Progressive Care, Inc. (OTCQB:RXMD) Q2 2020 Earnings Conference Call August 17, 2020 4:30 PM ET
Stuart Smith – Chief Executive Officer, SmallCapVoice.Com, Investor Relations
Alan Jay Weisberg – Interim Chief Executive Officer, Chief Financial Officer & Chairman of the Board
Armen Karapetyan – Senior Advisor, Business Development
Robert Bedwell – Controller
Conference Call Participants
All right, everybody. Thanks so much for waiting patiently for this call to begin. I want to welcome everyone to the Second Quarter 2020 Quarterly Call and Business Update with Progressive Care, ticker symbol RXMD.
Today, on the call, I will be joined by Interim CEO, CFO, and Chairman of the Board, Alan Jay Weisberg; Controller for the Company, Robert Bedwell; and Senior Advisor of Business Development, Armen Karapetyan.
Now, before we begin, I must start-off with the cautionary statements, regarding forward-looking statements. Statements contained here in this conference call are not based upon current or historical fact and are forward-looking in nature and constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements reflect the company’s expectations about its future operating results, performances and opportunities that involve substantial risk and uncertainties.
These statements include but are not limited to statements regarding expected financial and operational results in the second half of the year, the impact of our data analytics products and services on our performance and expected savings from transition to the Hallandale Beach facility.
When used herein, the words anticipate, believe, estimate, upcoming, plan, target, intend and expect are — and similar expressions as they relate to Progressive Care Incorporated, its subsidiaries, or its management are intended to identify such forward-looking statements.
These forward looking statements are based on information currently available to the company and are subject to a number of risks, uncertainties, and other factors that could cause the company’s actual results, performance, prospects, and opportunities to differ materially from those expressed in or implied by these forward-looking statements.
The format today is going to be a little different, because as you heard at the outset, I’m joined by multiple parties; they are going to be in the same room using a speakerphone. So, I want to make them aware, as I have prior to this recording, that I may have to interrupt them if the call quality is not what we need it to be so that they can move closer to the speakerphone.
We’re going to get opening comments now from Alan Jay Weisberg — again — Weisberg, again the Interim CEO, CFO, and Chairman of the Board. Alan, the call is yours.
Alan Jay Weisberg
Hello everybody. I’m Alan Jay Weisberg, Chairman of the Board, CFO, and as of Friday Interim CEO. As everybody should be aware by now on Monday, August 10th, Shital resigned as our Chief Executive Officer. We accepted her resignation Friday morning. We’re going to miss Shital. She was a friend and integral art of the company. We wish her the best.
As I go by Jay for those of you who don’t know, so you’re going to hear everybody mentioning Jay not Alan and I get confused when people call me Alan. We’re very pleased with our results for the second quarter. We believe based upon our Executive Committee, the people who are with us that will still be able to execute our business plan, and we’re looking forward to continuing to serve the community and our stockholders, our shareholders.
And I guess I’m supposed to turn it over to Armen now. And Armen is going to give you an update on the company for the quarter.
Right. Hi, everybody. This is Armen. Some of you know me for many, many years. I’ve been with a company since the inception of it. And Jay, as a matter of fact, has been with the company since 2010 and known Jay since — going back to 2003 I believe. So, it is my pleasure actually because we want to talk about the financials, we want to talk about the operations as well and development and things going forward, but before I do that, I would like to get on to Robert Bedwell, who’s our Controller. So he can go over the financials of the company’s financial performances during the second quarter and the last six months.
Go ahead, Rob.
Good afternoon, everyone. My name is Rob Bedwell. I’ve been Controller for the company for about over a — little over two years. And prior to that, I worked I worked them as a CPA. I’ve been in finance accounting for about 36 years, retired and very fortunate to be asked to join the company by both, Armen and Shital.
I worked with both the CEO and CFO, Jay and Shital in preparing up of the quarterly interim financial reporting, as well as the annual financial reporting. I also work as the liaison between our auditors, our Independent Public Accounting firm on our audit as well.
So I want to give you a little bit of a summary of the results for both the three and six- month period that ended June 30, 2020, hopefully give you a little bit of background besides the information that you’ll find in both our financial statements — related notes to the financial statements, as well as the management discussion and analysis section of our quarterly interim financial report, okay?
So the highlights, I think from the standpoint of our financial reporting for this six month period is that we have year-over-year, period-over-period increases in our overall revenue. The amount that we earned from operations for the three months was approximately $9.2 million, which was a $2.2 million increase over revenue from that same period in 2019.
