Q2 2022 Sharps Compliance Corp Earnings Call

January 26, 2022

Good day, ladies and gentlemen, and welcome to the Sharps compliance second quarter earnings call.

At this time, all participants have been placed on a listen only mode and we will open up the floor for your questions and comments after the presentation.

It is now my pleasure to turn the floor over to your host Jen Peladeau with IMS Investor Relations Ma'am the floor is yours.

Thank you good morning, and welcome to the Sharps compliance second quarter fiscal 2022.

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 financial immediately 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.

In the question and answer portion of the Taliban 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 SEC Gov.

Now, let me turn the call over to David to begin the review and discussion go ahead David.

Great. Thanks, Shannon and good morning to everyone and thank you for participating in our second quarter earnings call I'm going to first cover a few highlights of the call.

Order as you see the second quarter revenue of $18 9 million increased 11% over the prior year and 36% sequentially.

Our route based locations, which we really believe it's the best way to measure the success of our route based offering those locations increased 17% from about 14900 to 17400 professional market billings grew 15% year over year consistent.

The increase in the route based customer locations, our unused medication revenue for the quarter increased 9% and this was driven by a 25% increase in the interline or so it was actually 31% increase in interline or so for the year to date fiscal year to date period.

And I think this really illustrates the success and the recurring revenue model from the <unk> offering.

We saw a bounce back in the sequential quarterly immunization related mailbag billings increased by $2 8 million and this is reflective of the continuation of the COVID-19 vaccine and booster shots administered in the retail pharmacy level.

Our long term, our long term care market billings for the quarter and year to date were down and they were down because of the headwinds as we talked about last quarter.

The September and December quarters of last year, we're having significant volumes and COVID-19 related waste.

Being generated by our long term care customers. We also had very hot lab related business as well, but.

When you take out the roughly $400 headwind in the September quarter, 800000 headwind in the year to date period than.

And then the route based business overall increased by about 15%.

We closed on the affordable waste acquisition in October and we're presently working on more acquisition opportunities.

You may have seen the recent farm Erika partnership announcement, let me just speak to that just to make sure everyone understands the importance of that.

We really pride ourselves in our ability to solve complex problems for customers I think we're really good at that in a pet a pressing problem.

Facing the long term care industry has been the proper cost effective and compliant management of unused medications, including controlled substances in hazardous waste. So the DEA rules were changed back in 2014 are the DEA adopt as a secure and responsible drug disposal.

Will act and that was the beginning of the med Psych, we designed the med safe based upon.

The DEA adopting that role well those roles.

Primarily designed for long term care.

Also retail pharmacy, and I think we've done a great job in retail pharmacy with.

The med safe and I believe becoming into later so now it's time for long term care and the long term care market to be able to adopt <unk>.

<unk> and <unk> has been slow to adopt so we need a catalyst we need a catalyst to really start to drive the met safe offering in long term care and we believe the partnership with far America could be that catalyst that could help increase the adoption of the med safe and could raise awareness.

The Mets and how we can make them compliant we can save them money and we can provide a very very convenient solutions for the long term care.

The long term care business. So we're excited about that and again, we look at that overall as a potential as a catalyst to move mid safe sales and long term care.

So let's look forward.

We're quite energized to continue capitalizing on the opportunities we see we're growing our leadership position in all markets and in all of the solutions we offer.

We continue to focus on organic growth of the route based business.

And hopefully we will have the opportunity to complement that organic growth with acquisition growth.

The acquisition pipeline remains quite vibrant and again, we believe we have an opportunity or the opportunity.

To close more acquisitions.

Roofing.

Immunizations, we've seen the ongoing emergence of the new variants that Washington is without hearing about the variance.

Causing that COVID-19 related business landscape to remain quite fluid, but as we move through the remainder of fiscal year 'twenty. Two we think the immunization related orders will be driven by.

Timing and volume of the continued rollout of the COVID-19 shots and both serves as a point of reference we only have about 40% of fully vaccinated Americas that I've received.

The booster.

As you heard everyone heard on the news yesterday.

The omicron.

Varian and how there has been a vaccine that's being specifically designed for that very it could be available in March of 2022, and this morning, we were talking about how the CDC has recommended a four shot for the immuno compromised. So we think we will continue to see.

More immunization.

Related orders because of all of this Diane and I will speak to here in just a bit about the orders that we received are the revenue received in the December quarter. So we think we're extremely well positioned to continue to take advantage of the opportunities.

It's really important to note from all of our standpoint that.

We're highly confident that we have the infrastructure in place as well.

To be able to support our current and prospective customers and all the growth opportunities.

In front of us so with that I'll turn it over to Diana and she can address more about the financials.

Thank you David we reported revenue of $18 $9 million, an increase of $1 9 million or 11 per sac customer billings were $17 million in the second quarter of fiscal 2022, which is a decrease of $1 $5 million or 8%.

For the second quarter are lower than the second quarter of last year due to the timing of inventory builds in our pharmaceutical manufacturer segment and the timing of distributor orders in the home health care market.

