Q2 2021 MedAvail Holdings Inc Earnings Call
Okay.
[music].
Yes.
[music] great.
Yeah.
Hello, everyone and welcome to the <unk> 2021 second quarter earnings Conference call. My name is Bethany and I'll be coordinating this call for you today, if you would like to register to ask a question during the Q&A session. Please press star followed by one on your side of thing keypad.
Now I'll hand, the call over to your host Carolyne pool Investor relations to begin Caroline over to you.
Thank you and thank you all for participating in today's call.
Joining me are I'd kill Wright, Chief Executive Officer, Brian <unk> interim Chief Financial Officer, and corporate controller.
Here today, they'll holdings released financial results for the second quarter ended June 32021.
A copy of the press release is available on the company's website.
Before we begin I'd like to remind you that management will make statements. During this call that include forward looking statements within the meaning of federal Securities laws, which are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Statements contained in this call that relate to expectations or predictions of future events results or performance or similar statements are forward looking statements all forward looking statements, including without limitation those.
Relating to our operating trends and future financial performance the impact of COVID-19 on our business and prospects for recovery.
Spence management expectations for hiring growth in our organization and reimbursement market opportunity and expansion and guidance for revenue gross margin and operating expenses in 2021 are based upon our current estimates and various assumptions also management may make additional forward looking statements in response to your question.
<unk>.
These statements involve material risks and uncertainties that could cause actual results or events.
Curious 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 and making an investment decision without considering the risks associated with such statements.
For a list and description of the risks and uncertainties associated with our business. Please refer to the risk factors section in our annual report on Form 10-K.
Filled with the Securities and Exchange Commission SEC on March 31, 2021.
This conference call contains time sensitive information and is accurate only as of the live broadcast today August 11, 2021, Medicare holdings disclaims any intention or obligation except as required by law.
<unk> or revise any financial projections or forward looking statements, whether because of new information future events or otherwise.
And with that I will turn the call over to Ed.
Thank you Caroline and good afternoon, everyone.
Thank you for joining US we are encouraged to report another positive quarter with Twitch.
Sequential revenue growth from the first quarter of 2021.
As a reminder, our business model has two business segments. The operation of our technology enabled high touch retail pharmacy, using our proprietary technology and processes known as a retail pharmacy services segment.
The sale or provision of these technologies to large customers to support their own pharmacy operations known as our pharmacy technology segment.
Our retail firms.
The segment generated $4.5 million in revenue for the second quarter of 2021, representing a 162% year over year increase and a 31% increase from first quarter of 2021.
Our pharmacy technology revenues decreased 10% year over year in the second quarter of 2021 to $500000.
As we mentioned during our first quarter earnings call. Many of our clients delayed deployments due to their focus on COVID-19 vaccinations and attempting to resume more normal operations, which resulted in all of our first half deployments occurring in June.
As such our double digit sequential revenue growth for the second quarter was achieved through continued organic growth of the clinics, we had installed by year end 2020.
We are pleased to report that we did install 12, new clinics in June 10 of the 12 were expansions with clients such as Oak Street Health Optum care and care more.
We remain cautiously optimistic that clinic visit volumes will return to pre COVID-19 levels in the back half of 2021 as with most of our new client installations. There are two steps, our physical installation and an onsite inspection by the board of <unk>.
Pharmacy for the state, which allows us to begin to dispense and generate revenue in.
In 2020, our experience has been that the time between physical installation and first dispense was approximately a four week window, which we built into our plans due to the coast.
And other external pressures on the boards of pharmacy. They have now pushed the expectation to eight to 12 weeks for the foreseeable future. These changes impact our ability to generate revenue from new clinics and based on discussions with the board of pharmacy, We expect these timelines to.
Continue for at least the balance of 2021.
Therefore, new clinics, we deployed in the fourth quarter of 2021 are not likely to generate any appreciable revenue in this calendar year, which impacts our full year revenue outlook as we have discussed on previous calls our value proposition is fueled by our embedded on site.
Pharmacy model in which we are viewed as a true partner to the clinics and care providers. The partnership with the clinics and care providers is focused on improving medication adherence and customer satisfaction.
Our target clients all have common business models high percentage of Medicare advantage patients.
