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spk04: compliance 3Q21 earnings call. At this time, all participants are in 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. Please note this conference is being recorded. I will now turn the conference over to your host, Jennifer Belladeau. Miss Belladeau, you may begin.
spk03: Thank you. Good morning, and welcome to the SHARPS Compliance Third Quarter Fiscal 2021 Earnings Call. On the call today, we have David P. Tusa, the company's President and Chief Executive Officer, and Diana P. Diaz, Executive Vice President and Chief Financial Officer. David will review the company's business performance, operations, and outlook, while Diana will review the financials. Immediately following their formal remarks, we will take questions from our call participants. As you're aware, we may make some forward-looking statements during the formal presentation and in the question and answer portion of this teleconference. These statements apply to future events which are subject to risks and uncertainties, as well as other factors that could cause actual results to differ materially from where we are today. These factors are outlined in our earnings release, as well as in documents filed by the company with the Securities and Exchange Commission. These can be found at our website or at scc.gov. With that out of the way, let me turn it over to David.
spk07: Thanks, Shannon. Good morning, everyone, and thank you for participating in this morning's call. I'm looking at the list of the attendees, and many of you know me, and you know how much I like talking about the business and the outlook and just the opportunity that we have in front of us. So that's what I'm going to do. I'm going to talk about the business instead of any kind of a scripted presentation. So everyone's seen the March numbers. They're very, very impressive. We're very proud of the numbers and the performance. I truly believe that's what's more important than the numbers is the fact that I just believe we're just getting started as we grow this company to a much, much larger organization. Of course, we knew the immunization revenue for the third quarter was going to be very, very strong, but I want everyone to make sure they understand that I don't think we're anywhere near one and done. Again, I think we're just getting started with generating significant revenue growth. It's really quite the contrary. Again, I believe we've got tremendous opportunity in front of us. Let me tell you how I look at the immunization business, whether it's COVID-19 or flu. We're often playing a key part in the rollouts of the COVID-19 vaccines, which is fantastic. We're proud to do it. Of course, we love the revenue associated with that. The way I look at it is we're working right now on the rollout of the adult vaccine. And you've seen the news. You see that we only have about 29% of Americans that are fully immunized. So we've got a ways to go, obviously. But here's how I see it rolling out. So we have the vaccine for adults, which is going on right now. I think it will be followed by vaccines for adolescents. I think it could happen in the summer. Then we'll be followed with seasonal flu shots. Then I think that there's an opportunity for vaccine for children. Then, as everyone hears, the booster shots for the vaccine to address efficacy and the potential variants. That's a lot of activity, and that's a lot of things that are going on, and we're playing a key role of it. Why I mention the children's and the adolescent vaccine is, you know what the experts are saying, if we have any chance of achieving herd immunity, it's going to be the children, it's going to be the adolescents. They're going to have to be immunized if we have any chance of achieving this 70% to 85% rate of immunization. I don't look at the immunization business really for any particular quarter. What I look at it is like over the next three to four quarters. And I don't know exactly how it's going to hit between those three or four quarters, but we feel confident that we're going to be very, very busy, again, through the end of the calendar year and probably into the following year. And on that, you know, it's – It's much more than just 21. I mean, there's going to be a layer of this immunization business that will continue into 2022, 2023, and forward. And the way we think about it is when you consider the devastating impact of COVID-19 on the economy, health care, the emotional toll that, you know, I think we all believe that there's going to be much more proactive work on further vaccine booster development, and addressing COVID and potential additional coronaviruses. So I see the next three to four quarters very, very strong as we participate in all the different vaccines I mentioned, and then some level of that thereafter that will continue. So enough about vaccine. The route-based business, one of my favorite businesses. I really enjoy it. I think it's great that we're into that. I love that business. And it's growing about 40%. But I got to tell you, I'm really not totally happy with that. I think we can do much better than a 40% increase. We're addressing a $1 billion market for small and medium quantity generators. You know, it's excellent. We have direct service in 37 states, 80% of the population. It just seems like yesterday we jumped into this business. And we're very proud of our geographic expansion And now we need to turn the footprint, the larger footprint, into more sales, more revenue, more dollars, and stronger growth. And this business will continue to be a big part of our growth plans and where we're going, and we look for continued strong growth contribution from the route-based business. Unused medication. I'm here in our boardroom, and I'll never forget back