Q1 2022 Sharps Compliance Corp Earnings Call
Good morning, ladies and gentlemen, and welcome to the Sharps compliance first quarter 2022 earnings call.
At this time, all participants have been placed on a listen only mode and we will open the floor for your questions and comments. After the presentation. It is now my pleasure to turn the floor over to your host Jen Bilodeau.
Ma'am the floor is yours.
Thank you good morning, and welcome to the Sharps compliance first quarter fiscal 2022 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.
Following their formal remarks, we will take questions from our call participants as Youre 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 <unk>.
This 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 SEC Gov. So with that all the way, let me turn the call over to David to begin the review. Please go ahead David.
Alright. Thank you Tim good morning, everyone and thank you for participating in the first quarter earnings call. So, let's just jump right into it will review the first quarter and we're going to talk about the business outlook as well first quarter results were in line with our expectations. They did reflect slower immunization revenue for September.
September quarter versus the preceding sequential quarters, just to provide some context.
March and the June quarters for immunization business.
We're about.
$27 9 million in billings 24 points.
Revenue.
In the September quarter, immunization orders were about $1.8 million and generated about $3 1 million.
Neil back revenue and again consistent with the slower.
<unk> that were administered in the in the country for the for the September quarter.
On the route based business.
We had a bit of a tough comp when you looked at the year over year the prior year.
Included increased volumes from the long term care markets, which were driven by by Covid Labs, and also labs performing COVID-19 related testing.
Additionally, in our first quarter.
<unk> billings were.
There were delayed pick ups, resulting from industry wide limited third party pathways consideration. So those those added up to about $500000 of a negative headwind and when you take out those.
Those three items the route based business increased by about 19%.
Further supporting that is the increase in our customer locations. They increased from the June quarter to the September quarter from 14, 2% to 16 point I'm, sorry, 414200 to 16600, which was a 17% increase in customer locations.
We've talked about unused medication for the last couple of quarters.
We said that we thought that we would see a return to growth running medications in the September quarter, and we did it was up 11% year over year.
And up 31% sequentially.
We believe we should continue to see growth in the offering over our fiscal year 2022, as retail pharmacies long term care refocus on the proper and cost effective disposal of ultimate user unused medication.
I'm sure you saw the announcement about our first acquisition.
Tuck in acquisition of a portable medical waste in Indiana.
We were very pleased to have.
Close this deal that enhances our presence not only in the Midwest, but significantly improves our route density in our service area and while it's small or smaller is perfect.
<unk>.
It's an overlay to our existing service area.
The post synergy.
EBITDA margins.
Should be much much higher than even our consolidated EBITDA margin.
We continue to work it's been a lot of resources working on.
The acquisitions the pipeline is quite full.
Quite active we.
We can't make any guarantees, but we're hopeful we'll be able to.
<unk> more deals that will densify, our existing route based infrastructure, which again 37 states 80% of the population so.
Let's look forward a bit let's talk about.
Covenant.
So although the latest escape.
It's been it's been fluids continues to be fluid, but it's starting to become a little bit more clear in my opinion, there is a number of developments.
How have boosters.
Approved for about 100 million adults.
The experts say that both social and the remaining Americans could be approved over the next.
Three to six months. This morning, they were talking about even a fourth shot for the immuno.
Compromise so with respect to boots, let's just talk about from a point of reference so we have a 191.
Americans that are slowly back to Nathan.
The polling shows maybe as much as 80% to 90% of the Americas would receive a booster while so far only 7%.
Only 7% of those $191 million have received those.
So we're hopeful that.
With more and more adults getting the booster that we can see.
Revenue opportunities.
Yesterday, the FDA recommended approval of the Pfizer vaccines for children age five to 11. This age group represents about 28 million children and Bob.
The way, it's a two shot regiment for the 5% to 11, just as it was for the adult.
Vaccine.
Considering all of this we do believe that we do have opportunity for more COVID-19 related malbec revenue.
And.
And if we had to.
To guess that we would probably see that over the next two to three quarters, maybe the three quarters of all of this rolls out across the country.
So let's sum it up so where are we and where we go in.
We have begun the process.
Enhancing our route based business the growth in our route based business.
