the exchange, we have begun to partner with the group purchasing organizations, also known as GPOs, which will allow us to secure dozens, if not, hundreds of pharmacies at once. These GPO agreements can results in pharmacies purchasing a majority of their pharmaceutical from TRxADE rather than a smaller portion as may 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. We expect these GPOs will continue to drive pharmacists to purchase more products on the platform.

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 Bonum Health, our telehealth subsidiary, as well as the mail order pharmacy and RX Solutions [Phonetic].

In 2021, we are focused on driving forward adoption channels to broaden the reach of our Bonum Health telehealth partnerships, signing strategic partnerships with brand name nationwide stores such as Winn-Dixie, Kinney Drugs, ProAct, Brookshire Grocery Company, SpartanNash and most recently Big Y Foods, 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. We expect to continue to grow in this — in coming quarters to come as we ramp up our strategic partnerships, and we anticipate an increasing number of employers turning into our turnkey telehealth solution.

Bonum Health telehealth in the third quarter had approximately 5,925 application downloads, within approximately 18.7% patient registration rate. The total application downloads for the year are over 18,750, with an approximately 10.6% patient registration rates.

Many of our relationship 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 ability to streamline patient lab results directly into Bonum Health virtual electronic medical records and remote patient monitoring.

In addition, Bonum Health recently launched prepaid digital telemedicine passes, providing an innovative new way for uninsured consumers to gain access to vital healthcare services, all while concurrently streaming the path for organizations to efficiently gift health care to those in need. We believe that these product enhancements, paired with our digital marketing strategy that we are ramping up, provide us with an accelerated access into new key markets alongside our enterprise retail partners.

On the capital markets front, we were proactive in recent months, attending four premier investor conferences, the Colliers 5th Annual Investor Conference, H.C. Wainwright 23rd Annual Global Investment Conference, the Benzinga Healthcare Conference and the LD Micro Main Event, all with the goal of enhancing broader investor awareness of our more growing company.

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

Howard Doss — Chief Financial Officer

Thank you, Suren.

Revenues for the third quarter of 2021 were $2.6 million as compared to revenues of $1.9 million for the second quarter of 2021, which increase was a result of our TRxADE Prime program. Revenues for the third quarter of 2020 were $6.3 million. The decrease from 2020 was a result primarily of one-time non-recurring sales of personal protective equipment in 2020 relating to the COVID-19 pandemic that did not continue in 2021.

Gross profit in the second [Phonetic] quarter of 2021 totaled $1.3 million or 50.2% of revenues compared to gross profit of $1.9 million or 30.5% of revenues in the same quarter last year. The significant increase in gross profit margin was a result of less lower margin PPE sales in 2021.

Operating expenses in the third quarter of 2021 were $2.6 million compared to $1.8 million in the same quarter last year, primarily as a result of IT development and marketing investments made in Bonum Health and an allowance for bad debts of $630,000.

Net loss in the third quarter of 2021 was $1.3 million or $0.16 per basic and diluted share outstanding compared to the net profit of $0.1 million or $0.02 per basic share outstanding in the same quarter last year. The decrease was due in part to an allowance for bad debts of $630,000. The Company had an accounts receivable with a single customer for the amount of $630,000, which was past due and executed a note receivable, which was due on September 30, 2021, which was not paid. The Company has reviewed its policies and does not anticipate additional allowances.

Adjusted EBITDA, a non-GAAP financial measure, was negative $0.5 million in the third quarter of 2021 compared to a positive $0.7 million in the same quarter last year.

Looking at the balance sheet, cash and cash equivalents were $3.6 million as of September 30, 2021, compared with $4.5 million as of June 30, 2021. Cash decreased mainly due to increased spending for the IT development, then marketing in Bonum Health, MedCheks Health Passport, DelivMeds and TRxADE Prime.

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

Suren Ajjarapu — Chief Executive Officer

Thank you, Howard.

In summary, we are focusing on inking exciting new strategic partnerships to drive forward our core business while diversifying our revenue base and leveraging our existing strengths through Bonum Health. Taken as a whole, I think we are building an incredibly compelling healthcare ecosystem, allowing consumers access to affordable healthcare while building an exciting value proposition for our shareholders. 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’ll turn it over to the operator to begin the question-and-answer sessions. Operator?

Questions and Answers:

Operator

Thank you, sir. [Operator Instructions] Your first question comes from the line of Allen Klee with Maxim Group. Please proceed with your question.

Allen Klee — Maxim Group — Analyst

Good afternoon. For the group purchasing organization partnership, could you explain a little bit more about that? It seems like you have an opportunity to get a much higher percentage of the drug sales, but could you explain a little more in terms of, are you exclusively on that? And is it dependent on the run-off of contracts with the big three wholesalers? How to think about how that could flow into revenues and profits? Thank you.

Suren Ajjarapu — Chief Executive Officer

Sure. Thanks, Alan. That’s great question. The GPO program, you’re absolutely correct, the revenues can be increasing and we have not entered into the contracts yet, because we — the process is still going on. But our goal is to enter into contracts with these pharmacies, so that we can become their primary in an essence, so that higher percentage of their sales could go through our platform. To consider the numbers, again, average pharmacy that does $3 million to $3.5 million annual revenue, they can buy $250,000 to $300,000 worth of drugs per month. And that’s where we are going after through the GPO program.

Allen Klee — Maxim Group — Analyst

Thank you. And then my follow-up question is on the TRxADE Prime segment. You showed good sequential improvement. Could you talk about in terms of the issue that you had in the past with supply challenges of generic drugs? How — maybe how the total volume of drug sales were? And I know the Biden administration is working on some things to try to improve drug sourcing and they actually said that with the whole supply chain thing they’re working on. So, maybe your thoughts on how this issue is going to work itself out? Thank you.