in, like, I think it was 2012, 2013, we were designing the MedSafe. here in this room based upon the change in the DEA rules. And, you know, we thought we had a real opportunity to grow this business or develop this line of business and make it a big part of what we're doing. And we did it. And we're the leader in this MedSafe business, the patient dispensed or ultimate user medication disposal. And, you know, it's been slow during the pandemic, but, you know, that's okay. They're understandable. There's a pandemic. So the retail pharmacies are are focused on the vaccines, the immunizations. But what's important is we see, and we're starting to see some of the orders line up, we see the growth rebounding beginning in the September quarter. And get back on the growth tracks that we've experienced before, and again, make it a big part of what we're doing. And I think long-term it will continue to be a big part of what we're doing. Now the financial person in me can't talk about the business without talking about the margins, both gross and operating, and I've talked about operating leverage for a while, but I think if you had any doubts about the operating leverage in our model, I think the March 2021 quarter numbers should put those doubts to rest. Finally, and I think this is the most important, the most important is, and I've said this many times, I'm gonna say it again, We're not that typical micro-cap company. We're not the typical small micro-cap struggling with growth, dealing with growing pains. It's just not us. We're a very well professional organization. We plan accordingly. We started in March last year planning for what you see the results of in the March P&L, whether it be whether it be millback inventory, whether it be warehousing, and it's played out quite well for us. But we've got great operations personnel. We have first-class customer service, and we're good at it. We're good at executing, and, you know, it's a tribute to the company and to our employees. And we did all this during a pandemic, which no interruption, no disruption in service, which I think is something we'll really be proud of. So when I look at the business going forward and you look at the outlook, we've got our core businesses. We've got mail-back business, our route-based business, and unused medication. We think we're extremely well-positioned to take advantage of all the growth opportunities in these three lines of business. We're excited about the opportunity, and we hope to generate more quarters like you see in the March quarter where significant revenue growth also coupled with significant operating leverage. With that out of the way, let me turn it over to Diana, and she'll address the financials in more detail.
spk00: Thank you, David. SHARPS achieved record revenue of $27.5 million and record customer billings of $31 million in the third quarter of fiscal 2021. These are increases of $17.1 million, or 164%, and $20.7 million, or 200%, respectively. The increase in customer billings for the third quarter was driven by an increase in immunization-related billings of $19.5 million reflected in the retail market, and an increase in our route-based business of about $1 million. The increase in third quarter revenue of $17.1 million was driven by immunization-related business of $16.1 million, which is net of deferred revenue of almost $4 million, and the $1 million increase in the route-based business. Billings in the professional and long-term care markets grew 19% and 28% respectively, primarily due to new customers using our route-based pickup services, as well as increased volumes from existing customers. Home health care market billings increased 38% to $2.3 million in the third quarter of fiscal 2021 compared to $1.7 million in the third quarter of last year due to the timing of distributor orders. Gross margin for the third quarter was 49% as compared to gross margin of 21% in the third quarter of last year. Our revenue recognition method for accounting purposes, which is a bit complex, resulted in a net deferral of about $4 million of customer billings to future periods. When recognized, these deferred billings will be recorded at a much lower gross margin. Therefore, the billings not deferred and recorded during this quarter are recognized at a higher margin. Without that favorable impact of revenue recognition, gross margin for the third quarter was really 41%. SD&A expense increased by about $600,000 for the quarter. This increase included management incentive compensation, both equity and cash, of $400,000, higher sales and marketing costs of about $100,000, and higher board of director compensation of $100,000. We reported operating income of $9 million and an operating margin of 33% in the third quarter of 2021. compared to an operating loss of $1.6 million in the third quarter of last year. Without that revenue recognition impact on gross margin that I described earlier, the operating margin for the third quarter of 2021 would have been 25%. SHARPS recorded net income of $6.9 million or 41 cents per basic and 40 cents per diluted share this quarter. compared to a net loss of $1.6 million or a loss of 10 cents per basic and diluted share in the third quarter of last year. We generated EBITDA of $9.6 million or 35% of revenue in the third quarter of fiscal 2021 compared to an EBITDA loss of $1.2 million in the third quarter of last year. Without the revenue recognition impact on gross margin that I described earlier, the EBITDA margin for the third quarter of this year would have been 27%. Our balance sheet remains solid with $11.2 million of cash as of March 31, 2021, which is up from $5.4 million at June 30, 2020, and working capital of $20.7 million, up from $11 million at the end of June, Now, with that, I'll turn the call back over to David.
