TRxADE Health Inc (MEDS) Q3 2022 Earnings Call Transcript

TRxADE Health Inc (NASDAQ:MEDS) Q3 2022 Earnings Call dated Nov. 07, 2022.

Corporate Participants:

Janet Huffman — Chief Financial Officer

Suren Ajjarapu — Founder, Chairman and Chief Executive Officer

Analysts:

Allen Klee — Maxim Group — Analyst

Howard Halpern — Taglich Brothers — Analyst

Presentation:

Operator

Good afternoon and welcome to TRxADE Conference Call. All participants will be in a listen-only mode. [Operator Instructions]. Please note this event is being recorded today.

Today, with us, we have Suren Ajjarapu, Howard Doss, and Janet Huffman. I would now like turn the conference over to the speakers. Please go ahead.

Janet Huffman — Chief Financial Officer

Thank you, operator, and thank you for joining us today. I’d like to welcome you to our 2022 third quarter financial results conference call. Our press release announcing our 2022 third quarter financial results was issued after the close of market today and 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 will 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, increased interest rates and inflation 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.

For information on risks, uncertainties and assumptions that may cause actual results to differ materially from forward-looking statements, please refer to the press release, risk factors and documents we file with the Securities and Exchange Commission. These documents include, but are not limited to, our most recent quarterly report on Form 10-Q and any subsequently filed periodic report or current report on Form 8-K.

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 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 continue to see improvement in 2022 for our core TRxADE pharmaceutical exchange platform. Our nationwide footprint continues to grow and we remain committed to the focus of exciting new ways to support our large growing network of registered users.

With the development of technology and product for our local pharmacies, we are dedicated to supporting these pharmacies with new innovative products that better enable them to service their customers and strengthen loyalty to their local retail pharmacy.

On October 25th, we announced our strategic business-to-business partnerships with multiple insurance brokerage firms to offer access to telemedicine services for small-to-medium employer groups.

In September, we announced our partnership with the Wakefern Food Corp. to deploy telemedicine services throughout ShopRite pharmacy-led locations in New Jersey, New York, Pennsylvania, Connecticut, and Maryland. These new partnerships in the third quarter of 2022 helped provide affordable and convenient access to their healthcare services. They also provide exciting new innovative partnerships to assist us in growing our local retail pharmacy business.

Before we do a more detailed walk-through of financial and operational results of the quarter, for those of you who are new to the company, I’d 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 codes as an independent pharmacy was an extremely laborious, time inefficient 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 the approximately 19,400 independent pharmacies nationwide.

We identified this market inefficiency as well as the incredible potential in these 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 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 on favorable payment terms often with a next day delivery. We believe this radical price transparency, economy of scale and competition amongst suppliers lead up to a 10% reduction in a pharmacy’s total annual drug purchase costs with a 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 are paid an administrative fee of up to 6% of the buying price on generic pharmaceuticals and up to 1% on brand pharmaceuticals that pass through our pharmaceutical platform, similar to a PayPal or Reselect [Phonetic] model.

Today, we have seen incredible success in garnering attention from independent pharmacies nationwide, validating our business model. We currently have over 14,100 plus registered members on our platform, with approximately 291 new registered members added in the third quarter of 2022 compared to 195 for the third quarter of 2021.

Another exciting growth metric on our TRxADE platform includes an 18% increase in the volume of sales process across our platform in the third quarter of 2022 compared to the same quarter in 2021.

Subsequent to the third quarter on October 7th, we closed the sale of approximately 1.75 million of common stock, pre-funded warrants and warrants. The net cash proceeds to the company were approximately $1.5 million. The company plans to use the cash proceeds for working capital and to execute a strategic growth plan for our TRxADE platform and TRxADE product. The full details of information regarding the transaction can be found in our Form 8-K filed with the Securities and Exchange Commission on October 7, 2022.

I’d like to now turn the call over to our Chief Financial Officer, Janet Huffman, to walk-through some key financial highlights from the third quarter of 2022.