Suren Ajjarapu — Chief Executive Officer

Sure. We still continue to see that supply issues with that TRxADE Prime actual list price on the supply chain issues, because some of these wholesalers still have an access to the drug, and that’s what you might have seen a percentage of the platform revenue might have gone down, because we are able to push to more brands versus generics. So, we continue to see the supply chain issues and hope that will be elevated and shot coming quarters.

Allen Klee — Maxim Group — Analyst

Thank you.

Operator

[Operator Instructions] Your next question comes from the line of 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

When — you talked about incorporating, I guess, electronic health records into the Bonum platform. Is that your own technology that you’re bringing into the platform that you’ve developed or is it an outside technology?

Suren Ajjarapu — Chief Executive Officer

No, that’s great question again, Howard. As I mentioned earlier, the MedCheks is all about the health records accessibility. I mean we’re trying to put under the — I know it’s granted that the current scenario is a vaccination report and COVID test results, but those considered as a healthy records. So, it’s obvious that we need to put underneath on Bonum Health, because we’ll be able to access your health records when you’re talking to the telemedicine doctor. So, that’s the reason MedCheks will automatically flow under the Bonum Health using our own technology to carry these health records. As I mentioned, that’s — MedCheks has been developed on blockchain so that you can able to give easily access to one doctor to other doctor. So you have your own — control on your own health records, so that you can take care of your well-being. That’s our intent.

Howard Halpern — Taglich Brothers — Analyst

Okay.

Suren Ajjarapu — Chief Executive Officer

So, to answer your ask a question, yes, it’s our own technology. Thank you.

Howard Halpern — Taglich Brothers — Analyst

Okay. And just my second question is just sort of a recap based on past history. Should we be looking at the fourth quarter have a seasonal dip in revenue due to the holiday season compared to third quarter results? Is that going to go back to historic norms like that?

Suren Ajjarapu — Chief Executive Officer

Yeah, it will go back to the historical norms. Yes, you’re absolutely pointed out. Most of these pharmacies take towards the end of the quarter, pretty much they shut down probably December 20th to rest of the year. Yeah, we see the same historically same flat revenue as from the last call.

Howard Halpern — Taglich Brothers — Analyst

Okay. I just wanted to make sure. Okay, thanks.

Operator

Your next question comes from the line of Nathan Weinstein with Aegis Capital. Please proceed with your question.

Nathan Weinstein — Aegis Capital — Analyst

Hey, good afternoon, and thanks so much for taking my question. I just saw a great improvement in gross margins. I think that was, thanks in large part to the mix, but maybe you can speak to how we might think about margin progression ahead notwithstanding any of the seasonal factors that were raised in the prior question?

Suren Ajjarapu — Chief Executive Officer

Sure. As we continue to increase our platform sales, the margin will try to sustain. But if you add to our GPO program that we will have a cost of goods so that may dip into the gross margin, but we try to have the balance between our technology platform revenue versus our GPO revenues. But our intent is to make pharmacies to come onto our platform buy and it’s all about the per wallet share per month is the one that we focus on. So we try to maintain that margin, but sometimes the pressure comes from our GPO, the cost of goods may drop that gross margin.

Nathan Weinstein — Aegis Capital — Analyst

Okay. Fair enough, and I appreciate the color.

Operator

Your next question is a follow-up from Allen Klee with Maxim Group. Please proceed with your question.

Allen Klee — Maxim Group — Analyst

Hi. For the Integra Pharma segment, it’s not profitable today. Can you give us an update on what the strategy is there? And is there a path to move that to breakeven or profitability?

Suren Ajjarapu — Chief Executive Officer

So as — the Integra Pharma is nothing but our TRxADE Prime. So, originally we brought the TRxADE Prime model is we want to help our independent pharmacies, trying to deal with multiple invoices, multiple package boxes that are coming in during the day. So, our model there TRxADE Prime is one invoice and one payment model, and that’s where we continues to thrive on that TRxADE Prime. And as we started off very small and then having infrastructure costs half eaten away, that infrastructure costs are added up to the loss-making proposition, but eventually towards the third quarter or fourth quarter, we try to see profitability in that TRxADE Prime.

Allen Klee — Maxim Group — Analyst

Thank you. One other follow-up question. For Bonum Healthcare you have partnerships with the bunch of chains that are implementing, but you also have an opportunity to sell it to your own independent pharmacies that you have as customers. How are you pursuing trying to get penetration with your own independent pharmacies?

Suren Ajjarapu — Chief Executive Officer

So, it’s — fundamentally we launched Bonum Health to support and help our independent pharmacies. If we even look at the most recent purchase by [Phonetic] Walgreens of the VillageMD for $5.2 billion for 60%, we want to make and give this independent sustainability in the long run, even though we’re partner with other smaller chains, but all our focus is empowering our independents. We continue to do constant marketing and help them to recreate our brand pack. That means we create their website. We give them all the help that they need, so that they can drive their patients to those websites.

Allen Klee — Maxim Group — Analyst

Okay. Thank you so much.

Operator

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

Suren Ajjarapu — Chief Executive Officer

Thank you, operator. I will also like to thank you all of you for joining 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 would be more than happy to assist. Please also note that 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 more information regarding the financial information disclosed on this call and webcast, including a non-reconciliation or non-GAAP financial information, can be found on our press release, which we filed after the close of the market today.

Thank you all.