TRxADE HEALTH Inc (MEDS) Q4 2022 Earnings Call Transcript

TRxADE HEALTH Inc (NASDAQ:MEDS) Q4 2022 Earnings Call dated Mar. 27, 2023.

Corporate Participants:

Prashant Patel — Chief Financial Officer

Surendra Ajjarapu — Founder, Chairman and Chief Executive Officer

Analysts:

Allen Klee — Maxim Group — Analyst

Howard Halpern — Taglich Brothers — Analyst

Presentation:

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to TRxADE HEALTH’s 2022 Annual Earnings Conference Call. [Operator Instructions] The earnings press release accompanying this conference call was issued at the close of the market today. The company’s annual report, which includes additional information regarding the company’s results of operations for the year ended December 31, 2022, was filed with the SEC earlier today.

On our call today is TRxADE HEALTH’s Founder, Chairman and Chief Executive Officer, Surendra Ajjarapu; and Prashant Patel, 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 Prashant Patel, the company’s Chief Financial Officer. Prashant, the floor is yours.

Prashant Patel — Chief Financial Officer

Thank you, operator, and thank you for joining us today. I’d like to welcome you to our 2022 annual financial results conference call.

Our press release announcing our 2022 financial results was issued after the close of market today and is posted on our website. We have also furnished 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 of future projects, 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 are not a guarantee of 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 filed with the Securities and Exchange Commission.

These documents include but are not limited to our most recent annual report on Form 10-K and 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 for TRxADE’s performance. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation for 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 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 Surendra Ajjarapu, our company’s Chief Executive Officer. Surendra, the floor is yours.

Surendra Ajjarapu — Founder, Chairman and Chief Executive Officer

Thank you, Prashant. And we saw 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 products 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. Before we do a more detailed walk through our financial and operational results for 2022, for those of you who are new to the company, I’d like to walk through who we are and how we are digitalizing the retail pharmacy experience through the optimization of drug procurement, prescription journey and patient engagement.

Previous to the launch of TRxADE, obtaining drug codes as an independent pharmacy was an extremely laborious and 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 created a difficult conundrum for approximately 19,400 independent pharmacies nationwide. We identified this market inefficiency as well as the incredible potential in these independent pharmacies, which together maintain and estimated approximately $67 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 accurate and national pharmaceutical suppliers to provide a uniquely efficient and transparent buying and selling process. Our platform like independent pharmacies know that they are receiving a fair price from competing suppliers on fair payment terms and often with next-day delivery. We believe this radical price transparency, accounting of the scale and competition among suppliers leads to up to a 10% reduction in pharmacies’ total drug purchasing costs, with drug level savings of up to 90% on certain pharmaceutical products.

Our platform saves pharmacists 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. We’re paid an administrative fee of up to 6% of the buying price on generic pharmaceuticals and up to a 1% on brand pharmaceuticals that pass the 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 14,400 plus registered members on our platform with approximately 1,212 new registered members added in fiscal 2022 compared to approximately 790 added in fiscal year 2021.

Another exciting growth metric on our track sale platform includes a 17% increase in the volume of sales processed across our platform for the year 2022 compared to 2021. Subsequent to December 31, 2022, on January 20, 2023, we intended to agreements to sell 100% of the outstanding membership interest in our subsidiary companies like Community Specialty Pharmacy and Alliance Pharma solutions. The company will receive $245,000 in consideration for both companies and agreed to enter into a master service agreement, which it is currently supporting.

We expect transaction to complete closing by April 30, 2023. The full details of and information regarding the transaction can be found in our Form 8-K filed with the Securities and Exchange Commission in January 23, 2023. The sale of these subsidiary companies in part of our plan to focus on our core business to business revenue model.

Now I would like to turn the call over to our Interim Chief Financial Officer, Prashant Patel to walk through some key financial highlights from our fiscal year 2022.

Prashant Patel — Chief Financial Officer

Thank you, Surendra. Let us discuss 2022 annual financial results. Consolidated revenue for the 12 months of 2022 increased 16% to $11.4 million compared to revenue of $9.9 million for the 12 months of 2021. This year-over-year increase in revenue is driven by improved revenue on the TRxADE platform and for TRxADE Prime in 2022. The TRxADE platform revenue increased 10% and the TRxADE Prime revenue grew 46% in 2022 compared to 2021. Our community specialty pharmacy revenue decreased 29% in 2022 compared to 2021.

There was a 13% improvement in gross margin as a percentage of revenue for TRxADE Prime in 2022 compared to 2021. For the 12 months of 2021, TRxADE Prime reported a negative gross margin of 12% compared to a positive 1% for the same period in 2022. Initiatives to improve gross margin included improved enterprising and venture contracts. Our community specialty pharmacy recorded a decrease in gross margin as a percentage of revenue, dropping from 10% in 2021 to a negative 8% in 2022.