Professional market billings increased 15% to $5 2 million in the second quarter of fiscal 2022 as compared to $4 5 million in the second quarter of last year consistent with the increase in route based customer locations that David described earlier.

Market Billings grew 4% to $6 4 million in the second quarter of fiscal 2022, as compared to $6 $1 million in the same prior year period within that retail market immunization related orders were down slightly at $4 6 million in the second quarter of fiscal 2002.

Compared to $4 $8 million in the prior year.

Yes.

Pharmaceutical manufacturer market billings decreased by $1 2 million to $1 9 million in the second quarter of fiscal 2022 as compared to $3 1 million in the same prior year period, the timing of inventory builds for patient support programs drove more than half of the $1.

$7 million decrease in mail back solution billings.

Long term care billings decreased by $300000 to $800000 in the second quarter of fiscal 2022 compared to $1 $1 million in the prior year period, and this was related primarily to heightened volumes of COVID-19 related waste management in the prior year most of which adverse.

Fully impacted the route based business customer billings.

Our billings for unused medications grew 9% to $1 $9 million in the second quarter of fiscal 2022 as compared to $1 $7 million in the same prior year period as a result of a 25% increase in the number of met Safelite ourselves.

Related to our med <unk> business, we installed 106 med space during the second quarter. This was lower than our forecast going into the quarter, but consistent with the number of installed in the prior year quarter of 137 units.

For the December 2021 quarter, our installs of 160 units were lower than our forecast of 400 units as we saw and continue to see concerns in retail pharmacy related to additional med safe installs when their business is so focused on COVID-19 AMA crore.

<unk> testing and vaccination activity.

On a year to date basis, we have installed 504 units down slightly from the prior year to date installs of 552 units.

For calendar year 2021, we installed 817 units, which is down from the installed in the calendar year 2020 of <unk> hundred 30 units due to COVID-19 related activity required of retail pharmacies, who chose to delay additional net safe.

<unk> at this time.

We believe calendar year 2022 met safe and staff will be driven more by long term care than retail pharmacy.

Related to utilization of existing installed Metlife Metlife.

<unk> processed in the second quarter of 8200 was up 23% over the prior year, indicating more traffic and retail pharmacies.

System with the trends and liners processed, let's say fine are sold in the second quarter of 9000 units was up 25% over the prior year.

A total liners returned since the program inception, our 100679 and med <unk> units and staff were at 6627 at December 31 2021.

Moving to the financials, the gross margin for the second quarter improved to 35% compared to gross margin of 33% in the second quarter of fiscal 2021.

SG&A increased by about $600000 or 17% to $4 4 million in the second quarter of 2022 compared to the same prior year quarter. The.

The increase in SG&A is related primarily to about 200000 and acquisition related costs.

$200000 increase in the accrual of management incentive comp.

Continued investment in sales and marketing.

We reported operating income of $2 million in the second quarter of 2022 compared to operating income of $1 $7 million in the second quarter of last year.

We recorded net income of $1 4 million or seven.

For basic and diluted share this quarter compared to net income of $1 2 million or <unk> <unk> per basic and diluted share in the second quarter of last year.

We reported improved EBITDA of $2 $6 million in the second quarter of 2022 compared to EBITDA of $2 $2 million in the second quarter of last year.

Now a few points about year to date results, we reported revenue of $32 $8 million in the first half of fiscal 2022, an increase of 9% compared to revenue of $32 million in the first half of last year.

Customer billings decreased 7% to $29 7 million for the first half of fiscal 2022.

Gross margin.

<unk> was essentially flat at 36% for the first half of fiscal 2022 as compared to 37% in the first half of last year, but it was negatively impacted by about 800000.

<unk>.

Increased fixed and the fixed cost component of cost of sales.

SG&A expense increased 14% to $8 $6 million in the first half of fiscal 2022 compared to $7 $5 million in the first half of fiscal 2021. This increase is related to the $200000 of acquisition related costs of $500000.

Increase in the accrual of management incentive comp and the company's continued investments in sales and marketing.

We recorded.

Operating income of $1 million in the first half of fiscal 2022 as compared to operating income of $1 $3 million in the first half of last year.

Net income for the first half of fiscal 2022 was $600000 or <unk> per basic and diluted share compared to net income of $900000 or <unk> per basic and diluted share for the first half of last year.

EBITDA was $2 $2 million in the first half of fiscal 2022, consistent with EBITDA in the first half of fiscal 'twenty one.

Our balance sheet remains very strong with $36 million of cash as of December 31, 2021, which compares to $41 2 million at the end of September 2021, and $27 $8 million at the end of June 2021, we.

We had working capital of $42 $8 million at December 31, 2021 that compares to $27 9 million of working capital at the end of June 2021.

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.

Looking forward to the March 2022 quarter, we typically have seasonally low amortization related billings and revenue.

For example, in the March 2020 quarter, which was pre Covid vaccine, we sold about $700000.

They should mailbox.

