Scienture Holdings Inc (SCNX) 2022 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to TRxADE HEALTH's First Quarter 2022 Earnings Conference Call. (Operator Instructions) The earnings press release accompanying this conference call was issued at the close of the market today. The quarterly report, which includes additional information regarding the company's results of operations for the quarter ended March 31, 2022, was filed with the SEC earlier today.

On our call today is TRxADE HEALTH's Founder, Chairman and Chief Executive Officer, Suren Ajjarapu; and Janet Huffman, 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's website also includes more supporting industry information.

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

Thank you, operator, and thank you for joining us today. I'd like to welcome you to our 2022 first quarter financial results conference call. Our press release announcing our 2022 first quarter financial results was issued after the close of market today and is posted on our website. We have also furnished such press release to the SEC on Form 8-K.

Statements made on this call and webcast include 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 continued 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 except as required by law 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 and any subsequently filed periodic report or current report on Form 8-K 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 as 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 at the end of our earnings press release.

Unless otherwise stated, all financial comparisons in this call will be to our results for the comparable period of fiscal 2021. (Operator Instructions) 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, Janet. We saw revenue improvement in our first quarter results for 2022, and our revenue base continues to return to the core TRxADE pharmaceutical exchange platform and away from the onetime personal protective equipment sales, driven by the initial onset of the COVID-19 pandemic.

Our nationwide footprint continues to grow as we relentlessly focus on exciting new ways to expand proportional wallet share within our large growing network of registered users, while better enabling them to service their respective customers, the end users, further growing their loyalty to their local retail pharmacy.

Before we do a more detailed walk through our financial and operational results of the 2022 first quarter, for those of you who are new to the company, I would like to walk you through who we are and how we are digitalizing the retail pharmacy experience through the optimization of drug procurement, the prescription journey and patient engagement.

Prior to the launch of TRxADE, obtaining drug codes as an independent pharmacy was an extremely laborious and time-inefficient process with no insight or transparency into a fair market price or what others are paying for the same drug.

Traditional wholesalers would provide unfavorable payment terms, slow delivery and create difficult conundrum for approximately 19,400 independent pharmacies nationwide. We identified this market inefficiency as well as the incredible potential in these independent pharmacies, which together maintain an estimated approximately $67.1 billion in annual purchasing power and proceeded to launch TRxADE.

We design, own and operate a business-to-business web-based market platform, bringing together the nation's independent pharmacies with an accredited 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.

We believe this radical price transparency, economy of scale and competition among suppliers leads up to a 10% reduction in pharmacies' total annual drug purchase costs with a drug-level savings of up to 90% on certain pharmaceutical products. Our platform saves pharmacists from having to manually compare prices across distributors, saving hundreds of hours of unnecessary labor annually and eliminating negative reimbursement of fulfilling a prescription at a loss.

Our revenue model is simple. We're paid an administrative fee of up to 6% of the buying prices of the generic pharmaceuticals and up to 1% of the 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 over 13,400 plus registered members on our platform with approximately 340 new registered members added to the first quarter of 2022 compared to 223 in the first quarter of 2021.

Another exciting growth metric on our TRxADE platform includes a 25% increase in sales volume, processed across our platform in the first quarter of 2022 compared to the same quarter in 2021. TRxADE has also experienced exciting growth in the first quarter of 2022. Comparing the first quarter of 2022 to 2021 reflects an increase in the number of orders processed by approximately 300% and units sold increased over 500%.

We expect this growth to continue in 2022 as we expand our customer base to medical facilities and into the veterinarian industry. In February 2022, the company announced a new venture with Exchange Health, LLC, SOSRx, LLC, a pharmaceutical market cloud platform. This new venture SOSRx is an exciting addition to the TRxADE and provide additional availability to short-dated overstock that would otherwise be subjected to destruction.

Our SOSRx marketplace brings the manufacturers and wholesalers together, providing an efficient and transparent buying and selling process. The TRxADE and SOSRx marketplaces deliver radical price transparency, economy of scale, competition that benefit the independent pharmacies and the wholesalers while expanding the selling potential for such market participants. We believe the TRxADE and SOSRx platforms provide the opportunity to deliver more affordable prescription costs for consumers.

TRxADE anticipates growth in this joint venture in 2022 as more progressive manufacturers are expected to address the public need for enhanced medication accessibility and reliable supply of cost-effective pharmaceuticals. In the capital market front, we continue to be proactive and presented at the Maxim Virtual Growth Conference on the panel Technology Improving Healthcare, held on March 30. I will also be attending LD Micro invitational, which will be held June 7 through June 9. We attended these conferences with the goal of enhancing broader investor awareness of our company.

Now I'd like to turn the call over to our Chief Financial Officer, Janet Huffman, to walk through some key financial strengths from the first quarter of 2022.

Thank you, Suren. Let us discuss the first quarter 2022 results. Revenues for the first quarter of 2022 increased 6% to $3.2 million compared to revenue of $3.1 million in the same quarter last year. The increase in revenue was primarily due to revenue generated by the TRxADE Platform and TRxADE Prime.

Gross profit in the first quarter of 2022 decreased 3% (sic) [4%] to $1.3 million or 41.2% of revenues compared to $1.4 million or 45.3% of revenues in the same quarter last year. The decrease in gross profit is a result of Integra Pharma Solutions or TRxADE Prime.

Operating expenses in the first quarter of 2022 were $2.3 million compared to $2 million in the same quarter last year. This increase was due primarily to increased salary and wages and legal expenses in the first quarter of 2022.

