Q4 2021 MedAvail Holdings Inc Earnings Call
Expansion and guidance for revenue gross margin and operating expenses in 2022 are based upon our current estimates and various assumptions.
Any forward looking statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward looking statements 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 risk.
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 most recent periodic reports, including our annual report on Form 10-K , and our quarterly report on Form 10-Q filed with the Securities and Exchange Commission.
In addition, as part of this earnings call. The company's management team is providing additional financial information related to adjusted EBITDA.
The company calculates adjusted EBITDA, a non-GAAP financial measure bite, including interest expense depreciation and amortization stock based compensation and excluding nonrecurring expenses and other income to net loss.
The company has included adjusted EBITDA in this earnings call because it is a key measure used by the company's management and board of directors to evaluate and comparing the company's financial and operational performance over multiple periods identifying trends affecting the company's business formulating business plans and making strategic decisions.
Yeah.
In particular, the exclusion of certain expenses in calculating adjusted EBITDA facilitate the operating performance comparability across reporting periods by removing the effect of noncash expenses and certain nonrecurring variable charges.
In addition, the company believes that providing each of EBITDA and adjusted EBITDA together with a reconciliation of net loss to each such measure helps investors make comparisons between <unk> and the other companies that may have different capital structures different tax rates under a different forms of employee compensation.
Adjusted EBITDA should be viewed as measures of operating performance that are supplemental to and not substitutes for operating loss net loss and other U S. GAAP measures of income and loss non-GAAP financial measures used by the company, maybe calculated differently from and therefore may not be comparable to similarly titled measures used by.
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This conference call contains time sensitive information and is accurate only as of the live broadcast today March 24th 2022 medical disclaims any intention or obligation except as required by law to update or revise any financial projections or forward looking statements, whether because of new information future events or other.
Otherwise.
And with that I will turn the call over to Mark.
Thank you Carolyn and good afternoon, everyone and thank you for joining us.
Very pleased to be participating in my first earnings call.
So it is a privilege to be leading this company and I. Thank the board for this opportunity.
By way of background I've spent my entire career in pharmacy, starting as a pharmacist and working across this industry and various other capacities, including leading national and regional retail pharmacy chain most.
Most recently I was CEO , Eric network until its acquisition by change healthcare in 2020.
There might be a year tenure, the company's revenue and EBITDA increase in each year before the acquisition.
I believe that pharmacy is a big business with a significant opportunity for novel models to improve efficiency and patient outcomes, while achieving discipline with respect to cost and quality and I strongly believe that our new team I've met avail is uniquely poised to address this opportunity.
I was attracted to meadows deal for two reasons first I was impressed by <unk> differentiated technology platform, our Med center and its supporting system that enables our onsite pharmacy at the point of care in a cost effective way.
Second I believe in the opportunity that our solutions provide given how strongly positioned we are to solve a multifaceted problems or challenges pharmacy services today.
There is a clear need for solutions to address the gaps faced by both retail pharmacy and at risk value based medical providers.
Retail pharmacy struggle with labor shortages and higher costs.
Resulting in reduced operating hours and compromise service levels, which effectively limit patient access to their medications.
These factors contribute to reduce patient satisfaction and lower medication adherence.
Medication adherence tends to result in sub optimal patient outcomes and impacts of the star ratings or at risk providers, which in turn affects the reimbursement levels provided by CMS.
Moreover, many medical providers don't have adequate connectivity to the many pharmacist that their patients utilize constraining their ability to gain insights on medication adherence for patients, which limits their ability to impact patient outcomes.
To address these challenges head on we deliver flexible and comprehensive solutions to our partners with a model that I believe is increasingly essential for value based care delivery.
At the core of our offerings is our proprietary Med center platform.
Through which we deliver cost effective pharmacy prescription dispensing and advisor at the point of care to provide better and more convenient patient access and drive improved outcomes and provider satisfaction and reimbursement.
Since joining Matt avail, my confidence in our business and the opportunities for it has grown.
