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Edited Transcript of SMED earnings conference call or presentation 21-Aug-19 3:00pm GMT

Q4 2019 Sharps Compliance Corp Earnings Call

HOUSTON Sep 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Sharps Compliance Corp earnings conference call or presentation Wednesday, August 21, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David P. Tusa

Sharps Compliance Corp. - CEO, President & Director

* Diana Precht Diaz

Sharps Compliance Corp. - VP, CFO & Corporate Secretary

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Conference Call Participants

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* Gerard J. Sweeney

Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst

* Joseph P. Munda

First Analysis Corporation - VP

* Kevin Mark Steinke

Barrington Research Associates, Inc., Research Division - MD

* Michael Edward Hoffman

Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Group Head of Diversified Industrials Research

* Peter Rabover;Artko Capital;Portfolio Manager

* Bill McKeown

Institutional Marketing Services, Inc. - Officer of Market Intelligence

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Presentation

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Operator [1]

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Greetings, and welcome to the Sharps Compliance Fourth Quarter 2019 Earnings Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Bill McKeown with IMS Investor Relations. Thank you. You may now begin.

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Bill McKeown, Institutional Marketing Services, Inc. - Officer of Market Intelligence [2]

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Good morning, and welcome to the Sharps Compliance Fourth Quarter Fiscal 2019 Earnings Call. On the call today, we have David P. Tusa, the company's President and Chief Executive Officer; and Diana P. Diaz, Vice President and Chief Financial Officer. David will review the company's business performance, operations and growth strategies while Diana will review the financials. Immediately 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 actual results to differ materially from where we are today. These factors are outlined in our earnings release as well as in documents filed by the company with the Securities and Exchange Commission. These can be found at our website or at sec.gov.

So with that, let me turn the call over to David to begin the review and discussion. David, go ahead.

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David P. Tusa, Sharps Compliance Corp. - CEO, President & Director [3]

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Great. Thank you, and good morning, everyone, and welcome to our fourth quarter fiscal 2019 earnings conference call. We closed out fiscal year 2019 with a strong fourth quarter as evidenced by strong growth in our customer billings and revenue both year-over-year and on a sequential basis. This revenue growth drove improved gross margins and increased profitability. Now from my perspective, what's really exciting about this fourth quarter is the strong revenue growth, but also being reflected in all 3 primary revenue streams, which are: one, medical waste management mailbacks; two, medical waste route-based pickup; and three, our unused medication management services. In the fourth quarter, medical waste mailback, medical waste route-based and unused medication customer billings grew 33%, 27% and 41%, respectively.

The net growth was all organic. These are solid growth rates, and we believe these primary solution offerings should drive sustained growth and value for our shareholders over the long term. Further, we believe the fourth quarter growth reflects the success of our strategy to transform the business from a medical waste mailback-only business to a comprehensive solutions provider serving a broad range of customers in the health care and retail markets with many value-added service offerings.

So a bit more on the quarterly revenue by market. The retail market customer billings increased 54%, and this was driven by strong flu-related orders as well as higher MedSafe revenue in retail pharmacies. Pharmaceutical Manufacturer market customer billings almost tripled for the fourth quarter compared to the prior year. This increase was driven by inventory builds in 4 existing and 4 new patient support programs. As we mentioned on our last earnings call, we expected the fiscal year 2019 billings for this market to fall in the range of $4 million to $4.5 million, and we ended the fourth quarter with strong billings of $1.5 million in this market, and the full year billings ended up at $4.2 million.

As you know, we began expanding our medical waste management route-based presence a few years ago. We did this to complement our mailback offering to address larger facilities such as the surgery center and to establish a more predictable consolidated revenue stream.

At June 30, 2019, we serviced 12,900 customer locations directly with our route-based offering, which is currently operating in 24 states. This compares to 10,300 customer locations at June 30, 2018, an increase of 25% year-over-year. Our current route-based infrastructure has the capacity or capability of reaching about 55% of the population. So to place this in perspective, we generated fiscal year '19 revenue from the route-based business of $9 million. And this is an increase of $5.1 million over the acquired revenue of $3.9 million, so therefore, we more than doubled the business.