Net loss in the first quarter of 2022 was $1 million or $0.12 per basic and diluted share outstanding compared to $0.7 million or $0.08 per basic and diluted share outstanding for the same quarter in 2021. Adjusted EBITDA, a non-GAAP financial measure, decreased to negative $0.7 million compared to negative $0.5 million in the same quarter last year.

Looking at our balance sheet. Cash and cash equivalents were $1.9 million as of March 31, 2022, compared with $3.1 million as of December 31, 2021. The decrease in cash was primarily due to our IT initiative, investment in our new venture with SOSRx, increased salaries and wages and increased legal expenses for the first quarter of 2022.

With that, I will turn the call back to Suren for closing remarks.

Thank you, Janet. In summary, we're focusing on exciting new strategic partnerships to drive forward our core business while diversifying our revenue base.

Taken as a whole, I think we are building an incredible compelling health care ecosystem, allowing consumers access to an affordable health care while building an exciting value proposition for all stakeholders. I look forward to seeing what the future holds as we continue our rapid pace of operational execution, creating sustainable long-term value for my fellow shareholders.

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

(Operator Instructions) Your first question comes from the line of Howard Halpern with Taglich Brothers.

Congratulations on the quarter. Top line results look good. My question is in regards to, I guess, both the TRxADE and Integra or the Prime offering. Do you see sequential growth occurring from this point forward in those 2 segments?

Thank you, Howard, first of all. Yes, that's what our aim and we continues to see both TRxADE -- I think this is the first time we've released our earnings and gave you the volume increase on our platform and the number of orders and number of buyers on our TRxADE Prime. Those metrics we'll continue to provide going forward. So I think you'll see in our earnings press release those metrics also.

And my follow-up would be, is there a way -- now that you're starting to gain volume and traction with customers in the Prime offering, is there a way to maybe improve gross profit margins in that segment?

That's our goal. But as you are aware, some of the TRxADE Prime, the shipping costs are a little bit higher because of as you -- everybody in every industry is affected by the inflation. So we may see that. Probably we cannot comment on that, but that's all our anticipation of increasing that gross profit probably towards the third quarter or fourth quarter, how the economy behaves in inflation in the transportation cost, I'll be able to give you more definite answer on that.

Okay. So for right now, low 40s to mid-40s in gross margin is a safe bet going forward until things sort of normalize in the economy?

Yes.

(Operator Instructions) Your next question comes from the line of Allen Klee with Maxim Group.

Yes. So for the venture with Exchange Health, SOSRx, help us understand how -- when we're going to see -- how we should expect when the contribution from that could be material in 2022?

Sure. Thanks, Allen. Yes, we just started that in February. We may not see towards the end of the year or beginning of the next quarter of that impact because, as I mentioned, it's a technology platform, we got to educate both manufacturers and wholesalers or a big box chain, kind of a grocery chains and stuff like that. So we continue to create adoption for our technology, but probably towards the end of this year or beginning of next year, we'll see the results.

Great. And then kind of the same question on Bonum Health and group purchasing organizations.

Yes. We still are yet to see some of the traction and we continues to pound on those group purchase organizations, the product availability, the key for them to -- and jump into the marketplace as they are aware because they want to buy 100% through us. We may see that the results coming towards the second quarter also -- sorry, third quarter and fourth quarter.

Your next question comes from Robert Smith with the Center for Performance Investing.

So first, can you give me an idea with the continuing losses and diminishing cash, how you would think about financing your growth strategies?

Thanks, Robert. Yes, we continue to operate as far as the new technology investment that we are doing. Probably we look for, as I mentioned, the growth towards our existing platform will support our new initiatives.

Yes, but your cash position continues to decline. So what are your strategies for financing the growth of the business and running continuing losses? I mean, where are you going to get that capital?

I think we have an existing capital base that will sustain us going forward. So we'll keep looking at other avenues at this time. But right now, we're not looking to do any capital rights.

Your next question is a follow-up from Howard Halpern with Taglich Brothers.

Just I noticed when I was looking at the Q that revenue in the specialty pharmacy area dipped a little bit. Was that just a onetime event? Or was there an event that caused that to happen, and it's going to rebound back to normalcy? Because you've been sort of flat normally going in and around that, and this time, it dipped a little bit.

Yes. Going forward, as I mentioned, our focus is primarily for our marketplace and then TRxADE Prime, and the reason for that reduction maybe the first quarter, the last month of March, it's a onetime dip. I don't see it's -- pretty much it's flat but it's 100% TRxADE HEALTH.

It's focusing on the platform marketplace both on the existing wholesaler to pharmacy. And going forward, also the manufacturers to the wholesaler, both will be -- our marketplaces will be the highest priority for us.

And one just follow-up from that. Do you -- with focus now what you've talked about, the TRxADE platform, operating expenses, where are they going to normalize down to? Around that $2 million area or a little bit less than that going forward? Are you able to make that adjustment?

I think as we have seen the salary increases, various increases to keep that sustainability to meet existing inflation effect on our employee salaries and stuff. So I think that normalization is around $2 million range.

Ladies and gentlemen, we have reached the end of the question-and-answer session. And I'd like to turn the call back to Mr. Suren Ajjarapu for closing remarks.

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

For any of you who may have joined the call in progress, remember 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, and that more information regarding the financial information disclosed on this call and webcast, including reconciliation of our non-GAAP financial information, can be found in our press release, which we filed after the close of the market today. Thank you all.

This concludes today's conference. You may disconnect your lines at this time. Thank you all for your participation.