Moving forward, the company is working to grow TRxADE Prime revenue with the foundation of reduced overhead and improved gross margins. Consolidated gross profit for the fiscal year of 2022 compared to 2021 improved $700,000, but remained consistent year-over-year at 48% as a percentage of revenue. Operating expenses in the 12 months of 2022 were $9.9 million compared to $10 million for the same period in 2021. There were decreases in professional fees, losses on inventory and general and administrative costs of approximately $1.1 million. Also recorded our increased expenses of approximately $1 million related to impaired assets, technology cost of research and development as well as accounting and legal expenses.

Net loss for the year ended December 31, 2022, was $3.9 million loss or $0.41 loss per basic and diluted share outstanding compared to $5.3 million or $0.65 loss per basic and diluted share outstanding for the year ending December 31, 2021. Year-over-year comparisons for the fiscal period of 2022 and 2021 for adjusted EBITDA or non-GAAP financial measures reflect negative $0.09 million for fiscal year 2022 compared to negative $3.1 million for the same period in 2021.

Looking at our balance sheet. Cash and cash equivalents were $1.1 million as of December 31, 2022, compared with $3.1 million as of December 31, 2021. The decrease in cash is mainly driven by $875,000 spent on inventory purchases for committee Specialty Pharmacy in May 2022, $225,000 spend on part of a legal settlement in February of 2022 and $235,000 spend in connection with the formation of SOSRx LLC in February of 2022.

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

Surendra Ajjarapu — Founder, Chairman and Chief Executive Officer

Thank you, Prashant. In summary, we are focusing on exciting new innovation and partnerships to drive forward our core business-to-business strategy while diversifying our revenue base. Taken as a whole, I think we are building an incredible compelling ecosystem. I look forward to seeing what the future holds as we continue a rapid pace of operational execution, creating sustainable long-term value for my fellow shareholders.

With that, I’ll turn it over to our operator to begin the question-and-answer session. Operator?

Questions and Answers:

Operator

Thank you, sir. [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. Can you talk a little about the status of your speaking with group purchasing organizations related to TRxADE Prime. Can you give us some detail about the number of GPOs, the number of pharmacies they represent and kind of the timing of — if you believe that you can get relationships to go live. Thank you.

Surendra Ajjarapu — Founder, Chairman and Chief Executive Officer

Sure. Thank you, Allen. The TRxADE Prime, it’s considered as a GPO, but in reality, we almost got 1,300 new pharmacies that are working through that. We don’t have any Prime relationships under that model yet. We’re going to the existing suppliers where we increased it in model to 1,500 pharmacies.

Allen Klee — Maxim Group — Analyst

I’m sorry, I didn’t understand. So, are you — could you explain that again? Are you talking to GPOs or is it more that you’re just working with adding pharmacies the way you have been adding pharmacies? I didn’t understand. I apologize.

Surendra Ajjarapu — Founder, Chairman and Chief Executive Officer

Sure. Our TRxADE Prime — TRxADE platform is independent pharmacies, TRxADE Prime model is what [Phonetic] we want to bring in multiple pharmacy locations under the TRxADE Prime that include up to 1,500 pharmacies. So, for example, a pharmacy has 10 or 15 stores under their umbrella, those relationships grow up to 1,500 pharmacies.

Allen Klee — Maxim Group — Analyst

Okay. But if they come in under Prime, does that mean that it comes in with the Prime type margins versus the TRxADE platform type margins?

Surendra Ajjarapu — Founder, Chairman and Chief Executive Officer

Correct.

Allen Klee — Maxim Group — Analyst

Okay. Thank you. And then the SOSRx partnership that’s gotten wound down, what is your future liability for that?

Surendra Ajjarapu — Founder, Chairman and Chief Executive Officer

We don’t have any future liabilities for that.

Allen Klee — Maxim Group — Analyst

In your press release, you provide full year adjusted EBITDA reconciliation. If you [Phonetic] come up with fourth quarter numbers, there’s some numbers in the full year numbers that are not in the prior nine months. Should all those numbers go in the adjustments for the fourth quarter? Or did you change the definitions of — any of the items that go into calculating adjusted EBITDA.

Surendra Ajjarapu — Founder, Chairman and Chief Executive Officer

We did not change any model that whatever we used to report as suggested EBITDA, we’ve considered the same model. So, we have not changed anything to report those adjusted EBITDA numbers.

Allen Klee — Maxim Group — Analyst

Okay. And then so your gross margin improved in this quarter. Well, if I look at it just for the quarter, backing into the quarter, it would have been 61% for the fourth quarter, the gross margin. Do you believe that the gross margin is sustainable at that level or higher going forward?

Surendra Ajjarapu — Founder, Chairman and Chief Executive Officer

I think the blended gross margin, if you look at it is for the entire year is 48%. So, once we take out the business to consumer model, we focus on B2B. So, we strive to improve that gross margin model.