Regarding fourth quarter profitability, the company delivered $0.03 per share for the fourth quarter versus a loss of $0.01 per share in the prior year. Fourth quarter EBITDA was $1 million versus $309,000 in the prior year. Now as we kick off fiscal year 2020, we believe our diverse capabilities position us very well to continue to grow our market share in the small to medium quantity generator segment. We believe we are unique in our strategy to structure our service offerings to include route-based pickup, mailback or a combination of both. We do this just to best meet the needs of the customer in an effective and cost-efficient service model.

We believe we are the leader in the patient dispensed unused medication management business. And as such, we continue to see strong demand for our unused medication solutions, including the MedSafe and the TakeAway Medication Recovery System Envelopes. This part of our business now accounts for 18% of overall billings in the fourth quarter. As of June 30, 2019, we've grown this business organically to an installed base of 3,600 collection receptacles in retail as well as hospital pharmacies, long-term care, drug treatment and law enforcement facilities, and our customers have returned over 33,000 liners at June 30, 2019. Now as of today, the installed base of collection receptacles is 3,800 and returned liners are 35,500.

As a reference point, installed collection receptacles were 2,500 units a year ago and 1,100 units 2 years ago. Returned inner liners were 16,000 through June 30 of '18 and 7,000 through June 30, 2017. We see continued strong growth for our unused medication management solutions, and we are proud of our leadership position, and we see the company playing a role in solving the epidemic in the U.S. of prescription drug abuse and accidental poisoning.

As we mentioned last quarter, in March of 2019, Linda Brock joined our company as Vice President of Sales. Linda is managing and leading the field sales team, including business development, national account managers and territory managers with a focus on accelerating the closing of existing opportunity and meeting or exceeding sales budgets while growing the sales pipeline. Linda is a seasoned sales leader with extensive experience in health care and related services industry. Like us, she sees a significant opportunity to greatly expand the customers -- the company's customer base and revenue and has correspondingly increased the field sales team from 9 at the end of December 2018 to 12 currently, which include 6 new sales professionals. She may add headcount over the next quarter or 2 as we're beginning to -- we begin to see the results from her team's efforts.

So looking forward to fiscal year 2020. We see the September 2019 quarter, our first quarter of fiscal year 2020, shaping up as strong and believe the full fiscal year 2020 should benefit from growth in all solution offerings in many of our markets. Our growth is being driven not only by the company's successful transformation from a mailback-only business to a comprehensive solutions provider, but also our focus on customer service, reasonable contract terms and fair pricing in markets where we believe are vastly underserved. These are leading differentiators that are greatly responsible for our revenue growth.

And with that, I'll turn it over to Diana and she'll cover the financials in a bit more detail.

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Diana Precht Diaz, Sharps Compliance Corp. - VP, CFO & Corporate Secretary [4]

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Thank you, David. Fourth quarter fiscal 2019 revenue increased 23% to $12.2 million as compared to $9.9 million in the fourth quarter of last year, and also increased by 29% sequentially compared to the third quarter of fiscal 2019. Our route-based pickup revenue for the fourth quarter of fiscal '19 of $2.6 million is up 27% compared to $2 million in the prior year quarter, and contributed 21% of total revenue for the quarter. Our unused medication revenue of $2.2 million is up 41% compared to $1.6 million in the prior year quarter and contributed 18% of total revenue for the quarter. And finally, our mailback billings of $6.8 million are up 33% compared to $5.1 million in the prior year quarter, which contributed 52% of total revenue for the quarter net of the GAAP adjustment.

Gross margins improved to 32% in the fourth quarter as compared to 30% gross margin in the fourth quarter of last year. SG&A expense increased to $3.1 million, but decreased to 26% of revenue for the fourth quarter of fiscal 2019 compared to SG&A of $2.8 million or 28% of revenue in the same prior year quarter. The increase in SG&A compared to the prior year quarter is related to our continued investments in sales and marketing. We're focused on driving profitability, and we continue to closely manage our controllable SG&A cost, while also making strategic investments in sales and marketing to ensure that we're well positioned to facilitate the long-term growth of revenue.

