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spk01: Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to TrackState Health's third quarter 2021 earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. The earnings press release accompanying this conference call was issued at the close of the market today. The quarterly report in which includes additional information regarding the company's results of operations for the quarter ended September 30th, 2021, was filed with the SEC earlier today. On our call today is TrackState Health's founder, chairman, and chief executive officer, Surin Ajarupu, and Howard Doss, 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 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 2021 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 also have furnished such press release to the SEC on Form 8K. 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. These statements do not guarantee future performance and are subject to the 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, including the Form 10-Q for the third quarter. For information on risks, uncertainties and assumptions that may cause actual results to differ, material 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 TRAX-AIDS 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 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 Surin Ajarapu, the company's Chief Executive Officer. Surin, the floor is yours.
spk03: Thank you, Howard. We saw strong margin improvement as our revenue base returned to the core track-shared pharmaceutical exchange platform in the third quarter, seeing an expected drop-off in the first-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. We have relentlessly focused on exciting new ways to expand proportional wallet share within our large growing network of independent pharmacy members, while better enabling them to service their respective customers, the end users, further growing their loyalty to their local retail pharmacy. Our telehealth subsidiary, Bonham Health, has continued to grow as well, building a foundation that we believe we can build upon for years to come, not only offering an advanced telehealth offering, but concurrently allowing customers to retain their own healthcare data in a secure, compliant manner. This provides an exciting opportunity, leveraging our large, established national footprint of retail partners to drive the growth. Before we do a more detailed walkthrough of 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 digitalizing the retail pharmacy experience to the optimization of drug procurement, prescription journey, and patient engagement. Prior to the launch of TraxAid, obtaining drug codes as an independent pharmacy was an extremely laborious, time inefficient process with no insight or transparency into fair market price or what others are paying for the same drug. Additional wholesalers would provide unfavorable payment terms, slow delivery, and create a difficult conundrum for the approximately 21,000 independent pharmacies nationwide. We identified this market inefficiency as well as the incredible potential in these independent pharmacies which together maintain around $74 billion in annual purchasing power and proceeded to launch TracSafe. We design, own, operate a business-to-business web-based market platform, bringing together the nation's independent pharmacies with accredited national pharmaceutical suppliers 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 and at fair terms and often with next-day delivery. We believe this radical price transparency, economy of scale, and competition among the suppliers leads up to a 10% reduction in pharmacy total annual drug purchase costs, with a drug-level savings of up to 90% on some pharmaceutical products. Our platform saves pharmacists from having to manually compare prices across distributors, saving hundreds of hours of unnecessary labor annually and eliminating negative reimbursements or fulfilling a prescription at a loss. Our revenue model is simple. We are paid on an administrative fee of up to 6% of the buying price on a genetic pharmaceutical and up to 1% on brand pharmaceuticals that pass through our 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 12,950 registered members on our platform, with approximately 250 new registered members added in the third quarter alone. To further grow the exchange, we began to partner with group purchasing organizations, also known as GPOs, which will allow us to secure dozens, if not hundreds, of pharmacies at once. These GPO agreements can result in pharmacies purchasing a majority of their pharmaceuticals from TraxSafe rather than a smaller portion, as may do, giving them an outsized impact on our transaction volume, therefore revenue growth. We announced our first GPO deal with QualityCare in May 2021, a GPO spanning 10 states. We expect the GPOs will continue to drive pharmacies to purchase more products through the platform. We have leveraged our significant success since the launch of our aforementioned marketplace platform to move into adjacent complementary business where we can leverage our strong retail pharmacy network and core competency in technology. These include Bonham Health, our telehealth subsidiary, as well as the mail-order pharmacy and Rx distribution. In 2021, we're focused on driving forward adoption channels to broaden the reach of our Bonham Health telehealth partnerships, signing strategic partnerships with brand name nationwide stores such as Winn-Dixie, Kenny Drugs, ProAct, Brookshire Grocery Company, Spartan Mass, and most recently, Big White Foods. To build a truly national platform of partners to complement our immense independent pharmacy network. Approximately 500 stores offer Bonham Health Services to thousands of users in all 50 states. We expect to continue to grow in these incoming quarters to come as we wrap up our strategic partnerships and we anticipate an increasing number of employers turning into our turnkey telehealth solution. Bonham Health telehealth in third quarter had approximately 5,925 application downloads with an approximately 18.7% patient registration rate. The total application downloads for the year are over 18,750 within approximately 10.6% patient registration rates. Many of our relationships are still in the rollout phase, but we expect these numbers to increase into 2022. We continue to integrate exciting new solutions into the bottom health offering, including a direct-to-patient prescription drug coupon platform through our partnership with SingleCare, the ability to streamline patient lab results directly into Bonham Health virtual electronic medical records and remote patient monitoring. In addition, Bonham Health recently launched prepaid digital telemedicine passes, providing an innovative new way for uninsured consumers to gain access to vital healthcare services, all while concurrently streaming the path for organizations to efficiently gift healthcare to those in need. We believe that these product enhancements paired with our digital marketing strategy that we are ramping up provide us with an accelerated access into new key markets alongside our enterprise retail partners. On the capital market front, we were proactive in recent months attending four premier investor conferences, the Collier Fifth Annual Investor Conference, H.E. Wainwright 23rd Annual Global Investment Conference, the Benziga Healthcare Conference, and the LD Micro Mine event, all with the goal of enhancing broader investor awareness of our ongoing company. I'd like to now turn to the call over to our Chief Financial Officer, Howard Doss, to walk through the key financial highlights from the third quarter of 2021. Thank you, Sarin.