spk07: Great. Thanks, Diane. Operator, let's go ahead and open it up for the Q&A, after which I'll make a few closing remarks.
spk04: Thank you. At this time, we will be conducting a question and answer session. If you'd like to ask a question, please 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 questions from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question is from Jerry Sweeney with Roth Capital. Please proceed with your question.
spk09: Good morning, David and Diana. Congratulations. Well, thank you. David, you talked about COVID vaccines, you know, 30% of the adult population. They're about at least with one shot. We have boosters. We have variants. We have, you know, adolescents. starting to kick in. And I suspect, you know, adult population and adolescents are going to be sort of different participation rates. But what do you think the potential value of all this wrapped up and even flew into next year? Is there a way you could maybe help us bracket this or, you know, provide a benchmark? And how does it roll out also? Not just really over the next 12, 18 months, this is going to be a process.
spk07: No, that's actually a very good question. I'll tell you, I'll back into it. So, you know, for planning purposes, we need to know what the demands are going to be on the business. And we've done many, many calculations between COVID-19, COVID for adults. You know, you hear on the news that I think as many as 74% of the adults will receive the two shots, adolescents and children. And we've made some assumptions, say, maybe even as much as half. of the children and adolescents will get the vaccine flu. We're going to have flu this year. And by the way, flu is probably going to be worse this year. The experts are saying that the immunity levels are down. And the flu may not just be the typical 7 to 8 million, and we think it potentially could be even 10 million and higher. And it boosters. I mean, even if you make a an assumption on boosters, even that of the 250 million adults, even if maybe a third or a half get a booster shot, that's a significant number of mailbacks. So just with COVID-19, we think that there could be as much as a million mailbacks for the next, say, nine, 12 months, maybe 15 months. A million mailbacks on the COVID-19 It could be 300,000 on the flow. It could be another 300,000 on the boosters. What that gives you is about as many as 1.6 million in mailbacks. When you do the math, that equates to as much as $60 million in revenue. I'm not saying we're going to generate $60 million in revenue, but I think that could be the addressable market. that we would have in the vaccine. So we generated so far about 20 million in immunization business. So there's opportunities for over the next nine, 12, maybe 15 months to generate significantly more revenue related to the immunization business. And even if it's 50 million, that's another 30 million over and above where we are right now. I also want to say is those mail back numbers are really important in making sure, and we do, And we have plans. We will meet the requirements. We will have the 1.6 million available over that time period to be able to service that market. I hope that was a long way of answering your question.
spk09: Yeah. And maybe to take it a step further, I was trying to do a little math as to actually you were answering that with those numbers. You know, that's COVID, you know, beginning to end, we'll say, like the first wave of vaccines, right? And then we get into 22 and 23, there's a tail to this business, right? You're going to have boosters again and variants, et cetera, and different participation rates there. Have you tried to do any of the math on that as to what that tail could be? I mean, literally right now I was looking at something like 15 million, but that's really rough back of the envelope.
spk07: Right. You know, the way I look at it is – So in the future years, let's say you have, you know, one booster versus the two shots you received this year on the children's vaccine. By the way, when the children ultimately get the vaccines, they'll have two, just like the adolescents. Flu will continue to be strong, and I think there will be boosters for the foreseeable future. So I think you can pretty conservatively say maybe 30%, maybe a third of it, could continue in the future, maybe even as much as half. It just depends upon, you know, the vaccines. It depends on what other kind of variants may come about or what other kind of coronaviruses we may see in the future. So I think we're comfortable with maybe say as much as at least a third of that continuing in 22 and thereafter.
spk09: Gotcha. And then shifting gears, obviously route-based, you know, great business, great growth driver longer term. As you look out for the next year, there's opportunity probably for organic and inorganic investment. On the organic side, it's a lot of marketing sales. You're starting to carve out some of the numbers, I think, on inside sales, and it's up a million dollars a year, year over year, et cetera. What's your sort of view on your investment over the next year from both aspects of that, organic and inorganic?
