Q3 2022 MedAvail Holdings Inc Earnings Call
Marc Doyle, Chief Executive Officer, and <unk>, Chief Financial Officer earlier today met avail Holdings, Inc. Referred to as met avail or the company released financial results for the third quarter ended September 32022 copy of the press release is available on the company's website before we begin I'd like to remind you that management will make statements during this.
The call, including statements and responses in addressing your question that include forward looking statements within the meaning of federal Securities laws, which are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Any statements contained in this call or in response to your questions that relate to expectations or predictions of future events results or performance or similar statements are forward looking statements.
All forward looking statements, including without limitation those relating to our operating trends and future financial performance the impact of COVID-19, the ongoing military action launched by Russian forces in Ukraine, the impact of other global economic conditions, including any economic effects stemming from adverse geopolitical events and economic downturn and inflation or interest rates.
On our business and prospects for recovery expense management expectations for hiring growth in our organization and reimbursement market opportunity and 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 and do not guarantee future performance. Accordingly, you should not place undue reliance on these statements and should not rely on them and making an investment decision without considering the risks associated with.
Such statements for a list and description of the risks and uncertainties associated with our business. Please refer to the risk factors section in our 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.
This conference call contains time sensitive information and is accurate only as of the live broadcast today November 10, 2022 met avail 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 otherwise and with that I will.
I'll turn the call over to Mark.
Thank you John and good afternoon, everyone.
We continued to make meaningful progress in the third quarter on our growth strategy and pathway to profitability.
Net revenue in the third quarter was $11 $5 million, increasing 98% over the same period in 2021.
Retail pharmacy services generated $11 $2 million in revenue for the third quarter of 2022, representing a 105% growth over the same period in 2021 year.
Year over year Pharmacy technology revenues were essentially flat at approximately $300000.
While our overall revenue growth was strong and in line with our expectations, we experienced two events, which negatively affected revenue in the quarter, which we expect to be largely transient Ramona will walk through them in more detail.
However, we believe we remain firmly on track to deliver our net revenue guidance of at least $42 million for the full year 2022.
We are also raising our projections of 30% to 35 net new dispensing med centers to at least 40 net new dispensing med tenders for this year.
Importantly, we remain confident that we are well poised to deliver on our strategic objectives.
One increasing net new dispensing med centers and prescription dispensing across our entire med center networks to driving operational efficiencies to reduce costs across our enterprise.
Three expanding our gross margins and for growing our pharmacy technology business.
Starting with an update on the momentum we are seeing with our retail pharmacy services business and spot rates.
We ended the third quarter with 103 dispensing units, notably exceeding our key target for this year of 100, dispensing med centers and existing markets.
This total represents a 13% increase from 91 dispensing units as of June 32022.
And a year to date increase of 51%.
Net cumulative deployment at the end of Q3, 2022 or 104 units.
We are excited to have already achieved our 2022 milestone target of 100 dispensing med centers in the third quarter.
It is a testament to our team's commitment to our growth strategy to drive profitability through organic growth by broadening our footprint with current plenty partners they build their networks.
We continue to land and expand with the networks of our strong partners, such as <unk> and Oak Street Health.
We continue to work deliberately with our partners to select sites that we believe are highly productive and leverage our existing hub and spoke pharmacy model.
We expanded our relationship with our key clinic partner Keno Hill, and we expect <unk> to be available to patients at nine additional keno health clinic locations in early 2023.
Which will support <unk> integration of healthy partners.
This will expand our spot Rx services to South Florida from Orlando.
We are pleased to continue to grow alongside Keno Hill.
A high touch technology powered organization with over 141 primary care medical centers.
Delivering value based care to more than 280000 members.
Additionally, we are pleased to announce a new partnership with <unk> Medical group in Florida, beginning with one clinic in Orlando.
Our partnership came from an interest by a physician at ages, who understands our value proposition of driving patient and provider satisfaction and positively impacting medication adherence.
We are excited for the opportunity to demonstrate the value of spot Rx across agents is network and expand with our new partner <unk>.
<unk> said in an integrated network 25 locations and 60 affiliates across the board.
Importantly, both keno and ages represent substantial expansion opportunities in Florida, and will leverage our existing hub pharmacy in Orlando.
Selecting strong execution on our strategy to pursue profitable growth.
One of our strategic pillars is centered on driving initiatives to expand gross margin with an eye toward our target of mid teens, while decreasing cost across our organization.
