Q3 2022 Sharps Compliance Corp Earnings Call

May 12, 2022

Yes.

Good day, ladies and gentlemen, and welcome to the Sharps compliance third quarter 2022 earnings call.

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

It is now my pleasure to turn the floor over to your host Jen Peladeau of IMS Investor Relations.

Ma'am the floor is yours.

Thank you.

And welcome to the Sharps compliance third quarter fiscal 2022 earnings call on the call today, we have Pat Malloy, the company's President and Chief Executive Officer, Eric <unk>, Our executive Vice President and Chief Financial Officer, and Diana Diaz, Chief Accounting Officer, Pat will review, the company's business performance operations and outlook, while Eric will review the financials.

Following their formal remarks, we will take questions from our call participants.

As you are 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 results to differ materially.

Materially from where we are today.

Factors are outlined in our earnings release as well as in documents filed by the company with Securities and Exchange Commission. These can be found at the sharps website or at SEC Dot Gov, but that is the way let me turn the call over to Pat to begin the review and discussion go ahead Pat.

Yes.

Thank you Jim it's good to be with all of you. This morning. Good morning. Thank you for participating in our third quarter fiscal 2022 earnings call.

Most of you know this is my first earnings call since my appointment as the Sharps CEO in early April .

In fact this is my fifth week on the job.

I've had the pleasure of speaking with many of you. During this transition in leadership and I. Appreciate your time and your guidance and I'm glad to be with you today.

While it is still relatively early in my tenure as the CEO here charts I have service I have served as a director of this company since February of 2021 and over the course of the last 25 years I've run three different senior housing operating companies.

I have to tell you that as much as I was drawn to the mission of senior care and senior housing.

I Love the mission that is ours here at Sharps.

Our mission of providing safe secure compliant.

Environmentally sound healthcare workspace is vital.

This pandemic has talked has taught us all host of lessons, but one of the most critical is the safe healthy compliant workspaces.

With care providers across this country is paramount.

Our mission helping.

Helping healthcare providers dispose of their waste material in mail back solutions.

<unk> based pickup solutions and creating innovative solutions for the proper disposal of unused medications.

More relevant than it ever has been weaker.

We provide a critical service to health care providers in this country.

I fully recognize after five weeks in my seat could stand on the shoulders of lots of individuals who have worked hard over 20 plus years to build the business that is sharp today.

And my fifth week here from the office and which at the outset I can tell you that we are a nimble smart customer service oriented team.

We built three great core product offerings.

Our founding product is innovative mailbox solutions, our innovative unused medication and controlled substances disposition system, the mid safe product.

And an ever expanding route based network that serves over 80 plus percent of the U S health care provider population network in this country.

From the start of my time as a Sharps Board member I believe that our company has a tremendous opportunity to truly scale. This business with the potential to become much larger than we are today.

Thoughtful focused growth is my primary focus.

Since my appointment as CEO I've spent a lot of time, a great deal of time with our associates across our businesses in the next several weeks I will tour, our New York based facilities, our Nashville, holding facilities in Pennsylvania, Our Carthage, Texas facilities.

We have the people products and infrastructure to aggressively expand our geographic reach and to capture market share both organically and through acquisition.

That was our strategy before I became CEO and we will continue to be our strategy.

Energized by what I've seen so far and I am excited to be leading this company and what I believe is a pivotal time in its development.

Now for the quarter.

Our third quarter results are largely in line with our expectations and they reflect a return to more normalized market conditions. Following an unusually strong performance in the March quarter of fiscal 2021, which as you know benefited significantly from COVID-19 immunization activity.

March is historically been our slowest revenue quarter due to seasonality and customer ordering patterns. So we believe that looking at March 2020, a pre COVID-19 period provides a helpful more normalized comparison.

With that being said third quarter 2022 revenue of $17 6 million shows a significant 69% increase as compared to the third quarter of fiscal 2020 pre COVID-19 revenue of $10 4 million.

Our gross margin of 28% was lower than anticipated.

Primarily due to higher costs related to hiring additional operating personnel to meet increased demand.

<unk> required increased wages to match market conditions.

Our success relies on our ability to drive customer service to have the right people in place to ensure that we can provide uninterrupted service to our customer base. So while the expense cost us. Some short term margin pressure, we believe that the long term benefits far outweigh the cost.

Also like the rest of the entire country, we're feeling the impact of higher fuel costs, particularly as we want to run our route based business in a few minutes, Eric can give you a little bit more color and context on that.

To cover the increased operating cost of our solutions and services during the quarter, we implemented a number of customer price increases.

However, these increases were not yet fully reflected in revenue during the third quarter of fiscal 2022.

We expect that the full impact of our cost mitigation initiatives will alleviate potential.

Continued cost increases going forward.

Our route based business continued to perform well in the quarter with a 21% increase in route based customer locations.

To bring up to 18600 locations compared to 15400 in the third quarter of last year.

That drive customer locations has resulted in an increased 12% increase quarter over quarter and Ralph based billings.

Related to our route based growth professional market billings grew 19% compared to the prior year third quarter again, consistent with the increase in route based customer locations.

During the quarter, we closed our acquisition of Midwest Medical waste a full service route based provider of medical waste solutions that serves over 600 customer locations across cancers, and we have fully integrated those operations.

We remain intently focused on growing our route based footprint, both organically and via strategic acquisition and our acquisition pipeline is uninterrupted, it's robust and it's very active.

Looking at unused medication.

Billings grew 1% for the quarter.

Within this quarter excuse me within this category mistake billings increased 19% to $1 $5 million that was driven by 20% increase in the number of net save ladders sold and a 19% increase and ladders return.

These results illustrate the success of the recurring revenue model generated from the mid <unk>.

We're focused on the continued rollout of med safe to retail pharmacies as well as the long term care market and as we previously discussed during the quarter, we announced a partnership with farm Erica nationwide leader in long term care pharmacy services and a relationship that I help bring to the table as a board member I look forward to working with them in other long.

Home care pharmacies to solve complex problems to bit of an overlooked problem in the post acute skilled nursing assisted living world that <unk>.

Regulators are increasingly demanding more and more compliance is met.

<unk> is the cleanest simplest solution to help solve this problem in the post acute space and we are in the early innings of our growth in that area.

With my experience in senior housing and in long term care I can't emphasize enough what a challenge the industry faces when it comes to the proper cost effect and compliance management of unused medications, which oftentimes includes controlled substances in hazardous waste.

Medication management in this space has always been a priority.

The focus now on compliant disposal solutions.

That focus positions us uniquely in the market.

Additionally, every senior housing providers. They are trying to rebound approach to cope with whether its skilled nursing or whether it's assisted living or independent living for dementia care communities. They are reexamining every way, they're doing business to try to find better and more cost effective solutions and we believe that Metlife is the ideal solution for this particular issue.

As you know <unk> was developed in response to DEA proper disposal regulations that were established in 2015.

Ah Recepticle is critical in attacking the controlled substance diversion issue, which is real both for consumers and people out in the marketplace and it's real for long term care providers.

We believe the runway in front of us as it relates to med safe is tremendous.

Of our nearly 7000 receptacles currently in place I think this is an interesting point of the nearly 7000 receptacles, we have in place across the country. Only 900 are in the long term care space.

There are 16000 skilled nursing communities and nearly 30000 about 29 out of the assisted living communities across this country.

We're rolling up our sleeves, and we intend to meet the demand in this space and penetrate these markets.

With its proven success in the retail pharmacy and government markets. We believe there is tremendous opportunity to move aggressively rollout the med say for long term care and assisted living markets.

Look forward to leveraging our American partnership and working with other long term care pharmacies to increase adoption of this particular product these facilities.

Last quarter I turn it over to Eric.

As you saw last evening, we filed the 8-K concerning the restatement of our consolidated financial statements for the first and second quarters.

<unk> 2022.