We reported operating income of $600,000 in the fourth quarter of fiscal 2019 compared to an operating loss of $100,000 in the fourth quarter of last year. We recorded net income of $500,000 or $0.03 per basic and diluted share this quarter compared to a net loss of $100,000 or a loss of $0.01 per share in the fourth quarter of last year. We recorded EBITDA of $1 million in the fourth quarter of fiscal 2019 as compared to an EBITDA of $300,000 in the same period last year.

Now looking at key billing comparisons for the fourth quarter of fiscal '19. Professional market billings increased 13% to $3.9 million. Retail billings grew 54% to $3.5 million as compared with last year. Home Health Care billings increased 4% to $2.1 million. Government billings increased 29% to $800,000. Pharmaceutical Manufacturer billings increased 187% to $1.5 million, primarily related to inventory builds for 4 current and 4 new patient support programs.

During the fourth quarter of fiscal 2019, our mailback solutions represented 54% of customer billings and increased 33% over the prior year. And our route-based pickup was 20% of customer billings and grew 27% over the prior year, and our unused medications grew 41% and represented 18% of customer billings. The growth of our unused medication segment is primarily due to higher billings for MedSafe, including billings related to the ongoing launch of a major unused medication program.

The rollout of this specific program began in 2018 as -- and as we continue with the build, we will install a greater number of units in calendar 2019 than in 2018. Inside and online sales channel, which primarily targets the Professional and Government markets achieved a 13% increase in billings in the fourth quarter of fiscal 2019 compared to last year.

Now let's look at the key comparisons for the full year of fiscal '19 -- 2019. Revenue increased 10% to $44.3 million and customer billings increased 13% to $45 million. Professional market billings increased 15% to $15.1 million. Retail billings increased 46% to $11.5 million. The increase in Retail billings for fiscal 2019 is primarily due to a $2.8 million increase in flu shot related orders and an $800,000 increase in MedSafe billings.

Pharmaceutical Manufacturer billings decreased 8% to $4.1 million. Although there were new pharma programs launched in fiscal 2019, there were significant inventory builds for larger programs during last year, which did not reoccur in fiscal 2019 due to their significant size.

Home Health Care billings decreased 2% to $7.8 million. Assisted Living billings were consistent with the prior fiscal year at $2.5 million and Government billings increased 19% to $2.5 million. For the full fiscal year 2019, our mailback solutions represented 56% of customer billings and increased 15% over the prior year driven primarily by strong flu shot related orders. For the same period, our route-based pickup was 20% of customer billings and grew 21% over the prior year. And finally, our unused medications made up 15% of customer billings and grew 17% over the prior year. The inside and online sales channel achieved an 18% growth in billings in fiscal '19 compared to last year.

Our year-to-date gross margin was 30%, which is an improvement over the fiscal 2018 gross margin of 28%. SG&A expense increased 7.5% to $12 million in fiscal 2019. And the company achieved net income for the year of $200,000 or $0.01 per basic and diluted share for the fiscal year 2019 compared to a net loss of $700,000 or a loss of $0.04 per basic and diluted share in fiscal 2018.

Our balance sheet remains solid with $4.5 million of cash at the end of the fiscal year and working capital of $10.6 million. And with that, I'll turn the call back over to David.

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David P. Tusa, Sharps Compliance Corp. - CEO, President & Director [5]

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Thanks, Diana. Operator, I think we're ready for questions for the Q&A session.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

Our first question comes from the line of Gerry Sweeney with Roth Capital.

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Gerard J. Sweeney, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [2]

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Just want to talk a little bit about the sales and sales initiatives. It's been a few months since Linda was there, but it sounded like you're adding salespeople. And curious if -- a couple of questions on that front. What's sort of the normal ramp-up time from hiring a salesperson to then sort of hitting their stride and getting sales? And are there -- these sales additions focused on any specific market? Just want to see if we can get a little clarity on that.

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David P. Tusa, Sharps Compliance Corp. - CEO, President & Director [3]

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Very good questions. The last one first. What we're doing in the majority of the new personnel that she put in place were territory managers where they focus on different territories in the United States and ones that we think that have a significant opportunity for sales growth. Well, we -- as far as the salesperson, what we've seen in the past is a ramp-up, it can be 3 to 6 months depending upon their experience. If they have experience in the industry or in health care services, it may be closer to that 3 months. But it can be as much as 6 months before they're totally ramped up, and they're selling. We sell 3 solution offerings, whether it's the mailback, the pickup or the unused medication, so we want to make sure they're well trained, and we want to make sure they understand the market and the customer base and the solution offerings before they get out there and make the big push.