spk00: Revenues for the third quarter of 2021 were $2.6 million as compared to revenues of $1.9 million for the second quarter of 2021, which increase was a result of our TRAX 8 Prime program. Revenues for the third quarter of 2020 were $6.3 million. The decrease from 2020 was a result primarily of one-time non-recurring sales of personal protective equipment. in 2020 relating to the COVID-19 pandemic that did not continue in 2021. Gross profit in the second quarter of 2021 totaled $1.3 million or 50.2% of revenues compared to gross profit of 1.9 million or 30.5% of revenues in the same quarter last year. The significant increase in gross profit margin was a result of less lower margin PPE sales in 2021. Operating expenses in the third quarter of 2021 were $2.6 million compared to $1.8 million in the same quarter last year, primarily as a result of IT development and marketing investments made in Bonham Health and an allowance for bad debts of $630,000. Net loss in the third quarter of 2021 was $1.3 million, or 16 cents per basic and diluted share outstanding. compared to the net profit of $0.1 million or two cents per basic share outstanding in the same quarter last year. The decrease was due in part to an allowance for bad debts of $630,000. The company had an account receivable with a single customer for the amount of $630,000, which was past due and executed a note receivable, which was due on September 30th, 2021, which was not paid. The company has reviewed its policies and does not anticipate additional allowances. Adjusted EBITDA, a non-GAAP financial measure, was negative $0.5 million in the third quarter of 2021 compared to a positive $0.7 million in the same quarter last year. Looking at the balance sheet, cash and cash equivalents were $3.6 million as of September 30, 2021. compared with $4.5 million as of June 30th, 2021. Cash decreased mainly due to increased spending for the IT development and marketing of Bonham Health, MedChex Health Passport, DeliveMeds, and TraxAid Prime. I'll now turn the call back to Surin for closing remarks.
spk03: Thank you, Howard. In summary, we're focusing on inking exciting new strategic partnerships to drive forward our core business objectives while diversifying our revenue base and leveraging our exciting strengths through Bonham Health. Taken as a while, I think we are building an incredible, compelling healthcare ecosystem, allowing consumers access to their affordable healthcare by building an exciting value proposition for all stakeholders. I 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 question and answer sessions. Operator?
spk01: Thank you, sir. We will now begin the question and answer session. As a reminder, if you have a question, please press the star followed by the one on your touchtone 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. One moment, please, while we poll for questions. Your first question comes from the line of Alan Klee with Maxim Group. Please proceed with your question.
spk05: Good afternoon. For the group purchasing organization partnership, could you explain a little bit more about that? It seems like you have an opportunity to get a much higher percentage of of the drug sales, but could you explain a little more in terms of are you exclusive on that and is it dependent on the runoff of contracts with the big three wholesalers? How to think about how that could flow into revenues and profits? Thank you.
spk03: Sure. Thanks, Alan. That's a great question. The GPO program, you're absolutely correct. The revenues can be increasing. And we have not entered into the contract yet because the process is still going on. But our goal is to enter into contract with these pharmacies so that we can become their primary, in an essence, so that a higher percentage of their sales could go through our platform. To consider the numbers, again, average pharmacy that does three to three and a half million annual revenue they can buy a quarter million to $300,000 worth of drugs per month. And that's where we are going after through the GPO program.
spk05: Thank you. And then my follow-up question is on the TraxAid Prime segment. You showed good sequential improvement. Could you talk about... in terms of the issue that you had in the past with supply challenges of generic drugs, maybe how the total volume of drug sales were. And I know the Biden administration is working on some things to try to improve drug sourcing, and they've actually said that with the whole supply chain thing they're working on. Maybe your thoughts on how this issue is going to work itself out. Thank you.