There are two reasons for that. One is efforts of our marketing group, in terms of increasing our organic growth. So it’s very important that along with the acquisitions that we’ve made over the last two years, that our marketing team continues to build on our existing base of practitioners and managed care organizations, clinics, et cetera continue to refer clients to us, and so our numbers reflect that.
Obviously, the biggest source of that increase was our acquisition of the two pharmacies in Davey and Orlando, Florida, okay? So of that, total increase of $9.2 million, we had an additional amount of revenue about $2.4 million just from the FPRX acquisition. For the same period end June 30, 2020 for the six months, we realized overall revenue from operations of about $18.3 million that increased about $6.1 million from the same period in 2019, again for the same reasons.
Now what you’re — an overall theme here in terms of my discussion of our financial results and financial reporting, one of the major significant differences in our reported six months, January through June 2020 versus six months, January through June 2019, is that our 2019 results of operations only reflect one month of operating results from FPRX.
So you’ll — that is probably as you review our financial statements and our cash flow statement, that is a significant aspect that you need to keep in mind is that that six month period 2019 to 2020 are not exactly comparable. Because they only contain one month of our acquisition in 2019 versus six months of our acquisition in 2020, okay.
So again that increase of about $6 million between our six month results for 2020 versus our six months results from 2019 about $5.7 million of that increase that $6 million increase was as a result of the FPRX acquisition.
Now giving some context in terms of our revenue growth, our major metrics is, obviously, the number of patients that we serve. We serve over 21,000 patients give or take a few, we dispense a significant number we’re now well over 250,000 prescriptions that we dispense at each of our locations, our four locations, right. That is a pretty significant increase over 38% over that — for the same period, six-month periods in 2019.
If you –in terms of our second quarter operations, we dispense just over 126,000 prescriptions during the second quarter that’s about a 23% increase over the number of prescriptions that we filled in that same period of 2019.
Again keep in mind that, again, it’s a – we’re filling prescriptions for FPRX, but does not – doesn’t that entirely coordinate in a one month versus six months for that same period. So overall, if you’re looking at our increases in the overall growth in pharmacy revenue, they’re attributable to three areas.
One is the acquisition of FPRX in June of 2019. Second, an extremely concentrated marketing efforts to doctors offices, clinics, long-term care facilities, as well as manufacturer price increases those always factor into the increases in revenue as well. Offset by any decreases in reimbursements for claims by third-party payers. We’ll talk about the nature of those decreases in our reimbursements in a moment, primarily from what we refer to in our financial reporting as DIR fees that are – that are charged to us by online Pharmacy Benefit Managers, or PBM. Okay.
One area that, I call your attention to is, is we’ve talked in past earnings calls about our efforts to diversify our revenue base. Okay. In the past, we’ve been primarily pharmacy base, medication, dispensing, and so forth. The number of contracts though that we serve a another line of business on 340B contracts with non-profit organizations primarily. Okay. We’re now up to 10 total contracts, 8 of those operational during the first six months.
Total revenues that were earned from those contracts, either in the form of dispensing fees or administrative fees, those contracts where we serve as both the dispensing pharmacy, as well as the third-party administrator for those contracts totaled over $630,000. The total number of fees that we earned in 2020, that compares to $219,000 on 4 contracts that we had in 2019. So a $420,000 increase on dispensing prescription medications.
Of the new contracts that we add, 2 new contracts that we added are — we’re now currently billing over $600,000 a month for each of those contracts. So we’re earning roughly about 12% administrative for dispensing fees on those contracts. So we continue to expect in the future that this revenue line item will continue to grow for us and will again, enable us to be successful in our diversification efforts.
So looking at operating expenses, our total operating expenses increased by about $1.3 million, a little over 40% during that 6 month period compared to the same 6 month period in 2019 and most of that is attributable to additional operating costs of the FPRX pharmacy, the 2 pharmacies in Davey and in Orlando that were acquired in June of 2019.
Our cash position remains strong we were just over $2 million. At the end of Q2, quarter number 2, we expect that to continue to stay at/or around that amount into Q3. We had a significant improvement in our cash flow from operations for the 6 month period; we have just over $765,000 positive cash flow from operations. That’s compared to in the same 6 month period in 2019, a $111,000 used in operations. So, cash flow from operations that same 6 month period.
Our EBITDA, we have in our MD&A section of our financial record, we discussed a non-GAAP measure known as EBITDA, Earnings Before Interest, Taxes, Depreciation Amortization. Our EBITDA for the second quarter was just over a $300,000 loss and for the 6 month period was about $955,000 for that 6 month period. Over $600,000 of that EBITDA loss was an accrual that we had to make for DIR fees that are payable to PBMs, pharmacy benefit managers that has been accrued but not yet paid. We’re expecting that those DIR fees will be paid over a period of time from July to September to those PBMs, all right.