Janet Huffman — Chief Financial Officer

Thank you, Suren. Let us discuss third quarter 2022 results. Consolidated revenue for the third quarter of 2022 decreased 6% to $2.4 million compared to revenue of $2.6 million in the same quarter last year. This decrease in revenue is driven by the TRxADE Prime and Community Specialty Pharmacy subsidiaries. The revenues generated by the TRxADE platform increased 6% in the third quarter of 2022 as compared to the same quarter in 2021.

Although TRxADE Prime experienced an 11% decline in revenue for the third quarter of 2022 compared to the same quarter in 2021, there were several other important metrics that we work to improve.

In the third quarter, we adjusted the TRxADE Prime sales platform, implementing automation software and executing on initiatives to reduce overhead expense and improve gross margin. Initiatives to improve gross margin included improved vendor pricing and vendor partnership.

The result of this focus was improved gross margin to a positive 3% compared to a negative 6% for the comparable third quarters of 2022 and 2021, respectively. Initiatives to reduce overhead expense included software automation and employee restructuring. As a result of these changes, overhead expense was reduced 68% for the third quarter of 2022 compared to the same quarter in 2021.

Moving forward, the company is working to grow TRxADE Prime revenues with the foundation of reduced overhead and improved gross margins.

The revenue decrease for Community Specialty Pharmacy in the third quarter of 2022 as compared to the same quarter in 2021 is partially driven by decreased sales in the last week of September due to Hurricane Ian.

Gross profit in the third quarter of 2022 increased to $1.4 million or 58% of revenue as compared to $1.3 million and 50% of revenue in the third quarter of 2021. The improved gross margin is due to the increased revenues generated by the TRxADE platform and the improved gross margins of TRxADE Prime.

Operating expenses in the third quarter of 2022 were $1.8 million compared to $2.6 million in the same quarter last year. The expense decrease for these comparable periods is partially due to a $630,000 bad debt expense recorded in the third quarter of 2021, increasing operating expenses for 2021 as compared to 2022.

Other drivers are the 2022 decreased operating expenses in TRxADE Prime previously discussed and approximately $164,000 of bad debt recovery from the amounts written-off in 2021.

Net loss in the third quarter of 2022 was negative $0.5 million or negative $0.06 per basic and diluted share outstanding compared to a negative $1.3 million or negative $0.16 per basic and diluted share outstanding for the same quarter in 2021.

Adjusted EBITDA, a non-GAAP financial measure, was negative $0.4 million compared to positive $0.7 million in the same quarter last year.

Looking at our balance sheet. Cash and cash equivalents were $0.3 million as of September 30, 2022 compared with $3.1 million as of December 31st, 2021. The decrease in cash is mainly driven by spending and salaries and wages, $875,000 spent for inventory purchases for Community Specialty Pharmacy in May of 2022, $225,000 spend as part of a legal settlement in February of 2022, and $275,000 in connection with the formation of SOSRx, LLC in February 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 affordable healthcare by 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 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. [Operator Instructions]. Our first question comes from Allen Klee, Maxim Group.

Allen Klee — Maxim Group — Analyst

Good afternoon. And a good job on margins and cost control. For TRxADE Prime, can you talk a little strategically of how you think about where it’s going to go from where it is now in terms of — do you expect to grow the top line or lower it? And is there more opportunity on the margin side? And how does this some — explain again how this helps your customers. Thank you.

Suren Ajjarapu — Founder, Chairman and Chief Executive Officer

Yeah, that’s a great question, Allen. Thank you for your comment on the gross margin. Our focus is not only the top line. We would like to focus on the gross margin as well as the bottom line also. And that’s the reason we retooled our systems that we implemented artificial intelligence that can adjust the pricing and make sure the customers are well taken care.

Currently, the pharmacies have to spend time, go to their primary vendors first, then come back to our side searching. Through our TRxADE Prime model where we can able to give that access to the pharmacies before they can go to the primary contract, they can come on to our platform and search the drug and we can redirect what kind of product they can buy on our platform, what kind of product they can go back to their primary. That way, they can see upfront what kind of product availability and margins that they can make, at the same time increases our TRxADE Prime sales.