There is a tremendous market opportunity to be realized with our solutions and we have a definitive roadmap intended to meet this rising demand I also believe that we have a clear pathway to deliver profitable growth in the business.
To that end as.
Some of you already know our business model has two segments pharmacy technology and retail pharmacy services.
And I would like to walk you through what we're doing with each segment.
Starting with the pharmacy technology. This area of our business represents the most significant opportunity for meta Bill and is a large part of our path towards profitability.
We sell our hardware and importantly license our software and systems to support it and provide maintenance for the platform, which is intended to create a highly profitable recurring revenues.
Our med centers are currently being operated by large scalable partners such as Sam's club.
And Texas Health resources, a mix of retail and health systems pharmacy.
We believe are both very viable channels for our expansion.
We are also pleased to have recently partnered with the University of Florida.
We will provide an initial three met centers to be deployed in their various campus facility and have the opportunity to expand this relationship to include a variety of additional sites.
A critical component to pharmacy technology segment is the Med center interface with the pharmacy management system.
As part of our focus to drive growth in this business. We have received approval for our app to be in the Epic's, App Orchard, which will allow us to integrate into the epic platform through epic Willow is outpatient pharmacy management system. This.
This capability is intended to allow us to expedite deployments with many health system customers, who use epic and will significantly reduce the time from signing a deal with met avail to deployment of our platform.
Importantly, we anticipate that the integration work will open the market of installed epic users the meta bail as prospects for our pharmacy technology. Currently there are approximately 350 integrated delivery networks using the epic pharmacy software in the United States, representing thousands of potential.
Central sites for our Med Center, we expect this integration through epic rollout to be completed in the second quarter of 2022.
To support the growth opportunity that we see with the pharmacy technology, we're making investments in strengthening our team. We've recently added new sales leadership and support in this segment and are continuing to develop our team to drive product innovation and sales.
Turning to retail pharmacy services and spot Rx, our highly scalable hub and spoke pharmacy model, we deliver a unique value proposition to our clinic partners with our embedded spot Rx pharmacy, and we are focused on clinic operators that service the Medicare market with large.
And growing networks to maximize the potential of our land and expand strategy.
Our clinic partners, primarily operate in a value based care model and are looking for a pharmacy partner that can fully complement their patient care and reimbursement models, we leverage data to drive patient adoption monitor performance to adapt and optimize our offering to each clinic.
Patients, helping to identify and focus on high value patients for our part.
Each of our spot Rx service areas operate a centralized pharmacy hub designed for easy and rapid scaling.
Once we establish a hub pharmacy in a market we have historically been able to quickly deploy additional med centers to surrounding clinic providers.
Today, we have seven hub pharmacies across our key target states.
Our most recent pharmacy opened in Orlando, Florida in June of 2021, and notably now services over 30 dispensing units across this market.
A number of the spot to rack locations are associated with our partnership with IMA and.
And it's a great example of the land and expand strategy at work through our partnership with IME. We opened four initial spine rack locations at <unk> sites in late 2020, and recently, we announced the expansion of our partnership to include all IME medical centers across Central Florida, We opened five additional spot Rx.
Patients the IMA site late in 2021 and have deployed or began installation for an additional 11 spot to rack locations. This year.
This rapid growth and expansion with the IMA network demonstrate how quickly we become an integral part of our medical center through our strong value proposition with spot rates.
We are also aiming to leverage our expansion with clinic partners and grow alongside them as they continue to build out their networks. Most recently, we expanded our partnership with folks Street held with an additional two spot Rx installations at Michigan in 2021 and have agreed with Oak Street health.
<unk> to deploy in Arizona with three initial contracted location.
A great example of how we can expand in two of our key target markets with existing partners to drive enhanced utilization of our existing hub pharmacy.
St Health operates more than 100 comprehensive primary care centers across 19 states for senior adults.
We are pleased to announce that we are also expanding our partnership with <unk>.
We had initially contracted with <unk> to open for spot Rx locations in Orlando area and contracted for an additional four locations in the greater Los Angeles area in the fourth quarter of 2021.