In the March 2022 quarter, we have immunization orders of over $1 $8 million. So a seasonally low quarter is not expected in light of Covid related immunizations.

Looking forward to the route based business in the March 2022 quarter, we expect to see about a 15% or more increase over the prior year March 2021 quarter, if higher COVID-19 related activity of about $300000 in long term care and labs in the prior year is.

Is excluded.

And with that I'll turn the call back over to David.

Thanks, Tom.

Operator, let's go ahead and open it up for Q&A.

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 ask that while posing your question you. Please pickup your handset if listening on speaker phone to provide optimum sound quality. Please.

Please hold while we poll for questions.

Your first question for today is coming from Gerry Sweeney. Please announce your affiliation then pose your question.

Hey, David Diana.

Roth capital.

Thanks for taking my call.

You bet.

I wanted to talk a little bit about Ralph base.

Business with 17% growth in customer base.

Can you give a little bit more detail on this growth I think you've made some acquisitions.

Acquisitions, I apologize investments internally with some internal sales and external sales I'm. Just curious if this is broad based growth and where this is coming from.

This is an opportunity to continue to invest sort of drive this business for sure.

This broad based growth.

All of our markets and the small and medium quantity generator market everything.

Yes.

Jane the surgery Center.

It's across the board.

We have invested as we've invested more in board or.

And our sales team and that's what we're we're pushing sales of all solution offerings.

And in those markets, but we've been pleased with what we've seen on a.

Around base as well.

Obviously long term care has been a headwind does.

It used to dealing with COVID-19 and reduce their PPE.

<unk>.

Has COVID-19 shifted any other growth in terms of.

Outsource.

Outside of hospital type of services.

Yes.

Any impact on that positively or negatively.

Market.

The only thing I would say is we know we had the headwinds.

And the long term care from the from the prior year.

Period.

And that's really it.

I mean, we're kind of <unk>.

Continuing to.

To work through obviously on the vaccine immunization side.

And the long term care than it is normalize although I will say this.

Long term care the lab side, it seems to be a bit stronger here in January so maybe what this latest area there appears to be more volume.

Coming out of long term care labs, and again, what we've seen just for the month of January .

Got it and then switching gears to unused meds.

You made the comment that youre going to see more growth probably from the.

A long term care market over the retail pharmacy market.

Obviously retail pharmacies.

Dealing with Covid.

There is a big focus there, but is there anything fundamentally shifting on that market in terms of rollout or opportunities.

Well I think what you saw in any of those numbers.

I think we had originally expected maybe 400 bps safe and it was like 100 little bit over 100 that we installed for the.

The December quarter's retail pharmacies are very very very focused.

Testing in.

Immunization booster.

Boosters.

All of the above and Thats, where the resources are being focused right right now so.

It's quite likely and again, we look at it from a calendar year basis on the installs on the med safe.

That as long as what's going on now continues then they're probably going to be light on the installs on the retail pharmacy now the way we look at it is we think the calendar year 'twenty two could be the year for long term care. So what we're hoping for is that potential strength of the long term care.

I will make up or more than make up for any potential shortfall on the retail pharmacy.

Got it.

I don't want to.

Too many questions that people might be helpful.

I'll jump back in queue. Thank you alright, thanks sure.

Your next question is coming from Rob Brown, Please announce your affiliation and pose your question.

Hi, Good morning, David.

Thanks, Kevin.

My question is is it really just opportunity as it is.

When Covid normalizes would you expect the unused medicine activity would pick up in the retail pharmacy or would you expect them to sort of reevaluate it or how do you expect that long term.

It'll pick back up and go back to more normalized.

Level. So its just I don't think anybody any of us know when we're going to get back to.

To normal I don't know if you've been in a retail pharmacy.

Slightly but they are quite quite busy but.

They expect and we expect after we get through this that they should be back to more normalized levels.

Okay great.

And then just in terms of the inventory build youre seeing at the customers that you talked about a pretty strong utilization orders.

Quarter.

What's your sense on the inventory build at customers.

<unk> sort of the activity is going to play out.

The seasonality for <unk>.

It's not a calendar 'twenty two.

So that's a good question.

I think I mentioned last call I thought just based upon the limited knowledge that we had that they may have had $5 million you talked about excess we held back inventory.

Yes, correct correct. So.

We know that that's that's.

I've been burned off that five may be down to two but they continue to order and there is still some inventory levels that are out there I don't think they're overly excessive.

In fact as you saw from diet as numbers, we received quite a few orders in the.

In the in the December quarter, So I'd.

I'll tell you what has changed is theirs.

No more flu.

<unk> can be used it's fungible, whether it's for flu or any kind of amortization COVID-19 or singles or whatever so.

Think that what we're going to see is for the foreseeable future.

Orders driven by what.

Vaccines are shots or whatever there.

Administering I'll say, what I do like a like a lot is the fact that they appear to be the orders more more predictable and smooth over the quarters. For example, I'd rather have three quarters of 5 million H versus 15 million. The first so I.