During the third quarter, we achieved an 11, 3% gross margin an improvement from eight 2% during the second quarter.
And continued quarter over quarter expansion on margin delivered in the second quarter.
Our team's focus on streamlining prescription delivery was a core contributor to margin expansion.
As part of this focus we continue to identify opportunities and implement specific measures to optimize hub pharmacy utilization improve patient engagement and decrease inefficiencies within our workflow.
One of the measures we are putting in place to expand our gross margins is to increase our rate of dispensing generic prescriptions to provide the most cost effective products for our patients and spot RF.
Driving down medication costs and to improve medication adherence.
This measure may reduce our average sale price in the near term, but importantly will result in reducing DIR fees.
Specifically fees charged to us by our payer plans, which in turn we anticipate will contribute to overall margin expansion.
We believe that this is a key driver to improving patient medication adherence and increased utilization of our technology.
In the third quarter, we reduced cash burn by 26% compared to Q4 2021 exceeding another one of our key targeted milestones for the year earlier.
We expect to show these savings over 20% as compared to our fiscal year 2021, Q4 cash burn rate in the fourth quarter of this year.
Further pharmacy operating costs in the third quarter, excluding accelerated amortization came in 10% lower than the same quarter of the prior year.
These highlights simply further demonstrate our team's focus on reducing costs.
Ramona will shortly walk through some of the additional measures we implemented to drive cost savings and on our goal to achieve long term profitable growth over time.
Turning to pharmacy technology in more detail one of our major priorities is to build this segment and broaden the reach of our Med Center technology, which we believe is a key component to our profitable growth.
We recently announced the partnership agreement with farm co Rx pharmacy to deploy five met avail met centers EMCORE.
As a reminder, within our pharmacy technology segment, we sell our hardware and importantly license our software and systems and provide maintenance to our platform, which is intended to create highly predictable and profitable recurring revenue for our business.
We are pleased to partner with farm Pillar Act and provide patients visiting the sites with the ability to consult virtually with a farm co Rx pharmacy.
And fill their new prescriptions or pick up their refills at the point of care through the Med Center.
Eliminating the need to make a separate trip to a pharmacy.
In closing we are focused on executing across our growth strategy and prioritizing our objectives to reduce costs and to expand gross margin as we look ahead to the remainder of this year and beyond our future is bright.
I am confident that we are strongly positioned on our pathway to deliver long term profitable growth and durable value for our shareholders.
With that I'll now turn over the call to Ramona to provide a review of our third quarter financial results.
Thank you Mark.
Turning to our third quarter results net revenue for the three months ended September 32022 was $11 5 million and 98% increase from $5 8 million in the same period of the prior year.
As Mark noted earlier, we experienced some transient headwinds in the quarter that impacted our revenue in the third quarter, including with our patient engagement tool for rebuilds.
Equally here in Florida, due to Hurricane E M and a small portion from increased generic dispensing, which carries a lower average sales price.
Our team rallied in the face of these challenges and were able to mitigate the impact of these factors to deliver strong year over year and clinic by clinic growth.
We have largely resolved the issue with our patient engagement and resales with the centralized solution that we expect will optimize performance and reduce costs.
Further with the exception of one clinic all of our Florida Clinic partners were open and operating.
Start of the fourth quarter.
Demonstrating the resiliency of our partners and of our <unk> team and our commitment to serve patients even in the face of a natural disaster.
As a result, we do not anticipate a significant impact from these factors to our net revenue in the fourth quarter.
In spite of these events in Q3, we achieved a record revenue quarter in retail pharmacy services.
Net revenue in the third quarter was aided by 105% increase in retail pharmacy services revenue over the same period in 2021.
As we have indicated in the past 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 ended Q3 2022 with 103 net dispensing units a 13% increase from 91 at the end of Q2 2022.
We are now ahead of our year end milestone of achieving 100 net dispensing unit net cumulative deployments at the end of Q3 2022 was 104.
As a reminder, we define net dispensing unit sites that are life, meaning that such sites have payer network acceptance pharmacy board approvals and trained clinical staff or clinical account managers.
Margin for the third quarter, 2022 was 11, 3% or $1 $3 million as compared to three 2% or $2 million in the third quarter 2021, and eight 2% in the second quarter of 2022.
11, 3% is one of the highest quarterly gross margin rate achieved by the company in its history, continuing to reflect our commitment and ability to optimize gross margins.