I'm pleased to report that we recently contracted for an additional nine sites in the Tampa, Florida area.
We are looking forward to leveraging our new Tampa pharmacy hub for this opportunity.
With these new deployments and expanding partnerships, we are continuing to build the foundation for scalable and sustainable revenue growth with large and growing value based care providers.
As we think about this growth we look to deployment as a leading indicator of the strength in our momentum. We finished 2021 with 46, new deployment and momentum in the business.
To provide some more context around deployment and how we are thinking about our growth we want to introduce a new metric dispensing med centers.
Ramona will walk you through the details around our metrics, but at the end of 2021, we had 81 net cumulative deployments to date 68 of which are dispensing that centers.
Representing 76% and 79% growth over the prior year respectively.
Importantly, we have also initiated internal measures intended to ramp up our deployment efficiently and effectively so that our partners can quickly realize the value proposition with spot RF.
Underlying all of this growth we are heavily focused on the profitability of our business.
Have programs underway in four areas to achieve improved margin.
Driving prescription volumes optimizing our prescription Mick.
<unk> cost of goods and improving reimbursement.
We have set forth specific initiatives with respect to each of these areas as a preview into one of these initiatives. We are deploying a comprehensive procurement strategy from sourcing products to drive utilization and the appropriate mix of medications using data in our pharmacy management system in <unk>.
To ensure the highest available reimbursement for the prescription.
We are also enhancing our leadership team, bringing in new talent and skills to drive these efforts, including most recently. The addition of an industry leader in data utilization in analytics and <unk>.
Optimize and accelerate data exchange with our clinic partners and enable improved efficiencies for the benefit of our patient and clinic partners. We intend to use pacing appointment data and prescriber data to optimize the utilization of our med centers, which helps drive first full adherence and patient satisfaction.
With the convenience of on site expensing.
We exited the year with strong results in the fourth quarter net revenue was $7 3 million.
Representing 26% sequential revenue growth from the third quarter of 2021, and 135% growth year over year.
Retail pharmacy services generated $6 $8 million in revenue for the fourth quarter of 2021, representing a 170% growth over the same period in 2020.
While pharmacy technology revenues declined 24% year over year in the fourth quarter of 2021 to approximately $434000.
Pharmacy technology revenue can be variable from quarter to quarter due in large part to customer purchasing patterns associated with enterprise level capital sales.
We are intently focused on driving revenue in this segment as we noted earlier.
Looking ahead to the first quarter, we expect approximately $8 $8 million in total revenue, representing 21% growth relative to the fourth quarter of 2021 and more than double our net sales compared to the same period in 2021.
We also expect to see adjusted gross margin improvement in the first quarter of 2022 compared to the fourth quarter of 2021.
In summary, while I'm still in the early weeks of leading our med <unk>.
We are enthusiastic about the differentiated value proposition and competitive advantage of our pharmacy solutions and the strong momentum we continue to deliver with our business.
As you would expect.
Im spending my time on some immediate practical needs and on ensuring that we have the people and skills in place to drive the business forward with this well underway as we continue to execute and deliver I'm excited to spend time with this revitalized team to look beyond our immediate significant opportunities in <unk>.
<unk> refined and validate our strategy and plan for the future.
We are also working to secure additional financing to move our various initiatives forward.
I look forward to talking more about this in the months ahead.
And the more immediate term as we work to refine our operational initiatives I am confident that we are strongly positioned with our expansion plans underway and more opportunities presenting themselves in our existing business area.
While we focus on delivering profitable and sustainable growth in the future with that.
I'll now turn the call over to Ramona to provide a review of our fourth quarter financial results.
Thank you Mark.
Turning to our fourth quarter results.
Net revenue for the three months ended December 31, 2020 173 million.
35% increase from $3 1 million in the same period the prior year.
This was aided by 170% increase in retail pharmacy services revenue.
As we've indicated in the past some technology revenue can be variable from quarter to quarter, one large customer purchasing patterns associated with enterprise capital sales.