We will see that and we saw the evidence of that what do we what do we bill and.

Immunization orders forklifts flippers familiar for the quarter.

So Diana mentioned as well so far in January we already have $1 8 million in revenues for immunization. So I think things are going to be.

Again, much more smooth and predictable versus the significant berry.

Spikes that we've seen and in orders and inventory levels.

I hope that answer your question, but thats about the best we can do.

Yes. Thank you that's very helpful. I'll turn it over thank you.

Your next question is coming from Michael Hoffman. Please announce your affiliation then pose your question.

David Diana <unk> Stifel.

Thanks.

Following up on <unk>.

Vaccine.

Covid kind of $9 million, a year pace bounce around a little bit maybe but kind of call it $9 million Covid, obviously throws it all over the place.

$5 million of.

Buildup inventory.

Work that out of.

The baseline and then add in what do you think the combination of sustained flu and then new Covid. So are we landing on a $10 million to $11 million number. This year at this point, where do you think.

Up a little towards 12 13 in.

In the fiscal year.

So.

Sorry, So you are talking about.

Asian.

Billings, Jessica vaccine piece of that which is historically and flu was like minus $2 million a year right. So so year to date, we're already at $6 4 million. So we are at six four.

If we're at $6 $4 million. If you use this is just a guess, but if you use maybe December as a guide the December quarter was four plus million 646 for six plus six.

So I think pretty conservatively, you could get comfortable with 10 plus million now.

If there is.

More vaccines administered and it's really going to be.

The option by Americans, and maybe it could be a bit higher but I don't youre low edge I don't I don't think is unreasonable.

10 to 12 is probably the right range and then next year I get back to that inventory build in line of IBM now I'm, having conversation looks more like 14% to 15.

I think I think that's reasonable.

Okay.

What's the route based headwind in <unk> fiscal <unk>.

It's zero in <unk>, it's about 300, it's about 300000.

Martin Lawrence Okay. So so by <unk>, we ought to see a real <unk> as opposed to adjusted 15.

Right and hopefully even hopefully the potential to be higher but yes.

Okay, and then on the med sup where ever the sources do you still think in the calendar year, you're going to be at 12500.

Regardless of the source.

Maybe.

It's tough to predict we know that we will probably be short on the long term care I made on the retail pharmacy side, which we've always targeted.

1200 units.

It's really going to be a factor of how quickly the long term care will adopt.

The med sup, we're optimistic that we can make up that shortfall. The 1000 1200 with long term care can't make any make any guarantees but.

That's what the goal is in but the adoption by long term care is going to be a key driver to making that number.

Alright, great. Thank you very much alright, thanks, Michael.

Okay.

Your next question is coming from Kevin Spanky. Please announce your affiliation then pose your question.

Hi, Kevin Steinke Barrington research.

I just wanted to ask more about the for America partnership.

And just the mechanics of how thats going to work.

It looks like Youre, an approved vendor for the roughly 2500 facilities that they serve so should.

Should we kind of think of this essentially as the <unk>.

Hunting license.

Are you still you have to go out to the facilities in <unk>.

Get them signed up one by one or whats kind of how quickly do you think this can be adopted in.

Just any more details on how you see the partnership ramping up or.

I've worked through.

Let me, let me talk a little bit Big picture first so we kind of stand back.

There is a difference.

The operations of Ahmed say for the long term care facilities that at a retail pharmacy retail pharmacy, we have a contract with the retail pharmacy and we sell the retail pharmacy.

In long term care since the pharmacy is really usually a third party to the long term care facility than it is.

Three party agreement so in a sense the bulk.

Pharmacy either.

Pharmacy to long term care has too.

<unk> be part of it really run this program they have to be.

Authorize collector so they have to be in the middle of it as well and that was one of the things that had kind of slowed down the adoption is more complex and launching yet so farm Erica is onboard and they are pitching this to there.

Their communities, we're helping with the training.

The form Eric employees have been great to work with me in helping with getting up to speed and training, but they are the ones that are pitching it to the.

To the communities and we're there to help in any way.

Any way possible. So I think really they're taking the lead because they see the significant advantage of being able to offer this to their to their long term care communities.

Alright, yes so.

Yeah.

So it sounds like they're obviously on board given the partnership and dedicating some some meaningful research resources to it right.

Yeah Okay.

Right and so so.

Your comments about potentially long term care.

Potentially making up the shortfall in med safe installations on.

The retail pharmacy side.

A lot of that could potentially be driven that makeup be driven by the farm Erica relationship is that how youre thinking about it.

I mean, the farm Erica.

ZIP is great. We look forward to the great people to work with I look at this more of a catalyst to move all of long term care.

So.

When all of long term care sees the ease of use and how to save some money and it makes them compliance.

I think that we have the opportunity to increase sales throughout all of our long term care customers again, I think farm Erika as a catalyst and I think it will be very very helpful. But I think it would really bring awareness to the long term care communities of the significant advantage to using the demand side first.

Yes.

What they're currently doing.

Great.

And are you working on other potential partnerships like this with long term.