Related to underreported freight cost associated with a misunderstanding with our largest carrier regarding services rendered during those quarters.

The cost for services during the first and second quarter quarters were Invoiced at a later date.

Cause of a billing error by our largest carrier and were a late and related to a change in their software billing program that impacted one of our facilities.

The majority of these invoices were received between three and six months late.

All during the third quarter of the fiscal year and many of the charges had no takes a service attach.

We formally disputed these charges with the carrier and successfully negotiated a refund of nearly $300000 because of their air.

We were willing to take the entire charge in the third quarter.

But after discussions with the auditors, we agreed to allocate the charges retroact retroactively to the first and second quarters of fiscal year 2022.

Let me be clear.

This restatement has about reallocation of costs to prior.

It has no impact no effect on the full fiscal 2022 financials and does not affect fiscal year 2021.

Fortunately revenue cash flows from operating activities and net changes in cash and cash equivalents are not affected by these adjustments.

The issue is resolved it's settled and our relationship with this carrier was and continues to remain excellent.

The details can be found in the 8-K.

As we move through the balance of fiscal 2022, we are intent on growing sharp's leadership position as a comprehensive provider of cost efficient compliance solutions for the disposal of hazardous and medical waste.

We're also focused on continuing to expand our leadership role in helping to prevent the continued circulation of unused medications that often lead to accidental overdose or use of our med safe and takeaway envelope solutions, which I've discussed.

This is an exciting time for sharps with significant opportunity for us to grow our footprint and expand our solutions across all of the markets we serve.

We see great potential for the organic growth of our route based business as well as many promising acquisition opportunities fueled by robust acquisition pipeline.

And despite the short time that I've been in the CEOC.

All of the confident that we have the right people solutions and infrastructure to take this company to the next level.

Thank you for your time I'll turn it now over to my colleague Eric <unk>, our new CFO to address the financials in more detail. Thank you Pat.

Reported revenue for the quarter of $17 6 million, a decrease of $10 million or 36%.

Pat mentioned earlier, excluding COVID-19 related immunization activity third quarter, 2022 revenue increased 24% as compared to third quarter 2021 customer.

Customer billings were $17 1 million in the third quarter of fiscal 2022, a decrease of $13 9 million or 45%.

Immunization related mail back billings were $2 9 million in the third quarter of fiscal 2022 compared to $20 2 million in the prior year period.

Excluding COVID-19 related immunization mailbags customer billings increased 31%.

Professional market billings increased 19% to $5 5 million in the third quarter of fiscal 2022 as compared to $4 6 million in the third quarter of 2021.

With the increase in revenue discussed some relocation.

On that note. This is the first quarter, we have realized over $4 million in revenue in the route based business driven primarily by the increase in the professional market billings.

Retail market billings decreased 79% to $4 6 million in the third quarter of fiscal 2022 as compared to $21 7 million in the same prior year period.

Reflecting returned to more normalized activity following the surge in immunization activity that occurred in March 2021 quarter related to demand for the COVID-19 vaccine.

Within the retail market.

In addition related orders were $2 9 million in the third quarter of fiscal 2022 compared to $22 million in the same prior year period.

Compared to the pre Covid third quarter of fiscal 2020 retail market billings for immunizations increased $2 $2 million in the current quarter from 600000 in the third quarter of fiscal 2020, an increase of over 350%.

Year to date billings are $9 3 million.

Pharmaceutical manufacturer argued billings increased by $1 9 million to $2 5 million in the third quarter of fiscal 2022 as compared to $2 6 million in the same prior year period related to the timing of inventory builds for patient support program.

Long term care billings decreased 10% or $2 9 million third quarter of fiscal 2022 compared to $1 million in the prior year period.

Related primarily to heightened volumes of COVID-19 related waste management in the prior year.

Of which impacted outpaced customer billings.

Billings for unused medications in the third quarter of fiscal 2020 to stay consistent with the same prior year period at $2 1 million.

Within the unused medications category mistake billings increased 19% to $1 5 million from $1 2 million in the prior year period.

Consistent with a 20% increase in net minor shift and a 19% increase in let's say one is the term for processing.

The increase in monthly billings was mostly offset by a decrease in takeaway envelope sales due to higher than normal sales in the prior year quarter.

We installed 109 med states during the third quarter compared to a 141 in the same quarter prior year.

On a year to date basis, we've installed 613 units.

<unk>, 12% from the comparable three quarter period for fiscal year 2021.

Although we believe there is opportunity remaining in the retail space on the other side of Covid. We believe that there is significant growth opportunity in the farm Erica and other long term care pharmacy relationships and customer base and the long term care market in general.

We believe calendar year 2020 to mid <unk> installs will be driven more by long term care than retail funds.

And as Pat noted of our nearly 7000 installed med states today only 900 are in long term care community.

There are over 45000 skilled and assisted living communities in the country.

Related to utilization of existing installed metadata.

Let's take one has returned in process in the third quarter of 2022 was 9189.

Up 19% compared to 7710 in the prior year quarter.

This primarily indicates more traffic and retail pharmacy.

Weiner ship of 9843 is up 20% year over year.

Total liners returned since program inception or over 113000.

So all of <unk> units installed were six 6736% at March 31, 2022, and we reached an exciting milestone this quarter, having processed over 5 million pounds of medications and med <unk> since the inception of the program.

Gross margin for the third quarter decreased to 28% compared to gross margin of 49% in the third quarter of fiscal 2021.

SG&A SG&A increased by about $5 million or 13% to $4 7 million in the third quarter of fiscal 2022.

Compared to the same prior year quarter.

The increase in SG&A is related primarily to $20 million in acquisition costs.

$1 million in management transition cost and continued investment in sales and marketing.

We reported near breakeven operating income in the third quarter of 2022 compared to operating income of $9 million in the third quarter of 2021.

Chuck recorded a net loss of <unk> 3 million or a loss of <unk> <unk> per basic and diluted share this quarter.

Compared to net income of $6 9 million or <unk> 41 per basic and <unk> 40 per diluted share in the third quarter of 2020.

The company reported EBITDA of $7 million in third quarter of 2022 compared to EBITDA of $9 6 million in the third quarter of last year.

Our balance sheet remains very strong with $26 7 million of cash as of March 31, 22, compared to $36 million of cash as of December 31, 2021.

<unk> $41 2 million at September 32021.

And $27 8 million at June 32021.

The company had working capital of $37 1 million at March 31, 2022, as compared to $27 9 million at June 32021.

Our strong balance sheet provides us with the opportunity to execute on our broader acquisition strategy is to continue to work our active pipeline of opportunities.

With that I'll turn the call back to Pat Great. Thanks, Eric.

Operator, let's open it up for the Q&A session at the end of that I've just got a few quick closing remarks. Please.

Certainly ladies and gentlemen, the floor is now open for questions.

Have any questions or comments. Please press star one on your phone at this time.

We ask while posing your question. Please pickup your handset with listening on speaker phone to provide optimum sound quality.

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.

Good morning, Jerry Sweeney from Roth capital.

Sure.

Question on the gross margins and I'm not sure.

Necessarily have a detail but.

At least.

Is there a way you can bucket out how much of.

The impact of gross margins was due to new hiring and maybe some.

Yeah.

Increased salaries et cetera, just because of the inflationary environment and then the follow up would be today, how do these price increases.

How long does it take to go through the system.

Our old customers or contracts eligible because I know you have a whole.

Most of the customers and how do we look at that sort of working its way through the system.

Why don't I speak at a high level first about the pricing and then I'll turn it over to you because we were all talking about this this morning, Jerry that'll give you some context on the key drivers on cost.

One of the first questions I got when I take Barack Arthur I asked whether when I came on board five weeks ago was to start to begin to understand about pricing and the good news here is that Diana and the team here at <unk>, It's been a critical leader in the pricing of our products together with all of our operating leaders.