As Mark mentioned, we deployed 46 less than those in 2021.
We ended 2021, we had 81 net.
Deployments to date and 68 reps.
Representing study.
79% growth over the prior year, respectively.
I wanted to take a moment now to define this metric.
We have excluded the previously discussed non revenue generating site.
Metrics such as pilots.
The initial appointment and demo site.
We define the banking unit as the sites that are like that.
Their network acceptance privacy board approvals and trained clinical staff or clinical account managers.
We work closely with state boards of pharmacy, and clinic partners to reduce their time to progress from deployment to become indispensable Internet, which generally takes four to 12 week.
Gross margin for the fourth quarter 2021, like negative, 5% as compared to negative seven 9% in the fourth quarter of 2020.
The negative margins were a result of inventory write downs.
$126000 and we added $52000 in the fourth quarter's 2021 and 2020, respectively.
The inventory write down in the fourth quarter of 2021 was specific to the LTI model of our Med center within the pharmacy technology segment and is not related to the <unk> models currently being sold to third parties and deployed within spud our app.
We now carry our and by inventory at zero, given that we and our customers are focused on the <unk> model.
Without the inventory write down in both the fourth quarters of 2021 and 2020 gross margin was three 6% and three 4% respectively.
Total operating expenses for the fourth quarter of 2021 or $12 million, a 5% increase from $11 4 million in the fourth quarter of 2020.
Our operating costs have increased primarily as a result of our pharmacy operations clinical account manager labor product.
In support of additional Med center deployment.
Notably, our general and administrative costs have stabilized quarter over quarter.
Adjusted EBITDA, which we calculate by adding back interest expense depreciation and amortization stock based compensation and exclude nonrecurring expenses and other income to net loss was a loss of $10 $9 million in the fourth quarter of 2021.
Handful of loss of $8 9 million in the fourth quarter of 2020, reflecting growth in place.
We ended the fourth quarter of 2021 with $19 7 million.
Cash and cash equivalents.
We have a number of options, we're actively pursuing to extend our runway.
Turning to our outlook for the first quarter of 2022, we expect approximately $8 8 million in total revenue.
We expect 25 to 30 less expensive units in 2022.
Regarding our gross margin outlook, we remain focused on improving our gross margin and operating costs throughout the balance of 2020.
And with that I'll turn the call back over to Mark for closing comments.
Thank you Ramona thank.
Thank you for joining the call today, we look forward to updating you on our progress as we continue to execute across our strategic initiatives and drive profitable growth.
With that we will now open it up to questions.
Operator.
Thank you Mark we will now begin the Q&A session, if you'd like to ask a question. Please press star one on your telephone keypad. If for any reason you would like to remove that question. Please press star two.
As a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question.
Our first question from Charles <unk> Cowen.
Charles Please proceed.
Hey, guys, it's actually James on for Charles.
Previously it's been noted that on average each deployment generates about $1 million in revenue at full run rate can you give us an update on this revenue targets are met centers a year or more.
Deployed a year or more ago generating about 100 about $1 million in revenue on average maybe you can give us some color on what revenue it looks like on like a medium basis 75 percentile basis for.
Those that have been deployed over a year ago.
Sure Hi, James.
This is ramona and.
In the past we have used.
Net deployment as a leading and care and now we're focused on the number of the spending cycle.
One generating revenue and were associated with that million dollars target.
As we look historically at our mature sites.
We're seeing that in year, one we're typically finding 200 to $250000 in annual revenue.
Yes.
500, 600000 by year three we're in 700 to 800000.
As of the.
End of last year, we have 68% in units.
That were generating revenue.
That is marked an additional 25 to 30 its banking units in fiscal year 'twenty two.
So as we look to how we are qualifying site.
Now versus in the past, we're seeing in the end.
Meaning that the new states are performing better than the median rate.
Yes.
Were.
Meaning towards the 75th percentile to be our target, which would start seeing that million dollars come in in year three.