Care pharmacies, I mean is that.

Kind of the Avenue, you are taking to really attack and penetrate this market more right.

But because you have to have that.

The pharmacy.

Pharmacy, the surge of long term care they have to be an integral part of the process the operation and the sale and yes, we're talking with others.

Okay. The pipeline is good there.

Sure.

They're all quite aware of the medicine.

Okay great.

Thanks for taking my questions.

Thank you Kevin.

I would now like to turn the floor back over to David for any closing comments. Thank.

Thank you operator, thank you everyone for participating in our call. We appreciate your support and we look forward to talking next quarter. Thank you.

Yeah.

Thank you ladies and gentlemen, this does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day. Thank you.

You for your participation.

[music].

Good day, ladies and gentlemen, and welcome to the Sharps compliance second quarter earnings call.

At this time, all participants have been placed on a listen only mode and we will open up the floor for your questions and comments after the presentation.

It is now my pleasure to turn the floor over to your host Jen Bell Adele with IMS Investor Relations Ma'am the floor is yours.

Thank you good morning, and welcome to the Sharps compliance second quarter fiscal 2022 earnings.

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 financial 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 <unk>.

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 SEC Gov.

Let me turn the call over to David to begin the review and discussion go ahead David.

Alright, Thanks, Shannon and good morning to everyone and thank you for participating in our second quarter earnings call I'm going to first cover a few highlights of the quarter as you see the second quarter revenue of $18 9 million increased 11%.

Over the prior year and 36% sequentially.

Our route based locations, which we really believe is the best way to measure the success of our route based offering those locations increased 17% from about 14900 to 17400 professional market billings grew 15% year over year consistent with.

The increase in the route based customer locations, our unused medication revenue for the quarter increased 9% and this was driven by a 25% increase in the inner liners. So it was actually 31% increase in interline or so for the year to date fiscal year to date period.

And I think this really illustrates the success and the recurring revenue model from the <unk> offering.

Our long term, our long term care market billings for the quarter and year to date were down and they were down because of the headwinds as we talked about last quarter.

The September and December quarters of last year, we're having significant volumes and COVID-19 related waste that was being generated by our long term care customers. We also had very high lab related business as well, but.

When you take out the roughly 400000 headwind in the September quarter 800000 headwind in the year to date period.

Then the route based business overall increased by about 15%.

We closed on the affordable waste acquisition.

October and we're presently working on more acquisition opportunities.

You may have seen the recent farm Erika partnership announcement, let me just speak to that just to make sure everyone understands the importance of that.

We really pride ourselves on our ability to solve complex problems for customers I think we're really good at that in a patent a pressing problem.

Facing the long term care industry has been the proper cost effective and compliant management of unused medications, including controlled substances.

<unk> twice so the DEA rules were changed back in 2014 are the DEA adopt as a secure and responsible drug disposal Act.

And that was the beginning of the med Psych, we designed the med safe based upon.

The DEA adopting that role well those roles Pri.

Primarily designed for long term care.

Also retail pharmacy, and I think we've done a great job in retail pharmacy with.

The med safe and I believe becoming the later so now it's time for long term care and the long term care market to be able to adopt <unk>.

<unk> and <unk> has been slow to adopt so we need a catalyst we need a catalyst to really start to drive the med safe offering and long term care and we believe the partnership with far America could be that catalyst that could help increase the adoption of the med safe and could raise awareness.

The Mets age and how we can make them compliant we can save them money and we can provide a very very convenient solutions for the long term care.

The long term care business. So we're excited about that and again, we look at that overall as a potential as a catalyst to move med <unk> sales and long term care.

So let's look forward.

We are quite energized to continue capitalizing on the opportunities we say, we're growing our leadership position in all markets and in all of the solutions we offer.

We continue to focus on organic growth of the route based business.

And hopefully we will have the opportunity to complement that organic growth with acquisition growth.

The acquisition pipeline remains quite vibrant and again, we believe we have an opportunity or the opportunity.

To close more acquisitions.

Bruce.

Immunizations, we've seen the ongoing emergence of the new variance you can watch news without hearing about the variance.

Causing the COVID-19 related business landscape to remain quite fluid, but as we move through the remainder of fiscal year 'twenty. Two we think the immunization related orders will be driven by.

Timing and volume of the continued rollout of the COVID-19 charge in both serves as a point of reference we only have about 40% of fully vaccinated Americans that have received.

The booster.

Heard everyone heard on the news yesterday.

The omicron Varian and how there has been a vaccine that's being specifically designed for that very ship could be available in March of 2022.

This morning, we were talking about how the CDC has recommended a four shot for the immuno compromised. So we think we will continue to see more immunization.

<unk> orders because of that.

This is Diane and I will speak to here in just a bit about the orders that we received are the revenue we received in December .

December quarter.

We think we're extremely well positioned to continue to take advantage of the opportunities.

And it's really important to note from from all of our standpoint that.

We're highly confident that we have the infrastructure in place as well too.