They started a review last November when they started to see inflationary trends, particularly in fuel cost labor cost for a lot of reasons that everybody is aware of and they did a comprehensive examination starting in November of last year.

Every price of every product that we have as you all know one of the reputation issues for Sharps is that we are a customer friendly organization.

Our contracts are fairly straightforward theyre fairly direct.

And.

So there are some contractual limitations to what we can do but where we can do.

Drive cost and drive price increases we did that in an appropriate way beginning in last November across every product line and there is some one off situations I'm not going to get in and discuss actual products and percentages of increases but that comprehensive I mean, it's a normal part of our business, but the comprehensive look starting in last November .

Really resulted in a series of price increases that began in earnest in this third quarter, but they're not they're not fully.

<unk>, yet you will see more robust way wage, but revenue increased because of those price increases more fully implemented in the fourth quarter. Let me ask Eric if you want to speak and get context too.

Yes.

The cost drivers I think that would be helpful to discuss terms of labor and fuel.

Yes, and on the margin part of that also is just a lot of the mail back activity, we had last year.

We're seeing a lot of the expense.

Through that correct. So as we as we said before that.

Margin when we sell.

Immunization mail backs is a bit higher than it is when they come back and so there is some.

A swing in the margin.

During those different quarters.

But also on the cost piece of it and.

And then looking at every single facet of our business from diesel cost to aluminum cost for IV Poles to corrugate.

To labor, we've seen particularly on the driver side and on the labor side, we've seen a lot of the increase is also on the fuel side. The other folks have seen but.

When we look at it from a cost perspective, a lot of that as we mentioned in the earnings release sorry.

That comment was related to really just need to fill seats, because we need good people can lead at the appropriate number of people and I think we were struggling to replace a lot of those those drivers and other things we need to and not necessarily replace but also add to meet a lot of the growth and so.

But those two costs on the labor side and the gasoline side are really kind of less than 10% combined of our total operating costs. So we feel like some of that was really just needing to scale up and get the right people in the right seats and I think we are.

We are pretty much there at this point so.

We would hope that given that plus the price increases we should really see an improvement there in the coming quarter and in the coming quarters to go.

Got it.

Switching gears, a little bit to growth right. So obviously you came from the long term care.

And as you mentioned part of the America agreement.

How do we and I think there was even some comments on it.

More growth from long term care than retail this year, yes, Sir.

How do we.

How do we look at that.

Opportunity in terms of timing.

Some key milestones that maybe we can keep an eye out for to understand that.

That relationship is.

Moving forward in gaining some traction with some of those facilities.

I think thats, a great question I'm going to spend money on Tuesday at the Argentum Conference, which is the leading conference for the private pay side of senior housing if it'll be the first time I've been able to obtain there where the sharps batch.

To that conference that we three or 4000 people.

The outgoing board chair, so it should get the company a little visibility.

Gary.

It'll equate to sale the metrics that I would watch though is the one I gave you today that I think some interesting metrics out of nearly 7000 of these boxes across the country. Most of them are in hospitals and veterans locations into the spin.

<unk>.

One of our largest retail pharmacy customers and.

But only 900 of them are in post acute care and I can tell you the issue of having lived in that business for 25 years.

It wasn't an afterthought, that's an overstatement, but it was way down the food chain in terms of dealing.

With medication disposition issues, but medication diversion is.

Really an important issue in that space and so I would watch how many long term care facilities, where we implement these I've talked to Dennis Halligan yesterday, Mr. Jin leader on this drives our sales and marketing here was really instrumental in building out this far America relationship and its just in the last several months that we have been introduced to the national Salesforce at farm.

Erika so it's in the early stages.

Stay tuned we're going to figure out how to drive at the very best way possible through this industry, but it is a.

I've been in building after building over 20, something years, where youll ask Atlas medications or disposed off because they most often come do not build models, but they come in.

Multi pack multi dose packs, but bubble packs of different types and labor generally has to go through an empty those things out and then dispose of those drugs in a certain way and the DEA rule in 2015, and David <unk> and the folks around your credit for developing this product where all of the drugs can go in they can all be disposed of at the very core.

Cost effective way, we take them away and incinerate them.

Just a huge amount of runway in front of us there.

Gotcha, and then one final question and I'll jump back in queue.

On the route based side last year. We also saw some benefit I think from.

Disposal PPE equipment out of long term care and I'm just curious.

If that is sort of normalized.

As well and sort of.

And this sort of post COVID-19 environment that we're moving.

So I think it had it was it was.

That was artificial I mean.

A lot of the operators.

During that whole quarantine period when grandmother.

Got cohorts they stripped everything that includes the bed mattresses, an awful lot of that stuff came through our system mattresses mattress covers and sheets a lot of that stuff came through our system, which is artificially high but yet.

There is not clear visibility yet exactly where we are in this post COVID-19 World I think we're all hoping that it's a post COVID-19 world.

The word endemic it's overused, so I'm not going to use that today, but it's.

Yes, I think thats rationalize that unless something new happens in terms of the pandemic I don't think youll see those artificial levels like you saw in this quarter a year ago, and we thought about.

About 250000.

Cost.

250000 of cost in last year's route based numbers that we really can see was related to COVID-19 activity.

And so that's a little bit of the headwinds.

And the comparison to last year, having said that this business soon.

I can't quantify that Jerry but those businesses are doing business differently now than they ever did before there will be.

More getting more masking more caution.

Because we all know from the day to day they were the hardest hit because it's the most frail population of the country.

Got it but suffice to say, we're sort of in a normalized environment.

And it appears we are perfect got it okay.

Thank you very much I appreciate you taking my questions. Okay.

Yes.

Your next question for today is coming from Rob Brown. Please announce your affiliation then pose your question.

Hi, Rob Brown with Lake Street, Thanks, taking my question.

Got it.

First question really on the margin you sort of saying is recovering where do you think can you get back to the low 30% range here pretty quickly or is it take a few quarters, what's the what's sort of the ramp where you think.

And that margin recovery.

I think to your point, we touched on that a bit I do think that we should see that between the price increases and also just some of these costs, which like we said.

Some of that was just getting the right people in seats.

In the past that at this point, so I would expect that we would see that come to normalize that level over the next couple of quarters.

Okay, Great and then maybe back business, how much how much COVID-19 impact do you think remains possible there and how is the.

Inventory in the channel at this point.

Is it normal or has it elevated.

From Cowen.

Yes sure so.

As we mentioned year to date, we've done about $9 3 million of Immunizations I think as we look forward to the next quarter, we've got about $1 4 million to date.

And I think.

Frankly, we expect that to kind of be the way the fourth quarter shakes out, but I think between that inventory, we do think as more normalized I think.

What we're really focused on now between the inventory.

And the revenue is frankly, how can we get.

Just going forward Steve.

EBIT stronger and I think.

The mailbox themselves we've done a good job of focusing on the Covid I think what we're really looking forward as to where at this time, we're going to see that shakeout. Yeah. It's interesting. If you look at the data and some of the graphs, we look at internally.

<unk>.

Seems to have settled out it's pretty substantially above where it was pre COVID-19. If you take that $2 9 million that Eric just mentioned in the third quarter of 2022, and you go back to the third quarter of 2020.

Which is a bit of an artificial comparison, but it's pre COVID-19.

Immunization number for that quarter was I think $700000. So.

That's a substantial elevation.

You can read all the information that we all read and it's just not.

Clarity yet on the level of booster, which you've got two thirds of the country's fully vaccinated you've got another 45% of that number Thats got one booster, how deep and how far and how hard all that goes I think remains to be seen.

That's right and I think as we mentioned on the inventory we've seen a lot of burn off correct correct. Yes. So I think it's really at this point is it more of a just in time versus some of the Lumpiness. We've seen in the past and I think as of now we're seeing it kind of normalize a bit versus the lumpy.