We feel comfortable with the goal of $1 million for the site that maturity I want people to understand that we have impact.
Our revenue ramp.
Such as like timing for a new or existing clinic, if it's a.
A new clinic, it's going to take longer for it to ramp up we call them.
Nick.
We also if we're entering into a new market you could take us time to get accepted into insurance plan, so that could take a few.
A few weeks to get into all the plan I think we said in the past four to 12 weeks to be fully ramped up.
We can also have.
<unk> for our volume through clinic staffing and patient penetration rate.
And then finally like the average sales price is impacted by our payer mix and the types of prescriptions were feeling.
So we expect to continually improve the ramping for our revenue with the new clinics, we're bringing on in the selection process that we have in place.
We're seeing that our clinics.
Are generating some of the older plants are generating.
Over $1 million.
Mark maybe can you add to what we're doing that kind of moving the median rate up towards the 70 <unk> percentile.
Sure. Thanks, I think the key to what we're seeing with the most recent clinics are our qualification process. So we're really selecting.
The right clinics that we go into but we're also doing a much better job.
We go live and really around our training both for our clinical account managers as well as for the provider themselves. So they feel comfortable in recommending our services and then the last thing is we are using data more effectively once we're in market.
<unk> monitor the performance of the clinic itself and also adapt to the clinic such as the prescribing patterns, making sure that we have the right inventory in the Med center to capture the first build dispensing.
Does that answer your question.
Yes, that's very helpful.
In the prepared remarks, I think you had mentioned that youre looking to ramp up sites more efficiently can you maybe give us some color on.
What you're doing to maybe.
Accelerate or enhance this ramping process.
Yes, I think I'd go back to just the comments I just made.
I think we're really doing a better job in selecting those sites and then it.
The other thing is it's really the in market performance and again.
Now using that data, we're starting to get appointment data. So we know when patients are coming in to make sure that we're focused on those high value patients for our partners as well as like I said, making sure we have the inventory in stock to dispense prescription while they're in the clinic.
At the point of care.
Okay.
We appreciate you providing first quarter 2022 revenue guidance, but is there any color you could give on I guess revenue growth for.
The entire year or at least the key puts and takes we should be considering.
Some details on like the progression of the 25% to 30% in that dispensing sites would be helpful.
Yeah.
We're not providing sort of a full year revenue guidance at this time I think thats why we went and wanted to provide the information on the 25 to 30 dispensing units for the year given thats how they drive.
How do we drive revenue and that's very similar to last year's sort of overall deployment rate it would get us.
From 68 to roughly 95 to 100 total dispensing units.
And I would say, we're continuing to assess and I'm working with the board.
To provide guidance revenue guidance.
Future update.
Okay.
And similarly, I guess.
Yes.
Sequential improvement expected in <unk> 22 on an adjusted gross margin basis.
Ah.
Should we think that margins.
Sequentially improve throughout the course of the year.
I know, you're not giving full year guidance, but anything on that front would be helpful.
Yeah. So.
We finished the full year of about one 4% unadjusted with three adjusted we do expect that those will continue to improve quarter over quarter, we're targeting between 8%, 9% could adjusted gross margin within the next four to six quarters.
Our long term goal of being right around 15% aligns with industry average.
A lot of initiatives.
That we're putting in place to.
Slide 14 bucket.
<unk> Nick.
Cost of goods sold and reimbursement and Mark do you want to add some things that the team is working on <unk>.
You covered it really well when you start to think about it and I said, we're putting in sort of a full procurement strategy around how we buy.
At the lowest cost with that we actually followed through making sure that our pharmacists are purchasing those items dispensing those items and looking at how that.
Rolls into the reimbursement.
Coming in I think the other thing we're very focused on is generic substitution and because generic typically will carry a higher gross margin and that will help us achieve that 8% to 9% that ramona.
I spoke about the last thing I would say on the mix as we do want to continue to drive technology sales, which has a much higher gross margin associated with it and we'd like to get that to be a larger portion of our total revenue.