Allen Klee — Maxim Group — Analyst

That’s great. Thank you. And then, are there any update on Bonum Health? Any metrics you could provide? And then, maybe how you think about — with this Wakefern-ShopRite partnership, how you’re thinking about rolling that out? Thank you.

Suren Ajjarapu — Founder, Chairman and Chief Executive Officer

So we’re still at a nascent stage on Bonum. As I mentioned, originally that we brought in Bonum Health to empower our independent pharmacies, to compete against these box chain stores that are out there like Walgreens and CVS, that traction is still not 100% up to our expectations. We’re still trying to struggle through that model. And I think as we mentioned in the second quarter, we’re looking for alternative ways and means of getting that Bonum Health, try to find a strategic buyer or strategic joint venture opportunities. We’re still trying to give that access to our independent pharmacies.

Allen Klee — Maxim Group — Analyst

Okay, thank you. I’ll get back in the queue and let other people. And then [Technical Issues]. Thank you.

Suren Ajjarapu — Founder, Chairman and Chief Executive Officer

Thanks, Allen.

Operator

Our next question comes from Howard Halpern, Taglich Brothers.

Howard Halpern — Taglich Brothers — Analyst

Again, congratulations on the margins. That was nice to see. But in terms — follow-on with Bonum Health. Your engagement of insurance brokerage firms, is that potentially going to have a faster uptake than the pharmacy partners? Is it more geared to maybe small private businesses that might engage in Bonum Health?

Suren Ajjarapu — Founder, Chairman and Chief Executive Officer

That’s an excellent point, Howard. Yes, that’s our intention to go after uninsured, less than 50 people employee groups. So, that’s where we’re trying to push through this insurance brokerage firms that are already serving those self-insured or an employer like — uninsured employer groups, and that’s our hope and that’s the reason we pivoted into this brokerage firms versus the chain drug stores.

Howard Halpern — Taglich Brothers — Analyst

And can you talk a little bit about where — I know it’s early, but how the development of SOSRx joint venture is going. And when do you anticipate things to really starting to get rolling in it?

Suren Ajjarapu — Founder, Chairman and Chief Executive Officer

Yeah. The concept was good, but the adoption is still struggling because the manufacturers are not used to dealing this kind of electronic platform. So they’re still going through the traditional opportunities or traditional way of doing business.

If you look at it as like a TRxADE when we started our company back in 2010, it took us three years before we can get a first customer. Similar fashion, SOSRx is there. The traction won’t be there if we don’t — then we’ll be looking for alternative ways and means, try to partner or JV, looking at those kind of opportunities for SOSRx.

Allen Klee — Maxim Group — Analyst

And just one last one, with the improvement and likely continued improvement in gross margins and how you restructured your overhead costs, can we anticipate with just some incremental revenue growth that somewhere in the first half of next year we might get to operational breakeven on the income line?

Suren Ajjarapu — Founder, Chairman and Chief Executive Officer

As you’re aware, Howard, we cannot predict that far soon, but we are definitely working towards that positive numbers, both top line as well as the bottom line. We’re working towards that, yes.

Howard Halpern — Taglich Brothers — Analyst

Okay. Thank you.

Suren Ajjarapu — Founder, Chairman and Chief Executive Officer

Thanks, Howard.

Operator

Thank you. [Operator Instructions]. We proceed with Allen Klee, Maxim Group.

Allen Klee — Maxim Group — Analyst

Okay. Hello again. So, your business going after group purchasing organizations, I know that’s a longer-term opportunity, but any update on how that’s progressing?

Suren Ajjarapu — Founder, Chairman and Chief Executive Officer

I’m sorry, Allen. Could you repeat that question please?

Allen Klee — Maxim Group — Analyst

Yeah. GPOs, just kind of an update on how that’s progressing, working with them to be the primary provider of drugs?

