Scienture Holdings Inc (SCNX) 2021 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to Trxade Group's First Quarter 2021 Earnings Conference Call. (Operator Instructions) The earnings press release accompanying this conference call was issued at the close of market today. The quarterly report, which includes the company's results for operations for the quarter ending March 31, 2021, was filed with the SEC today.

On our call today is Trxade Group's Founder, Chairman and Chief Executive Officer, Suren Ajjarapu; and Howard Doss, its Chief Financial Officer. The replay of this call and webcast will be available for the next 30 days on the company's website under the NASDAQ MEDS link. The company website also includes more supporting industry information.

At this time, I'd like to turn the call over to Howard Doss, the company's Chief Financial Officer. Howard, the floor is yours.

Thank you, operator, and thank you for joining us today. I'd like to welcome you to our first quarter 2021 financial results conference call. Our press release announcing our first quarter financial results was issued after the close of market today and is posted on our website. We have furnished such press release to the SEC on Form 8-K.

Statements made on this call and webcast, including forward-looking statements. These statements include, but are not limited to, our outlook for the company and statements that estimate or project future results of operations, or the performance of the company, including the potential impact of COVID-19 on the company's business and results of operations.

These statements speak only as of the date hereof, and the company assumes no obligation to revise any forward-looking statements that may be made in today's press release, call or webcast. These statements do not guarantee future performance and are subject to risks, uncertainties and assumptions. Please refer to the press release and the risk factors and documents we file with the Securities and Exchange Commission, including our most recent quarterly report, on Form 10-Q for information on risks, uncertainties and assumptions that may cause actual results to differ materially from those set forth in such statements.

In addition, during today's call and webcast, we will discuss non-GAAP financial measures, which we believe are useful as supplemental measures of Trxade's performance. These non-GAAP measures should be considered in addition to and not a substitute for or in isolation from GAAP results. You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results in our earnings press release. Unless otherwise stated, all financial comparisons in this call will be our results for the comparable period of fiscal 2020.

At this time, I'd like to turn the call over to Suren Ajjarapu, the company's Chief Executive Officer. Suren, the floor is yours.

Thank you, Howard. 2020 was a breakthrough year for our well growing health services IT company, as we continue to innovate, grow and expand our platform company, and that growth continued into the first quarter of 2021. We saw a 39% year-over-year growth in the first quarter of 2021, despite the ongoing challenges caused by the COVID-19 pandemic.

I'm extremely proud of our team for their tireless efforts to drive forward our business, positioning us for a success in the near term. In addition, our exciting suite of affiliated services from our comprehensive telehealth solution to digital health passports, enabling a safe reopening with an attractive pay-per-scan business model, continue to broaden our reach as a company empowering independent pharmacies with technology to make them indispensable local health hubs.

Before we do a more detailed walk through of financial and operational results for the quarter, for those of you new to this company, I'd like to walk you through who we are, how we are digitalizing the retail pharmacy experience through the optimization of drug procurement, a prescription journey and patient engagement.

Prior to the launch of Trxade, obtaining drug course as an independent pharmacy was an extremely laborious and time inefficient process with no inside or transparency into a fair market price or one of them are paying for the same drug.

Traditional wholesalers would provide unfavorable payment terms, slow delivery and created a difficult conundrum for the approximately 21,000 independent pharmacies nationwide. We identified this opportunity as well as incredible potential in these independent pharmacies, which together maintain around $73.7 billion in annual purchasing power proceeded to launch Trxade.

We designed own-and-operate a business-to-business web-based market platform, bringing together the nation's independent pharmacies with an accreditor, national pharmaceutical suppliers to provide a uniquely efficient and transparent buying and selling process. Our platform lets independent pharmacies know that they are receiving a fair price from competing suppliers on a fair payment terms and often with next-day delivery service. We believe this radical price transparency, economy of scale and competition among these suppliers leads up to a 10% reduction in a pharmacy's total annual drug purchase costs with drug level savings of up to 90% on certain pharmaceutical products. However platform sales pharmacists from having to manually compare prices across distributors, saving hundreds of hours of unnecessary labor annually and eliminating negative reimbursement are fulfilling a prescription at a loss.

