MedAvail Holdings, Inc.

Hello, everyone, and welcome to the Medivale's 2021 Second Quarter Earnings Conference Call. My name is Bethany, and I'll be coordinating this call for you today. If you would like to register to ask a question during the Q&A session, please press star followed by one on your telephone keypad. I will now hand the call over to your host, Caroline Poole, Investor Relations. To begin, Caroline, over to you.

Thank you. And thank you all for participating in today's call. Joining me are Ed Kilroy, Chief Executive Officer, and Brian Schlerf, Interim Chief Financial Officer and Corporate Controller. Earlier today, MedEvail Holdings released financial results for the second quarter ended June 30th, 2021. A copy of the press release is available on the company's website. Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws. which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results, or performance, or similar statements are forward-looking statements. All forward-looking statements, including, without limitation, those relating to our operating trends and future financial performance, the impact of COVID-19 on our business and prospects for recovery, expense management, expectations for hiring, growth in our organization and reimbursement, market opportunity and expansion, and guidance for revenue gross margin and operating expenses in 2021 are based upon our current estimates and various assumptions. Also, management may make additional forward-looking statements in response to your questions. These statements involve material risks and uncertainties that could cause actual results or events to materially defer from those anticipated or implied by these forward-looking statements and do not guarantee future performance. Accordingly, you should not place undue reliance on these statements and should not rely on them in making an investment decision without considering the risks associated with such statements. For a list and description of the risks and uncertainties associated with our business, please refer to the risk factors section in our annual report on Form 10-K filed with the Securities and Exchange Commission, SEC, on March 31st, 2021. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, August 11th, 2021. MedEvail Holdings disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. And with that, I will turn the call over to Ed.