Consolidated margins in the third quarter 2021 benefited from a higher contribution from the pharmacy technology segment.
Our pharmacy technology segment gross margin improved from one 5% in the third quarter of 2021% to 10% in the third quarter of 2022.
Profitable growth is the focus of the company and the team set out to improve gross margins from just over 4% in fiscal year 2021 to between 8% to 9% by Q1 of fiscal year 2023.
Total operating expenses for the third quarter of 2022 were $12 8 million, a 14% increase from $11 $2 million in the third quarter of 2021.
Selling and marketing costs increased as a direct result of our growing pharmacy and Med center portfolio Gen.
General and administrative costs in the third quarter increased $800000 due primarily to increased wages and noncash share based compensation.
Notably while net revenue increased 98% in the third quarter of 2022 from the same period of the prior year operating expenses, excluding increased noncash accelerated amortization expense of $1 million in the third quarter of 2020 to decrease for the comparable periods.
Specifically pharmacy operation costs decreased 10% from the third quarter 2021 or approximately $400000.
The accelerated amortization is driven by the company's decision to change our patient engagement tool for refills in order to optimize performance and reduce the operating expenses further in 2023.
Importantly, this reduction in cost reflects our objective to improving operating leverage with our existing pharmacy operations.
Work by our team to achieve greater efficiencies.
I wanted to take a moment to walk through another example of a cost savings measure we have implemented that we believe is contributing to our improved bottom line relating to contracting with de Novo sites.
To address the initial lower volumes at these new sites, while addressing the needs of our clinic partners for our mud centers, we have implemented a patient activation model with our partners in which we have a virtual clinic team rather than onsite clinical account manager to support patient initiation with our medicine.
We're already encouraged to see greater patient adoption of our services and improved workflow efficiencies with our virtual cans.
We expect that over time. This approach will result in better patient engagement and medication adherence increased prescription volume and reduce costs.
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 $9 $3 million in the third quarter of 2022 compared to a loss of 10.
$1 million in the third quarter of 2021, and $10 $3 million in the second quarter of 2022, reflecting growth in new deployments and improvements in operating costs.
We ended the third quarter of 2022 with $27 $2 million of cash and cash equivalents as a result of our private placement completed in April .
The second closing of our placement occurred on July one 2022 angles that $10 million in additional gross proceeds.
We continue to believe that we have sufficient capital to fund our current operational needs.
As of the third quarter, we now have approximately 80 million shares of common stock outstanding and we expect to have a weighted average share count for the fourth quarter of approximately $8 1 million shares.
Regarding our outlook, we are reaffirming our full year 2022, net revenue guidance of at least $42 million. Additionally.
Additionally, as we are already ahead of our expectation of 35 to 40 net dispensing units in 2022, we are increasing this range to at least 40 net dispensing unit.
Regarding our gross margin outlook, we remain focused on improving our adjusted gross margins and operating costs throughout the balance of 2022.
Our target of 8% to 9% gross margins within the next four quarters remains on track as we have made significant progress already.
Long term, we continue to target gross margins in the mid teens.
And with that I'll turn the call back over to Mark for closing comments.
Thank you Ramona.
We remain committed to disrupting the traditional retail pharmacy industry with our differentiated Med center technology solution, and putting patient experience and outcomes first.
We look forward to updating you on our progress in the coming months as we continue to execute on our mission.
With that we will now open it up to questions.
Operator.
Okay.
Thank you. So you would like to ask a question. Please press star followed by one on the new telephone keypad. If you change your mind pizza crust thoughtful but to put it.
<unk> two questions. Please ensure you're close on mid to low sulfur.
So back to you on your telephone keypad.
Uh huh.
First question comes from Brooks O'neil from Lake Street up to more because please go ahead Brooks.
Hi, good afternoon, and congratulations on the solid result.
So I am cautious I guess the first one is you.
You talked quite a bit about expansion in Florida, and I'm excited about that but.
Are there any other meaningful areas, where you see it.
Expansion opportunities in the short to intermediate term.
Yes, Brooks thanks for the complement and the question we continue.
To focus on all of our markets for expansion, Florida, just happens to be one where we've seen acceleration.
To work with partners in Arizona, both in Phoenix, and Tucson at spot Rx clinics, as well as California. The only state right now, where we're not anticipating expansion as Michigan and that's because of the board regulations there.
Okay, Good and then.
