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spk04: Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to TRAX-A Group's third quarter 2020 earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. This conference is being recorded today, October 26, 2020, and earnings press release accompanying this conference call was issued at the close of the market today. The quarterly report, which includes the company results of operations for the quarter, ended September 30, 2020. was filed with the SEC today. On our call today is TrackSafe Group's founder, chairman, and chief executive officer, Surin Bajarapu, and Howard Doss, his 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 MEVS 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.
spk00: Thank you, Operator, and thank you for joining us today. I'd like to welcome you to our third quarter 2020 financial results conference call. Our press release announcing our third quarter financial results was issued after the close of market today and is posted on our website. We have also 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 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 today in today's press release, call, or webcast. 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 quarterly report on Form 10Q, for information on risks, uncertainties, and assumptions that may cause actual results to differ materially from those set forth in such statements. In addition, today's call and webcast, we discussed non-GAAP financial measures, which we believe are useful as supplemental measures of TRAX-H 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 in our earnings press release. Unless otherwise stated, all financial comparisons in this call will be to our results for the comparable period of our fiscal year 2019. At this time, I'd like to turn the call over to Suren Ajarpu, the company's chief executive officer. Suren, the floor is yours.
spk06: Thank you, Howard. Before we walk through our financial and operational results for the quarter, for those of you new to the company, I'd like to walk you through who we are, how we are revolutionizing the way independent pharmacies procure drugs. Prior to the launch of our company, obtaining drug codes as an independent pharmacy was an extremely laborious and time-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, create a difficult conundrum for the opportunity for approximately 22,000 independent pharmacies nationwide. We identified this market inefficiency as well as the incredible potential in these independent pharmacies, which together maintain approximately 78 billion in annual purchasing power and proceeded to launch TrackSafe. We design, own, and operate a business-to-business, web-based market platform, bringing together the nation's independent pharmacies with accredited national pharmaceutical supplies to provide a uniquely efficient and transparent buying and selling process. Our platform lets independent pharmacies know that they are receiving a fair price from competing suppliers in payment terms, and often with next-day delivery. We believe this radical price transparency and economy of scale and competition among suppliers leads up to a 10% reduction in 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 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 charge a 3% to 4% transaction fee based on the value of our drug purchases transacted on our platform, similar to a PayPal or Visa-like model. To date, we've seen incredible success in garnering attention from independent pharmacies nationwide validating our business model. We currently have around 11,800 pharmacies on our platform, so presenting over 50% market penetration into the 22,000 independent pharmacies nationwide. Our growth drivers for the TrackSafe platform are twofold. One, increasing the average purchases per pharmacy so that pharmacies transact an increasingly high percentage of their total drug purchases to the TrackSafe platform. Second, continuing to expand our market penetration, adding new independent pharmacies to our network. Now proceeding to our third quarter 2020 financial and operational results, we continue to see strong revenue and net income growth compared to the same quarter in 2019, while returning to profitability and continuing to grow average spend for pharmacy on our proprietary platforms. We continue to expand our affiliated services offering during Q3 with our telemedicine subsidiary Bonham Health launching Bonham Plus, a B2B platform that bundles telehealth, a COVID-19 assessment tool, and a personal protective equipment purchasing tool through a secure mobile dashboard for corporate clients. We're excited about this platform as it involves fundamental trust problem that impacts employer safety and security policies to more effectively combat COVID-19 in the workplace. Bonham also announced a prescription savings partnership with Single Care, a free prescription savings service. This partnership enhances Bonham's enterprise telehealth solutions with prescription discounts offered to national, regional, or local pharmacies to promote the benefits to uninsured patients and underserved communities. On the capital market front, we were proactive throughout the third quarter attending three investor conferences, the LD500 Virtual Conference, the 2020 Collier Institutional Investor Conference, and H.C. Wainwright's 22nd Annual Global Investment Conference, all with the goal of enhancing broader investments investor awareness of our ongoing 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 third quarter of 2020.