Run an at risk model with payers. So that the clinics are fully incentivized for high quality outcomes versus the old fee for service model.
And management system built around high quality of care and customer service as.
As we have evaluated our current total installed base. It is encouraging that our growth is with clients who are aligned with these attributes.
As we have enhanced our target clinic's analytical capabilities, we have identified several clinics that do not meet our expectations going forward as they have begun to transition from the height of the COVID-19 period.
We have decided to exit these sites prior to year end 2021, and redeploy our valuable resources into clinics that more closely fit our target model.
Therefore between now and year end 2021, we expect to exit approximately 10 clinics that we do not feel fit our long term model. We view this as the removal of a small anomaly in our clinic deployment ramp, albeit one that was taking up a disproportionate.
Amount of our resources, which we can now be redeployed to greater effect in our core Medicare advantage sites.
The decision to withdraw from these approximately 10 clinics does not.
Expectation of deploying a minimum of 45, new clinics with spot Rx in 2021.
With these withdrawals, we have reset our base of clinics and we feel that all of the clinics in our pipeline are aligned with our key criteria.
Demand for our solution remains strong in the states, where we currently are operating including Arizona, California, Michigan and Florida.
Regarding our 2021 outlook, we are encouraged to see most of our clinic partners moving back to more normal operations. As a result in July we saw monthly sequential retail pharmacy services net revenue growth of 7% compared to June.
However, while the business continues to grow robustly, we are cautious that clinics will return to pre COVID-19 volume levels in the second half of 2021.
We have encountered unanticipated headwinds with the timing of boards of pharmacy regulatory approvals I described and our decision to withdraw from approximately 10 clinics between now and year end 2021 as a result, we are adjusting our full year net revenue guy.
<unk> to be at least $21 million in full year net revenue compared to our previous guidance of $27 million to $31 million.
Excluding the onetime revenue recognition adjustment in 2020 associated with an old large customer agreement, we expect to grow over 100% this year and expect to maintain that growth rate in 2022.
Assuming the world returns to its pre COVID-19 levels in due course.
Turning to gross margins, we experienced a reduction in gross margins from the same period of the prior year.
The decrease in year over year margins is primarily due to a lower contribution from our pharmacy technology segment.
The margin in our year over year retail pharmacy services segment was relatively flat.
We continue to focus on improving our gross margins through the balance of 2021, driven by the initiatives. We have previously discussed such as continued reduction in the cost of delivery and improved procurement terms.
Over the long term our model is highly scalable and repeatable.
As we expand to additional markets in new regions and within existing regions.
You'll recall that our cost structure works to our advantage as we do not have to carry the overhead cost of the large retail store footprint that traditional pharmacy operations have.
We remain excited to be entering the important Florida region in the second half of 2021 and believe this further demonstrate the highly scalable and repeatable nature of our business model and the potential for future growth in target markets across the U S. In addition, as we have.
<unk> previously, Texas remains a key market for our strategic clients and meta Bill. We are pleased to announce that at the August 3rd Texas Board of Pharmacy meeting permanent rules were passed that allowed net avail to widely deploy our proprietary med center technology throughout.
The state.
In addition to the meaningful progress we have made on geographic expansion through a recent business development efforts. We are also pleased to announce new partnership opportunities in both our retail pharmacy services and pharmacy technology solution segments.
We were recently honored to have been selected by ZIP drug a wholly owned subsidiary of anthem to participate in their program, which connect Medicare advantage patients with pharmacies, who drive the best possible adherence for the lowest cost.
ZIP drug solutions connect many consumers with chronic conditions to these high performing independent pharmacies that have a proven track record of providing impactful clinic care with higher patient adherence rates in the Tucson area, where thousands of lives are covered by the P. B.
In in Jennie O Rx spotter X will be serving as dip drugs only preferred pharmacy and Jennie O Rx members in the Tucson area utilizing retail pharmacies considered to be low performing or out of network, we'll be able to be connected buys that drug was spot on rex to transfer their meds.
Occasions should they wish to.
<unk> is also working with ZIP drug in Southern California is one of several preferred pharmacies, our partnership with <unk> Ziff drug represents a significant milestone underscoring our ability to meet important quality and performance thresholds to be selected as a partner pharmacy.
