TRxADE HEALTH, Inc. (MEDS) Q4 2021 Earnings Call Transcript

TRxADE HEALTH, Inc. (NASDAQ: MEDS) Q4 2021 earnings call dated Mar. 28, 2022

Corporate Participants:

Howard Doss — Chief Financial Officer

Suren Ajjarapu — Chief Executive Officer

Analysts:

Allen Klee — Maxim Group, LLC — Analyst

Howard Halpern — Taglich Brothers, Inc. — Analyst

Presentation:

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to TRxADE HEALTH’S Fourth Quarter and Annual 2021 Earnings Conference Call. [Operator Instructions] The earnings press release accompanying this conference call was issued at the close of the market today. The Annual Report, which includes additional information regarding the company’s results of operations for the year ended December 31, 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. A replay of this call and webcast will be available for the next 30 days in 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 fourth quarter and annual 2021 financial results conference call. Our press release announcing our 2021 fourth quarter and annual 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. Finally, we have published a copy of the presentation that accompanies this call and webcast on our website and furnished such press release and presentation 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, except as required by law.

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 Annual Report on Form 10-K and the subsequently filed quarterly reports 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 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’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. We saw margin improvement as our revenue base returned to the core TRxADE Pharmaceutical exchange platform in the year-end 2021 seeing an expected drop-off in the one-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 and we have relentlessly focused on exciting new ways to expand proportional wallet share within our large growing network of registered users by better enabling them to service their respective customers, the end users further growing their loyalty to their local retail pharmacy.

Before we do a more detailed walk-through of our financial and operational results for the year 2021 fourth quarter and the year ended December 31, 2021 for those of you who are new to the company I’d like to walk you through who we are, how we are digitalizing the retail pharmacy experience through optimization of drug procurement, 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 the approximately 57,900 independent pharmacies and targeted medical clinics nationwide. We identified this market inefficiency as well as the incredible potential in these independent pharmacies and clinics, which together maintained estimated approximately $67.1 billion in annual purchasing power and proceeded to launch TRxADE. We designed owned and operated business-to-business web-based market platform bringing together the nation’s independent pharmacies with an accredited national pharmaceutical supplier 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 a fair payment terms and offer them next day delivery. We believe this radical price transparency, economy of scale and competition among our suppliers leads up to a 10% reduction in their pharmacies total annual drug purchase cost 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 or fulfilling a prescription at a loss.

Our revenue model is simple. Have paid an administrative fee of up to 6% at the buying price on a generic pharmaceuticals and up to 1% on branded drugs that pass through our pharmaceutical platform similar to a PayPal or resale-like model. To-date, we have seen incredible success in garnering attention from independent pharmacies and clinics nationwide validating our business model. At the end of 2021, we had over 13,100 plus registered members on our platform with approximately 175 new registered members added in the fourth quarter alone. In February 2022, the company announced the formation with an Exchange Health, LLC of a joint venture, SOSRx LLC, a pharmaceutical platform.

SOSRx will provide pharmaceutical manufacturers a single platform to optimize the sale and distribution of their inventory directly to large pharmaceutical buyers across multiple classes of trade. SOSRx opens the market to short-dated, over-stock and slow moving pharmaceuticals that will otherwise be subject to destruction. TRxADE anticipate growth in this joint venture in 2022 as more progressive manufacturers are expected to address the public need for enhanced medication accessibility and reliable supplier of cost-effective pharmaceuticals.

We have leveraged our significant success since the launch of the aforementioned marketplace platform moving into an adjacent, complementary business where we can leverage our strong retail pharmacy network and core competency in technology. These include Bonum Health, our telehealth subsidiary which for the year ended 2021 had approximately 22,000 application downloads with an approximately 10.9% patient registration rate. However, many of our relationships are still in the rollout phase and have yet to generate significant revenues.

On the capital market front, we were proactive in 2021 attending four premier investor conferences, The Collier Fifth Annual Investor Conference, H.C. Wainwright 23rd Annual Global Investment Conference and Benzinga Healthcare Conference, and finally the LD Micro Main Event. This week at the Maxim Virtual Growth Conference I’ll be presenting on the panel technology improving health care, which will be held on March 30 at 1:30 PM Eastern Daylight Time. We attended conference 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 from the fourth quarter of 2021 and the full year ended December 2021.