We have one PBM that we have the most significant billing concentration with just over 60%, and of course that PBM happens to be the one that charges, the highest fee, all right. So, that is predominantly the reason for the increase in the DIR fees. So when you back out those costs which are largely out of our control, we’re just about breakeven on our EBITDA, excluding DIR fees.
And finally just a short discussion on DIR fees. I think we’ve been in the last several earnings calls, our discussions with stockholders on an annual basis. We’ve constantly referred to these fees as being a significant pressure on our earnings and our profit margins. Okay.
The evolution of these fees is that quite a number of years and the intent of these was originally a means for pharmacy benefit managers to receive additional compensation after the point-of-sale meaning after the prescription drug has been dispensed, okay, to the patient.
It served the change to the final costs of that drug, all right for that paid. That was a lonely example for different types of rebates that were provided by manufacturers, any types of pricing sessions that were paid by pharmacies. Over the years, this type of fee has evolved, not favorable for many independent pharmacies.
Many independent pharmacies are feeling the same pressures, the same pain that we’re feeling. We’re hoping that there’ll be some legislative relief that will be coming our way that will at least reduce some of the uncertainty that results from the imposition of these fees.
The PBMs are not very transparent, in terms of sharing information about the nature of these DIR fees, and they’re very difficult to estimate at any particular point in time. So, we’re hoping that there’ll be some legislative relief in the form of either executive orders issued by the executive branch or some congressional actions.
For example, our state senators, both state senators here in Florida, have been asking CMS, Center for Medicare and Medicaid Services to act on some of these fees and to a large extent, these have some effect on the price of drugs, the cost of drugs to patients. Okay. Because, this will add like a middle layer, if you will, okay, that’s it to the cost of prescription drugs.
So a little bit of background on the DIR fees, which exceed more, but it will continue to be to for the foreseeable future a significant – will have a significant effect on our gross profit margin.
So, those are my comments for the afternoon. Thanks for the opportunity for me to share them, and I’ll pass it back to Armen.
Thank you, Bob. Thank you very much. Hey, guys. Yes, I just want to add a couple of things to what Bob has said. PBMs, so of course, with some of the PBMs, we actually have the opportunity to earn those fees back. One of our contracts with a major payer gives us the opportunity to make those fees back and earn a small bonus on top of it.
So, we are known as a Five Star Pharmacy, which means that we meet all of the measures that are set by Medicare. We meet them at a five star level. So that gives us an opportunity to earn those fees back, and make a small bonus of payments on top of it. So, that’s a little bit of a good news.
But we want to talk about, of course the future, and as Bob said, we’re hoping for legislation. We’re hoping that maybe the Executive order that’s been put in place by President Trump to go with PBMs will – and eliminating drug rebate will bring its good results in a short period of time. But at the same time, what we need to — and just to continue to focus on our performance and make sure that if we’re charged fees, then we either will be charged less because of our performance, or we’ll be able to make those fees back. So that’s in regards to PBMs.
Now, I want to talk a little bit about operation and the opportunity. First of all, I know a lot of people ask questions about the S-1 and about the uplist. Unfortunately, and we’ve mentioned that before, we are not able to share any information in regards to a process of S-1 registration statement with the SEC or the uplist. This is as per our banker’s legal department and our own legal department. So we just have to abide by it, and we’ll update you as soon as we will get that opportunity. So we won’t be talking about S-1 or an uplist on this call, unfortunately, like I said.
But we want to talk about the opportunities that we have ahead of us. And the second quarter was a very powerful quarter, even though we’ve had to deal with COVID-19 pandemic and that definitely has changed lives, changed the way we conduct business, changed the way that we live on a daily basis and we’ve had to adapt very quickly. And also, I want to say, take advantage of the fact that we are the top and I consider, and I know that people in this room and at the pharmacy, all of our employees will share my — share when I say — will confirm when I say that we’re best at delivering medications to patients and provide service to patients and physicians.
We pride ourselves to be one of the first ones to put together and make it work perfectly, logistics that are — anything that has to do with getting the medications out to patients. We know that our physicians are counting on us to get those medications quickly and more importantly to have those deliveries contactless.
In other words, there’s no contact with the patient and this way the physicians are keeping their patients away from public places Walmart, Walgreens and CVS. I mean, why would you sent your patients to one of the places where sick people are going, right? You want to keep them at home; you want to be able to keep them away from high-risk places, public places.
