This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk01: Hello, everyone, and thank you for joining the MedEvails 2022 fourth quarter and full year conference call. My name is Doug. I'll be your operator for today. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I now have the pleasure of handing you over to your host, Steve Halper, Managing Director at Lifestyle Advisors. Please go ahead.
spk05: Thank you all for participating in today's call. Joining me are Mark Dorr, Chief Executive Officer, and Ramona Sivar, Chief Financial Officer. Earlier today, Medavail Holdings, Inc., referred to as Medavail or the company, released financial results for the fourth quarter and full year ended December 31st. A copy of the press release is available on the company's website. Before we begin, I'd like to remind you that the management will make statements during this call, including statements or responses in addressing your questions that include forward-looking statements within the meaning of federal security laws, which are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call or in response to your questions 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, general market and macro economic conditions, including the effect of inflationary pressure. Including any impact of adverse developments affecting the financial services industry, such as those based on liquidity constraints or concerns and events, including the outbreak of war in Ukraine, or the impact of covert 19 expense management expectations for hiring. growth in our organization and reimbursement market opportunity and expansion and guidance for revenue gross margins and operating expenses in 2023 are based upon our current estimates and various assumptions. Any forward looking statements involve material risks and uncertainties that can cause actual results or events to materially differ 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 most recent periodic reports, including our annual report on Form 10-K, which we plan to file after the market closed tomorrow, and other filings with the Securities and Exchange Commissions. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, March 30th, 2023. MediVail 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 now turn the call over to Mark.
spk03: Thank you, Steve. And thanks to all of you for joining us this afternoon for our fourth quarter and full year 2022 financial and operational update. On January 19th, Medavail announced the shift in focus from our SpotRx pharmacy services business to our emerging pharmacy technology business. The underlying technology of Medavail, which includes our MedCenter dispensing kiosks and the associated proprietary MedDispense software, remains the core of the value proposition for the company. Through the MedAvail technology business, we offer partners the ability to purchase or lease the MedCenter and to license our software in order to provide point of prescribing dispensing solutions under their own brand. In the MedAvail pharmacy technology model, partners employ their own pharmacy staff and procure their own inventory. Medavail pharmacy technology enables providers to dispense medications at the point of care with the following expected appreciable benefits to the patient. More easily initiated medication therapy, reducing prescription abandonment, and avoid an additional trip to the pharmacy. Additionally, pharmacies are suffering a current and worsening shortage of both pharmacists and pharmacy technicians. which is resulting in restricted or delayed patient access to medication. The MedCenter is designed to provide patients with enhanced quality and safety through its integrated barcode technology and convenience with expeditious dispensing times that average five to seven minutes while offering access to a live pharmacist when needed. There are additional benefits to the clinics that offer the convenience point of prescribing medication dispensing, such as improved quality ratings associated with medication compliance and corresponding potential incremental reimbursement revenue. The now discontinued SpotRx pharmacy services experience showed there is a recognized need and demand for this type of solution. What we learn from our pharmacy business will be of material benefit to us going forward. SpotRx grew revenue approximately 100% for two consecutive years and beat the expectations this management team set since it joined. The SpotRx business, however, required significant cash resources and was low margin. And our scale and market value further led to our decision to pivot away from the pharmacy services business. More importantly, we believe the technology business is a business that is better aligned with our targets of sustainable, healthy margins and significant growth potential. Efforts to develop the Medivale Pharmacy technology business began when the new management team joined the company just over a year ago, and we have identified several solid leading indicators of success. Revenue for the technology business is lower without pharmacy services, but we believe in the value proposition of the technology business, which is projected to grow over 100% in 2023 as compared to the technology business in 2022. Many in the industry agree in the improvement of the pharmacy business through technologies that streamline and enhance the consumer experience while also potentially reducing the cost of delivery. There are many potential important applications for the Med Center, and I will elaborate on our initial two target markets later. The remaining Medaville team is excited about the technology-focused path, and I want to acknowledge that it has been a challenging process for them. I want to publicly thank them for their very hard work under tough circumstances. As part of the process, we reduced our headcount by approximately 75%, bringing projected net cash burn to $18.5 million, including cost from the now