Okay, and I just wanted to confirm that Youre seeing but did you see a $1 4 million.

Billings, thus far in the quarter that sort of what you think.

Let me go back segment or just the munis.

Organization.

We have $1 $4 million of billings in hand today, so there could be more that come this quarter, but that's what we have right now through early may early may yet.

Okay got it alright, thank you very much I'll turn it over.

Okay.

Your next.

Question for today is coming from Michael Hoffman. Please announce your affiliation then pose your question.

Hi, Good morning, Thank you very much pardon my voice.

Managed to lose a tumor.

Okay.

We could talk about some of the short term aspects of growth and then I have a bigger longer term.

Where do you go.

And within the context.

Steve.

The business pre Covid had been on a pace to three 400 installs a quarter.

Call It 12 to 1500 year alright.

Alright.

Can we get back to that without this.

Living in.

Good living to that.

Yes, we think thats reasonable, we think thats, a reasonable we think theres a whole deep market, though and it's not just assistant senior care generally it's assisted living.

And skilled nursing.

Yes, so the point being is theirs.

Back to normal and then an incremental.

Whats the thought of.

I get all the reasons why that got deferred to the pharmacies.

We are distracted and everybody is distracted around COVID-19.

And in your own words, and we're not calling an endemic or any of those things, but it seems like life is getting back to normal.

So what's the visibility on the return to that 300 pace before you then get the incremental.

We haven't seen any indication from our customers that they plan to stop there.

Continued investment in the program.

No.

That could change, but we have not seen any indication that they will stop adding units going forward.

So just a.

A little over 100 of them in this last quarter are you seeing it ramp back towards that 300 in the fourth quarter.

We wanted to see we will see and investments from our larger customers in this calendar year.

They've definitely said Theres a pause this year and I think we've talked about that in prior quarters.

But after this calendar year, there is an expectation that it will continue.

Okay.

Not to belabor the point, we all have to remember that straddling two of your fiscal year. So it's your first half.

Okay Alright.

The.

On the.

Pardon me.

Within the context of the cost tissues.

Alright.

Are there structural limitations on being able to do things like surcharges or fees.

Hello.

And the point of leverage of trying to manage this inflation as opposed suppose only relying on the unit price.

Can you speak to that.

There aren't any structural limitations.

That.

We just need to decide how we want to address that and whether that's the approach we want to take or not it's a pricing discussion philosophical difference with this company's had historically from some of the other competitors.

Frankly, it's been a positive point of differentiation in the marketplace, but I get your point, we will look at everything we've gotten smart.

Expanding your Optionality.

Yep.

<unk>.

Yes.

<unk> has raised absolute price.

Correct, there is pressure on that or other options in an effort to recover some of this inflation. There are and we don't think very structural impediments to doing that is an ongoing discussion point here.

Excuse me.

Then.

Okay.

I don't think you guys do this management change.

<unk> continue.

The pace at a nice pace of growth, but its on a low base.

So I'm asking a question that I realize.

Really gets a chuckle, but how does this turned into a three or $400 million revenue company and win.

You've got a chuckle.

Yes.

And Thats My goal my goal last summer.

Alright.

It's respectful this.

This $70 million platform ought to be twice or three times as big as we are and that's our goal to do it in a thoughtful way we've got good organic growth embedded in the company, we have as Eric pointed out a minute ago, one of the things that.

David <unk>, David Martin did a lot of other people around here is over the last year, we built out the infrastructure. We have the drivers we have the locations where the dispatch centers transfer stations, we have all of the infrastructure to grow this.

Company and the great product offerings on an organic basis, Eric and I are looking.

Two to three times, a week, where lab conversations with our pipeline and we are trying to figure out.

How to grow it.

And take bigger steps in an appropriate fashion I'll, just say it that way.

There are some companies out there that.

Sure.

More than a bigger at the Midwest acquisitions very good acquisition. The affordable went up in the hands of good acquisition, but we.

We want to be why do we want to be prudent, but we need to accelerate so I think out over the next.

Several years.

Should see us.

So our revenue like I've talked about.

And then you do have a very admirable organic growth rate.

Albeit off a small base, so it's a slower and slower.

The rate of acceleration in the context of.

How does it turn into a $200 million revenue company, which means M&A and just curious about your thoughts about it.

While staying discipline around returns.

Are you able to pick the pace up.

The addressable market the willingness of the seller.

I have to have a willing seller or are they being pragmatic about valuation.

It's interesting.

Eric has had.

Talking yesterday about this.

He is.

When we look at.

Some of the situations, where we're looking one of the interesting it's counterintuitive, but it's an opportunity is that.

You got to go back and look at the business. It's operated over the last year or two if you look at their numbers you can kind of understand how much of that is artificial how much of it is co, but and so I think there is a sort of coming back to the earth.

Dynamic that's going on out there where owners are.

They've had artificial quarters like the whole industry veteran.

This same time period, a year ago and now what is their business really look like going forward and one of the things that we offer a potential seller is that we've got the scale we've got the infrastructure.

And frankly, the economies to take on their business without a lot of incremental infrastructure.

So I think that dynamic we believe that that will be an important dynamic as we continue to push conversations.

I hope that makes sense.

Yes.

And do you feel pretty good about it.

Because to be to get this to 200.

Two to three extra so $200 million.

Compounding on the organic side, basically theres got to be somewhere between 50 and $75 million of M&A.

Is there $50 million to $75 million.

Companies willing to sell.

We believe their targets and Thats, yes, yes, okay.

Great. Thank you very much.

Thank you Michael.

Your next question for today is coming from Kevin.

Please announce your affiliation then pose your question.

Good morning, Kevin Steinke Barrington Research Research associates.

Yes.

Hi, so just.

Continuing up.

On the discussion about scaling the business and.

Some discussion there about.

The acquisition pipeline.

But when we think about scaling the business for more inorganic perspective.

Gaining greater penetration of the long term care market in <unk>.

Professional market and the others.

Is that something where you feel like you need to apply more.

This development.

Business development resources sales resources.

To accelerate the pace organically would you be willing to make the upfront investments maybe.

Yes.

Cost of the margin side in the short term I guess.

All of those issues are on the table.

<unk> conversations as recently as this week, our sales and marketing leader to <unk>.

<unk>.

How we attack channels and all of that stuff, we're doing things very well here, but we need it.

We did see a bit more nimble if we need to think about how do we accelerate that growth. So on the on the organic side and yes. The.

The business development side of the conversation that Eric and I are having.

Yes. Currently so yes is the answer to both those questions.

Alright, great.

Yes, I don't know if its possible for you to nail this down given.

<unk> changes an inflationary environment.

But do you think.

Previously, it's been talked about incremental gross margins.

We're at 5% or so is that still a reasonable way.

So think about the business.

It is.

I think as we've done the acquisitions and some of these.

Other activity, we do feel like that still.

A good number I think we're going to wait and see on some of this inflation I think we've seen a lot of it and frankly.

Identifies increases to get there so.

But we're pretty confident we'll be in the numbers.

Okay. Thanks for taking the questions I appreciate it.

Thank you.

Yes.

There are no further questions in queue I would now like to turn the floor over to Pat Malloy for closing remarks.

Thank you.

First of all I appreciate everyone's time this morning.

Thank you.

In closing I do want to leave you with just a few thoughts.

First as we noted.

We corrected a onetime invoice issued this quarter.

It's about billing errors with our largest carrier.

The restatement of course only affected the current fiscal year and have no matter affected our revenue or cash flow from operating activities or any of our cash or cash equivalent positions.

Second looking ahead.

We believe that Sharp's best days are in front of US we have a great operating platform with three critical lines of business <unk>.

Mailbox route based and unused medication disposition.

In this third quarter, our route based business billings were up third quarter over third quarter by 12%.

Wrapped locations increased 21% to almost 19000 customer locations.

Yes.