So that’s what we’re concentrating on, we’re focusing on getting them down and our reputation is definitely been working for us very well over the last few months. And we’re very, very proud to say that over the course of last three months, while a lot of the businesses have suffered, we were able to gain business, gain relationships, bring more physicians on board and bring more prescriptions and dispense more prescriptions. We’re having a good momentum into this month and we’ll be able to update you on a month of July, sometime in the next week or two. So that’s what we’re working on right now.
Also, I wanted to mention the Orlando expansion. This is really, really exciting thing. I mean, we have signed lease agreements for 3,700 square foot facility in Orlando, which is literally 30 seconds away from where our current location is, so I just could give you an idea guys, our present location is about 700 square feet. The new location is 3,700. And it is pretty much for the same money that we’ve been spending — we’re spending right now on the present location.
We’re very excited about Orlando market. Orlando market represents thousands and thousands of new prescriptions opportunity and PharmCo — the way that PharmCo does business. I don’t even know if there’s any other pharmacy, not that I know of, at least. Any other pharmacy in this country that will be able to compete on a performance, performance as far as the medication therapy management, medication adherence and performance of how efficient and how quickly we get things done for our patients. And for those that are involved with a patient life, whether it’s caregiver, physician or anyone else.
So Orlando, exciting. We hope to be able to build a very strong presence. We’re currently dispensing about 14,000 prescriptions on a monthly basis 14,000 to 15,000 prescriptions from Orlando pharmacy. And we’re definitely looking to expand on that — and expand on that momentum and gain that market as quickly as possible.
So we’re beginning a very — it should be a very quick construction, moving few walls and will begin moving the operations immediately. So hopefully I know that we’re going to put as much effort as possible, all of us to make sure that we’re alive, fully operational at a new space before the end of this year.
And, we have our hands full this — end of the year, we have few – we have Orlando and we’re trying to finish – complete the construction here in Hallandale Beach in our new building; 11,000, square foot building where it is ongoing construction, it’s moving pretty fast considering the fact that due to the COVID-19, the Hallandale Beach building department is halfway operational. But we’re moving – try to move, but we’re trying to move as fast as possible and hoping to complete the move off PharmCo 901 and FPRX Davey before the end of the year.
By the way, there’s no more FPRX. And I don’t know if you guys read the article some of our press releases — in one of our latest press release, we have now named all of our pharmacies under the same brand; PharmCo brand. So we’re very excited about it. It’s going to be easier – a lot easier for us to market. Its is going to be a lot easier for us to use social media for the benefit of Orlando market, because you know we have such a strong presence in South Florida between say, Broward, Palm Beach, Martin County, Port Saint Lucie County, Brevard County. We’ll be able to capitalize on it.
And we’ll be able to put all our efforts into marketing, social media marketing, digital marketing and of course, you know, what we’re best at actually going to the doctor’s offices, going to store, going to ATRs, going to specialty healthcare organization and pitch him and let them know why they should be using our services over, you know, chains or anyone else out there. We’re very good at it.
And we’re — the best thing about it — the best thing about us is that, when we talk to doctors, when we talk to physicians, prescribers rightly, whatever it is that we say, whatever it is that we promise this is what we always deliver. I mean we try to make sure that no matter what it is we put all our efforts to get things done the way that that they are – that we are describing is what to expect.
So, like I said, our reputation begins to work for us. So now it’s not only us going out to physicians and healthcare organizations, but actually healthcare organizations coming to us. Healthcare organization is coming to us for many different solutions. Solution is delivery, thing they — delivery for their patients, guarantee. So, in other words, just so you understand, 4 O’clock in the afternoon, 4:30 in the afternoon, 5 O’clock in the afternoon, patient needs an antibiotics – is prescribed, we receive your prescription electronically, no matter what, we know that we’re going to get that out and prescribers know no matter what, we’re going to get that prescription to patient and the patient will begin taking this therapy, the same day.
So, delivery, medication management we’re one of the best and one of the top when it becomes — when it comes down to medication therapy management. Medication adherence, we always say, if your patient is with us we will do everything possible to make sure that it’s a five star patient. So in other words, patient will be adherent when it comes down to start the medication, when it comes down to blood pressure medication, heart disease medication, diabetes medications, and many, many more things. And, of course, at the same time providing our signature packaging for medication adherence, which is called Smart RX Pack or Smart-packs, we call it as Smart-pack, which makes it a lot easier for patients to manage their medications is just a beautiful solution.
And one of the most important things and things that we’re making a very aggressive push and that is data analytics and data management, very important for any healthcare organization. Anytime we’re speaking to an MSR, or a physician or anyone who is a — owns and operates a healthcare organization that is a full — that has full risk contracts affairs, they’re counting on one simple thing, and that is beta, beta is what helps everyone managing their risk, managing their costs. So, we have evolved from simply sending reports of utilization reports or cost reports to physicians to prescribers to actually being able to analyze data to find gaps to communicate with those healthy organizations and let them know where their weak spots where, the weakness, where to strength.