Suren Ajjarapu — Founder, Chairman and Chief Executive Officer

Yeah. We’re still bringing — as we speak, that’s the reason we saw the number of members at 295 in the third quarter alone when compared to 191 in the third quarter of 2021. So that option is still slowly growing, but we’re trying to give them the variety of drugs, like increasing the breadth of our catalog. That’s what we’re focusing. As we improve that catalog, I think we expect more and more GPO purchase happen to our platform.

Allen Klee — Maxim Group — Analyst

Okay, great. Can you give an update on — I think it was the last quarter you talked about Integra Pharma Solutions signing a distribution agreement with Galt Pharmaceuticals. Kind of what’s the status of that?

Suren Ajjarapu — Founder, Chairman and Chief Executive Officer

As I mentioned earlier to Howard, the manufacturers have tough time understanding the electronic platforms, so that’s still going very slow. So, probably, in the middle of next year or towards the third quarter of next year, we see some kind of results from that partnership.

Allen Klee — Maxim Group — Analyst

Okay. And then, so your operating expenses came in for the quarter at around $1.8 million. Is that a reasonable run rate to think about for the next few quarters or…?

Suren Ajjarapu — Founder, Chairman and Chief Executive Officer

Yeah. I think that’s pretty much so unless until we anticipate exponential growth in the TRxADE Prime model, but we may have to hire some more people into that. But I think that’s pretty much standard at this time.

Allen Klee — Maxim Group — Analyst

Okay. And then, I apologize, my last question. I missed you — there was something said — two things. One, there was something said about the impact of a hurricane in the last week. What area was impacted by that? Can you quantify what the impact was?

Suren Ajjarapu — Founder, Chairman and Chief Executive Officer

Yeah. I will address first and I’ll let Janet explain. Community Specialty Pharmacy, it’s a consumer-based division. People have to walk into the stores and stuff. That’s what effected. Even though Tampa directly not got hit, but most of the federal buildings and evacuation zones have been announced, so we had to shut down our warehouse and pharmacy, and that’s impacted our business.

Janet, if you can add anything else on to that.

Janet Huffman — Chief Financial Officer

No, that’s correct. So, the last week, we were unable to fill prescriptions. But those patients all did come back in subsequent quarters. So, it impacted the last week of Q3 with us having the pharmacy close and not being able to fill those prescriptions.

Allen Klee — Maxim Group — Analyst

Do you have a sense of how much of a revenue impact that might have had?

Janet Huffman — Chief Financial Officer

I do not have an exact number. The revenue impact for Community Specialty Pharmacy was partially driven by that last week of sales in September and then also some revenue adjustments as well that are just standard adjustments that you see with payer contracts. So, I don’t know the exact number for the Hurricane Ian impact.

Allen Klee — Maxim Group — Analyst

Okay. And are there kind of one-time impacts that might have been in the quarter?

Janet Huffman — Chief Financial Officer

You’re talking about revenues specifically?

Allen Klee — Maxim Group — Analyst

Revenue or costs? For example, I think you might have bad debt recovery. Did that happen in this quarter or…?

Janet Huffman — Chief Financial Officer

Yes. So, we had — in 2021, I referenced in my section there, there was a $630,000 bad debt write-off for TRxADE Prime. And this year we started recovery on that bad debt write-off. So, in the third quarter, we recovered $164,000 of that bad debt write-off. Other than that, I cannot think of any significant one-time that we didn’t already know.

Allen Klee — Maxim Group — Analyst

Okay, great. Okay, that’s it. Thank you so much. Appreciate it.

Suren Ajjarapu — Founder, Chairman and Chief Executive Officer

Thanks, Allen.

Operator

Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to the speakers for any closing remarks.

Suren Ajjarapu — Founder, Chairman and Chief Executive Officer

Thank you, operator. I’d 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’re unable to answer any of your questions, please reach out to our IR department who will be more than happy to assist you.

For any of you who may have joined the call in progress, remember 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 for more information regarding the financial information disclosed on this call and webcast, including the non-reconciliation of non-GAAP financial information — sorry, reconciliation of non-GAAP financial information can be found in our press release which we file after the close of the market today. Thank you all.

Operator

[Operator Closing Remarks]