Our revenue model is simple. We have paid an administrative PE of 6% of the buying price on a generic pharmaceuticals and up to 1% on brand pharmaceuticals that pass-through our pharmaceutical platform similar to PayPal or Visa-like model. Today, we have seen incredible success in garnering attention from independent pharmacies nationwide, validating our business model. We currently have around 12,100 plus registered members on our platform with 223 new registered members added in Q1.

We have leveraged our significant success since the launch of aforementioned marketplace platform to move into an adjacent complementary business where we can leverage our strong retail pharmacy network and core competency in technology. These include Bonum Health, our telehealth subsidiary as well as the mail order pharmacy and Rx distributor, which act as enabling infrastructure for Bonum Health's business-to-business platform. We have been anything but idle in 2021, and I have been pounding the pavement to broaden the reach of our Bonum Health partnerships. Signing strategic partnership with the brand name nationwide stores such as Kinney Drug, ProAct, Brookshire Grocery Company, SpartanNash and most recently, Big Y Foods to build a truly national platform. Approximately 500-plus stores offer Bonum Health services to thousands of users in all 50 states, and we expect to continued growth in the quarters to come as we ramp up strategic partnerships and anticipate an increasing number of employers turning to our turnkey telehealth solution.

We continue to integrate exciting new solutions into the Bonum Health offering, including a direct-to-patient prescription drug coupon platform through our partnership with SingleCare. The capability to stream patient lab results directly into the Bonum Health's virtual electronic medical records and remote patient monitoring. These product enhancements paired with our digital marketing strategy, which we are ramping up, provide us with accelerated access into a new key markets alongside our enterprise retail partner.

I'm particularly pleased to announce our new subsidiary, MedCheks, the next important step in our parent branding of leading IT health services companies. MedCheks will offer health information solutions, starting with the Health Passport app that's being launched as a peace of mind solution to safely and securely reopen the global economy. To head up MedCheks, they brought onboard technology expert, James Ram. There is no one better suited than James as he has leadership experience in the travel, tourism, national security in location-based entertainment industry.

Under his leadership, the MedCheks Digital Health Passport will leverage more state-of-the-art encryption and blockchain technology to conceal all private health data, allowing the secure exchange of information between passport holder and verifier. We are evaluating initial rollout locations domestically and internationally with a pay-per-use model. I think you all will agree that the MedCheks would be a significant revenue driver in 2021.

As we continue to scale siting new affiliated services such as our telehealth platform or our recently announced digital Health Passport initiative, we anticipate continued top line growth in the coming year. On the capital market front, we were proactive toward the first quarter of 2021, attending 4 investor conferences, the H.C. Wainwright Global Life Sciences Conference, the ROTH Growth Conference, Maxim Group Emerging Growth Conference and the Planet MicroCap Showcase, all with the goal of enhancing broader investor awareness of our company.

I'd like to now turn the call over to our Chief Financial Officer, Howard Doss, to walk through some key financial highlights from the first quarter of 2021.

Thank you, Suren. Revenues for the first quarter of 2021 increased 39% to $3.1 million as compared to revenues of $2.2 million in the same quarter last year. The increase in revenue was primarily due to higher sales by the company's Integra Pharma Solutions subsidiary.

Gross profit in the first quarter of 2021 totaled $1.4 million or 45% of revenues compared to gross profit of $1.6 million or 74% of revenues in the same quarter last year. The decrease in gross profit was primarily attributable to the cost of personal protective equipment related to products sold in the current period, while the revenues from the Trxade platform have no cost of sales.

Operating expenses in the first quarter of 2021 were $2 million compared to $1.5 million in the same quarter last year. This change is primarily due to IT development, legal expenses and marketing expenses related to the recently launched Bonum Health and MedCheks platforms.

Net loss in the first quarter of 2021 was $0.7 million or $0.08 per basic and diluted share outstanding compared to net income of $0.2 million or $0.03 per basic share outstanding in the same quarter last year.

Adjusted EBITDA, a non-GAAP financial measure, decreased 244% to negative $0.5 million for the first quarter compared to positive $0.4 million in the same quarter last year.

Looking at the balance sheet. Cash and cash equivalents were $5.2 million as of March 31, 2021 compared with $5.9 million as of December 31, 2020. We do not currently foresee a need for further capital to support our business.