Complementary and strategic tuck in acquisitions as I mentioned the pipeline is active the pipeline is as is quite fall and.
We're looking for the opportunity similar to affordable, where we can bring them in and because of our existing infrastructure that we can generate some significant post synergy EBITDA margin so that at the same time.
Improve the raptor entity.
So.
We don't think its over I mean March and June were.
Quarters with respect to Covid September slowed down, but we still think we.
We have a ways to go for the fiscal year 'twenty two when you consider boosters vaccines for children.
And and so on and so forth so.
We'll see but again, we do think there's more opportunity there.
Unused medication, it's great that it's that.
We're seeing a return to the growth and the unused medication year over year and sequentially, but what I get really excited about is the fact that I think fiscal year 'twenty two.
Could be a really good year for unused.
Patients in the long term care sector. The long term care sector. As you all heard me say many times has been.
<unk> focused on Covid and versus a rollout of the of the med safe, we're seeing some reengagement and we're hoping our fiscal year 'twenty two.
Ken Kid shows some significant unused medication revenue growth in the long term and the long term care market. So that's the big picture, Let me turn it over to Diana She is going to address the financials in a bit more detail.
Thank you, David Sharp's reported revenue of $13 $9 million, an increase of $764000 or 6%.
Customer billings were $12 $7 million in the first quarter of fiscal 2022, a decrease of $700000 or 5% as David mentioned sequential revenue and billings for the first quarter are lower than the March and June 2021 quarters due to the anticipated decrease in EMEA.
If I can related activity.
Question on market billings increased 9% to $4 $5 million in the first quarter of fiscal 2022 as compared to $4 $1 billion in the first quarter of 2021.
Professional market billings were negatively impacted in the current quarter bye.
First about $100000 decrease in billings for route based services to lab customers as COVID-19 related volume decrease compared to last year.
And.
$100000 lower billings for our route based services to customers for hazardous waste activity, that's been delayed until the December 2021 quarter due to nationwide sporadic and temporary moratoriums on accepting hazardous waste streams destined for third party incineration.
Retail market billings grew 6% to $3 $9 million in the first quarter of fiscal 2022 as compared to $3 $6 million in the same prior year period.
Within this retail market.
<unk> related orders grew 9% to $1 $8 million in the first quarter of fiscal 2022 compared to $1 $6 million in the prior year.
Pharmaceutical manufacturer market billings decreased $700000 to $500000 in the first quarter of fiscal 2022 as compared to $1 $2 million in the same prior year period.
Timing of inventory builds for patient support programs drove most of the $900000 decrease in mail back solution billings for the company.
Long term care billings decreased $500000 to $800000 in the first quarter of fiscal 2022 compared to $1 $3 million in the prior year period. This is primarily related to heightened volumes of COVID-19 related waste management and ancillary supplies in the prior year.
About half of which impacted our route based business with the remainder impacting other ancillary solutions.
Billings for unused medications grew 11% to $2 $6 million in the first quarter of the year as compared to $2.4 million in the same prior year period sequentially billings for unused medications, which includes the net sales grew 31% in the first quarter of fiscal 2022 at <unk>.
Compared to $2 million in the fourth quarter of fiscal 2021.
Related to our med safe business, we installed 398 months sales during the first quarter consistent with our forecast going into the quarter. This compares to net installs of 172 for the June 2021 quarter and 415 for the September 2020 quarter.
Metsys liners processed in the first quarter of.
8600 was up 56% over the prior year, indicating more traffic and retail pharmacies and increased usage in long term care.
Total this is that since program inception, cuddle liners are 92470, and let's say if you're in a installed we're at 6521 at September 32021.
Gross margin for the first quarter was 25%, which is down compared to gross margin of 28% in the first quarter of fiscal 2021.
Gross margin was negatively impacted in the current quarter by the effect of revenue recognition, where there was a higher proportion of immunization related mailbox returned for treatment with a lower gross margin. Upon return compare two immunization related mail back sold which generate a higher upfront gross margin.
On a normalized basis, excluding the impact of revenue recognition gross margin would've been 27%.
Think of this as a reversal of sorts with a very high gross margins that we saw in the March 2021 quarter. When a number of innovation mailbox shipped out really exceeded the mailbox returned for the same quarter.