I mean, I knew that number but I didn't really understand this data point. This week, but this is the first quarter in the company's history that our route based revenue exceeded $4 million Thats a tremendous milestone.

Our professional market billings grew quarter over quarter by 19%.

I would say bladder shift increased 20% quarter over quarter validating our model.

Non COVID-19 immunization revenue.

Non COVID-19 immunization revenue increased 24% quarter over quarter from $10 7 million third quarter of 2021 to $13 2 million in the third quarter of 2022.

As we've talked about repeatedly we made a conscious investments to build out our infrastructure and to grow this business and we're going to continue to aggressively pursue both organic growth and acquisition opportunities.

Want to thank everyone for your time and appreciate it and look forward to speaking with you next quarter.

Take care.

Okay.

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 for your participation.

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Yes.

Good day, ladies and gentlemen, and welcome to the Sharps compliance third quarter 2022 earnings call.

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

It is now my pleasure to turn the floor over to your host Ken <unk> of IMS Investor Relations Ma'am the floor is yours.

Thank you.

Good morning, and welcome to the Sharps compliance third quarter fiscal 2022 earnings call on the call today, we have Pat Malloy, the company's President and Chief Executive Officer, Erik Bauer Executive Vice President and Chief Financial Officer, and Diana Diaz, Chief Accounting Officer, Pat will review, the company's business performance operations and outlook, while Eric will review the financials.

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 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.

Defer materially from where we are today. These factors are outlined in our earnings release as well as in documents filed by the company's Securities and Exchange Commission. These can be found at the sharps website or at SEC Gov with that it is the way let me turn the call over to Pat to begin the review and discussion go ahead Pat.

Yes.

Thank you Jim and it's good to be with all of you. This morning. Good morning. Thank you for participating in our third quarter fiscal 2022 earnings call as.

As most of you know this is my first earnings call since my appointment as the Sharps CEO in early April .

In fact this is my fifth week on the job.

I've had the pleasure of speaking with many of you. During this transition in leadership and I. Appreciate your time and your guidance and I'm glad to be with you today.

While it is still relatively early in my tenure as the CEO here at Sharps I have service I have served as a director of this company since February of 2021 and over the course of the last 25 years I've run three different senior housing operating companies.

I have to tell you that as much as I was drawn to the mission of senior care and senior housing.

The mission that Thats hours here at Sharps.

Our mission of providing safe secure compliant and environmentally sound healthcare workspace is vital.

This pandemic is tossed has taught us all host of lessons.

But one of the most critical is that safe healthy compliant workspaces for the health care providers across this country is paramount.

Our mission.

Helping healthcare providers dispose of their waste material and mail back solutions by route based pickup solutions and creating innovative solutions for the proper disposal of unused medications is more relevant than it ever has been weak.

We provide a critical service to health care providers in this country.

I fully recognize after five weeks in my seat that I stand on the shoulders of lots of individuals who have worked hard over 20 plus years to build the business that is sharp today in.

And my fifth week here from the office and which at the outset I can tell you that we are a nimble smart customer service oriented team.

We built three great core product offerings, our founding product is innovative mailbox solutions, our innovative unused medication and controlled substances disposition system, the mid safe product.

And an ever expanding route based network, which serves over 80 plus percent of the U S health care provider population network in this country.

From the start of my time as a Sharps Board member I believe that our company has a tremendous opportunity to truly scale. This business with the potential to become much larger than we are today.

Thoughtful focused growth is my primary focus.

Since my appointment as CEO I've spent a lot of time, a great deal of time with our associates across our businesses in the next several weeks I will tour, our New York based facilities, our <unk> holding facilities in Pennsylvania, Our Carthage, Texas facilities.

We have the people products and infrastructure to aggressively expand our geographic reach and to capture market share both organically.

And through acquisition.

Our strategy before I became CEO and we will continue to be our strategy.

Im energized by what I've seen so far and I am excited to be leading this company and what I believe is a pivotal time in its development.

Now for the quarter.

That being said third quarter 2022 revenue of $17 $6 million shows a significant 69% increase as compared to the third quarter of fiscal 2020 pre COVID-19 revenue of $10 4 million.

Our gross margin of 28% was lower than anticipated primarily due to higher costs related to hiring additional operating personnel to meet increased demand, which required increased wages to match market conditions. Our success relies on our ability to drive customer service to have the right people in place.

To ensure that we can provide uninterrupted service to our customer base. So while the expense cost us. Some short term margin pressure, we believe that the long term benefits far outweigh the cost.

To cover the increased operating cost of our solutions and services during the quarter, we implemented a number of customer price increases.

However, these increases were not yet fully reflected in revenue during the third quarter of fiscal 2022.

We expect that the full impact of our cost mitigation initiatives will alleviate potential continued cost increases going forward.

Our route based business continued to perform well in the quarter with a 21% increase in route based customer locations.

To bring up to 18600 locations compared to 15400 in the third quarter of last year.

That drive customer locations has resulted in an increased 12% increase quarter over quarter and Ralph based billings.

Related to our route based growth professional market billings grew 19% compared to the prior year third quarter again, consistent with the increase in route based customer locations.

During the quarter, we closed our acquisition of Midwest Medical waste a full service route based provider of medical waste solutions that serves over 600 customer locations across Kansas and we have fully integrated those operations.

We remain intently focused on growing our route based footprint, both organically and via strategic acquisition and our acquisition pipeline is uninterrupted, it's robust and it's very active.

Looking at unused medication.

Billings grew 1% for the quarter.

Within this quarter excuse me within this category Med say billings increased 19% to $1 5 million.

That was driven by 20% increase in the number of net saves ladders sold and a 19% increase and liners returned.

These results illustrate the success of the recurring revenue model generated from the med <unk> offering.

Look forward to working with them in other long term care pharmacies to solve the complex problem, it's a bit of an overlooked problem in the post acute skilled nursing assisted living world.

<unk> are increasingly demanding more and more compliance and med <unk>.

Frankly is the cleanest simplest solution to help solve this problem in the post acute space that we're in the early innings of our growth in that area.

Medication management in this space has always been a priority for the focus now on compliant disposal solutions.

That focus positions us uniquely in the market.

Additionally, every senior housing providers theyre trying to rebound approached COVID-19, whether it's skilled nursing or whether it's assisted living or independent living or dementia care communities. They are reexamining every way, they're doing business to try to find better and more cost effective solutions and we believe that met safe is the ideal solution for this particular issue.

As you know metric was developed in response to DEA proper disposal regulations that were established in 2015.

Our recepticle is critical in attacking the controlled substance diversion issue, which is real both for consumers and people out in the marketplace and Thats real for long term care providers. We believe the runway in front of us as it relates to med safe is tremendous.

Of our nearly 7000 receptacles currently in place I think this is an interesting point of the nearly 7000 receptacles, we have in place across the country. Only 900 are in the long term care space.

There are 16000 skilled nursing communities and nearly 30000 about 29 out of the assisted living communities across this country.

We're rolling up our sleeves, and we intend to meet the demand in this space and penetrate these markets.

With its proven success in the retail pharmacy and government markets. We believe there is tremendous opportunity to move aggressively rollout the mid states to long term care and assisted living markets. We look forward to leveraging our <unk> partnership and working with other long term care pharmacies to increase adoption of this particular product these facilities.

Last fall I turn it over to Eric.

As you saw last evening, we filed an 8-K concerning the restatement of our consolidated financial statements for the first and second quarters of fiscal 2022.

Related to underreported freight costs associated with a misunderstanding with our largest carrier regarding services rendered during those quarters.

The cost for services during the first and second quarter quarters were Invoiced at a later date.

Cause of a billing error by our largest carrier and were a late and related to a change in their software billing program that impacted one of our facilities.

The majority of these invoices were received between three and six months late.

All during the third quarter of the fiscal year and many of the charges had no cases service attach.