I'll now turn the call back to Suren for closing remarks.

Thank you, Howard. Throughout the year, we continue to drive forward our business, achieving several key milestones in our internal road map, with a focus on innovation and development through our various complementary growth opportunities. We believe we are incredibly well positioned as we stand today.

Poised to monetize several emerging revenue streams in addition to the steady progress made by our high-margin core exchange platform. This is an exciting time for Trxade and I look forward to aggressive operational execution in the months ahead as we see -- as we seek to create sustainable long-term value for our shareholders.

With that, I'll turn it over to the operator to begin question-and-answer session. Operator?

(Operator Instructions) Our first question comes from Allen Klee with Maxim Group.

It was good to see the number of new pharmacy customers added dropping to the bottom line total number. I'm assuming that means that you're not seeing kind of the attrition you saw last quarter. But focusing on the Trxade platform segment, could you talk about what you're hearing from your customers in terms of the impact of the pandemic on kind of less sales volume a lighter flu and cold season? But how the outlook would be for them of spending for drugs going forward and the outlook to kind of be adding new pharmacies?

Sure. Thanks, Allen. That's a great question. There is still an impact of COVID. There's a lot of supply chain disruptions. Especially these pharmacies make a lot of money on the generics. They make very less on the brand. So they have to depend on the brand sales versus generic sales. We saw that in the first quarter. We probably may continue to see in the second quarter, probably that can change depending on how it's going to impact, as you guys are seeing.

The biggest generic manufacturers are in India and currently, there is a big impact of COVID in India. And other raw material comes from China has also impact. So to answer your question, we may see -- continues to see this COVID impact. But the outlook is probably towards the third and fourth quarter and going into 2022 as we keep on doing the vaccinations. Here domestically as well as in India and other parts, we see the outlook is improving.

Our next question comes from Eugene Mannheimer of Colliers Securities.

Of the 12,100 members that you talk about, how many of those are actively generating revenue today?

We continue to see a positive activity. If you go all, 90 days, probably around 8,000 to 9,000. The reason is it takes us 12 to 15 months, even though they sign up as a member before they actually buy on to our platform.

Okay, okay. Helpful to understand that. And you touched on this briefly with the last question. But I mean I do note your platform revenue was down sequentially and year-on-year. You talked about a COVID impact there. So I'm just wondering, has there been any change in your take rate or your administrative fee that you collect on the platform to account for the revenue decline?

So as you're aware, our administrative fee is 5% on the generic side and less than 1% on the brand. So the more -- the pharmacies buy more brand, our revenue will fall, even though the top line transactional volume may increase, but our revenue will fall. So it's -- whether if they buy the more generics, we make the more revenue versus the brand drugs.

Okay. So you're suggesting then, if I'm hearing you right that due to the COVID situation in India and elsewhere, there was a bias toward more branded drugs in the quarter. So therefore, you wouldn't collect as much on those. Is that right?

That's correct.

Okay. Great. And with respect to the PPE revenue, which looks to be the majority of the revenue in the Integra unit this latest quarter. My sense was that, that was winding down as it was -- those type of sales weren't something you necessarily wanted to be in that business. But it looks like that there was a resurgence of that in the quarter.

So I'm just trying to, for modeling purposes, try to understand where that number is going to wind up for the balance of the year? Any help you can provide there would be great.

Sure. Gene, that's not the majority chunk and I'll let Howard answer that. It's more still 70%, 75% came from the -- our traditional platform versus only 20% or 22% revenue came from our PPE sales. So it's winding down whatever we left off in the inventory, we get rid of that. So we're not actually pursuing any PPE business, and we still stick to core to our technology business. That's the reason if you look at -- from the last quarter to this quarter, our gross margin improved from a 30 -- mid-30s to now 45%. So we're faring away in the PPE business and stay focused on the technology side.

(Operator Instructions) Our next question comes from Howard Halpern with Taglich Brothers.

So with the spending on technology and marketing, should we continue to anticipate now this $2 million in SG&A and SG&A costs to be maintained throughout the next couple of quarters?

Yes. As we are continuous to putting investment into the -- our -- both the platforms, Bonum Health and MedCheks, that's our idealistic position, yes. However until they start generating cash, whatever expenses is will be the same, correct.