To be able to support our current and prospective customers and all of the growth opportunities.

In front of us so with that I'll turn it over to Diana and she can address more about the financials.

Thank you David we reported revenue of $18 9 million, an increase of $1 9 million or 11% customer billings were $17 million in the second quarter of fiscal 2022, which is a decrease of $1 $5 million or 8%.

Retail market billings grew 4% to $6 4 million in the second quarter of fiscal 2022 as compared to $6 $1 million in the same prior year period within that retail market immunization related orders were down slightly at $4 $6 million in the second quarter of fiscal 2002.

Compared to $4 $8 million in the prior year.

Sure.

Pharmaceutical manufacturer market billings decreased by $1 $2 million to $1 9 million in the second quarter of fiscal 2022 as compared to $3 1 million in the same prior year period, the timing of inventory builds for patient support programs drove more than half of the $1 <unk>.

$7 million decrease in mail back solution billings.

The impact that the route based business customer billings.

Billings for unused medications grew 9% to $1 $9 million in the second quarter of fiscal 2022 as compared to $1 7 million in the same prior year period as a result of a 25% increase in the number of met safe line ourselves.

Related to our med safe business, we installed 106 med space during the second quarter. This was lower than our forecast going into the quarter, but consistent with the number of installed in the prior year quarter of 137 units for.

For the December 2021 quarter, our installs of 106 units were lower than our forecast of 400 units as we saw and continue to see concerns in retail pharmacy related to additional med safe installs when their business is so focused on COVID-19 Omer KRA.

On testing and vaccination activity.

On a year to date basis, we have installed 504 units down slightly from the prior year to date in stores of 552 units.

At this time.

We believe calendar year 2022 met safe and staff will be driven more by long term care than retail pharmacy.

Related to utilization of existing installed Metlife Metlife liners processed in the second quarter of 8200 was up 23% over the prior year, indicating more traffic and retail pharmacies.

System with the trends and liners processed that safe line are sold in the second quarter of 9000 units was up 25% over the prior year.

The total liners returned since the program inception, our 100679 and med <unk> units and staff were at 6627 at December 31 2021.

Moving to the financials, the gross margin for the second quarter improved to 35% compared to gross margin of 33% in the second quarter of fiscal 2021.

SG&A increased by about $600000 or 17% to $4 $4 million in the second quarter of 2022 compared to the same prior year quarter. The.

The increase in SG&A is related primarily to about 200000 and acquisition related cost of.

$200000 increase in the accrual of management incentive comp and continued investment in sales and marketing.

We reported operating income of $2 million in the second quarter of 2022 compared to operating income of $1 7 million in the second quarter of last year.

We recorded net income of $1 $4 million or <unk>.

For basic and diluted share this quarter compared to net income of $1 2 million or <unk> <unk> per basic and diluted share in the second quarter of last year.

We reported improved EBITDA of $2 $6 million in the second quarter of 2022 compared to EBITDA of $2 $2 million in the second quarter of last year.

Now a few points about year to date results, we reported revenue of $32 8 million in the first half of fiscal 2022, an increase of 9% compared to revenue of $32 million in the first half of last year.

Customer billings decreased 7% to $29 7 million for the first half of fiscal 2022.

Gross margin.

It was essentially flat at 36% for the first half of fiscal 2022 as compared to 37% in the first half of last year, but it was negatively impacted by about $800000.

Increased fixed and the fixed cost component of cost of sales.

Increase in the accrual of management incentive comp.

And the company's continued investments in sales and marketing.

We recorded opt.

Operating income of $1 million in the first half of fiscal 2022 as compared to operating income of $1 $3 million in the first half of last year net.

Net income for the first half of fiscal 2022 was $600000 or <unk> per basic and diluted share compared to net income of $900000 or <unk> per basic and diluted share for the first half of last year.

EBITDA was $2 $2 million in the first half of fiscal 2022, consistent with EBITDA in the first half of fiscal 'twenty one.

Our balance sheet remains very strong with $36 million of cash as of December 31, 2021, which compares to $41 2 million at the end of September 2021, and $27 $8 million at the end of June 2021, we.

We had working capital of $42 $8 million at December 31, 2021 that compares to $27 9 million of working capital at the end of June 2021.

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.

Looking forward to the March 2022 quarter, we typically have seasonally low amortization related billings and revenue.

For example, in the March 2020 quarter, which was pre Covid vaccine, we sold about $700000 and immunization mailbox today.

In the March 2022 quarter, we have immunization orders of over $1 $8 million. So a seasonally low quarter is not expected in light of Covid related immunizations.

Excluded.

And with that I'll turn the call back over to David.

Thanks, Tom.

Operators, let's go ahead and open it up for Q&A.

Please hold while we poll for questions.

Yes.

Your first question for today is coming from Gerry Sweeney. Please announce your affiliation and pose your question.

Hey, David Diana.

Roth capital.

Thanks for taking my call.

You bet.

I wanted to talk a little bit about Ralph base.

Business with 17% growth in customer base.