spk03: Sure. We still continue to see that supply issues, that practice actually thrives on the supply chain issues because some of these wholesalers still have an access to the drug. And that's what you may have seen, a percentage of the platform revenue might have gone down because we are able to push more brands versus generics. So we continue to see the supply chain issues and hope that will be elevated in short coming quarters.
spk05: Thank you.
spk01: As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. One moment, please, while we poll for more questions. Your next question comes from the line of Howard Halpern with Taglich Brothers. Please proceed with your question.
spk04: Good afternoon, guys. You talked about incorporating, I guess, electronic health records into the Bonham platform. Is that your own technology that you're bringing into the platform that you've developed or is it an outside technology?
spk03: That's a great question again, Howard. As I mentioned earlier, the med check is all about the health records accessibility. We're trying to put under the... I know it's granted the current scenario is a vaccination report and the COVID test results, but those are considered as the health records. So it's obvious that we need to put underneath the environment because you'll be able to access your health records when you're talking to the telemedicine doctor. So that's the reason the Medchecks will automatically flow under the Bonham Health using our own technology to carry these health records. As I mentioned, Medchecks has been developed on a blockchain so that you could be able to give easily access to one doctor to other doctors. So you have your own control on your own health records so that you can take care of your well-being. That's our intent.
spk04: Okay.
spk03: So to answer your question, yes, it's our own technology.
spk04: Thank you. Okay. And just my second question is just sort of a recap, you know, based on past history. Should we be looking at the fourth quarter, you know, have a seasonal dip in revenue due to the holiday season compared to third quarter results? Is that going to go back to, you know, historic norms like that?
spk03: Yeah, it will go back to the historical norms, as you absolutely pointed out. Most of these pharmacies take towards the end of the quarter, pretty much. They start down from December 20th to the rest of the year. Yeah, we see the same historically, same flat revenue as from the last quarter. Okay, I just wanted to make sure.
spk04: Okay, thanks.
spk01: Your next question comes from the line of Nathan Weinstein with Aegis Capital. Please proceed with your question.
spk02: Hey, good afternoon, and thanks so much for taking my question. We just saw a great improvement in gross margins. I think that was thanks in large part to the mix. But maybe you can speak to how we might think about margin progression ahead, notwithstanding any of the seasonal factors that were raised in the prior question.
spk03: Sure. As we continue to increase our platform sales, the margin will try to sustain. But if you add it to our GPO program, we will have a cost of goods. So that may dip into the gross margin. But we try to have the balance between our technology platform revenues versus our GPO revenues. But our intent is to make pharmacies to come onto our platform by 2020. And it's all about that per wallet share per month is the one that we focus on. So we try to maintain that margin. But if sometimes the pressure comes from our GPU, the cost of goods may drop that gross margin.
spk02: Okay, fair enough, and I appreciate the call.
spk01: Your next question is a follow-up from Alan Klee with Maxim Group. Please proceed with your question.
spk05: Hi. For the Integra Pharma segment, it's not profitable today. Can you give us an update on what the strategy is there and is there a path to move that to break even or profitability? Sure.
spk03: Integra Pharma is nothing but our track-safe prime. Originally, we brought the track-safe prime model is we want to help our independent pharmacies trying to deal with multiple invoices, multiple package boxes that are coming in during the day. So our model there, TrackSafe Prime, is one invoice and one payment model. And that's where we are continuing to thrive on the TrackSafe Prime. And as we started off very small, that having infrastructure costs have eaten away, our infrastructure costs are added up to the last making proposition. But eventually, towards the third quarter or fourth quarter, we try to see profitability in the attractive price.
spk05: Thank you. One other follow-up question. For Bonham Healthcare, you have partnerships with a bunch of chains that are implementing, but you also have an opportunity to sell it to your own independent pharmacies that you have as customers. How are you pursuing trying to get penetration with your own independent pharmacies?
spk03: Fundamentally, we launched Bonham Health to support and help our independent pharmacies. If we even look at it, the most recent purchase by the Walgreens, the Village MD for $5.2 billion for the 60%. We want to make and give this independent sustainability in the long run. Even though we're partnering with other smaller chains, But all our focus is empowering our independence. We continue to do constant marketing and help them to create our brand pack. That means we create their website. We give them all the help that they need so that they can drive their patients to those websites.
spk05: Okay. Thank you so much.
spk01: 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 Adjirapu for closing remarks.
spk03: Thank you, operator. I would also like to thank you, 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 were unable to answer any of your questions, please reach out to our IR firm, MZ Group, who would be more than happy to assist. Please also note that a 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 more information regarding the financial information disclosed on this call and webcast, including non-reconciliation or non-GAAP financial information, can be found on our press release, which we filed after the close of the market today. Thank you all.
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