We formally disputed these charges with the carrier and successfully negotiated a refund of nearly $300000 because of their air.

We were willing to take the entire charge in the third quarter.

But after discussions with the auditors, we agreed to allocate the charges retroact retroactively to the first and second quarters of fiscal year 2022.

Let me be clear.

This restatement has about reallocation of costs to the two prior quarters. It has no impact no effect on the full fiscal 2022 financials and does not affect fiscal year 2021 importantly.

Comprehensive provider cost efficient compliance solutions for the disposal of hazardous and medical waste where.

We're also focused on continuing to expand our leadership role in helping to prevent the continued circulation of unused medications that often lead to accidental overdose.

Use of our Medsafe and take away on both envelope solutions, which I've discussed.

This is an exciting time for sharks with significant opportunity for us to grow our footprint and expand our solutions across all of the markets we serve.

We see great potential for the organic growth of our raft based business as well as many promising acquisition opportunities fueled by a robust acquisition pipeline.

And despite the short time that afternoon CEOC.

More than confident that we have the right people solutions and infrastructure detect this company to the next level.

Thank you for your time I'll turn it now over to my colleague Eric balance new CFO to address the financials in more detail.

You bet your.

Ported revenue for the quarter of $17.6 million, a decrease of $10 million or 36%.

Pat mentioned earlier, excluding COVID-19 related immunization activity third quarter of 2022 revenue increased increased 24% as compared to third quarter of 2021.

Customer billings for $17 $1 million in the third quarter of fiscal 2022, a decrease of $13.9 million or 45%.

Immunization related Mailback billings for $2 $9 million in the third quarter of fiscal 2022 compared to $22 million in the prior year period.

Excluding COVID-19 related immunization mailbox customer buildings increased to 31%.

Professional market billings increased 19% to $5.5 million in the third quarter of fiscal 2022 is compared to $4.6 million in the third quarter of 2021, consistent with the increase in customer location.

On that note. This is the first quarter, we have realized over $4 million in revenue in the rough based business driven primarily by the increase in the professional market buildings.

Retail market buildings decreased 79% to $4 $6 million in the third quarter of fiscal 2022 as compared to $21 $7 million in the same prior year period.

Reflecting returns more normalized activity volume surged immunization activity that occurred in March of 2021 quarter related to demand for the COVID-19 vaccine.

Within the retail market.

In addition related orders for $2.9 million in the third quarter of fiscal 2022 compared to $22 million in the same prior year period.

Compared to the free Covid third quarter of fiscal 2000, 2000 retail market billings for immunizations increased $2.2 million in the current quarter from 600000 in the third quarter of fiscal 2020, an increase of over 350%.

Year to date billings are $9.3 million.

Pharmaceutical manufacturer argued billings increased by $1.9 million to $2.5 million in the third quarter of fiscal 2022 as compared to $2.6 million. The same prior year period related to the timing of inventory builds probation support programs.

Long term care billings decreased 10% or $2.9 million in the third quarter of fiscal 2022 compared to $1 million in the prior year period.

Elated, primarily to heightened volumes of COVID-19 related waste management the prior year.

Most of which impacted outpaced customer billing.

Billings for unused medications in the third quarter of fiscal 2022 stay consistent with the same prior year period at $2.1 million.

Within the unused medications category Medsafe billings increased 19% to $1.5 million from $1.2 million in the prior year period.

Distant with a 20% increase in medicine liners shifts and a 19% increase in mid state line is to turn for processing.

Increase in med save billions is mostly offset by a decrease in takeaway envelope sales due to higher than normal sales in the prior year quarter.

We installed 109 medsafe during the third quarter compared to 141 in the same quarter prior year.

On a year to date basis, we haven't solved 613 unit's downfall.

Down 12% from the comparable three quarter period for fiscal year 2021.

Although we believe there's opportunity remaining in the Reissues retail space on the other side of Covid. We believe that there are significant growth opportunity in the far America and other long term care pharmacy relationships and customer base in the long term care market in general.

We believe calendar year 2022, Medsafe installs will be driven more by long term care than retail pharmacy.

And as Pat noted of nearly 7000 installed medsafe today, only 900 or in long term care community.

There are over 45000 skilled in assisted living communities in the country.

Related to utilization of existing installed medsafe.

<unk> returned and processed in the third quarter of 2022 with 9189 up.

Of 19% compared to 7710 in the prior year quarter up.

This primarily indicates more traffic in retail pharmacy.

Weiner shift of 9843 is up 20% year over year.

Total Whiners returns program inception or over 113000.

It's all a medicine units installed were six 6736 at March 31, 22, when we reached an exciting milestone this quarter, having process over 5 million pounds of medications and medsafe wider since the inception of the program.

Gross margin for the third quarter decreased to 28% compared to gross margin of 49% in the third quarter of fiscal 2020 months.

SG&A SG&A increased by about $1.5 million or 13% to $4 $70 million in the third quarter of fiscal 2022.

Compared to the same prior year quarter.

The increase in SG&A is related primarily to point $2 million an acquisition costs.

$1 million in management transition costs and continued investment in sales and marketing.

We reported near breakeven operating income in the third quarter of 2002 compared to operating income of $9 million in the third quarter of 2021.

Chuck reported a net loss of $1.3 million or a loss of one for basic and diluted share this quarter.

Compared to net income of $6 $9 million or 41 cents per basic and 40 cents per diluted share in the third quarter of 2021.

The company reported EBITDA point $7 million of the third quarter of 2022 compared to EBITDA of $9.6 million in the third quarter of last year.

Our balance sheet means very strong with $26.7 million of cash as of March 31, 22, compared to $36 million cash as of December 31, 2021.

$1.2 million in September 30th 2021.

In 2007 $8 million at June 3rd 2021.

The company had working capital of $37.1 million at March 31, 2022, as compared to $27.9 million at June 30th 2021.

A strong balance sheet provides us with the opportunity to execute on our broader acquisition strategy has continued to work are active pipeline of opportunities.

With that I'll turn the call back to that great.

Great. Thanks here.

Operator, let's open it up with a Q&A session and at the end of that I've just got a few quick closing remarks place.

Certainly.

Ladies and gentlemen, the floor is now open.

If you have any questions or comments. Please press star one on your phone at this time.

We ask while posing your question you. Please pick up your handset listening on speaker phone to provide optimum sound quality. Please.

Please hold while we pull for questions.

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

Good morning curious when he from Ross capitalist so thank you.

Question on the gross margins and I'm not sure. If you you didn't necessarily have the details but.

At least.

Way you can bucket out how much of.

The impact of gross margins was due to new hiring and maybe some.

Increase salaries et cetera, just because of the inflationary environment and then the follow up would be Tibet, how do these price increases for how long does it take to go through the system and.

And.

Are all customers are contracts eligible because I know you have a whole host of customers and how do we will get that sort of working its way through the system.

Why don't I speak at a high level first about the pricing and then I'll turn it over you because we were all talking about this this morning in terms of Jerry that'll give you some context on the key drivers on cost.

One of the first questions I got when I got there I asked whether when I came on board five weeks ago was to start to begin to understand about pricing and the good news here is that Diana and the team here and Diana it's been a critical leader in the pricing of our products together with all of our operating leaders.

They started to review last November when they started to see inflationary trends, particularly in fuel costs labor costs for a lot of reasons everybody's aware of and they did a comprehensive examination starting in November of last year of every price of every product that we have.

You all know one of those reputation all issues for Sharps is that we are a customer friendly organization. Our contracts are fairly straightforward they are fairly direct ad.

So there are some contractual limitations to what we can do both where we can do.

Drive cost and drive the price increases we did that in an appropriate way beginning in last November across every product loud and there are some what all situations I'm not going to get in and discuss actual products and percentages of increases but that comprehensive I mean, it's a normal part of our business, but the comprehensive look starting in last November .

Resulted in the series of price increases.