Howard Doss — Chief Financial Officer

Thank you Suren. Let us discuss fourth quarter 2021 results. Revenues for the fourth quarter of 2021 increased 19.7% to $2.4 million compared to revenue of $2.0 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 fourth quarter of 2021 increased 831% to $1.24 million or 51.9% of revenues compared to $0.1 million or 6.5% of revenues in the same quarter last year. The increase in gross profit was primarily due to revenue generated by TRxADE platform, which has lower cost of sales.

Operating expenses for the fourth quarter of 2021 were $2.0 million compared to $2.4 million in the same quarter last year. This decrease was due primarily to a loss of impairment of goodwill recognized in the same quarter last year, which was a one-time charge. Net loss in the fourth quarter of 2021 was $0.8 million or $0.10 per basic and diluted outstanding share compared to $2.3 million or $0.29 per basic and a diluted share outstanding as a result of $726,000 loss of impairment of goodwill and a one-time $1.81 million inventory write-down of PPE items compared to the same quarter last year.

Adjusted EBITDA and non-GAAP financial measure decreased to negative $0.8 million compared to a negative $1.4 million in the same quarter last year. Let us now discuss the fiscal 2021 results. Revenues for the 2021 year decreased 42.2% to $9.9 million compared to $17.1 million in 2020. The decrease in revenue was due to revenue generated by Integra Pharma Solutions, our wholly-owned subsidiary, which revenue was from personal protective equipment sales relating to the COVID-19 pandemic in 2020.

Gross profit in fiscal 2021 decreased 16.8% to $4.7 million or 48% of revenues compared to $5.7 million or 33% of revenues for the same period last year. The increase in gross profit percentage was primarily attributable to higher margins associated with TRxADE platform revenue, which has a lower cost of sales. Operating expenses in 2021 were $10.0 million compared to $8.2 million last year. This increase is primarily due to the loss on inventory investment and an increase in IT initiatives in our Bonum Health and Alliance Pharma companies.

Net loss in 2021 was $5.3 million or $0.65 per basic and diluted share outstanding compared to $2.5 million or $0.33 per basic and diluted share outstanding last year. Adjusted EBITDA for the year ended 2021 was a negative $3.7 million compared to a positive $0.1 million for the year ended 2020. Looking at our balance sheet, cash and cash equivalents were $3.1 million as of December 31, 2021 compared with $5.9 million as of December 31, 2020 The decrease in cash was mainly due to our IT initiatives with Bonum Health and Alliance Pharma and a loss on inventory investment.

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

Suren Ajjarapu — Chief Executive Officer

Thank you, Howard. In summary, we are focusing on exciting strategies to drive forward our core business. I think we are a building an incredible compelling healthcare ecosystem, of building an exciting value proposition for all stakeholders and 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. [Operator Instructions] Our first question comes from Allen Klee with Maxim Group. Please proceed with your question.

Allen Klee — Maxim Group, LLC — Analyst

Good afternoon. Could you talk a little more about your new pharmaceutical joint venture until — in terms of how you think about what the opportunity is and how you think about the timing of rolling this out? Thank you.

Suren Ajjarapu — Chief Executive Officer

Sure Allen. Thank you. Good afternoon. As far as Rx, if you look at the total U.S. generic drug market reached almost like $127.8 billion in 2020 alone. The percentage of products become short-dated, over stock, slow moving over time and become off contract. SOSRx marketplace is an innovative platform that offers an alternative sales channel to manufacturers to sell these off contract pharmaceuticals to national distributors and chain pharmacies, grocery chains and other pharmacies that substantially lower price in bulk. This marketplace offers proprietary algorithms, state regulatory compliance, pricing transparency and negotiation tools to improve product sets. So to answer your question how long, we just started this in the February of 2022 this joint venture we expand all the way through the big chains while we are still supplying the TRxADE platform focuses on our independent pharmacies.

Allen Klee — Maxim Group, LLC — Analyst

Thank you. And then my follow-up question is, is there any commentary you can give us on how you’re thinking about 2022?