spk07: Well, I'll just tell you that... because of what we're experiencing on the immunization side and because our desire to significantly grow that route-based business, we're in the process of hiring roughly another 10 salespeople, and we're going to invest heavily in the sales and marketing, and that'll go from roughly 20 to as many as 30 people on the sales side, which is really important because we think it's our moment. I'll tell you something else that really helps When we move into an area organically, we did this successfully in the Midwest and we're doing it right now in what we call the Southwest, the four states in the Southwest. That brings a lot of revenue opportunities because those are areas we wouldn't go after directly because we don't provide direct service. Those are areas where we had previously subcontracted and we may include in larger opportunities. So we're performing direct service and we're marketing heavily and to all of the areas, all 37 states that we are providing direct service. So I think that will give us a bump as well in the revenue growth and morale-based business. More salespeople, more marketing, and more direct service in a greater geographic area.
spk09: Got it. That's very helpful. I appreciate it. I'll jump back in line. Thank you.
spk01: Thank you. Our next question comes from Rob Brown with Lake Street Capital Market.
spk04: Please proceed with your question.
spk06: Morning, David and Diana. Congrats on a very nice quarter.
spk04: Morning.
spk06: Just wanted to dive a little bit more into the COVID vaccine activity. What, I guess, what are you seeing in terms of the planning for the fall and sort of filling the channel? And I guess, what's your inventory at this point? And how are you sort of prepared at this point?
spk07: So, again, as I mentioned before, I think that we could, you know, sell as many as a million, six or more of our mailbags, you know, even over this calendar year. We sold roughly about a half a million in the March quarter. And we are right now, I'll tell you, hold on, I've got to do this. We're right now, our weekly production of the sharps containers that are the critical part of the, of the mail back are about 50,000 a week. So we're manufacturing about 50,000 a week that we have ongoing. We'll go on throughout the year to be able to meet those needs of this upcoming COVID business.
spk06: Okay, great. And I know you added significant capacity for processing the returns. Where are you at in terms of capacity utilization in your facilities?
spk07: We still have significant capacity. We did add the additional autoclave in Pennsylvania, the larger autoclave that we installed in the Texas facility. We tripled the capacity, and we're doing fine. We have plenty of additional capacity. We are using more of it, but not substantially more, because when you triple the capacity, that gives you a lot of of room to grow. I tell you what's also important is the improvement of the efficiency. In Pennsylvania, we have two. So you use the same crew to run two auto places you were using to run one. And it makes for a more efficient operation as well. But I don't see any problem with having the capacity to treat all of the medical waste, whether it be the mailbag or whether it be the route-based business. But I will tell you that... because of the facilities we have and the permits that we have, it wouldn't be too terribly hard to be able to add additional autoclaves if we needed additional capacity. But I think we're fine for a while.
spk06: Okay, great. And then on the route-based business, I think you talked about even 40% growth is something you thought you could do better than. But what's sort of your view on the route-based growth, I guess organic growth at this point, and And are you seeing that scale benefit as you've gotten your footprint in place? Are you seeing the scale benefit accelerating the growth there?
spk07: We are. And we saw that when we went into the Midwest about a year ago. When we went into the Midwest and we're seeing that's a big part of the contribution of the growth that we've seen. And we expect to see significant growth as well from the Southwest and other regions that we directly service. I'll just say that... 40% is great, but we're not happy with it. And we think they have the opportunity to generate a higher, much higher organic growth rate.
spk01: Thank you. I'll turn it over. Thank you. Our next question is from Amit Dayal with HC Wainwright.
spk04: Please proceed with your question.
spk05: Thank you. Good morning, guys. With respect to the strength in operating margins, is this basically coming from better capacity utilization? And if, you know, revenues stay elevated at these levels, should we expect, you know, these level of margins to continue coming through?
spk07: So a couple of things, and then Diane is going to – she'll spend some time with you to give you some different gross margins, different revenue levels. You know, we have a significant – we have a significant – line item and cost of sale that's fixed. So really it's a variable cost that drives that margin expansion only. But Diana can share with you the different gross margins at different revenue levels we think we see going forward.
spk00: Sure. If we ignore the impact of the revenue recognition that benefited our current quarter, we expect gross margins to be at these levels. At a $20 million revenue level for the quarter, we would expect gross margin of 37%. At a $25 million quarterly revenue level, we would expect gross margin at 40%. And at a $30 million quarterly revenue level, we would expect gross margin of about 42%.
spk05: And on the operating margin side, I mean, your operating costs should remain relatively stable, given that you have enough capacity in place right now.
spk07: Right, right. You should see a flow-through of a significant portion of that additional gross profit to the operating income line.