I heard you talk a little bit about pharmacy tech and what's going on there I don't think I heard you mentioned epic any progress you're making in the arrangement with epic.
Yes look we remain confident.
We're going to have our full integration completed by the end of the year with our first epic partner, that's consistent with our past guidance is there so nothing new there.
We do anticipate that that's going to help us, but the pipeline build for 2023.
Okay. Good and then I think when we were together in September we've talked a little bit about the opportunities with specialty and with generics.
Is there anything to say about development there.
Yeah, I split those two apart I think on the specialty we continue to work on that program in a what we would call specialty later, especially for retail and we're making good progress along that initiative.
When we look at generic it's one of the places where it really helped us expand our margins.
We got focused on this in the second quarter and reemphasize that focus in Q3, where we make sure that we were maximizing dispensing. So our overall generic dispensing rate is now.
So close to the industry standard the high 80%, maybe 90% brand versus generic.
Secondly, the teams have done a really nice job in using the preferred generic which provides the best cost benefit both to the patient to our clinic partners and obviously to spot Rx. So.
I look at the generic dispensing rate and the utilization of the preferred generic is the main reason that youre seeing the margin expansion in the business.
Great Fantastic Thanks for taking my questions.
Thank you.
The next question comes from Charles <unk> from Cowen. Please click Charles Your line is now.
Hi, This is Lucas on for Charles I have a question on the revenue headwinds you guys experienced obviously hurricane Ian is something.
That happens and you just have to deal with can you maybe elaborate on the generic dispensing issue and what led to that and also if you can give a size of the overall revenue impact.
I think Lucas thanks for joining.
When we think about the headwinds obviously, we can't control the weather and when Youre referencing the other issue generic dispensing when you increase that obviously can have a near term impact lowering your average sale price generics cost about one third of what our brands.
Has but that was fairly minimal on the headwind. The other headwind we talked about was having an issue with our retail management tool.
And that's a tool that we developed ourselves we had an issue with the data coming in we were not identifying all of the opportunities with refills with our Ah patients. We did mitigate that issue in the current tool and as we referenced in the prepared remarks we've.
Selected a centralized solution that's widely used in the pharmacy industry to track refills and more efficiently and easier execute against those.
Did implement the first phase of that two already and we expect to have it fully implemented by the end of the year the impact of the business.
Q3 was relatively.
Small and transient in nature, such that we don't believe it's going to carry forward into Q4.
Okay.
Okay great.
And then Walgreens has recently mentioned getting into telephone Missy and prescription kiosk.
Has there been anything that's changed with the relationship there with Walgreens have there been any new discussions just looking for an update on that.
We have ongoing discussions with several partners can't really speak to any specific one partnership along those lines, we're seeing retail adoption of patient facing technology, such as Med Center increase.
And we think Thats building nicely based on the headwinds that pharmacy experience with pharmacy labor shortages and increasing costs.
So I think we're really starting to see the pipeline build for 2023 around our technology segment, but I can't speak to any single.
Ongoing discussions right now.
Got you understood.
Maybe if we just talk about.
The way that you guys are staffing or.
Maybe not staffing on site.
Four new clinics, if I heard that right.
Where you will roll out new sites with a virtual manager.
Once volume ramps up at that specific mezzanine.
<unk> center, you or what sort of playing in person.
<unk> or is that something that you will end up converting maybe two more virtual managers over time.
Just kind of let them to understand the strategy when it comes to that.
Yeah, I think you've you've contextualize the strategy pretty well what I would say is what we're doing with that strategy. We are implementing with de novo clinics right clinics that are brand new they are building their patient panels, and we know that there is going to be low volume, but we're working with our highly.
Qualified partners and in that model our partners are actually hoping to activate the patient where we don't have to have a clinical account manager on site and we support that with what we call. The virtual clinical account manager, we do anticipate as that volume builds and get to a certain level that we would support with more of an answer.
<unk> clinical account manager, but we're testing and that probably like understand how impactful it can be and when we would need to add a clinical account manager into the labor model and that's ongoing right now we really started it late in third quarter, we don't have any results too.
Speak to at this point.
Okay great.
Those are all my questions. Thank you.
Thank you Lucas.
We do not have any further questions at this moment, we're going to hand back to Mark <unk> for any final remarks.
I just wanted to say thank you again for everyone that has joined the call.
Have a good evening and stay safe.
This concludes today's call. Thank you for joining you may now disconnect your lines.