spk00: Thank you, Sharan. Revenues for the third quarter of 2020 increased 174% to $6.3 million, compared to revenue of $2.3 million in the same quarter last year. The increase in revenue was primarily due to strong personal protective equipment sales in the third quarter driven by the COVID-19 pandemic. Gross profit in the third quarter of 2020 increased 47% to $1.9 million or 30.5% of revenue compared to a gross profit of $1.3 million or 56.7% of revenues in the same quarter last year. The increase in gross profit was primarily attributable to high volume, lower margin sales of personal protective equipment, also known as PPE, in our Integra pharma unit. The percentage of gross profit will continue to be determined by the mix of PPE and tractate platform sales. Operating expenses for the third quarter of 2020 were $1.8 million compared to $1.1 million in the same quarter last year. This increase is primarily due to non-cash, stock-based compensation expenses, IT expenditures, and marketing expenses. Net income in the third quarter of 2020 was $0.14 million, or two cents per basic and diluted share outstanding, compared to net income of $0.3 million, or zero per basic and diluted share outstanding in the same quarter last year. Adjusted EBITDA, or a non-GAAP financial measure, increased 150% to $670,000 compared to $270,000 in the same quarter last year. Looking at the balance sheet, cash and cash equivalents were $6.6 million as of September 2020, compared with $4.1 million as of June 30, 2020. The increase in cash was due to a decrease in accounts receivable, and inventory at the end of the current quarter compared to the last quarter. We do not currently foresee a need for further capital to support our business. Suren?
spk06: Overall, I'm pleased with our strong year-over-year revenue growth and increased profitability in the third quarter as personal product equipment sales and core platform growth over the same period in 2019 continue to be key drivers of our business. As a founder of TraxAid, I firmly believe that we are well positioned to continue to create a sustainable value for our stockholders. I look forward to continuing operational education in the fourth quarter of well into 2021 and beyond. With that, I'll turn it over to the operator to begin question and answer session. Operator.
spk04: Thank you, sir. We will now begin the question and answer session. As a reminder, if you have a question, please press star followed by the one on your touch tone phone. If you would like to withdraw your question, press the star followed by the two. And if you are using speaker equipment, you will need to lift the handset before making your selection. And our first question is from Brooks O'Neill with Lake Street Capital Markets. Please proceed with your question.
spk05: Yeah, good evening, guys. I was hoping perhaps you could give us a little more information about the breakdown of the revenues between the PPE and the TREX-AID pharmacy-related revenues. And could you tell us if there was any revenue related to your telehealth initiative as well?
spk06: What do you want to take that question?
spk00: Yeah, absolutely. In the 10Q, we break out by segment. So for the nine months ended September 30th, TraxAid, the platform, had about $4.3 million in revenue. Our pharmacy had about $1.3 million in revenue. Integra Pharma, which is our wholesaler, had about $9.5 million in revenue. And Bottom Health is just starting to identify some revenue. We were at about $25,000 there. Okay. Okay.
spk05: And can you talk a little bit about how you see the margin trends unfolding maybe over the next year or so?
spk06: We usually don't give away the future projections, but we will continue to operate. As I mentioned, it's a tech company. If you are looking for tech margins on the platform, we still continue to see them. But on the PPE side, because we have to procure the drugs, and supply and demand will dictate those margins. As we see the continuous effect of the coronavirus, we're unable to determine on the PPE side. Howard, if you want to add anything, please go ahead.
spk00: No, I think that's right, Sharon. Brooks, the gross margin percentage is really going to be driven by how PPE sales are as a product. percentage to the platform revenue because that's really what's going to drive it. So if we're fortunate enough to have good PPE sales going forward, then you'll get the compression on the gross profit revenue margin. If you don't, then that margin is going to be larger.
spk05: Sure, but those PPE sales are profitable, aren't they?
spk00: Absolutely. Absolutely.
spk05: Yeah, that's great. Okay. And then I'm just curious. I think I saw you file $100 million shelf tonight after the close, and I appreciate your comment about not needing additional capital. Are you just doing that kind of out of general proven corporate governance, or how do you think about it?