Suren Ajjarapu — Chief Executive Officer

Allen, as we’re still in a growth phase, we’re unable to give you that projected numbers because as you’ve seen the new initiatives of SOSRx — we charge an administrative fee up 20% paid by the manufacturers for our purchase price on the pharmaceutical that pass through our platform whereas in the tax rate, it is a 6% on a buying price on a generic. So these initiatives have started most recently. So we have yet to see how fast and this technology platforms both TRxADE as well as SOSRx will take place. So that’s why we are unable to give you the projections while it continues to grow both the platforms.

Allen Klee — Maxim Group, LLC — Analyst

Great, thank you so much. I’ll get back in queue.

Operator

Our next question comes from Howard Halpern with Taglich Brothers. Please proceed with your question.

Howard Halpern — Taglich Brothers, Inc. — Analyst

Hi guys. Could you give a little bit of a view on how the supply chain has maybe changed a little bit between generics and branded products? Has it returned to a more normal pattern for you?

Suren Ajjarapu — Chief Executive Officer

I’ll take a first stab at it. I’ll let Howard give you more in depth also. We still see some of the supply chain events more rolling into this year, as everybody understands the war is going on some of the — generic pharmaceuticals primarily come from whether it’s, India or China or Europe that has an impact on it. That’s the reason you can see the branded sales on our platform or the generic. Of course, if you look at our numbers, we make more money on the generic sales and less percentage on the branded and that’s the reason you see that some of the fall through that, but I think it’s going to pick back up as it’s coming to the normalcy as we see in the second — coming quarters like second and third quarters. Howard, do you want to add anything?

Howard Doss — Chief Financial Officer

Yeah, no, Howard I would I would concur with Suren. I think the wholesalers are telling us right now that they’re starting to see a little bit better view in supply of the generics, which is where they make their money as well, just like we make it on our platform. So we think that’s becoming more normalized, although it’s quite not there yet.

Howard Halpern — Taglich Brothers, Inc. — Analyst

Okay. And my follow-up would be, could you talk a little bit about the group purchasing organization and how that is progressing and where will that revenue flow into? Will that be into the Integra segment first?

Suren Ajjarapu — Chief Executive Officer

Yeah. The GPO, it’s still coming onto the platform side, not completely onto the Integra side. The reason is we increased the GPO’s to bring in more and more pharmacies to come onto our platform and buy their products through our platform. So we don’t distinguish from there.

Howard Halpern — Taglich Brothers, Inc. — Analyst

Okay. Okay, thanks. I’ll hop back in queue.

Operator

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

Allen Klee — Maxim Group, LLC — Analyst

For your telemedicine efforts could you talk a little about how you’re thinking about the pickup and kind of what your strategies will be going forward? I know it’s very early to increase the adoption.

Suren Ajjarapu — Chief Executive Officer

Yes. Allen, if you look at in 2021, we brought in a big wholesaler. I mean, to say the wholesaler, the big grocery chain, like Winn-Dixie and Berkshire Hathaway, and so on and so forth. But if you look at in 2022 we signed and launched the Coborn’s, which has 163 groceries and gas and merchandize markets. And along with our independent pharmacies approximately added in the last quarter, it’s continuously picking up the momentum but we’re not there yet as you exactly said. So if we look at, we have around 22,000 downloads as I mentioned, and approximately 11% of them converted into the patient registrations.

Allen Klee — Maxim Group, LLC — Analyst

Could you tell us — this is my follow-up, the total amount of customers? Are these theoretical customers that you could penetrate and maybe a reasonable penetration rate of them could be when you’re finally scaled up a range of how you would think about it that could be a year or a couple of years from now, but how should we maybe think of that?

Suren Ajjarapu — Chief Executive Officer

Sure. I don’t have the documents clarity on the Winn-Dixie and Berkshire as part of that, but I’ll give you what we have on the visibility on our 13,100 plus members. Indirectly I’m serving almost like 15 million to 20 million patients so even if I can convert the next four to five years, 10% of that it’s a million patients that are out there that are paying $20 per subscription per month, that’s where we can have a potential and can grow on top of that.

Allen Klee — Maxim Group, LLC — Analyst

Great. Since I’m going to try to ask another question, since I think there might be, I’m not holding any but also — your expenses were better this quarter and you didn’t have like one-time things. How do you think about like your plans to grow expenses, operating expenses relative to revenue?