It began in earnest in this third quarter, but they're not they're.

They are not fully implemented yet you will see more robust way certain about Williamsburg revenue increased because of those price increases more fully implemented in the fourth quarter. Let me ask Eric if you want to speak and give context too.

The cost drivers I think that would be helpful to perfect in terms of labor fuel.

Yeah and on the margin a part of that also is just a lot of the mailback activity, we had last year.

We're seeing a lot of the expense falling through that correct. So as we as we said before that the margin when we sell.

Asian mailboxes at that higher than it is when they come back and so there is some swing in the Martin during those different quarters.

But also on the cost piece of it and.

And looking at every single facet of our business from diesel costs to aluminum cost for Ivy pulls to corrugate.

To labor and we've seen particularly on the driver's side and on the Labour side, we have seen a lot of the increase was also on the fuel side that other folks that scene, but when we look at it from a cost perspective, a lot of that as we mentioned in the earnings release or us our.

<unk> comment was related to really just need to fill seats, because we need good people and when he does the appropriate number of people and I think we were struggling to replace a lot of those those drivers and other things, we need to and not necessarily the place, but also add to meet a lot of the growth and so.

But those two costs on the labor side and the gasoline side of really kind of less than 10% combined of arts for operating costs. So we feel like some of that was really just needing to scale up and get the right people in the right seats and I think we feel that we are pretty much there at this point so.

We would hope that given that plus the price increases we should really see an improvement there in the coming quarter and in the coming quarters ago got.

Got it switching gears, a little bit to growth right. So.

So you came from the long term care of industry and as you mentioned part of the America agreement how.

How do we.

There was even some comments on you know expect more growth from longterm care than retail this year, yes.

Sir.

How do we how do we look at that.

Opportunity in terms of timing.

What are some key milestones that maybe we could keep an eye out for it to understand that you know that relationship is moving forward and gaining some traction with some of those facilities.

I think that's a great question I'm going to spend money on Tuesday at the Argentum Conference, which is the leading conference for the private pay side of senior housing there will be the first time I've been able to obtain better and where the sharps badge.

To that conference W. Three or 4000 people there.

The outgoing board chair so it should give the company a little visibility.

I'm not guaranteeing that about.

Ah quite the sale that the metrics that I would watch though is the one I gave you today, but I think it's an interesting metrics out of nearly 7000 of.

These boxes across the country most of them are in hospitals and veterans locations and.

One of our largest retail pharmacy customers and.

But only 900 of them are in post acute care and I can tell you the issue of having lived in that business for 25 years.

It wasn't an afterthought, that's an overstatement, but it was way down the food chain in terms of dealing.

With medication disposition issues, but medication diversion is.

Really an important issue in that space and so I would watch how many long term care facilities, where we implement these I talked to Dennis Halligan yesterday team leader on this up drops our sales and marketing here was really instrumental in building out this far America relationship and it's just in the last several months that we had been introduced to the national Salesforce at farm.

America. So it's in the early stages hopeless, let's stay tuned we're going to figure out how to drive at the very best way possible through this industry, but it is a.

I've been in building after building over 20, something years, where you'll ask Atlas medications are disposed of course, they most often come do not appeal bottles, but they come in either multipacks multi dose packs, but bubble packs of different types and labor generally has to go through an empty those things out and then dispose of those drugs in a certain way and the DEA rule.

2015, and I kept David <unk> and the folks around your credit for developing this product where all of the drugs can go in they can all be disposed of in in the very cost effective way, we take them away and incinerate them. There's just a huge amount of runway in front of us there.

Gotcha, and then one final question and I'll turn it back on the <unk>.

<unk> last year, we also saw some benefit I think from.

Disposal PPE equipment out of long term care I'm just curious if if.

If that is sort of normalized you know as well and sort of.

Sort of post Covid environment that we're moving to Asia.

So I think it it was it was.

It was artificial I mean.

A lot of the operators UW.

During that whole quarantine period when grandmother.

Got COVID-19, they stripped everything down including bed mattresses, and a lot of that stuff came through our system mattresses mattress covers and sheets a lot of that stuff came through our system, which is artificially high but yet.

There is not clear visibility yet exactly where we are in this post COVID-19 World I think we're all hoping that it's a post COVID-19 world or the.

The word endemic it's overused, so I'm not going to use that today, but it's.

Yeah, I think thats rationalize that unless something new happens in terms of the pandemic I don't think you'll see those artificial levels like you saw on this quarter a year ago, and we kind of.

About 250000 that cost.

250000 of cost and last year's route base numbers that we really could see was related to your COVID-19 activity.

And so that's a little bit of the headwinds and.

And the comparison to last year, having said that business is business and I can't quantify this jerry but those businesses are doing business differently now than they ever did before there will be.

More gowning more masking more caution.

Because as we all know from the data they were the hardest hit because it's most frail population of the country. So.

But suffice to say, we're sort of in a normal linus environment for all intents.

It appears we are perfect got Pittsburgh Okay.

Thank you very much I appreciate you taking my questions. Okay.

Your next question for today is coming from Robert Brown. Please announce your affiliation.

Question.

Hi, Rob round with Lake Street.

Christians really on the margin you sure thing is recovering where do you think you can get back to the low thirties range pretty quickly or is it take a few quarters, what's the what sort of the ramp or you think that.

That margin recovery yeah.

Yeah, I think to your point, we touched on that a bit I do think that we should see that between the price increases and also just some of these costs, which like we 17.

Some of that was just getting the right people in the seats and I think.

<unk> at this point, so I would expect that we would see that come from Normalised morning that level over the next couple of course.

Okay, Great and then.

How much how much COVID-19 impact do you think remains possible there.

And how is the.

Inventory in the channel at this point.

Is it normal or is it elevated.

Covid.

Yeah sure so.

As we mentioned severe to date, we've done about $9.3 million of Immunizations I think as we look forward to the next quarter, we've got about $1.4 million Bill.

Buildings today.

With and I think.

Frankly.

We expect that to kind of be the way the fourth quarter shakes out. So I think between that inventory. We do think is more normalised I think.

What we're really focused on now between the inventory.

And the revenues frankly, how can we get.

This going forward sleep.

Sleep, it stronger and I think.

The mailbox themselves were done a good job of focusing on the Covid I think what we're really looking forward as to where it. This time, we're going to see that shakeout. Yeah. It's interesting. If you look at the data and some of the grass, we look at internally with the immunization line as it is settled seems to have settled out pretty substantially above where it was pre COVID-19 if you take.

2.9 million that Eric just mentioned in the third quarter of 2022, and you go back to the third quarter of 2020.

Which is a bit of an artificial comparison, but it's.

Pre COVID-19 that was it.

Immunization number for that quarter was I think $700000. So it's that's a substantial elevation.

You can read all the information that we all read and it it's just not clarity yet on the level of boosters, you've got two thirds of the country's fully vaccinated you've got another 45% of that number that's got one booster, how deep and how far and how hard all that goes I think remains to be seen so.

That's right and I think as we mentioned on the inventory we've seen a lot of us burn off.

Correct Yep. So I think it's really at this point is it more of adjustment time vs. Some of the Lumpiness, we've seen in the past and I think as of now we are seeing it kind of normal life a bit more versus the lumpy. So.

Okay.

Did you see a $1.4 million.

Billing.

That's sort of what you think.

But.

Or just the.

Immunization.

We have one $4 million of billings in hand today. So there there could be more that come this quarter, but that's what we have right now through early.

Early Meg yet.

Alright, Thank you very much.

Thank you.

Your next question for today is coming from Michael Hofmann. Please announce your affiliation.

Question.

Hi, Good morning, Thank you very much pardon my voice managed.

Managed to lose it somewhere.

Hum.

Could talk about some of the short term aspects of growth and then I have a big.

Longer term for.

Where do you go within.