Thank you, Caroline. Good afternoon, everyone, and thank you for joining us. We're encouraged to report another positive quarter with 20 sequential revenue growth from the first quarter of 2021. As a reminder, our business model has two business segments, the operation of our technology enabled high touch retail pharmacy using our proprietary technology and processes, known as our retail pharmacy services segment, and the sale or provision of these technologies to large customers to support their own pharmacy operations, known as our pharmacy technology segment. Our retail pharmacy segment generated $4.5 million in revenue for the second quarter of 2021, representing a 162% year-over-year increase and a 31% increase from first quarter of 2021. Our pharmacy technology revenues decreased 10% year over year in the second quarter of 2021 to $500,000. As we mentioned during our first quarter earnings call, many of our clients delayed deployments due to their focus on COVID vaccinations and attempting to resume more normal operations, which resulted in all of our first half deployments occurring in June. As such, our double digit sequential revenue growth for the second quarter was achieved through continued organic growth of the clinics we had installed by year end 2020. We are pleased to report that we did install 12 new clinics in June. 10 of the 12 were expansions with clients such as Oak Street Health, OptumCare, and CareMore. We remain cautiously optimistic that clinic visit volumes will return to pre-COVID levels in the back half of 2021. As with most of our new client installations, there are two steps. Our physical installation and an on-site inspection by the Board of Pharmacy for the state, which allows us to begin to dispense and generate revenue. In 2020, our experience had been that the time between physical installation and first dispense was approximately a four-week window, which we built into our plans. Due to the COVID and other external pressures on the boards of pharmacy, they have now pushed the expectation to eight to 12 weeks for the foreseeable future. These changes impact our ability to generate revenue from new clinics, and based on discussions with the boards of pharmacy, we expect these timelines to continue for at least the balance of 2021. Therefore, new clinics we deploy in the fourth quarter of 2021 are not likely to generate any appreciable revenue in this calendar year, which impacts our full-year revenue outlook. As we have discussed on previous calls, our value proposition is fueled by our embedded onsite pharmacy model in which we are viewed as a true partner to the clinics and care providers. The partnership with the clinics and care providers is focused on improving medication adherence and customer satisfaction. Our target clients all have common business models. High percentage of Medicare Advantage patients, run an at-risk model with payers so that the clinics are fully incentivized for high-quality outcomes versus the old fee-for-service model, and management systems built around high quality of care and customer service. As we have evaluated our current total install base, it is encouraging that our growth is with clients who are aligned with these attributes. As we have enhanced our target clinic analytical capabilities, we have identified several clinics that do not meet our expectations going forward as they have begun to transition from the height of COVID-19 period. We have decided to exit these sites prior to year-end 2021 and redeploy our valuable resources into clinics that more closely fit our target models. Therefore, between now and year end 2021, we expect to exit approximately 10 clinics that we do not feel fit our long-term model. We view this as the removal of a small anomaly in our clinic deployment ramp, albeit one that was taking up a disproportionate amount of our resources, which we can now be redeployed to greater effect in our core Medicare Advantage sites. The decision to withdraw from these approximately 10 clinics does not in expectation of deploying a minimum of 45 new clinics with SpotRx in 2021. With these withdrawals, we have reset our base of clinics and we feel that all of the clinics in our pipeline are aligned with our key criteria. Demand for our solution remains strong in the states where we currently are operating, including Arizona, California, Michigan, and Florida. Regarding our 2021 outlook, we are encouraged to see most of our clinic partners moving back to more normal operations. As a result, in July, we saw monthly sequential retail pharmacy services net revenue growth of 7% compared to June. However, while the business continues to grow robustly, we are cautious that clinics will return to pre-COVID volume levels in the second half of 2021. We have encountered unanticipated headwinds with the timing of Boards of Pharmacy regulatory approvals I described in our decision to withdraw from approximately 10 clinics between now and year end 2021. As a result, we are adjusting our full year net revenue guidance to be at least $21 million in full year net revenue compared to our previous guidance of $27 to $31 million. Excluding the one-time revenue recognition adjustment in 2020 associated with an old large customer agreement, We expect to grow over 100% this year and expect to maintain that growth rate in 2022, assuming the world returns to its pre-COVID levels in due course. Turning to gross margins, we experienced a reduction in gross margins from the same period of the prior year. The decrease in year-over-year margins is primarily due to a lower contribution from our pharmacy technology segments. The margin in our year over year retail pharmacy services segment was relatively flat. We continue to focus on improving our gross margins through the balance of 2021, driven by the initiatives we have previously discussed, such as continued reduction in the cost of delivery and improved procurement terms. Over the long term, our model is highly scalable and repeatable. as we expand to additional markets in new regions and within existing regions. You'll recall that our cost structure works to our advantage as we do not have to carry the overhead cost of the large retail store footprint that traditional pharmacy operations have. We remain excited to be entering the important Florida region in the second half of 2021 and believe this further demonstrates the highly scalable and repeatable nature of our business model and the potential for future growth in target markets across the U.S. In addition, as we have discussed previously, Texas remains a key market for our strategic clients and Medivale. We are pleased to announce that at the August 3rd Texas Board of Pharmacy meeting, permanent rules were passed that allow Medavail to widely deploy our proprietary med center technology throughout the state. In addition to the meaningful progress we have made on geographic expansion through our recent business development efforts, we are also pleased to announce new partnership opportunities in both our retail pharmacy services and pharmacy technology solution segments. We were recently honored to have been selected by Zip Drug, a wholly owned subsidiary of Anthem, to participate in their program, which connects Medicare Advantage patients with pharmacies who drive the best possible adherence for the lowest cost. Zip Drug solutions connect many consumers with chronic conditions to these high performing independent pharmacies that have a proven track record of providing impactful clinic care with higher patient adherence rates. In the Tucson area, where thousands of lives are covered by the PBM IngenioRx, SpotRx will be serving as Zip Drug's only preferred pharmacy. IngenioRx members in the Tucson area utilizing retail pharmacies considered to be low performing or out of network will be able to be connected by Zip Drug with SpotRx to transfer their medications should they wish to. SpotRx is also working with Zip Drug in Southern California as one of several preferred pharmacies. Our partnership with Zip Drug represents a significant milestone, underscoring our ability to meet important quality and performance thresholds to be selected as a partner pharmacy. Zip Drug's pharmacy network is currently available in a number of states, including California, Arizona, and Florida. We are looking forward to expanding our partnership with Zipdrug in the coming months. Turning to our pharmacy technology solution segment, we are delighted to announce that we have begun the integration of Epic's pharmacy system software with Medivale software. The Epic EHR integration will allow Epic customers to take advantage of the seamless integration with our MedCenter technology and deploy our proprietary technology in an expedited manner. The integration further enhances our pharmacy technology value proposition. Providence, one of the largest healthcare systems in the nation, has an initial agreement for five MedEvil med centers targeted to be deployed in late 2021 based upon the completion of the Epic EHR integration through its new technology agreement with MedEvil. In closing, we delivered another quarter of strong retail pharmacy services growth, and we remain focused on executing against the opportunities ahead. I would like to reiterate that excluding the one-time revenue recognition associated with a large customer agreement in 2020, we expect to deliver revenue growth in excess of 100% in 2021 and expect to maintain this top-line growth rate in 2022 given the demand we see for our offerings and our ongoing expansions into new geographies. With that, I'll now turn the call over to Brian to provide a review of our second quarter financial results.