spk05: In terms of, you know, the revenue mix longer term, David, between immunization, route-based and unused medication, is there a target you're shooting for or can you give us a sense of where you might see or where the business might be in a few years from now, you know, relative to contribution from these three segments?
spk07: Well, you know, I want it all. I want all of them to grow and to grow significantly, and I think the mix will be, depending upon which sectors grew, it's obvious that the mail-back sector is heavily influenced with immunizations. It's going to be strong for quite a while. The route-based business should continue to grow at healthy rates, and again, we think the unused medication will come back online in a bigger sort of way in the September quarter. So, you know, I'll take significant growth from all three of them. In a few years down the road, we'll see where we are. But there's no target other than that top line and growing that top line significantly.
spk05: Just looking forward to sort of the June quarter 21, should we expect sequential growth Relative to the third quarter, given that, you know, there's still, you know, some level of vaccinations that need to be completed, et cetera?
spk07: You know, I don't like talking about quarters. I know you want to talk about them. You know, that's why I was talking about the opportunity more from a nine- to 12-month standpoint. We have a huge opportunity in front of us. How it all falls into the quarter, I don't know yet. I will say that April was strong. April was a – was a busy month, and it was quite strong. So instead of talking about individual quarters, I really look really more for the 9, 12, 15 months and see significant opportunity. How it falls between that quarters, we'll just have to see.
spk05: It isn't stronger than March, if you will.
spk07: You know, anything's possible, but we'll just have to see. I'm not going to say it is. I'm not going to say it isn't. it isn't. But I think we're going to see continued strength as a company with consolidated revenue over the next 9-12 months.
spk05: This last one in terms of your market share gains, do you think you are making progress on that front? Especially with the growth you're seeing on the route-based side and improvements on the immunization front as well. Compared to this time last year, do you feel you have a stronger market share?
spk07: Well, on the immunization side of the business, we have roughly about 70% of the retail pharmacies, and that was the same as what it was last year, and that's the same as what it is this year. Now, we do think that we're improving market share in the other markets, like the route-based business, and when we grow, that's just taking more market share, and so that's where you'll probably see more market share growth, but... but 70% is where we are on the retail pharmacy.
spk05: That's all I have, guys. Thank you so much.
spk07: Sure.
spk04: Thank you. Our next question is from Kevin Sankey with Barrington Research. Please proceed with your question.
spk08: Hey, good morning. So following up again on the route-based business, obviously around 40% is a healthy growth rate, but You think you can grow it even faster. What do you see as the catalyst to potentially growing that business faster? Is it just more sales efforts or geographic expansion or kind of what gets that business growing faster, do you think?
spk07: Right. It's really all of the above. It's more sales force personnel, more marketing, and it is. It's a geographic expansion. Every time we expand geographically in an area that we service directly, it's an area that we will go after directly versus, again, subcontracting. Every time we do that, we have the opportunity to grow that business. The other one is just closing larger deals as well. As we close larger and larger deals, the vast majority of our larger opportunities and prospects focus on the route-based business. So it's really all three of those added up that we believe will lead to higher growth rates.
spk08: Okay, got it. And you've talked about here, you know, potentially seeing growth rebounding and unused medications in the September quarter. Can you maybe just talk a little bit more about what's in the pipeline there that's giving you some confidence that you're going to start seeing a rebound?
spk00: Sure. Kevin, we talked earlier that one of our large retail pharmacy customers had adjusted their installation plan to address COVID-related response, and they expect to get back with their installs. starting in the summer. We're also seeing increases in liners processed in the current quarter, which those liners processed were up 13% over last year and 15% higher than the December quarter. So those are good facts. We installed about 140 MedSafes during this quarter, the third quarter. And we expect to see the number of installs increase in the September and the December quarters by about 300 units in each quarter. And that would have an incremental revenue impact of about $400,000 to $500,000 a quarter due to that higher installation activity.
spk08: OK, that's some great detail. I appreciate that. And then just lastly here, you've talked about you're going to invest more in the sales force. And how should we think about kind of an SG&A run rate going forward? Is this kind of $4 million plus more what you would expect going forward? Or how are you thinking about that line?
spk00: Yeah, we talked about there being an increase of 9% to 12% year over year, and I think we're still there. We may be, the increases in the headcount may bump it up a little bit, but we're kind of on target with where we expect it to be.