Our SG&A increased by about $400000 or 11% to $4 $2 million in the first quarter of fiscal 2022 compared to the same prior year quarter. The increase in SG&A is related primarily to continued investment in sales and marketing and to a $200000.
Increase in the accrual of management incentive compensation.
We reported an operating loss of $1 million in the first quarter of 2022 compared to an operating loss of $400000 in the first quarter of 2021.
We recorded a net loss of 800000 or a loss of four cents per basic and diluted share this quarter compared to a net loss of 300000 or a loss of two cents per basic and diluted share in the first quarter of last year.
We recorded an EBITDA loss of $400000 in the first quarter of 2022 compared to EBITDA of 59000 in the first quarter of last year.
In August 2021, we announced that we closed an underwritten secondary offering which generated net proceeds after expenses of about $16 $8 million held shares of $2 1 million.
Our balance sheet is very strong with $41.2 million of cash as of September 30th 2021, which is up from $27 8 million at the end of June 2021.
The company had working capital of $44 $3 million at September 30th 2021, as compared to $27 9 million of working capital at the end of June 2021.
And as David mentioned, our strong balance sheet provides us with the opportunity to execute on our broader acquisition strategy. As we continue to work our active pipeline of opportunities and with that I'll turn the call back over to David Great. Thanks Diana.
Operator, let's go ahead and open it up for us for the Q&A session.
Session and then we'll just make a couple of closing remarks office.
Certainly ladies and gentlemen, the floor is now open for questions. If you have any questions or comments. Please press star one on your phone at this time, we do ask about posing your question. Please pickup your handset if you're listening on speaker phone to provide optimum sound quality.
Again, if you have any questions or comments. Please press star one on your phone.
Please hold while we poll for questions.
Your first question is coming from Gerry Sweeney Your line is live.
Good morning, David Diana.
Hum.
David can you maybe discuss the route based revenue I know it was down a little bit I think there are some moving parts.
Hosting some probably.
P P E coming out of.
On a long term care facilities, but you also saw customer location.
Healthy seven.
So.
Just a little bit more detail on that but also on that growth in customers are those customers essentially.
The same scope manner.
Your existing customers so they tend to.
Very good future growth.
Sure.
We had and.
You all remember previous periods I'm sure, but the.
P. B just increased volumes out of the long term care it was quite significant in the prior year.
The quarter. We also do a lot of lab business in the lab business was was high because of the of the testing.
So those collectively were maybe a few hundred thousand roughly of the 500000.
Total.
Negative comp and then the other thing was the.
We do a lot of has ways.
This is I've spoken before about we're picking up the regulated medical waste, we're there and we pick up half ones, which is not medical waste and we picked it up we aggregated does either taken too.
It has waste incinerator or they can pick it up from from US and you know, we do five to $600000 a quarter.
And that type of business, it's great business.
As part of our route based business.
Nationwide there was a.
There was a reduction in the capacity.
Halfway to what it did is.
We had to delay pickups, and that's what generates revenues when we pick up the.
Has waste but less.
Less capacity from the Big freeze, we that we have here down here.
In the south.
We also had just an overall reduction in the <unk>.
Incineration capacity.
There were there were shutdowns of.
Of incinerators. So it was a number of things that kind of converge.
At the same time now we're starting to see that freed back up in the December quarter. So hopefully of the catch up on those pickups that we didn't make it a September quarter make them up in December and hopefully get that.
That part of the business back on track with those those three items were about to happen the cause a negative comp when you take those out the effects of those out we had about a 19% increase in the rate base.
Yes about a 17% increase in customer locations to ensure the customer locations that we picked up are very consistent with our existing small and medium.
Quantity customer growth.
Got it and then switching gears unused medication.
This was an area we spoke about a couple of years ago, and obviously took the backburner with COVID-19.
A lot of sort of a white space on the long term care side of that.
What is the opportunity.
To move into long term care.
Is that moving to the forefront of you're starting some discussions of restarting some discussions.
How do we look at that.
Not just fiscal 'twenty, two but maybe even beyond.
No.
It definitely is moving to the forefront we're having.
Any more.
Discussions with the long term care customers and which we're very very pleased with so you know the focus is now away from Covid.