spk06: Not tonight, Brooks. It's been filed in the last quarter. So definitely, as I mentioned, the shelf has been placed. That's a three-year shelf, as you're aware. For our operationals, we don't need cash, but any strategic opportunities that will come into play, we definitely would like to raise the capital, and that's where the shelves come into play.
spk05: Okay. I'm sorry. Thank you very much for that clarification and all that makes sense. Thanks for taking my question.
spk04: Thank you. And our next question is from Gene Mannheimer with Dowry & Company. Please proceed with your question.
spk02: Thanks. Good afternoon. Congrats on the good quarter, guys. To what degree or to what would you attribute the Flattish platform revenue sequentially?
spk06: Thanks, Gene. I'll first give it a shot at it, and then I'll let Howard explain. As we increase the performance, we purchase quarter on quarter. The flat growth might have come in in the percentage of CC that we collect from a brand versus generics. So in this quarter, we might have increased the brand, and that's where we see the flat revenue. And the second effect maybe is some of these remote locations where you see the riots are happening and stuff. Some pharmacies are still shut down. And so those are the two that had an effect on our flat growth of our platform revenue. Okay.
spk00: No, you hit it right on the head, Saran.
spk02: Okay. So just so I'm clear, Saran, that I heard you right, part of it is a mix of brand versus generics ordering? Correct. Okay. Okay. And in terms of those growth drivers you talked about, one increasing average purchases per pharmacy and the other – adding net new pharmacies to the network. Maybe you could talk a little bit about the rate during the quarter at which you added new pharmacies, and if you could characterize how that same store growth of your pharmacy base is trending.
spk06: Sure. Year on year, I think we've grown from the last 2019 to now 17% growth. And we've seen the pharmacy purchase per month based last quarter to this quarter. We see almost like 4.52% growth that we see. Any other members? Howard, please take it over.
spk00: No, I think, Gene, one of your questions is the average spend for pharmacy. And we actually saw that on a sequential basis go up from the end of the second quarter to the third quarter. And I think the number of new pharmacies, we added about 144 this third quarter, which is a little less than we've added in previous quarters. And I think part of that is a little bit of a headwind with the COVID as far as pharmacies are focusing on other things right now as opposed to, you know, different outlets to purchase.
spk02: Makes sense. Thanks, Howard. And my other question would be, I think, you know, Many of us are wondering, in terms of the Integra line, how sustainable are those PPE revenues? I mean, I know in Q2, at the onset of the pandemic, we saw a big spike there. It sure looks like it sustained that level of demand in Q3. I mean, is this the right run rate to be modeling the PPE sales? Thank you.
spk06: No, Gene, that's not the right model. We still see the effect. There is still supply and demand disruption there. I don't see that we'll have the same expected growth because a couple, like December, usually the slow months for the pharmacies to purchase, unless there is a second wave maybe hitting. But still, we see a supply situation all across the world whether it's a PPE glove or a mask and stuff. So I don't anticipate it for similar growth, but at least you can see some impact will be there on the PPE sales this quarter also.
spk02: Makes sense. Last question from me then, if I could. Did you see any impact from flu vaccine demand during the quarter, and what's your expectations for Q4?
spk06: Sure. That's a great question, Dean. Yes, we see that both of the suppliers are out of it, and especially the APIs that are coming from China or finished goods that are coming from India. We still have some supply issues, and we're unable to meet the demand. That could be another reason why we see a flat growth in our revenue also. So we could not supply that influenza medication.
spk02: I see. Okay. Thanks, and great progress. Thank you. Thank you.
spk04: Our next question is from Howard Halpern with Taslic Brothers. Please proceed with your question.
spk01: Well, congratulations on the quarter, guys.
spk04: Thank you, Howard.
spk01: On the PPE side, though, is it strictly the demand from your independent pharmacies, or have you worked towards maybe getting some business from state, local, or schools? school contracts for PPEs?
spk06: That's a great question. Yes, we do still look outside pharmacies, state and state FEMA and high schools and stuff like that. Yes, to answer your question, yes.
spk04: Okay.
spk01: And as part of, well, part of the PPEs going forward also include rapid testing products for independent pharmacies and state and local, in addition to masks and other protective equipment?