spk07: But, you know, Kevin, as we see, you know, bringing on more salespeople and, again, working to bring 10, I think we have five in so far, of additional salespeople, as we see that that works and starts accelerating sales, then we'll hire more if we're getting the results from that. But I think this roughly 10% to 12% target is probably good for now. And if we did anything, it would be directly related to the fact that we were confident it was going to, you know, exponentially increase the revenue growth rate.
spk08: Exactly. Okay, sure. Makes sense. Well, thanks a lot. Thanks for taking questions, and congrats on the nice results. You bet.
spk02: Thanks, Kevin.
spk04: Thank you. Our final question is from Brian Butler with Stiefel. Please proceed with your question.
spk10: Good morning. Thanks for taking my questions. You bet. Good morning. I'm sorry. I might have just missed this on the MedSafe on the liners. What was the installs for the quarter and the –
spk00: The number of MedSafe installs during the quarter was 141, and the liners processed in the quarter were 7,700.
spk10: Can you just kind of remind us just and think about what the size of the MedSafe market is kind of on a larger go-forward basis? I mean, I know the installs are going to ramp back up. But where are we in the progress of this market and kind of what's installed now and how big it could be?
spk07: Right. You know, one of the ways to look at that is, you know, if you look at just, you know, the number of retail pharmacies and the number of, say, long-term care facilities, and those are two primary targets. There's at least 100,000 facilities between those two. And what do we have in MedSafe deployed right now? about 6,000. So if you think about it from that standpoint, you're roughly 6% penetrated in quite a large market. So we have a lot of runway. I will say this about long-term care. Long-term care is where the DEA rules were originally focused on. And long-term care has been a little bit slower to adopt. And of course, COVID slowed down the long-term care facilities from adopting it as well. Now, We've seen more opportunities coming our way, and we're actually getting some help from our new director, Pat Malloy, who came on board, who has tremendous contacts and experience in the long-term care. We're working with him to help us identify opportunities and to help us to refine our approach to try to drive more med-safe cells in that long-term care. By the way, long-term care is looking for cost savings. whether it be regulated medical waste or the whole unused medication side of the house. So we think from a timing standpoint, it could be good as we re-approach all of this long-term care business and try to accelerate the growth on the MedSafe sales.
spk10: Okay, that's helpful. And then when we think about margins, the detail you gave on the gross margin was very helpful there. And if I were to kind of do the math on that, it looks like the incremental gross margin on new revenue is over 50%. It comes out as like 52%, I think, on the math that you gave. Is that sustainable? Is that the right way to look at, you know, as revenues grow, that 50 plus percent is the incremental margin at this point going forward?
spk07: Yeah, I've always said 45 to 50%, depending upon the mix of the business. This was a good quarter from a revenue mix standpoint. and it'll be somewhere between that 45% and 50%, maybe closer to 50% than 45%. It depends on the mix, but I think the 50% is probably a good measure.
spk10: Okay, and then what do you think is kind of the size overall, just the current infrastructure that you have? I know you expanded out, obviously, to deal with COVID. What kind of revenue can be supported kind of on the current infrastructure before you have to make more investments?
spk07: So, you know, we're using roughly a third of the capacity on the treatment side. On the route-based business, there really isn't any limitations there because, you know, you just add trucks and drivers to the existing infrastructure. As far as the mailbag business, you know, we can easily, as you saw in this last quarter and with some of the projections that we talked about earlier, we can – you know, easily crank out two plus million of these a year. We don't really have any restrictions. Actually, I meant to mention earlier, while we have the capacity right now to do about $45,000 or $50,000 a week, here in the June-July timeframe, we'll be up to about $60,000 to $65,000 a week on the mailback side. So, you know, ICS being able to grow a company much, much, much larger. Now, If we did have to make investments, it's adding an additional autoclave, which, by the way, is about $400,000 installed. The trucks and the drivers are an operating expense because we lease the trucks. As far as the manufacturing of the mailbags, we have contract manufacturers that use our molds to make the sharps containers, and we have many of them across the country. We could add more. So we have plenty. That's one of the things we assured our customers at the beginning of this COVID. And, you know, because in some parts of the medical waste industry, there was a real shortage in sharps containers. And we reassured them, we have as many as you need because we make them ourselves and we're able to deliver. So I think it's much, much larger before there's really any significant capital expenditure that they would have to make, Brian.