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Gerard J. Sweeney, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [4]

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Got it. And then it sounds like, on the sales, the new hires, territory managers, it sounds like you're almost adding a little bit maybe scaffolding, for a lack of a better phrase or word, around the sales side. And it also sounds like there could be additional hires going forward, obviously, but in the near term. Would these be hires similar to territory managers? Or would this sort of be like backfilling, adding sales guys under territory managers type of opportunity?

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David P. Tusa, Sharps Compliance Corp. - CEO, President & Director [5]

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It would probably both territory managers as well as traditional business development salespersons as well, where they're not as much focused on a territory, they're more focused on sectors regardless of where they are in the country. And we have a few of those right now and we will probably, if I had to guess, probably add another one by the end of this year.

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Gerard J. Sweeney, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [6]

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Got it. And then switching gears over to MedSafe. Obviously, a great quarter, up at something like 12.5% sequentially in terms of unit sales in the field. And I think you've said in the past that we'll get this as a calendar year rollout. But I did some quick math, used liners per number of MedSafe out there, and it seems to be increasing from 7% to 8% to 9% to like 9% and 9.5%. I'm not sure that is a true indication, but it appears more and more liners being used per Safe. Just curious if you are getting any feedback from some of your partners in that space, maybe upping their rollout or how -- feedback on their view of how the program is going?

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David P. Tusa, Sharps Compliance Corp. - CEO, President & Director [7]

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Well, no, you're numbers are actually pretty accurate and they are increasing. And I think what's happening out there is, you remember, the unused medication business for patient dispensed pharmaceutical is still relatively new in the country. And so with it becomes more education, with it becomes more training of the personnel like whether it's a retail pharmacy or whatever. And I think also the awareness that the collection receptacles are available in the country is helping to improve the use of the MedSafe and the collection of the -- of unused medications.

I will tell you something, I saw something yesterday. SAMHSA, which is a government organization that monitors a lot of this, we're starting to see just a bit -- we're starting to see a bit of a reduction in the -- in deaths related to overdoses of -- or misuse of prescription drugs, and I think a lot of that has to do with prevention. And we're part of prevention. Prevention is 3 things. Prevention is education, treatment, and believe or not, the disposal and keeping the medications out of the hands of folks who may otherwise use it is also seen as a critical component. So more and more awareness and just making everyone in the country aware that there are proper ways and convenient ways to dispose of unused medication. I think that will help to increase returns of those liners as well.

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Operator [8]

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Our next question comes from Joe Munda from First Analysis.

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Joseph P. Munda, First Analysis Corporation - VP [9]

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So a couple of things. Really strong quarter as evidenced. And then looking out to '20, you're talking about strong growth, other categories should benefit from the growth. I'm just curious, in your prepared remarks, Diana mentioned an unused medication program from a customer. Is that customer going to continue into 2020? Where are we, I guess, in the cycle with that customer and their rollout? And I'll hop back, and then I have a follow-up.

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David P. Tusa, Sharps Compliance Corp. - CEO, President & Director [10]

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Well, they are one of many customers of ours, the one that Diana mentioned, a large retail pharmacy, and we see it and they see it's a very successful program. We can't make projections or conjecture, but I'll just tell you that the program is going really well. They're pleased and we're pleased. I think we have a real opportunity to continue the rollout.

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Joseph P. Munda, First Analysis Corporation - VP [11]

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Okay. Is there -- is it possible to get any sense of what they possibly contributed to the growth in the quarter?

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David P. Tusa, Sharps Compliance Corp. - CEO, President & Director [12]

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They -- on that -- on the retail market, when we talk more about terms for the year -- for the year for the unused medication, they probably contributed, what, about 20%? About 20% of the growth in unused medications for the fiscal year '19, Joe, I think, is probably a better way to look at.

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Diana Precht Diaz, Sharps Compliance Corp. - VP, CFO & Corporate Secretary [13]

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For the retail market.