discontinued operations of SpotRx, which is a 66.4% reduction over our 2022 cash burn. We expect that our MedCenter hardware sales will generate upfront revenue for our company. Although the exact timing of sales can be difficult to predict because they are an enterprise level capital expenditure. By contrast, our pharmacy technology software subscriptions are expected to generate a profitable recurring revenue stream. Overall, the technology business as planned as favorable unit economics, with a blended gross margin for 2022 that was approximately 45% on a standalone basis. The restructuring was accompanied by a recently completed $16 million financing, which has further strengthened our balance sheet. Together, with cash on hand and proceeds from the sale of certain SpotRx pharmacy assets to CVS, we have approximately $20 million of cash and cash equivalents today, which we believe is sufficient to allow us to pursue the many growth opportunities that are in our pipeline for the pharmacy technology business. As currently planned, we believe we can reach breakeven without the need for additional equity financings. After the discontinuation, of retail med centers, including SpotRx. We currently have 32 net cumulative dispensing med centers in our continuing operations. For the full year 2023, we project an additional 25 net new dispensing med center units in the field, which will bring us to 57 cumulative net dispensing med centers by the end of 2023. Note that we define net cumulative dispensing med centers as cumulative recorded after completion of shipment and training such that the med center is ready to dispense and is generating revenue for Medavail, but excluding decommissioned units and demo units. We define net new dispensing med centers as units recorded after completion of shipment and training such that the med center is ready to dispense and is generating revenue for Medivale, which were not previously included in net cumulative dispensing med centers. We currently have an inventory of more than 100 pre-built med center kiosks that are ready to be shipped to customer sites. We believe this inventory will result in higher gross margins than previously mentioned in the near term as some of the costs associated with building those machines have already been absorbed in our previous operating expenses. For clarity, we predict full-year net gross margins to be around 60% in 2023. A key element of our growth strategy is to integrate the MedDispense software so that it can seamlessly communicate with leading industry pharmacy management systems. We have significant experience with integration, including the recently completed integration with Epic Willow. There are approximately 1,800 integrated delivery networks and acute care sites across the country that use Epic, including a number within our existing customer base, which provides us with a potentially very fertile growth opportunity. Having the ability to seamlessly integrate with the customer's pharmacy management system is a significant catalyst to future adoption of our kiosk dispensing technology. We are also integrated with McKesson's Enterprise Rx system, and we are working on additional pharmacy management system integrations that we plan to roll out over the course of 2023. Together, these integrations are facilitating a sales pipeline that provides us with very good visibility into future growth and confidence in our guidance of 25 net new dispensing med centers in 2023. Looking now at the market opportunity for our MedCenter technology business, both our total addressable market and our serviceable addressable market are substantial. Just taking into account urgent care clinics and primary care clinics, the two channels that we are focused on initially, the associated opportunity for MedCenter revenue is estimated to be approximately $3.6 billion. with an additional $1.1 billion in annual recurring software license and maintenance fees. Our proprietary research indicates that our total addressable market is comprised of more than 52,000 potential sites across the US. Urgent care clinics can use the Med Center as a point of differentiation for the purpose of creating a one-stop shopping experience for patients to get their diagnosis and medication at the same site of care. Urgent care clinics typically have tight drug formularies, which make them ideal locations for the med center, which can store between 500 and 1,000 medications, depending on the prescription formula. Again, this potentially saves an injured or ill patient the additional step of having to travel to a pharmacy, endure long wait times, with the added risk that the needed medication is not in stock or the pharmacy being closed. And having convenient access to kiosk pharmacy dispensing is meant to increase patient adherence, particularly first fill prescriptions, which can ultimately positively impact reimbursement for our partners. Our serviceable addressable market for the same two channels is estimated to be nearly $1.3 billion, with more than $500 million in annual recurring software license fees and maintenance. This estimate includes only the 13 states that have enacted regulations which provide for the Med Center remote pharmacy dispensing. Primary care clinics are further limited clinic operators that have 15 or more locations and participate in the Medicare MIPS program. Urgent care refers to clinics only. Together, they comprise more than 20,000 potential sites. Long term, we see opportunity within other channels, such as retail and health system pharmacies, which could expand our addressable markets by several billion dollars. Given the superior margin characteristics of the technology business as compared to the pharmacy services business, we believe that after a certain inflection point, a primary technology focus will be more profitable for our company. I would now like to turn the call over to Ramona to review our financials. Ramona?