spk10: Okay. That's helpful. And then I, I'm going to switch back to the, to the vaccine talk and the mailbacks, I guess, just want to be clear, you know, you talked about 1.6 million. It's kind of the calendar year pace. And we did about 500, a little over 500,000 in the first quarter. And when you think about that remaining, you know, cause just over a million, you know, that's the next kind of nine to 12 months. Is that included? That's including the flu, the flu, uh, demand as well.
spk07: Correct. Right. That's correct. Because, you know, the mailbag is fungible. It can be used for COVID-19. It can be used for flu. It can be used for shingles shots. It can be used for anything.
spk10: Right. There's no way to just, you know, kind of pick out which is flu and which is vaccine.
spk07: No, no, no. And right now, especially right now with what's going on with COVID, with COVID, it's just mailbags. And that's what we're working on with the customers. And, again, we can make a lot more of them, and we plan to keep building. I will tell you this. We're not going to stop. We're going to keep building and facilitate what we expect to be growth throughout the calendar year, Brian, but we're not going to stop. You know, we have an additional warehouse up in Pennsylvania that And, you know, my goal is to have par levels for the mailbags well over 400,000, meaning inventory levels that will not go below at least 400,000. And I think this past year would support that without a doubt. But, again, if we needed another warehouse, it's just a warehouse, and we lease the warehouses. So it's not a capital expenditure. It's just some additional operating expenditures. That's the beautiful part about this business. and expanding it as we are, and it's just not a lot of significant capex that we would have.
spk10: I know you don't like talking about the quarters, but I'm going to try again. You realize we have to think about the model and how this plays out. I'm guessing from a planning perspective, you have a similar dilemma in trying to figure out how to be prepared for delivering these. Do you think there's any seasonality around the vaccine piece? I mean, I guess what kind of volatility could we see? I mean, I can just take that one point, the remaining 1 million or 1.1 million and kind of even it out over whatever period. But is there some volatility that we should expect or may expect?
spk07: I think you just watch like we do. You just watch and you're going to see when that adolescent vaccine is going to become available. I think it's going to be pretty soon. And that's the 12 to 16-year-olds. And those kind of events are very, very important as you hear more and more talk about flu and how important it is to get your flu shot. And there's more and more talk about the boosters. There's a potential for the boosters in the fall as well. So I think what you have to look at is you have to look at the rollout of the different vaccines. I watch every day the percentage of the population. You know, that's 230 million roughly of immunizations that we have. It's about 90, it's about, you know, 93 million people that have received two shots. That's 186 million injections. And about another 45 have had one, have had one shot. So that's 45 million. Yeah, that's a 231. So these are the kind of numbers that we watch, and I think that everybody should be able to watch as we see these numbers. If it slows down, the business slows down. If it picks up, then our business would pick up. And that 1.6 million is an estimate that we made for planning purposes, Brian. And the kind of assumptions that we made were, again, 74% of the adults, maybe 50% of the kids. We think that about 60 to 65% of these immunizations, all the ones I described, will be administered in a retail setting. I took that into account. And then we have about 70% of that market, and I took that into account as well. One other thing about flu, I gotta tell you, the retail pharmacy has proven to be just a phenomenal spot to be able to get immunizations. They're efficient. And they run very, very, very well. I think you could get a pickup in the flu in the retail pharmacy market because guess where they went and got their COVID-19 shot? They got it at the retail pharmacy. So I think it's going to bode really well for the retail pharmacy side, which, again, is a big part of our business. But it rolls out like it rolls out. It falls out like it falls out. That's why I like to look at it over the nine to 12-month standpoint.
spk10: Okay, and then one last just quick one for me. We saw the sale of Curtis Bay out there. Have we seen any change in the competitive market for you guys with kind of that changing of hands or anything else?
spk07: No, no change. There's really been no change from a Curtis Bay or really in the – in the industry standpoint.
spk05: All right. Thank you for taking my question.
spk07: All right. Thanks, Brian.
spk04: Thank you. Ladies and gentlemen, we have reached the end of the question and answer session. I will now turn the call over to David Tusa for closing remarks.
spk07: Thank you, Robert. Thank you, everyone, for participating in our call today. We look forward to follow-up. We look forward to the next quarter. And it's also, we think, a real opportunity to thank all of our employees It's been a little busy.
spk00: It has been.
spk07: So, anyway, thank you, everyone, for participating. Thanks to all the employees. We look forward to talking to you all soon.
spk04: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation, and have a great day.
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