Back on the unused medication you know.
The rules are changing the DEA rules were originally designed for long term care and by the way and long term care. It's a cost saver long term care is looking to save money, especially with what all that they went through so it's a way for the long term care facility.
To aggregate the patient unused medications.
<unk>.
In a way that is very very cost effective versus the way they would traditionally dispose of the waste generated by those.
Patients suggest discussions have re engaged we're talking with them with a number of folks.
Now from a from a from a.
The way I always look at it whether it be retail pharmacy or long term care.
Which is the two main areas for the minutes saves.
Close to 100000 facilities between retail pharmacy, and long term care, where the Mets safe could be.
Utilized what do we have Diana we are 6500.
Ms Phase deployed so.
Which probably more than half of those are retail retail pharmacy. So.
We see a significant opportunity and the ability to further penetrate that market and again, we're not we're not typically displacing another provider of a collection receptacles were selling them something new we're selling them something that's very cost effective it's something that we are the leader in and we see that.
As proven in the.
In the marketplace. So we're working on that and again, we hope to see that contribute to revenue growth, what's the unused medication and our long term care market.
Gotcha and just one quick follow up on the long term care or not long term care unused medications and then I'll jump back in queue.
Deanna I think you mentioned on the last call.
Rollout.
400 additional units.
Med safe.
I will say the September December quarters fiscal one in Q1 and Q2.
That still is still on track specifically for December.
We expect to see similar installs and revenue levels compare to that September.
2021.
Activity.
Thank you I'll jump back in queue.
Thank you. Your next question is coming from Kevin Steinke your.
Your line is live.
Hey, good morning.
How're you doing.
Pretty good thanks.
So yes.
Obviously, you got them.
Deal across the finish line here with affordable medical waste.
You know, obviously you characterized it as a tuck in but.
Can you maybe just give.
Give us a little more color on how that deal came together, how long you've been talking to them and maybe.
Quantitatively or qualitatively in terms of the.
Besides the acquisition in terms of revenue and also you know what.
If you are pleased with.
What youre able to reach.
<unk> in terms of the purchase price.
Right.
Sure happy to talk about that.
We've been reaching out.
Heavily to our to.
The players in the us.
Our Halloween business medical waste management business and.
You know we we.
We got them at the right time.
As I've always said, there's there's a trigger there has to be a triggering event to want to get them to sell in.
The seller was at a point, where he talked makes sense too.
Two to sell the business and to get into.
It's a different business it pretty quick we moved quickly into a LOI and I think we close the deal which is 30 about 35 days after the LOI.
So we moved quickly to get this to get this done.
It's it's.
It's like 800 850000 in revenues, it's about a two and a half multiple on the revenue, but when we were really impressed with was the.
The profitability is.
A highly profitable business and it's even much much more profitable.
As a tuck in because.
We don't need the <unk>.
Drivers are we don't see much in the way of the cost structure. So the post acquisition synergy synergistic EBITDA.
Margin is even quite much higher than what it would be just on the surface.
So we're we're pleased we just need to do a lot more of them and we're spending a lot of time on the road and talking with folks and they're trying to get more of them in to the stage where were we.
We can perform some some geologists, but this one was although smaller it was.
Very much ideal for <unk>.
From a tuck in standpoint.
Okay, Great that's helpful.
You know as you continue to expand.
The royalties footprint.
Organically and through acquisitions do you see the need or are you exploring the possibility of adding more internal waste treatment infrastructure.
Sure.
Right now we have our Texas and we have our Pennsylvania facility, we do use some third party facilities around the around the country.
It would be fantastic to be able to acquire a company that also has treatment, especially treatment in an area, where we don't.
Currently have owned treatment. So those are high on our radar of ones that would come with a medical waste treatment facility. We think that's the best way to to.
Because you know to just go out and.
And.
Medical waste treatment facility and go through all the approval process with the permitting process I mean, that's years and years and years versus being able to buy businesses already has it where you have it on day one.
Right right, Okay, yeah that makes sense.
Just lastly for me for now anyway, it's just.
How should we think about this.
<unk> expense levels.
As we move forward here in fiscal 2022, or what are you looking for in terms of SG&A expense growth.