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David P. Tusa, Sharps Compliance Corp. - CEO, President & Director [14]

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For the retail market, right.

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Joseph P. Munda, First Analysis Corporation - VP [15]

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20% of the growth in the retail market or -- I'm sorry, in the -- I'm sorry. Yes?

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Diana Precht Diaz, Sharps Compliance Corp. - VP, CFO & Corporate Secretary [16]

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The domestic growth being $800,000 for the year, and it was 20% of that -- I'm sorry, that was for the quarter.

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Joseph P. Munda, First Analysis Corporation - VP [17]

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Okay. So they contributed 20% for the quarter or for the year?

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David P. Tusa, Sharps Compliance Corp. - CEO, President & Director [18]

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For the year.

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Diana Precht Diaz, Sharps Compliance Corp. - VP, CFO & Corporate Secretary [19]

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Both the year and the quarter.

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Joseph P. Munda, First Analysis Corporation - VP [20]

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Both the year and the quarter. Okay. And then, David, my other question is, it's fairly recent you came out with a new hazardous drug offering. I'm just curious how you plan to -- or your thoughts on the rolling that solution out as well as how does that play into your outlook for '20. And maybe if you could give us a little bit more detail on the opportunity there.

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David P. Tusa, Sharps Compliance Corp. - CEO, President & Director [21]

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There's actually 2 opportunities on the -- to answer your question. There's 2 opportunities on haz. We mentioned this before. We're starting to grow an increased base of hazardous business because we dual permit our trucks. So we can pick up haz at the same time we're picking up medical waste at a facility, and that's growing and that's actually doing quite well. I think you're talking about -- the second thing you're talking about is the haz spill kit that came out, the USP solution, that's being driven by a rule change and where health care facilities were required to have haz waste, primarily chemo, spill kits, and we're starting to sell those and I think as we get closer towards the end of the calendar year that we should see that pickup. And -- but again it's in response to something that's required from a regulatory standpoint and it's a mailback, which we're really good at.

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Joseph P. Munda, First Analysis Corporation - VP [22]

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Okay. And I mean is that something that would be offered in pickup as well maybe down the line? Because you said that you dual permit the trucks.

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David P. Tusa, Sharps Compliance Corp. - CEO, President & Director [23]

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So the dual permitting of the trucks is related to the large boxing -- when we pick up the large boxes of medical waste, picking up some haz waste. The other one, the spill kit is really more for individual facilities, and [I was wrong], mailback, it's a pickup. We do pick that up as well. We'll pick that up in our service area. If it's out of our service area, then we'll have to work with another provider.

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Operator [24]

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Our next question comes from the line of Peter Rabover with Artko Capital.

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Peter Rabover;Artko Capital;Portfolio Manager, [25]

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David, congratulations on the quarter. So I just want to make sure I caught something in -- you said in the beginning, did you say that you think your fourth quarter sales run rate of 23% is something that is sustainable in the future?

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David P. Tusa, Sharps Compliance Corp. - CEO, President & Director [26]

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No, I didn't say that. What I said was -- what I said, we see the September quarter, which is our first quarter, as strong, also strong. I mean the revenue level in the September quarter could be similar to the revenue level in this June quarter, roughly $12 million. That's really all that we said. While we think fiscal year 2020 could be strong, we really only talk about the first quarter.

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Peter Rabover;Artko Capital;Portfolio Manager, [27]

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Okay. So that's fair enough. And then just maybe on that, I mean, I think the 2 more volatile parts of your business -- of your revenues are the flu medication and the pharmaceutical, and it sounds like you had a really good fourth quarter with them. So would you say that it's a sustainable level? Or is there -- should we expect more volatility around those revenue lines?

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David P. Tusa, Sharps Compliance Corp. - CEO, President & Director [28]

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I stopped predicting the flu business a couple of few years ago because you just don't -- you just never know. There are so many factors that come into play. But I will tell you, last year was a strong flu season, and it looks like this year is pointing at being even -- an even stronger flu season. Now on a Pharmaceutical Manufacturer side, that's probably driven by programs and new programs. And we were pleased because in the fourth quarter, we launched 4 new programs. And so these are really more of large bulk orders where they order upfront because of our custom systems and we ship them out throughout the year. So I think that was really going to be driven by our ability to land more and more patient support programs with Pharmaceutical Manufacturers.