spk04: Thanks, Mark. I will begin with a review of the fourth quarter results before summarizing the full year and touching on our 2023 outlook. For the fourth quarter of 2022, we generated total revenue of $11.4 million, representing growth of 56.9% over the comparable period in 2021. Revenue from pharmacy services was $11.1 million, and revenue from pharmacy technology was $326,000. Looking at gross profit, total gross profit for the fourth quarter of 2022 was 1.7%, which the breakdown between divisions being negligible for the pharmacy services division and 56% for the pharmacy technology division. Total operating expenses for the fourth quarter 2022 were $11 million. down approximately 9.1% from $12 million from the prior year period. Adjusted EBITDA for the fourth quarter was a loss of $8.8 million, representing an improvement as compared to an adjusted EBITDA loss of $10.9 million for the fourth quarter of 2021. Now turning to the full year, for the full year 2022, we generated total revenue of $43.2 million which surpassed our prior guidance of at least $42 million. This represents a substantial increase as compared to $21.1 million for the full year of 2021. Looking at revenue by segment, we generated total revenue of $41.7 million for the pharmacy services segment, representing an increase of 107% over $20.2 million for the full year 2021. In pharmacy technology, we generated total revenue of $1.4 million for the full year 2022 representing a year-over-year decrease from $1.9 million for the full year 2021. However, our pharmacy technology revenue did come in at the high end of our previous guidance range of $1.2 million to $1.4 million. Looking at gross profit for the full year 2022, we generated gross profit of $2.9 million, or 6.7%, with a breakdown being 5.3% for pharmacy services segments and 49.1% for pharmacy technology segments. For the full year 2022, we had 80.2 million weighted average shares outstanding. In terms of our guidance for 2023, as Mark indicated, we have 32 med center kiosks currently dispensing in the field, and we anticipate adding 25 more throughout the course of the year, such that we would exit 2023 with a network of 57 revenue generating med centers. We anticipate that full year revenue will be approximately $3 million, which represents growth of well over 100% as compared to our standalone technology revenue of $1.4 million for the full year 2022. We further assume a full year gross margin of about 60%, well in excess of the 45%, which represents a fully-costed margin at current volumes. To assist with modeling purposes, we assume a blended average selling price of $65,000 per MedCenter kiosk. The actual price to purchase a kiosk is higher, but $65,000 reflects our current mix of business between sales and leases of approximately 50-50. We further assume $25,000 per year per machine for the software license and maintenance. Given the late date of our fourth quarter report, as our auditors work to complete their year-end work, we wanted to comment on our first quarter revenue since the quarter is complete. Note that we will not be providing next quarter revenues on a go-forward basis, but given the delay in reporting on fourth quarter, this is a unique situation. With that said, our preliminary unaudited revenue for the first quarter of 2023 is approximately $600,000, and as just mentioned, puts us on track to generate full-year revenue growth in excess of 100% over 2022. Turning to our balance sheet, as Mark indicated, we recently completed a successful financing that raised gross proceeds of $16 million, or approximately $15.5 million net of fees and expenses. In terms of cash, we ended 2022 with cash and cash equivalents of $12.1 million, including $676,000 of restricted cash. If we factor in $15.5 million in net proceeds from our recent financing, plus $2.8 million in proceeds from the CVS transaction, less approximately $6.5 million of one-time cash costs associated with the restructuring, we currently have pro forma cash of approximately $24.2 million. We anticipate that our current cash is sufficient to fund our operations at least through 2025, at which time we believe we can achieve profitability and therefore potentially eliminating the need for additional dilutive equity financing. That concludes the financial overview, and I will now turn the call back over to Mark.
spk03: Thank you, Ramona. To sum up, I'm excited about the new higher value focus for Medivale. Going forward, our company consists of the pharmacy technology business, for which we've identified significant growth opportunities. across numerous customer channels. And we have secured funding that can support the business through to profitability. This redirection of the company means that subsequent to the end of 2022, we made the difficult decision to exit our SpotRx pharmacy business and sell certain of its assets to CVS. This allowed us to significantly reduce our operating expenses and our cash burns. and focus on a higher return on investment opportunity. I believe we are on the right track to be a leader in the field of pharmacy kiosk dispensing to the benefit of both clinics and patients while creating enduring value for our shareholders. At this point, we'd like to open the call for your questions. Operator?
spk01: Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer session. If you'd like to ask a question, you may press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
spk02: One moment while we poll for questions. As a reminder, ladies and gentlemen, it is Star 1 to ask a question. We have a question from the line of Charles Reed with Cowen.
spk01: Please proceed with your question. Yeah, thanks for taking the question, guys.
spk00: Hey, just trying to understand a little bit here. Obviously, you understand the market opportunity here. Anything in, when we think about the 25 MEDCEN as you expected to spend, sorry to sort of put in the field this year, I might have missed it. Are these all contracted for already or does this assume some level of selling effort that needs to get accomplished as we move through the year?
spk03: Charles, thanks for the question and thanks for joining the call. I will say that on the 25 units we expect to deploy this year, about half of them are contracted for currently.