Drugs Pharmacy network is currently available in a number of states, including California, Arizona and Florida. We are looking forward to expanding our partnership with ZIP drug in the coming months turning to our pharmacy technology solutions segment. We are delighted to announce that we have begun the integration.
<unk> of FX pharmacy system software with meta Vale software the epic EHR integration will allow epic customers to take advantage of the seamless integration with our Med Center technology and deploy our proprietary technology in an expedited manner the <unk>.
Gration further enhances our pharmacy technology value proposition.
Providence, one of the largest healthcare systems in the nation has an initial agreement for five met avail med centers targeted to be deployed in late 2021 based upon the completion of the epic EHR integration through its new technology agreement with Medicare and close.
We delivered another quarter of strong retail pharmacy services growth and we remain focused on executing against the opportunities ahead.
We'd like to reiterate that excluding the onetime revenue recognition associated with a large customer agreement in 2020, we expect to deliver revenue growth in excess of 100% in 2021 and expect to maintain this top line growth rate in 2022, given the dim.
Men do we see for our offerings and our ongoing expansions into new geographies.
With that I'll now turn the call over to Bryan to provide a review of our second quarter financial results.
Thank you Ed turning to our Q2 results net revenue for the three months ended June 32021 was $5 million.
The 118% increase from $2.3 million in the same period of the prior year.
Results were driven by a 162% increase in retail pharmacy services sale.
Which was partially offset by a 10% decline in our pharmacy technology sales.
We have indicated in the past pharmacy technology cells can be variable from quarter to quarter due in large part to customer purchasing patterns.
Ed mentioned during the second quarter, we deployed 12 med centers in the retail pharmacy services segment compared to seven in the second quarter of 2020.
Gross margin for the second quarter of 2021, 3% as compared to 19% in the corresponding prior year period.
The decrease in our gross margin year over year is primarily due to less contribution from our pharmacy technology segment.
The sale of seven centers in Q2.2020 versus three in Q2.2021.
Total operating expenses for the quarter of 2021 were $10.6 million, a 59% increase from $6.7 million.
In the second quarter of 2020.
This expected increase in operating expenses was driven primarily by investments in personnel facilities and other expenses necessary for the continued build out of our operating footprint, including the launch of operations in Florida. Additionally.
Additionally, we continue to make accelerated investments to automate additional workflows and important to our customer service capabilities, including our investment in compliance packaging.
Adjusted EBITDA, which we calculate by adding back interest expense depreciation and amortization stock based compensation and exclude nonrecurring expenses and other income to a net loss was a loss of $9.7 million in the second quarter of 2021 compared to a loss.
$4.6 million in the second quarter of 2020.
The various initiatives and investments in growth you've heard us talk about.
We ended the second quarter of 2021 with $48.7 million of cash and cash equivalents. We now have approximately $32.6 million shares of common stock outstanding.
We expect to have a weighted average share count for the third quarter of approximately $32.9 million shares.
Turning to our outlook for 2021, we are now expecting at least $21 million in net revenue compared to our previous guidance of 27% to $31 million.
As Ed mentioned, while we encountered some unanticipated headwinds from the timing of regulatory approvals and our decision to withdraw from 10 existing clinic sites before year end 2021, we continue to anticipate 45, new in clinic deployments this year.
Regarding our gross margin outlook, we remain focused on improving our gross margins throughout the balance of 2021 as we continue to execute.
We have previously discussed with that I'll turn the call back over to Ed for closing comments. Thank you, Brian and closing our unique pharmacy model continues to resonate in the market as we drive strong revenue growth.
We are building upon key enterprise relationships, and making meaningful progress on several business development and strategic partnership initiatives.
These drivers coupled with the tailwind of value based care initiatives and a large and rapidly growing Medicare population provide long term tailwind to our business I'd like to thank our partners team members and shareholders for their continued support as we work to transform the pharmacy market for patients and our partners.
<unk>.
With that we'll now open it up to questions operator.
Thank you. The first question comes from Charles <unk> of Cowen Charles Your line is open.
Yes, thanks for taking the questions Ed.
I wanted to talk about this 10 sites.