This year.
So we had an increase this.
This quarter compared to last year, I don't think all of our.
Investments in SG&A had been fully reflected in the first quarter of last year. We said at the beginning I guess at the end of last quarter that we expected SG&A to increase somewhere in the single digits for fiscal year 'twenty, two and I think we're still we still believe.
That.
Okay, great. Thank you very much.
Thank you. Your next question is coming from Michael Hoffman Your line is live.
Hey, David Diana.
Good morning, David can you can you help us with.
The dollar amount of potential revenue that you would define as the addressable M&A marketplace.
The addressable M&A. So if you look at our <unk>.
If you look at our pipeline.
Our pipeline of opportunity.
You know probably the probably 35 40 opportunities in.
The average revenue on them is probably.
The 4 million, maybe $5 million. The one that we completed was obviously weigh on that.
Smaller and so.
40 of them times $4 million is probably.
At least that's not all of them. That's one that we have in our pipeline that we initially think would be a really good stuff.
Okay. So simply put somewhere between 115 $200 million is your pipeline.
Right.
And what's your capacity.
As a team to buy and integrate.
What do you think your capacity once you hit up.
Some momentum you know you're restarting this corporate development thing is it's got a timeline to it so but once it gets going whats your capacity to cause I'm not talking about the balance sheet I'm talking about the infrastructure of the company to can you absorb.
You know two or three 4 million dollar deals a year or is it revenue deals or is it bigger what's what is that.
So I looked at it from an individual opportunity standpoint, we've got disintegration down.
We did it in.
Four five years ago with the other acquisitions and what this would you just brushed off the integration.
Our plan that we have in place and it's it's quite smoothly you know these arent complicated businesses. So I mean, if it came to it and we had the opportunity to be able to close to close deals and I don't see why we shouldn't be able to close.
Few quarter, they're straightforward business intelligence are straightforward and well run wounds are pretty easy to.
To not only perform diligence, but to integrate especially when theyre tuck ins you just loading up their customer information and then those are going onto your existing routes.
It's just think of it is.
But as just landing larger customer deals and.
And launching <unk>.
500, or 1000 location or more.
A customer opportunity, it's really similar to <unk>.
To that so not not to simplify but it's it's pretty straightforward we have it down and we.
We'd love to do three or four quarters.
And do you think.
The sellers are of a mind, where you could actually get to that pace.
Well that's the thing that's that's the question.
<unk>.
There has to be a triggering event.
If if they see it as an opportunity and if they if they are really truly interested in selling.
We have a.
Have a shot at it we were in discussion with one year not too long ago, and I thought I felt really good about it.
But you know, sometimes a seller's back off and that maybe it's not the right time or maybe maybe I shouldn't be looking at this but.
We're very active in the marketplace, we're talking about it helped that we announce one so they say, we're really truly deploying capital.
But its tough its tough to its tough to peg, but if they are really truly interested in their reasonable about the valuations and we think we can get deals done.
Okay.
And then on the on the <unk> side, we go back pre Covid.
If I average.
Sort of where you were settling and it feels like Youre kind of on an 8 million dollar a year number with a little bit of growth through it from flu.
Right now they got through the wave.
And there's a bit of Oh, the startup of recurring and we've got you know what.
Incremental related to boosters and kids and young adults.
Is it another way.
How do you think about that.
You can look at it a couple of different ways, it's really good question and.
The way to look at it so.
One way is you know if you had the vast majority of.
First of all I'm just talking about this fiscal year do you talk about the vast majority of the of the Americans received 191 day they received.
The COVID-19 vaccine that the vast majority of those receive a boost or then that's half again as much revenue and what are we doing right like 27 28 million of billings. So so if you do the math if all of them received the butcher. That's another roughly 14 billion in revenue I'm, not saying that's going to happen.
I think would be the.
The potential issue.
<unk> received the.
The booster as far as blue.
As I mentioned last time on the last call and that.
We think that some of our larger customers ordered in advance for flows. So the March and the June quarters, I think I'm going to make as much as $5 million. So I think.
A significant portion of the flu could already be addressed in there.
And they are in their inventory levels.