Can you give a little bit more detail on this growth I think you've made some acquisitions and I apologize some investments internally with some internal sales and external sales I'm. Just curious if this is broad based growth and where this is coming from and.

This is an opportunity to continue to invest sort of drive this business for sure.

This broad based growth.

All of our markets and the small and medium quantity generator market everything.

John .

Does that change the surgery center.

Yes.

It's across the board and we have invested as we've invested more and more in our.

And our sales team.

We're pushing sales of all solution offerings.

And in those markets, but we've been pleased with what we've seen on the on the run.

<unk> base as well.

Obviously long term care has been a headwind does.

Used to dealing with COVID-19 and reduce their PPE use and disposal.

Has COVID-19 shifted any other growth in terms of.

Outsource or the outside of hospital type of services.

Is there.

Any impact on that positively or negatively.

The market no. The only thing I would say is we know we had the headwinds.

And the long term care from the from the prior year.

Periods.

And that's really it.

I mean, we're kind of <unk>.

Continuing to.

To work through obviously on the vaccine immunization side.

<unk>.

The long term care, then it's normalized although I will say this.

Long term care the lab side, it seems to be a bit stronger here in January so maybe what the slate is very there appears to be more volume.

Coming out of long term care and labs and again, so we're seeing just for the month of January .

Got it and then switching gears to unused meds.

You made the comment that youre going to see more growth probably from the.

Long term care market over the retail pharmacy market.

Obviously retail pharmacies.

Dealing with Covid.

There's a big focus there, but is there anything fundamentally shifting on that market in terms of rollout or opportunities.

Well I think what you saw in that any of those numbers.

I think we had originally expected to like maybe 400 minutes safe and it was like 100 little bit over 100 that we installed for the.

The December quarter's retail pharmacies are very very very focused on.

Testing in.

Immunizations and booster.

Boosters.

All of the above and Thats, where the resources are being focused right right now so.

It's quite likely and again, we look at it from a calendar year basis on the installs on the med safe.

That as long as what's going on now continues then they're probably going to be light on the installs on the retail pharmacy now when we look at it is we think the calendar year 'twenty two could be the year for long term care. So what we're hoping for is that potential strength of the long term care.

<unk> will make up or more than make up for any potential shortfall on the retail pharmacy.

Got it.

I don't want to.

Too many questions I know, there's other people in line.

I'll jump back in queue. Thank you alright, thanks sure.

Yes.

Your next question is coming from Rob Brown, Please announce your affiliation and pose your question.

Hi, Good morning, David.

With <unk> capital markets.

My question is is it really just help with journey as it is.

When Covid normalizes would you expect the unused medicine.

Annuity would pick up in the retail pharmacy or would you expect them to sort of reevaluate it or or how do you expect that long term no.

I think it'll it'll pick back up and go back to more normalized <unk>.

Level. So its just I don't think anybody has any of us know when we're going to get back to.

So normal I don't know if you've been in a retail pharmacy.

Slightly but they are quite quite busy but.

They expect and we expect after we get through this that they should be back to more normalized levels.

Okay, great great.

And then just in terms of the inventory build youre seeing at the customers that you talked about a pretty strong utilization orders.

Quarter.

What's your sense on the inventory build at customers.

<unk> sort of the activity is going to play out.

The seasonality for own account.

Calendar 'twenty two.

So that's a good question.

I think I mentioned last call I thought just based upon the limited knowledge that we had that they may have had $5 million youre talking about excess mail back inventory.

Yeah, correct correct. So.

We know that that's that's.

Then burned off that five may be down to two but they continue to order and there's still some inventory levels that are out there I don't think they are overly excessive.

As you saw from diet as numbers, we received quite a few orders in the.

In the in the December quarter so.

I'll tell you what's changed is there is no more flu.

The mailbox can be use it's fungible, whether it's for flu or any kind of amortization COVID-19 , our shingles or whatever so.

What we're going to see is for the foreseeable future.

This is driven by whatever vaccines are shots or whatever there.

Theyre administering I'll say, what I do like.

Like a lot is the fact that they appear to be the orders more more more predictable and smooth over the quarters. For example, I'd rather have three quarters of 5 million H versus 15 million. The first so I think we will see that and we saw the evidence of that.

What do we what do we bill and the immunization orders for plus <unk> million for the quarter. Yeah. So Diane had mentioned as well so far in January we already have $1 8 million in revenues for immunization.

I think things youre going to be.

Again, much more smooth and predictable versus the significant dairy.

Spikes that we've seen.

And orders and inventory levels.

Hope that answers your questions but.

Best we can do.

Yes. Thank you that's very helpful. I'll turn it over thank you.

Your next question is coming from Michael Hoffman, Please announce your affiliation and pose your question.

David Diana Stifel. Thanks.

Following up on.

Vaccines.

Pre COVID-19 kind of $9 million, a year pace bounce around a little bit maybe but kind of call it $9 million Covid, obviously throws it all over the place.

5 million of buildup inventory, you kind of walk that out of.