Being kind of close down here.
You mentioned that when you did this review that they were not aligned with what your target model looks like what is not aligned like what has changed that these.
And that's made you decide to do that and then secondly.
How often do you do these reviews.
Or are you thinking of doing these reviews.
Thanks, Charles So the 10 sites that were looking at our sites that we've been into.
Most of them for well over a year.
Got into them.
The midst of the Covid crisis, I would say when we looked at these sites.
They have a mix of Medicare and commercial.
Commercial pay.
Medicare is more focused right now on a fee for service model.
And quite frankly, as we look at the alignment of.
The fee for service model with what we provide and the benefits we provide.
They're just there wasn't the traction in those sites that we can.
Great. Thank you require was the model that we're looking at and the growth curve.
Per clinic so.
That's what we decided to when we looked at it we decided to make that decision now how frequently we do it we're looking at the clinics, obviously on a monthly basis, but.
As we said the comments that the now that we've made this specific decision.
At the <unk>.
Sites that we have deployed and are deploying we believe are very aligned with our model moving forward a little bit of that as indicated by the.
The 10 of the 12 sites, we deployed in June are with clients that fit very well with our model.
Can I follow up by asking you know it sounds like Youre, saying. These are sites that you went into last year during COVID-19.
If you saw at that time that the mix was a lot of Medicare fee for service.
Did you enter into these clinics.
Well I mean, the belief and at the time and working with the clients was that we could make it work.
But as we got deeper into it with just the model the way they operate their business and I.
I would just point to clinics that.
Our running at risk or heavy Medicare advantage, they have management systems and.
Incentives in place for their teams that are very aligned with what we do.
The fee for service model in this case has a little more.
Ability for the practitioners to be making their own decisions. So we really as we look at our core type of customer it is.
The customers, we're expanding with right now the oak streets the cantos the.
Often cares the caremark, that's where we believe and know that we fit extremely well.
Okay.
And then when we look at the revenue change in the revenue guidance. Obviously, it's it's pretty significant here, let's say take the top end of the old range, So, let's say $10 million.
If we were to break down that between the impact of the 10 sites that are being shut down and redeployed.
And then to the and then.
Compare that with the delays in pharmacy board approvals, how would you break that split in sort of a revenue impact.
I would say that that when we look at it.
Charles what we see is.
The.
Approximate reduction that youre talking about half of it is.
Staring at.
Our clients returning back to pre Covid.
Volume levels.
Over the back half and whether or not that's going to happen.
In the back half of the year and the other half is associated with that.
The clinic exits as well as the delays by the boards of RBC.
Okay.
And then you know.
They just said right.
But when you said.
Hundred percent growth in 'twenty, one that is we're going to we're backing out the impact we're backing out the 10 sites, so youre, saying of your remaining sites.
We're seeing 100% growth in 'twenty one.
And then I think I heard you say.
Do you expect 100% growth in 'twenty two is that just from those sites and doesn't include the impact of new sites coming online or or is that sort of what youre expecting for 'twenty two overall.
We're saying that we expect for 'twenty two that we will.
We will be growing at the same level and we.
We are growing in 'twenty one.
In excess of 100%.
And in 'twenty one.
Saying is that when you look at our revenue from 'twenty, which when we exclude the $4 million accounting adjustment, we had on the revenue line.
We'll more than grow a 100% year to year from a net revenue perspective.
Okay. So then your comments around 'twenty two is suggesting factoring.
Factoring that we're going to end the year with 45 deployments.
Yes.
And then whatever deployments going out for next year as well.
Yes.
Yes, we can.
Sorry go ahead.
No no.
I guess, Mike My question is okay. So then.
When we think about Florida.
And then Texas.
Is that is that because it takes time for those sites, obviously, Texas, we're not really in yet but in Florida.
The time it takes a ramped up those sites is there in that sense is that more about 23 benefit to the top line then.
And then you know.
Given the impact of Covid, particularly in Florida, and Texas and is that having are you seeing any delay.
Delays in the deployments themselves any kind of discussions, particularly with <unk> and <unk>.
And the other the other group that they have.
Contract with.
So.
With regards to our Florida deployments, we plan right now we're on track to go live late third quarter early fourth quarter with the sites that we've talked about in Florida.