And at the same time being able to provide administrative services to such organizations, such as 340B covered entities that really need to have each and every single dollar amount of — each and every single number in front of them, very detail, extremely detailed reports on their performance, their accounting and also being able to capture each and every single prescription that is being dispensed on behalf of 340B qualified patients, as each and every single, one of those prescriptions means a lot for those non-for-profit organizations such as Federally Qualified Clinics or simple as test and treats, STD centers that are — that we work and service.
So, data management, third-party administration services are definitely something that is very important for us and we’re looking to grow that aggressively. One of the really important things with TPA with especially with 340B, being the 340B administrator and that you don’t need to have a license in order for you to be able to serve as an entity in Georgia or in Illinois, or in New York. We can — we will be able to roll this out nationwide and so that makes it very exciting for us.
So that’s on the clear metrics on 340B and clear metrics business. Also something that we haven’t been speaking about in a while now, but we’re actually getting excited about now, very, very excited is CBD, and the reason we’re getting excited about CBD is because finally, we got our hands on FDA registered CBD for that we’re able to use for antibodies, so you guys can imagine how excited our staff is. Where we’re able to go ahead and market now to healthcare community. Our ability to compound topical creams for pain management or whatever else using CBD that is FDA registered.
So this is very exciting. This is very powerful. Our compounding departments is working very hard on putting together formulas and putting together prescription paths that are, of course, will be sent to our legal and approved by our legal before anything happens because we have no doubt that we’ll be able to successfully implement CBD in our compounding departments and get that compounding department busy with marketing, and then dispensing. So CBD is definitely, again, an exciting place to be.
So, that’s probably — its right. I mean, do we have anything else that you want to ask guys, anything that — anything important, anything that I missed? No guys? So, I guess, this is it. I just wanted to, I guess, finish this call by letting you guys know that we are here to do nothing but work very hard every single day for the purpose of each and every single family that depends on this business, and for each and every single shareholder that own stock in this company. We’re focused on generating more business. We’re focused on diversifying the business. We’re focused on bringing new technologies. We’re focused on bringing telemedicine. We’re focused on bringing and partnering up with manufacturers of dispensing — vending machines that dispense prescriptions.
By the way, one of the things that we’re very excited about because of the new rule that was signed by Florida State as of July 1, pharmacy can operate vending machines across Florida State, so that gives us an ability to service patients anywhere in Florida. So, from our North Miami Beach location or Palm Beach location or Orlando location, we’ll be able to dispense medication. It’s vending machine. No matter where it is, whether it’s Jacksonville, whether it’s in Tampa, whether it’s in Key West, we’ll be able to serving those patients within that mile radius, those that depends on those, especially those that live in rural areas.
So we’re continuing to be focused on building nothing but value, and hopefully, we’ll be updating you soon on all the rest of the progress that we couldn’t talk about on this call. But, we’ll be updating you with the sales for last month and also, a lot of you guys spoke to me before that we have an open door policy, so if you’re in Miami and Florida, give us a call and we’ll give you a tour, as long as you’re wearing a mask. Actually, if you don’t wear a mask, we’ll give you a PharmCo branded mask, which we’ve got, those are really, really cool. Everybody loves them.
And also, give a call. You know the number. Give us a call if there’s anything that we haven’t answered on this call, we’ll be happy to try to answer when you call us. So, don’t hesitate. Call us anytime. We have a phenomenal team here between people that spoke, and people that are sitting in this room, so is Birute, our Chief Operating Officer, he’ll see you, who is the Director of Finance and Accounting and Carlos, who is in charge of our digital marketing and all kinds of marketing. So, he’s been a phenomenal help, big help for us so.
And of course, all the rest of the people that are not in this room that go to work every single day, COVID-19 or not, sunshine or rain, don’t make no difference, they make it there and they get things done. So, god bless all of us. Stay safe guys, and hope to speak to you again very, very soon with more positive updates. All right.
Stuart to you.
All right. That concludes our call today. I want to thank everybody for sending in their questions, as Armen said, at the outset. They weren’t going to address the S-1, had a lot of great questions and Armen covered so much of that, the CBD division and other items as well, but please continue. As always, to continue to send in those questions to us, we will be doing other audio interviews aside these conference calls. So, we will get your questions in, if they weren’t addressed today. Thanks everybody for your time and your support of Progressive Care.
End of Q&A