Allen Klee — Maxim Group — Analyst

Okay. The 48% was for the full year. If I backed into the fourth quarter, it was like 61%. So, I’m trying to understand if — as you take out the other businesses, I guess, the margin — these other businesses were lower margin, so the blended margin likely improves?

Surendra Ajjarapu — Founder, Chairman and Chief Executive Officer

Correct. Yeah, because on the B2B model, business-to-business model, it’s a technology platform, right? So, our gross margin is higher than the consumer side of it. So, it should improve, correct.

Allen Klee — Maxim Group — Analyst

Thank you for that [Phonetic]. Do you have a target for Prime? What margins can be for Prime segment?

Surendra Ajjarapu — Founder, Chairman and Chief Executive Officer

As you’re aware of that, Allen, that TRxADE Prime was started last year, we’re still trying to stabilize that model to understand so that we can give you a more accurate information going forward in a couple of quarters?

Allen Klee — Maxim Group — Analyst

Okay. And then maybe my last question. But if your salespeople talk to the independent pharmacies, what did I say is the reason that they’re not buying more — I mean, they’re buying a small percent of what they could potentially buy from you guys. And what do you think are the reasons why they’re not buying more? And what are you focused on to try to maximize that.

Surendra Ajjarapu — Founder, Chairman and Chief Executive Officer

Sure. It’s an excellent question. That’s what the TRxADE is focusing on that inorganic growth. As you are aware, average pharmacy that does like $3 million to $3.5 million annual revenue to buy anywhere between $0.25 million to $300,000 worth of goods. But the primary contracts are dictating them, how much they can buy through the secondary sources. That’s what we’re trying to change, the remaining — that 10% to 15% or 10% to 20% that if they can bring it into our platform.

So, there are two ways that we were trying to improve, one adding the additional catalog to provide them not only the prescription drugs, the OTCs and stuff and providing the other technological tools, whether the DIR fees and so on and so forth. So, we want to empower them the technology through the technology so that they can buy more through our platform.

Allen Klee — Maxim Group — Analyst

Okay. Got it. So then like going forward, is the way to look at the segments, you’ll have the TRxADE segment. You won’t have community specialty, Integra, you’ll still have because that’s TRxADE Prime. And I guess other is probably not material, it’s until something gets decided with Bonum Health, is that the way to look at it?

Surendra Ajjarapu — Founder, Chairman and Chief Executive Officer

Yeah, our 100% focus is now on the B2B, business to business. So, it’s a marketplace and as well as Integra Pharma, correct.

Allen Klee — Maxim Group — Analyst

And Community Health [Technical Issues] that goes away effective the second quarter of ’23?

Surendra Ajjarapu — Founder, Chairman and Chief Executive Officer

Correct.

Allen Klee — Maxim Group — Analyst

Okay. Thank you so much. Appreciate it.

Surendra Ajjarapu — Founder, Chairman and Chief Executive Officer

No problem.

Operator

Thank you. 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 the core TRxADE platform, what are you seeing in terms of the mix right now between branded and generics. And will that shift maybe more to generics help accelerate growth over the next couple of years?

Surendra Ajjarapu — Founder, Chairman and Chief Executive Officer

Yeah, great question, Howard. Yeah, we’re currently the mix approximately 60% generics and 40% brand. That’s the reason our fees are low. But yes, that dynamic is changing to more and more into the generics. Our goal is to reach up to 70% to 75% on the generic side and 45% on the brand.

Howard Halpern — Taglich Brothers — Analyst

Okay. And you’re not seeing any constraints like we had in the past with overseas manufacturing and such. Everything is “back to more normal”?

Surendra Ajjarapu — Founder, Chairman and Chief Executive Officer

Yeah, back to more normal because the COVID is — I won’t say it’s gone, but at least the impact on the supply side is gone. So yeah, it’s back to normal.

Howard Halpern — Taglich Brothers — Analyst

And in terms of looking at operating expenses, you’re obviously going back to the B2B, so you’d be able to streamline. Where should we see some of the streamlining accessible [Phonetic] being technology spend, professional fees, if you could… [Speech Overlap]

Surendra Ajjarapu — Founder, Chairman and Chief Executive Officer

Sure. More on the technology spend and a little bit on the professional spend to take it to the next level.

Howard Halpern — Taglich Brothers — Analyst

Okay. Thanks guys. Everything else has been asked and answered.

Surendra Ajjarapu — Founder, Chairman and Chief Executive Officer

Thank you.

Operator

[Operator Instructions] There are no further questions at this time. I would like to turn the floor over to Surendra Ajjarapu for closing remarks.

Surendra Ajjarapu — Founder, Chairman and Chief Executive Officer

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

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 that more information regarding the financial information disclosed on this call and webcast, including a reconciliation of non-GAAP financial information can be found in our press release, which was filed after the close of market today.

Thank you all.

Operator

[Operator Closing Remarks]