But then you throw on top of that from a positive standpoint, the children's vaccine, there's 28 million of them two shots that could generate some significant revenue as as well I don't know what the exact number is but I do know that I think that theres going to be.
There's always going to be more covered revenue and I mentioned I think I mentioned in her Diana mentioned, just as a point of reference.
The month of October was very strong for.
For for Covid.
Immunization related billings and again it could be flow it could be COVID-19.
In the month of October.
Billings were higher than the entire month of September so hopefully, we'll start to see that come back with the with.
What the what the December quarter that was a lot. That's the way we look at it that's what we think now after that after that if we look even further or maybe the next year I think it's pretty certain that.
On an ongoing basis that will be.
At least two shots. So so right. So we've always talked about Lucy and eight so.
You know, maybe maybe it's two eight or maybe a little bit higher than that because more people would be getting whatever the latest COVID-19 shock.
So we still think we have COVID-19 revenue for the rest of the fiscal year, and we still think that there'll be some incremental level.
Billings for the years afterwards.
Okay. So just so I parse everything you just shared with US I Gotta take your fire hose and try and.
Great.
I take the eight subtract five.
And then add in some assumptions for boosters kids and young adults.
Yes.
And so I'm, not 16, but better than that.
Somewhere in between the new you are right. It just it just depends but yes, I think that's a reasonable way to look at it.
In October just to clarify what you said October was better than September, but did you mean better than September quarter or better than the month of September.
September quarter.
Okay, that's why it's occupied okay.
Okay. Thanks.
All right. Thanks, Thanks, Michael.
Thank you.
Next question is coming from Rob Brown Your line is live.
Good morning.
Following Michael's question.
I think you've said that the mill back because it's sort of running at about a $20 million annualized basis is that still the run rate or how is that trending and what's the current base there.
Are you talking about without Covid are you talking about.
Core.
Yes kind of the core without Covid.
So our so our swaps just look in September so in the September quarter.
In September we had $1 million billings from immunization Yep.
And.
We generated mail back revenue for the three months ended almost $6 million you take a couple of million out so that they can have three or four or three and a half four times four so maybe just a bit below that but I don't think that's too far off.
Okay, great great. Thank you and then maybe doesn't appear in the inventory situation, how how much inventory do you think is sort of still out there or how much impact is there to the December quarter with sort of inventory you've already sold but that may be is it.
Well, just like I mentioned and I think there's maybe as much as about $5 million of inventory that's already out there that I think that.
Utilize as part of.
So just like I think it was the right micro laid it out and they've made some.
It makes some sense you may have 5 million of that 8 million traditional COVID-19 that maybe <unk>.
Service was leftover.
Mailbox there were.
Orders for the.
For the Covid season, I think that's probably the best way to look at.
Okay, great. Thank you I'll turn it over.
Okay great.
Thank you there are no further questions in the queue. At this time. Your next question is coming from Michael Hoffman. Your line is live.
Yes, sorry for the quick follow up if I took a half a million dollar hit in route based on set.
September what's the is there a like hit in December because.
<unk>.
I would think about that.
So we expect to see an increase and the route based activity and the upcoming December quarter compare to the current September quarter, and as well as compared to last years December quarter, which was $3 5 million and despite last year's December quarter had COVID-19 related revenue.
For long term care and labs of about $300000.
Excluding those headwinds of $300000, we expect growth in the December quarter to be somewhere between 15% to 20%.
Got it.
And the makeup of hazardous waste would be on top of that.
Yeah.
It would be within that.
The additional.
Real assets.
Fair enough so EPA is granting.
30 day extensions to big hazardous waste or so.
Yes, the 1002 parts of the World all the way through the Middle of next spring. They they don't see this incineration capacity relieving before then.
So what we're seeing.
We're seeing it open up we're seeing pickup for the types of waste streams.
Opening up we're small quantity generator and smoking quantity generators, but they're not talking about massive volumes, but we're already seeing that pick up.
Okay cool.
Thank you.
Thanks, Michael.
Thank you.
There are no further questions in the queue.
Great. Thank you everyone. We appreciate your continued support of the company great Great Q&A and we look forward to talking with you on the next call.
Thank you ladies and gentlemen. This concludes today's event you may disconnect at this time and have a wonderful day. Thank you for your participation.
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