The baseline and then add in what do you think the combination of sustained flu and then new Covid. So are we landing on a 10 to 11 million number this year at this point, where do you think.

Picks up a little towards 12 13.

For the fiscal year.

So I'm sorry, so you're talking about the immunization billings, Jessica vaccine piece of that which is historically and flu was like minus <unk> million a year right. So so year to date, we're already at $6 $4 million. So we're at six four.

Then if we're at $6 $4 million. If you use and this is just a guess, but if you use maybe December as a guide the December quarter was four plus million 646 for six plus six so so I think pretty conservative literally you could get comfortable with 10 plus million now.

If if there is.

More vaccines administered and it's really going to be adoption by Americans and maybe it could be a bit higher but I don't you lower hedge I don't I don't think is unreasonable.

10 to 12 is probably the right range and then next year I get back to that inventory build in line of IBM now having conversation looks more like 2014 to 15.

I think I think that's a reasonable.

Okay.

What's the route based headwind in <unk> fiscal <unk>.

It's zero in <unk>, it's about 300, it's about 300000.

Margins were okay.

Okay. So so by <unk>.

We ought to see a real <unk> as opposed to adjusted <unk>.

Yes.

Right and hopefully even hopefully the potential to be higher but yes.

Okay, and then on the med safe where ever the sources do you still think in the calendar year, you're going to be at 12 <unk> hundred <unk>.

Regardless of the source.

Maybe.

It's tough to predict we know that will probably be short on the long term.

The retail pharmacy side, which we've always targeted larger.

1200 units.

No no.

It's really going to be a factor of how quickly the long term care will adopt.

The med sup, we're optimistic that we can make up that shortfall of the 1000 1200 with long term care can't make any make any guarantees but.

That's what the goal is and but the adoption by long term care is going to be a key driver in making that number higher.

Alright, great. Thank you very much alright, thanks, Michael.

Yeah.

Your next question is coming from Kevin Steinke <unk>. Please announce your affiliation then pose your question.

Hi, Kevin Steinke Barrington research.

I just wanted to ask more about the for America partnership.

And just the mechanics of how thats going to work.

It looks like Youre, an approved vendor for the roughly 2500 facilities that they serve so.

Should we kind of think of this essentially as a <unk>.

Hunting license.

You have to go out to the facilities in.

Get them signed up one by one or whats kind of how quickly do you think this can be adopted in.

Just any more details on how you see the partnership ramping up or.

So let me, let me talk a little bit Big picture first so we kind of stand.

There is a difference.

The operations of Ahmed say for the long term care facilities that at a retail pharmacy and retail pharmacy, we have a contract with the retail pharmacy and we sell the retail pharmacy.

In long term care since the pharmacy is really usually a third party to the long term care facility. Then it's a three party agreement so in a sense the launch.

The pharmacy.

The pharmacy to long term care has too.

<unk> be part of it really run this program they have to be a DEA authorized collector. So they have to be in the middle of it as well and that was one of the things that had kind of slowed down the adoption is more complex and launching yet so farm Erica is onboard and they are pitching this to there.

And their communities, we're helping with the training.

The farm Eric employees have been great to work with me in helping with getting them up to speed and training, but they are the ones that are pitching it to the.

To the communities and we're there to help in any way in.

In any way possible. So I think really they're taking the lead because they see the significant advantage of being able to offer this to their to their long term care communities.

Alright, yes, so I mean it.

So it sounds like they're obviously onboard given the partnership and dedicating some some meaningful research resources to it right.

Yeah Okay.

Right and so so.

Your comments about potentially long term care.

Yeah.

Potentially making up the shortfall.

Let's say if installations on the.

The retail pharmacy side.

A lot of that could potentially be.

Driven that makeup be driven by the farm Erica relationship is that how you're thinking about it.

I mean, the farm Erica partnership is great. We look forward to a great people to work with I would look at this more of a catalyst to move all of long term care.

So.

When all of long term care sees the ease of use and how it saves them money and it makes them compliance.

I think that we have the opportunity to increase sales throughout all of our long term care customers again, I think farm Erika as a catalyst and I think it will be very very helpful. But I think it really bring awareness to the long term care communities of the significant advantage to using the domestic versus.

<unk>.

They are currently doing.

Great.

And are you working on other potential partnerships like this with long term care.

Your pharmacies I mean is that.

Kind of the Avenue, you are taking to really attack and penetrate this market more sick right exactly.

But because you have to have.

The pharmacy.

Pharmacy, a surge of long term care they have to be an integral part of the process the operation and the sale and yes, we're talking with others.

Okay. The pipeline is good there.

Sure Yes.

They're all quite aware of the medicine.

Okay great.

Thanks for taking my questions.

Thank you Kevin.

Yes.

I would now like to turn the floor back over to David for any closing comments. Thank.

Thank you operator, thank you everyone for participating in our call. We appreciate your support and we look forward to talking next quarter. Thank you.

Yeah.

Thank you ladies and gentlemen, this does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day.

You for your participation.

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