Within the context to the mid save the the business pre Covid had been on a pace to three or 400 installs a quarter.

Call at 12, 1500 a year.

Can we get back to that without.

I was living in an assisted living to the.

Yeah, we think that's reasonable we think that's reasonable we think there is a hole deep market, though and it's not just distillates, it's senior care generally it's assisted living.

Van skilled nursing.

Yeah, So the point being is theirs.

Ah back to normal and then an incremental and what's the thought of.

I get all the reasons why that got deferred the the you know the pharmacies.

Distracted and everybody's distracted around COVID-19, but.

And your own words, and we're not calling an epidemic or any of those things, but it seems like you know life's getting back to normal and uh-huh. So what's the visibility on the return to that 300, a pace before you then get that'd be incremental.

We haven't seen any indication from our customers that they plan to stop there there.

Continued investment in the program so.

Yeah that that could change, but we have not seen any indication that that they will stop adding units going forward.

So you know, it's just a little over 100 and then this last quarter are you seeing it ramp back towards that 300 in the fourth quarter.

We allowed to say, we will see and investments from our larger customers and this calendar year.

They've definitely said, there's a pause this year and I think we've talked about that in prior quarters.

But after this calendar year, there's an expectation that it would continue.

It's just too.

Not to belabor the point, we all have to remember that straddling two of your fiscal year. So it's your first time connect okay, alright, yes, Sir.

Huh.

When the.

Pardon me.

Within the context of the cost tissues.

Are you a structural limitations on being able to do things like surcharging are fees.

That helped extend the point of leverage of trying to manage this inflation as opposed.

It was only relying on a unit price.

Speak to restructure there aren't any structural limitations.

It's sad.

We just need to decide how we want to address that and whether that's the approach we wanna take or not it's a pricing discussion minutes philosophical difference of discoveries had historically from some of the other competitors.

Frankly, it's been a positive point of differentiation in the marketplace, but I get your point, we will look at it would've gotten smart we got him.

Extending your Optionality <unk>.

The the best opportunity is raise absolute price, but right at the pressure on that is there are other options in an effort to recover some of this inflation. There are and we don't think very structural impediments to doing it was an ongoing discussion for here.

[laughter] excuse me and then.

I don't think you guys do this management change.

And continue at a at a pace, but a nice piece of growth, but it's on a blow base.

So Ah how may I ask a question that I realized.

Hardly gets a chuckle, but how does this turn into a three or $400 million revenue company and win.

[laughter] you got a chuckle.

Yes.

That's my goal my goal last somewhere.

Sorry, but this it's respectful this.

<unk>, David <unk>, David Martin did a lot of other people around here is over the last year, we built out the infrastructure. We have the drivers we had the locations where the dispatch centers transfer stations, we have all of the infrastructure to grow this.

Company and the great product offerings on an organic basis, Eric and are looking.

Two three times a week, we are lap conversations with our pipeline and we're trying to figure out.

How to grow it.

And take bigger steps in an appropriate fashion I'll, just say it that way it's.

There are some companies out there that are.

More that are bigger than the Midwest acquisitions, very good acquisition, the affordable enough and he has a good acquisition, but we.

We won't won't be wise, and we want to be prudent, but we need to accelerate so I think out over the next.

Several years, we you should see us.

You know.

<unk> revenue like alcohol.

Alright, and you do have a very admirable organic growth rate it, albeit off of a small base sorts of slower slower rate of acceleration in the context of how.

How does it turn into a 200 million dollar rub their company, which means M&A and I'm just.

Just curious about your thoughts about.

The whole thing discipline her own returns.

Being able to pick the pace up and.

The addressable market the willingness of the seller.

To have a willing seller or are they being pragmatic about valuation yeah.

It's interesting.

Eric has had a syrup, we've talked to yesterday about this it is.

When we look at.

Some of the situations, where we are looking one of the interesting it's counterintuitive, but it's an opportunity is that.

You got to go back and look at a business. It's operated over the last year or two if you are looking at their numbers you've got to understand how much of that is artificial how much of this COVID-19 and so I think there is a sort of coming back to the earth.

Dynamics, it's going on out there where owners are they've had no artificial quarters like the whole industry Catherine.

Same time period, a year ago and now what is their business really look like going forward and one of the things that we offer a potential sellers that we've got the scale that we've got the infrastructure.

And frankly, the economies to take on their business without a lot of incremental infrastructure.

So I I think that dynamic.

We believe that that will be an important dynamic as we continue to push conversations.

Oh, if that makes sense because.

Okay and.

Do you feel pretty good about a pool of cause to be to get this to to.

Two to three extra 200 million.

Compounding on the organic side basically there's gotta be somewhere between 50 and $75 million a M&A too.

They are $50 million to $75 million of companies willing to sell.

We believe there are targets and that's yes, yes, okay.

Great. Thank you very much.

Jackie buckle.

Your next question for today is coming from Kevin's 90, please announce your affiliation.

More than 70, <unk> Barrington Research research associates.

Yeah.

So just.

On a discussion about scaling the business and.

Some discussion there about the acquisition pipeline and.

But but you know when we think about scaling the business for more and organic perspective and gaining.

Gaining greater penetration of the long term care market and professional professional market and the others.

Is that something where you feel like you need to apply more.

This development.

The business development resources sales resources to to accelerate the pace organically would you be willing to make the upfront investments you know maybe at the.

Cost of the margins side in the short term I guess.

All of those issues are on the table.

Challenged conversations as recently as this week, our sales and marketing leader to.

Rethink how.

How we attack channels and all of that stuff not we're doing things very well here, but we need it.

It'd be a bit more nimble that we need to think about how we accelerate that growth saw on the funding organic site and yes. The.

Business development side of their conversations with Erik and are having.

Yes. Currently so yes is the answer to both those questions.

Alright, great.

Mmm, Yeah, I don't know if it's possible for you to nail this down given.

Continuing changes in inflationary environment and.

But but do you think.

Previously, it's been talked about incremental gross margins are.

45% or so is that still a reasonable way.

To think about the business.

It is and I think as we've done the acquisition.

Some of these other activity, we do feel like that's still.

A good number I think we're going to wait and see on someone's inflation I think we've seen a lot of it and frankly.

During the price increases to get there so.

We're pretty confident that it will be in the numbers.

Okay. Thanks for taking the questions I appreciate it.

Thank you.

There are no further questions in queue I would like to turn the floor over to Pat Malloy for closing remarks.

Thank you.

First of all I appreciate everyone's time this morning.

Thank you.

In closing I do want to leave you with just a few thoughts.

Versus we noticed we corrected a one time in voice and issued this quarter caused by billing errors with our largest carrier.

The restatement of course, only affected the current fiscal year and and no matter affected our revenue cash flow from operating activities or any of our cash or cash equivalents positions.

Second looking ahead.

We believe that Sharps best days are in front of US we had a great operating platform with three critical lines of business mailbox.

Mailbox route base and unused medication disposition.

In the third quarter or RAF base business billings were up third quarter over third quarter.

12%.

Wrapped locations increased 21% to almost 19000 customer locations.

They said I didn't.

I knew that number but I didn't really understand this data point until this week, but this is the first quarter in the company's history that are wrapped based revenue exceeded $4 million, that's a tremendous milestone.

Our professional market billing screw quarter over quarter by 19% <unk>.

Medsafe ladder shift increased 20% quarter over quarter validating our model.

Non COVID-19 immunization revenue.

Non COVID-19 immunization revenue increased 24% quarter over quarter from 10.7 million third quarter of 2021, 13 2 million the third quarter of 2022.

As we talked about repeatedly we've made a conscious investments to build out our infrastructure and to grow this business and we are going to continue to aggressively pursue both organic growth and acquisition opportunities.

I want to thank everyone for your time and appreciate it and I look forward to speaking with you the next quarter.

Take care.

[noise]. 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 for your participation.

[noise].

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