Okay, that's a good segue into.
My last question.
<unk>.
Farmers technology, which seems to be a greater focus I guess I guess what percent of total revenue do you think pharmacy technology ultimately could represent in the future and maybe you could talk about what the sales pipeline and pharmacy technology It looks like now.
Given the new sales leadership.
You just hired.
I think previously the company has talked about targeting 20% for the technology revenue segment continues to do an assessment on that but.
I think that that's probably a realistic target for us as we go forward.
When I think about the sales pipeline for 2021. This year were going to expect the revenues to be flat for 2020, we expect the revenues to be flat to 2021, but the pipeline is really going to be strengthened as we complete our epic integration and epic integration.
And as sort of Q4, one we need to get our Med center App in the epic App Orchard, and we did just get approval in the month of March for our App to be in the Epic's App Orchard. So that was the first step the second step is we're working with our first epic partner.
Complete and integration and that should be done by the beginning of Q3, which will expand the number of <unk>.
Outlets that we can go out there specifically it opens up about 350.
<unk> systems to us, which could represent thousands of placement and.
<unk> would say we have an integration with the Mckesson enterprise system, which represents thousands of potential placements within retail so we see both retail and health systems being.
Viable.
Channels for expansion.
As we move forward.
Okay. Thank you for all that.
Its color.
Thank you James.
Yes.
Thank you James Our next question is from Brooks O'neil of Lake Street Capital Markets Brooks You May proceed.
Thank you good afternoon, Mark and Ramona.
I have a few questions I guess, so just following on.
The last question on Pharmacy Tech.
We do though we do expect those deployments to include a med center unit ultimately or is it 100% of software.
Sale.
<unk> is a good question it always will have the hardware associated with it.
Because the Med center is the platform for the dispensing and then the software and as you'd recognize me.
We license the software with the Med Center and then we bill monthly for software and maintenance, so there'll always be a hardware component.
Okay Cool and then I'm just curious.
Were there any incremental.
Terminations or old reductions in deployment.
Here either towards the end of the year or early in 2022.
No there were not.
Okay. So would you say.
These units that are out in the field.
You're either optimistically, we're pleased with the performance.
Yes, we're continuing to assess the performance of all the med centers inside of the spot <unk>.
Hub pharmacies that we run and I would say that we are pleased with the.
The med centers they are out in the field today, but we will continue to monitor performance to ensure that we're maximizing the return from each.
<unk> center and each clinic.
Sure.
Great. So let me ask just one more and I'm curious what are you hearing in general obviously, there are regional variations, but I hear that.
The impact of Covid has continued to decline, but there was quite a bit of impact in January .
But less in February and even less in March in most areas.
And I'm curious.
If you can comment at all about how that's affected the utilization of the Med Center pharmacy, and I'm thinking about it in terms of.
Patients.
Was there more in clinic utilization was there more delivery home delivery.
Thinking about it in terms of the response you saw from the physicians that have access to but centers you that.
Was there any big change that you saw through the quarter and do you expect any change as we move into the middle part of 2022.
Everyone have a great question I would say, we didn't see a substantial change in sort of the existing med centers from.
From a utilization called the first Phil.
Fencing versus delivery to home I will say as we brought Florida online right in the last six months and they've become a significant portion of our dispensing med centers, we've actually seen an increase in the utilization of the Med center itself.
Compare to <unk>.
So that's been a really.
A key focus for us and we want to continue to optimize the med center and Thats utilizing the data and the prescribers and from our clinic partners to make sure we have the right inventory in the med centers.
Yeah, that's great. Thanks, a lot.
I'm optimistic about a better year for you in 2022.
We appreciate that Brooks. Thank you. Thank you Brett.
Thank you Brooks and there are no further questions waiting at this time, so I'll hand, the call back over to Mark for any closing remarks.
Just wanted to say, thank you everyone stay safe and have a great night.
That concludes the <unk> 2021 and fourth quarter earnings Conference call. Thank you all for your participation you may now disconnect your lines.