And so as we've said we.
We remain optimistic about the openings in Florida in the back in the second half of this year.
With the you know as far as contribution is concerned there.
There will be minimal contribution to revenue this year those sites, because theyre just going to be up for a handful of months.
In the year.
And Thats, what we expect when we launch those types of sites and then some of the states that we talked about we had eight to 12 week.
Periods now we have to wait for the board of pharmacy to either onsite inspection before we can start dispensing medications and capturing customers.
So so that impact impacted the year, but certainly.
And the other Florida site that we deploy will have a positive impact to 2022.
With regards to the.
The COVID-19 situation.
I, just I don't know what the impact could be.
So.
As we've said that we're cautiously optimistic that they'll return to pre COVID-19 levels in the back half of this year, but.
We obviously can't forecast that with everything going on.
Okay, and maybe just one last clarification for me so far.
<unk> now, we're expecting at least $21 million for 'twenty one.
Does your comment your commentary it basically implies we should expect for next year.
At least $42 million in revenue is that because it.
Why not take that $4 million.
We're not providing that 'twenty two guidance yet.
Yeah.
Next year to be growing at in.
Success of 100% as well, but we've not provided guidance for the year.
Okay, So youre, saying in excess of at least 100%.
At this point, there's no fixed number.
Correct.
Okay. Thanks I appreciate it.
Yeah.
The next question comes from Frank Tuchman of Lake Street. Your line is open.
Hey, Thanks for taking my questions.
Wanted to start on site activity, a little bit of 12 sites that you deployed in the quarter what portion of those actively dispense and dispensing given the.
Pharmacy Board delays and then can you speak to the cadence of the remaining 30 or so deployment in the back half of the year Q3 versus Q4 to get to your 45 guidance.
So thanks for the question Frank with regards to the ones we deployed in early June.
Right now we've got.
Approximately half of those are dispensing.
Or just started.
So very very recently and then the other.
Those are still to be done.
With regards to the quarterly deployments, we haven't broken out the quarterly.
Quarterly.
Deployments for the back half of the year, but as we said we remain.
Committed to deploy 45, new sites in 2021.
And we have talked about makes sense.
In a sense and access health that we will be going live late <unk> and early fall.
With those sites.
As we move into Florida.
Got it that's helpful and then thinking about when you did the deep dive on the current med centers out there.
Any change in your thought process to the core Med center clinics, not depend that are being closed down but the other clinics on their potential to get to that million per med center run rate that we've spoken to in previous calls.
Yes.
No no change.
In in the sites, where we see we've got a very.
Close alignment.
We see that $10 million per clinic is very achievable.
Our business and that's what we're executing to.
Got it Okay, and then I just wanted to ask one a little bit more broadly speaking just about the model in general obviously, a little bit of a noisy quarter quite a few moving pieces, but just wanted to.
Rehash your thinking I mean, when you talked a lot of it's on the closing remarks, but I. Just wanted you to kind of think through the model with us and given all the learnings that you've experienced with Covid year pharmacy operations for some of the non core med centers that are closing.
Long term idea of the model changed fundamentally at all or is this more of a speed bump reset and then start to build on the Med Center base more meaningful in 2022, and you can get to a more normalized.
Strategy execution.
Okay.
Our view of the model has not changed.
As I mentioned in the call demand.
For this solution is extremely strong.
We're expanding with change in clinics that are a great fit with our model.
We're delivering on our commitment around better adherence scores.
And high levels of satisfaction.
So the answer is absolutely not.
<unk> not changed in fact, if anything we've strengthened.
We did need to make a decision.
Anesthetic clinics that quite frankly, when we look at them, we were putting a lot of resources into <unk>.
Driving them, but long term it just wasn't going to be a fit in our view and we just have too much demand in other places.
We wanted to reallocate those resources.
Got it Okay. That's helpful. That's all for me thanks, guys.
We have no further questions. So I'll hand, the call back to Frank.
Apologies I will hand, the call back to Ed to conclude with closing remarks.
Thank you operator, and thanks, everyone for joining us today and have a great evening.
This concludes today's conference call. Thank you for joining you may now disconnect your lines.
[music].