Suren Ajjarapu — Chief Executive Officer

I’ll take a first stab at it and then I’ll ask Howard to join. As I mentioned, you’ve seen the gross margin increased, I think, relatively we keep these expenses standardized. Now, it’s the market platform has to pick up more and more. That’s where per wallet share per month. So with an existing platform we try to see more and more product volume going through our member network so the more and more margin increase with the same kind of an expense. Howard, do you want to add anything?

Howard Doss — Chief Financial Officer

Yeah, I think those are, those are the key points there Allen. I think the expenses have been stabilized, really on a monthly basis and then now it’s just kind of a decision on whether we want to keep them at those levels or change them relative to how the revenues coming in.

Allen Klee — Maxim Group, LLC — Analyst

Howard, thank you. You answered a question about your GPO. Your GPOs have — it seem like that could be a very large opportunity when it scales up. I wasn’t quite sure I understood your answer in terms of how you’re thinking about the timing of getting them operating and if you could provide some color on that?

Suren Ajjarapu — Chief Executive Officer

Sure Allen. We’ve just launched that concept few quarters ago. We’re still yet to see the full blown results on the GPO. So we’re going to continue to go through that R&D mode for another quarter and we’ll be able to give you a more elaborate answer towards the second quarter.

Allen Klee — Maxim Group, LLC — Analyst

Okay, great. And maybe a last question, when you talk to your independent pharmacies what are they saying are the biggest challenges they’re facing now and how they’re feeling about the relative demand outlook today maybe versus a year ago?

Suren Ajjarapu — Chief Executive Officer

Sure. As you are seeing we also saw the pinch in the supply chain and squeezed from the big boxes and our insurance companies through the VIR fees and so on and so forth. That’s the reason that allow our platform, they’re trying to spend more on our platform. And it’s that as you are aware of most of the telehealth prescriptions are walking into this box chain and that’s where we’ve launched our Bonum Health. We want to empower our independence through our Bonum Health so that at least we can offer to their patients for the next time the patient has [Indecipherable] health need, those prescription can walk into my independent stores then walk into that also in the box trend. Through that, that’s another opportunity and I know you have seen the other opportunities in the telehealth side that’s coming up in the tele webs and so on and so forth. Those are the prescriptions that they can — these independents can see so that they can sustain the business in the longer run.

Allen Klee — Maxim Group, LLC — Analyst

Great. Sounds like you have a lot of great opportunities. So, thank you so much.

Suren Ajjarapu — Chief Executive Officer

Thanks Allen.

Operator

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

Howard Halpern — Taglich Brothers, Inc. — Analyst

Just two quick ones for you. In terms of the specialty pharma, how many states you were able to operate in?

Suren Ajjarapu — Chief Executive Officer

That number, we have not segregated that we can probably give you the more detail, but right now I don’t have on top of my head out of the 10,000 we have.That number, we have not segregated that we can probably give you the more detail, but right now I don’t have on top of my head out of the 10,000 we have.

Howard Halpern — Taglich Brothers, Inc. — Analyst

It’s more than half the country, right?

Suren Ajjarapu — Chief Executive Officer

Yeah. If you look at out of our total member network where we are going with this is we have on the independent pharmacies like 21,000 and plus. We have expanded into the clinics almost another 30,000 to 40,000 combined we think around 57,000 member that we can go after out of which I only have a 13,100 plus members on my platform.

Howard Halpern — Taglich Brothers, Inc. — Analyst

Okay. And the final one is the TRxADE Prime, how successful or how much consumer acceptance or your customer acceptance that you’re seeing and is that revenue because you had a very good fourth quarter in the Integra is that revenue flowing through the Integra segment?

Suren Ajjarapu — Chief Executive Officer

Yes, absolutely. The revenue is flowing through the Integra Pharma but we’re still at a nascent stage. We haven’t even seen even a substantial results in that model. So if you look at it, it’s only, not even less than 10% of the top line revenues through the TRxADE Prime revenues. So we are yet to see that product or at least see that model growing substantially.

Howard Halpern — Taglich Brothers, Inc. — Analyst

Okay. Okay, thanks.

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’d also like to thank you all for joining our earnings call, 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 at email ir@trxade.com, the company would 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 in the company’s website under the NASDAQ-MEDS link and that more information regarding the financial disclosures on this call and webcast including the installation of non-GAAP financial information can be found in our press release, which we filed after the close of the market today. Thank you, everyone.

Operator

[Operator Closing Remarks]