Okay. And now you have, I guess, 500 stores offering Bonum Health. With all your efforts going on, when do you really see everything starting to gel and gain some meaningful revenue in the -- for Bonum Health? And then I guess, MedCheks will follow after that.

Sure. The Bonum Health is even though we engage these pharmacies or the 500 stores, now it's the actual time. These stores are actually pushing to their existing customer base, talking about Bonum Health, when they're walking into the stores. So whenever if a product that we introduced into these stores and at the same time, the stores also introduces a new product that's the reason you haven't seen any of those revenues in -- whether in the first quarter or we don't anticipate in the next couple of quarters, probably towards the end of the year, we'll try to see the revenues and the downloads and so on and so forth, improvements. Taking our traditional independent pharmacies plus these chain stores, like, as I mentioned, Kinney and SpartanNash and Big Y and those kind of stuffs.

Okay. So basically, as we enter, I guess, the end of the year and into next fiscal year, do you anticipate the revenue generated from these high-margin areas will produce -- you'll have the leverage that you'll get towards operating income and GAAP profitability in 2022?

Yes, that's our hope, and we're trying to continue to improve our bottom line, correct.

Our next question comes from Allen Klee with Maxim Group.

Yes. Going back to Integra, I was just trying to understand, you said that 75% came from your traditional platform. Did you imply by that, that the growth in Integra came from the traditional more than from PPE? And then also on that, last quarter, you talked about the new offering of Trxade Prime, and you had some start-up costs associated with that. Could you talk about kind of how that went for the quarter?

Sure. The Trxade Prime is still at an as an stage so that we need to still need to get some licenses like VAWD, which is called VAD, where it continues to go into that surveys and what not. So that's the reason you haven't seen that big impact of the Trxade Prime, but there is some revenue, but it's -- the program has not fully -- has taken in shape. We anticipate that it will take shape in second and third quarters.

Okay. But the increase in the first quarter from Integra Pharma, did this come from the 70% to 75% traditional type of business? Or was it...

Yes, I'm sorry to interrupt you. When I mentioned on a total 100% revenue, 70% to 75% is our traditional B2B platform, data revenue and remaining 20% to 25% was created from Integra than 100% PPE out of the Integra. So Integra -- Trxade Prime through the Integra has some revenues and a very little PPE and the platform revenue of B2B that comprises 100% of our revenue, $3.1 million.

Okay. Great. And then on Bonum Health, you talked about adding 2 new features to it, streaming the lab results to your electronic medical records and remote patient monitoring. Could you go into that a little bit more specific, like what this does for customers and what you're actually doing with patient monitoring?

Sure. Those programs are still under development. But eventually, what -- where we are going with this is, for example, patients are taking the test and testing -- COVID testing and as well as vaccination, even though our MedCheks offers a full-blown vaccination, but they -- sometimes you go into the clinics or doctors' offices those riddles can be updated. And at the same time, remote monitoring these -- some of these doctors, they need to -- for the Medicare patient, they have to visit the patient 15 to 18 times those are the things, especially in the COVID area that they want to -- the doctors has monitoring them remotely, and they are using the Bonum Health remote monitoring tool. So that's still under development. Hopefully, the second quarter will see the actual remote monitoring using Bonum Health in these doctors' offices.

Okay. Great. And then last question on your community segment. Can you just give us an update of where that stands and how you're making out with getting state licenses?

Sure. As I mentioned, Allen, on the community specialty pharmacy, we're going to use that as a new product launches as our beta testing side, and it continues to improve. Currently, we have around 24 state licenses. We're in the process of getting up to 30 to 35 state licenses. That's our goal this year.

There are no further questions at this time. I would like to turn the call back to Suren Ajjarapu, Chief Executive Officer, for any closing comments.

Thank you, operator. I would also like to thank you all of you joining for our earnings conference call. We look forward to continuing to update you on our ongoing progress and growth. If we are unable to answer any of your questions, please reach out to our IR firm, MZ Group, we'll be more than happy to assist. Thank you all.

This concludes today's conference call. You may now disconnect your lines. Thank you for your participation. Have a wonderful evening.