spk06: That's a great question, Albert. I wish I could tell you some of these regulations. FDA left alone, followed the CDC guidelines. That gave us a roadblock for these independent pharmacies to execute or conduct these tests on their site. If that opens, yes, we can see the spike in sales that we have identified the suppliers for these rapid test kits. But it's unfortunate that these independent pharmacies cannot execute the tests on site unless and until they have a CLIA waiver or CLIA certification. So still we're following, unfortunately, the CDC guidelines, but we have to follow. Once they open up, yeah, we can see the cells. To answer your question, yes, one of the PPEs, along with the PPEs, the test kits are going to play a role. Okay.
spk01: And if you could just go over a couple of the initiatives you are undergoing on the bottom health, telehealth services, because, you know, as we're heading into the the winter months and the spike is occurring, more people will probably be back, you know, home. And so what are you doing to, you know, grow that business?
spk06: So as you've seen, we've launched Bonham Plus, primarily the employer solutions to bring in the safe and trustworthy environment to provide to the workers. We want to see the growth going on that aspect of it. And the second thing, we partner with a prescription drug company called Single Care, their offer that have around 15 million patients in their discount card program. They can provide our Bonham Health tool to them. Eventually, our end goal is, as I mentioned, all our vision was for our Bonham Health, for non-emergency services, patients should never leave the house, should be able to talk to the doctor. gets the drug delivered using our independent pharmacies, and if they can get a discount card, so be it. Okay.
spk01: Okay. And one last question, modeling question. Share-based compensation, should we continue to model it at that $500,000 level, or is that going to start coming down?
spk06: Howard, do you want to take that? No. Okay.
spk00: Yeah, I'm sorry. Yeah, I'm sorry. The non-cash compensation will probably come down into the fourth quarter. As far as what it's going to look like in future years, that's really kind of more up to the board and the compensation committee and how they structure the bonuses at the end of the year. Okay.
spk01: Okay, thanks a lot, and keep up the great work, guys.
spk04: And our next question is from Carlo Corzine with Dawson James. Please proceed with your question.
spk03: Hey, guys. Great quarter, of course. Wanted to see a couple things on the balance sheet to stand out. Deposit, inventory, deposit for a million, also inventory up considerable at Medicaid. medications normally aren't something you inventory, so is this all the PPE?
spk06: Yeah, Carlos, yeah, thanks for the question. Yes, they're mostly likely the PPE that we're trying to, because all these are production lines, you've got to get into the production lines to meet the supply and demand. Yes, to answer your question, yes, PPE.
spk03: So as far as the logistics, are you receiving the inventory and having to send it out yourself?
spk06: As far as the logistics are concerned, some of them are coming from overseas and stuff, so you have to put in the deposits to plan 60 to 90 days in advance.
spk03: Got it. Got it. One other quick question. Of the 22,000 independent pharmacies, you work with over half of those. And I know we had talked and some of them had shut down temporarily during the March through who knows what period of time, maybe until August. What kind of percentage did you have that has not opened yet or actually closed because of financials during this time?
spk06: That's a specific number. We don't have calls, but we are continuously monitoring how many pharmacies are out there buying for it and how the supply and demand disruptions are going on. I don't have that figure handy right now.
spk03: Did most of them, not percentage, but most of them that were closed down for a couple months, which I'm sure hurt your sales a little bit, are now open again for the future sales? Correct. Okay. All right. That's it. Thanks. Thanks, Carlos.
spk04: And we have reached the end of our question and answer session. I will turn the call back over to Sirin for any closing remarks.
spk06: Thank you, operator. I'd like to thank all of you for joining our call, our webcast. If we were unable to answer any of your questions, please reach out to our IR firm, MZ Group. We'll be more than happy to assist. Thank you again for joining us today. We look forward to continuing to update you on our ongoing progress and growth. 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 Med link. and that more information regarding the financial information disclosed on this CLAW and webcast, including a reconciliation of non-GAAP financial information, can be found in our press releases, which we've filed after the close of the market today. Thank you all.
spk04: Thank you for joining the call. You may now disconnect. Thank you and have a great day.
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