spk00: The other half, has there been – is this with existing clients where there's some interest expressed, or is this sort of an estimate of where you think the pipeline currently is?
spk03: Yeah, we have a much more robust pipeline than that. We have – also customers, current customers that expect to expand with us that are just not contracted yet. So we have a line of sight that says that the 25, we're highly confident on the 25 at this point and would line of sight to more than that.
spk00: Okay, that's helpful. And then the 60% gross margins for the full year, is that a Is that something we would expect to see here even in the first quarter with the $600,000 in revenues, or is that something where we're going to average at $60,000 so that actually our, you know, 4Q gross margin, for example, would be above that? Just trying to understand sort of how to think of that ramp in margins through the year as well.
spk02: Yes. Okay.
spk04: The gross margin, we would expect to have that throughout the year, starting even in Q1. And that's primarily based on having those units available already without having to expense additional dollars to purchase those since we have those on hand. So we're using a lower depreciated cost.
spk00: Okay. And then in terms of the 25 that you're contracting for, like is there kind of – should we just – would you think that these are going to be sort of put in the field sort of radically across the – across the year or are they coming in sort of big kind of in kind of bunches, I guess?
spk03: Yes, we would anticipate to see more of them be deployed in the second half of the year than in the first half of the year, the way that they're lining up for deployment at this point.
spk00: And then if I recall, Mark, you kind of said before that The way you've done it, you can start to recognize revenue pretty much as soon as it's installed. Is that correct?
spk03: Yeah, that's how, when it's installed and it can dispense, that's when we can start to recognize the revenue, both the one-time revenue from the sale as well as start the monthly recurring revenue stream.
spk00: Okay. I know that you talked about, well, we have enough cash for through 25 years. Ramon, I don't know if you made any comment about sort of what the cash burn in the quarter was and what you might think for the course of this year.
spk04: We have not yet provided that information, but we do believe that we have enough cash for 2025 plus. And that by that time, we'll be generating enough revenue to be cash positive. So I think maybe in our next quarterly, we might consider providing more information about our cash flow.
spk00: Okay. And the last question for me, what's happening for all the facilities like Oak Street and some of the other clinics in Florida that you had med centers in place, you know, what is happening with those? Have those all been pulled out and that's what's just sitting in your inventory? Just understanding, you know, what the dynamics for those clinics have been.
spk03: Yeah, Charles, the vast majority of the med centers themselves that were placed in the clinics have been retrieved. Probably around 90% have been removed from the clinics and put into storage for resale We do think there could still be an opportunity for going back into those clinics with companies such as Oak Street. They have a pharmacy that the CVS deal would close, but we're about 90% done and wrapped up on retrievals, and that work will be done this month.
spk00: Okay, yeah, so I guess that's my question. Is there any reason why Oak Street couldn't come back and be a technology customer?
spk03: They absolutely can. Really the key with the clinics being a partner is usually having a pharmacy partner or running a pharmacy themselves. That's why Oak Street and the CVS potential acquisition could be a positive sign for going back in because Oak Street was, again, one of our larger partners and saw the value proposition both from improved customer satisfaction as well as the impact that we were having on medication adherence and the way that that drives more reimbursement in those value-based contracts.
spk00: Okay. I'm sorry, one last question, because you guys, in this total adjustable market slide, you kind of point out urgent care and primary care. What about retail, pharmacy? Because I know years ago that that was sort of an original idea for the use of med centers. You know, in your plan and maybe in your – sort of Salesforce. Is there anyone that's targeting the retail pharmacy market as a potential customer base?
spk03: Yeah, it's a good question. The retail channel, you know, it's large, as you've stated. And, you know, what I would say over the near term, we're really optimizing our sales initiatives based on the channels that are more easily penetrated, given our proven value proposition that I just talked about, as well as with scalable partners that we have. So, We have prioritized urgent care and primary care clinics right now because we believe they're, you know, more cost effective and represent a significant opportunity in the near term. It doesn't mean that we're not speaking, not, you know, pursuing opportunities that come to us from retail. It's just a matter of prioritization and where we see the pipeline right now is with urgent care, primary care clinics.
spk00: Great. Okay, that's all I have. Thanks a lot.
spk03: Charles, thanks for your questions.
spk01: I'm showing no further questions at this time. I'd like to hand the call back over to Mr. Dorr for closing remarks.
spk03: I just want to say thank you again to everyone that's joined the call or webcast. We look forward to our next quarterly update in May. Have a good night and stay safe.
spk01: Ladies and gentlemen, this does include today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.
Disclaimer