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Peter Rabover;Artko Capital;Portfolio Manager, [29]

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Okay. And then maybe on the cost side. You had -- this was, obviously, a nice quarter and you had about 30% flow-through to the EBITDA margin. Is that kind of a good run rate going forward for additional revenue growth like a 30%-ish?

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David P. Tusa, Sharps Compliance Corp. - CEO, President & Director [30]

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Well, the way we look at it is incremental revenue, incremental gross margins. Right, Diana, we're looking roughly...

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Diana Precht Diaz, Sharps Compliance Corp. - VP, CFO & Corporate Secretary [31]

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Right.

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David P. Tusa, Sharps Compliance Corp. - CEO, President & Director [32]

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We've always said about 45% gross margin on the incremental revenue. And in this particular quarter, the June quarter, while it was strong, we probably had, what, $100,000 to $150,000 or $200,000 roughly in expenses in the cost of sales that were not budgeted, so the margins actually would have been a little bit higher.

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Peter Rabover;Artko Capital;Portfolio Manager, [33]

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Okay. That's great. And then on the SG&A side, I think, the run rate is about 12%, 12.5%. Is that a good run rate to think going forward? Or are you expecting more investments in the SG&A line?

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Diana Precht Diaz, Sharps Compliance Corp. - VP, CFO & Corporate Secretary [34]

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Yes, we expect quarterly SG&A to be in the $3.1 million to $3.3 million range for each quarter.

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Peter Rabover;Artko Capital;Portfolio Manager, [35]

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Okay. That's great. And then I think you -- I guess maybe not to put you in an awkward spot, so it's not -- try to answer that as best as you can. But I know you've started to see some competitors in the MedSafe business and maybe talk about their market, the landscape that you're seeing in that. Is your first-mover advantage still kind of a flywheel effect that the more you put out there, the more people will accept you and that's what you need to do? Or just anything you can give color on that, I would appreciate it.

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David P. Tusa, Sharps Compliance Corp. - CEO, President & Director [36]

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No, that's a great question. Yes, I think not only the first-mover advantage really helps us, but the fact that we've been doing this for a while, I think it's very, very beneficial to our ability to land deals. We've landed some recent state deals, and the fact that we have been doing this for a while was one of the key factors in why we won that business. So I think it's both of those. We're bullish on the unused medication market and I think from a percentage growth standpoint, I think that particular offering, the unused medication offering from a percentage growth standpoint is probably going to be -- lead the charge of the 3 solution offerings at least for the foreseeable future.

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Peter Rabover;Artko Capital;Portfolio Manager, [37]

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Okay. But I mean maybe on the competitive landscape, is it like one of those things where like, in retail it actually makes more sense to have, like a McDonald's and a Burger King right next to each other off the highway, where they both drive revenues to each other in a way and then competitors coming in actually makes the market realize that they need this and should drive revenues forward? Or is that -- is there a different dynamic do you think?

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David P. Tusa, Sharps Compliance Corp. - CEO, President & Director [38]

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I'm sorry, I don't quite understand.

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Peter Rabover;Artko Capital;Portfolio Manager, [39]

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So sometimes competition is healthy in that introduces more customers to the product offering, especially in the kind of nascent stage where you guys are at. So I'm just trying to figure out in the MedSafe business, you have some competition, and how you're viewing that. That's what will be...

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David P. Tusa, Sharps Compliance Corp. - CEO, President & Director [40]

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I look at it a bit differently. I mean we're the clear leader in the collection receptacle -- the collection receptacles and liners. So what I see is you got a couple of few companies out there that are looking at it as a potential opportunity. I still think that we're the dominant player in that business. And when you're dealing with unused medication, especially controlled substances, I think what's really important is the experience that you have. So I think there is probably a better chance now that it is going to be our collection receptacle that's out there. So I don't think it's the way that you described as everyone sees more and more of these and it helps create awareness. I like our position. I like our first-mover advantage position and I like the fact that we've been doing this quite a while.

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Operator [41]

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Our next question comes from the line of Kevin Steinke from Barrington Research.

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Kevin Mark Steinke, Barrington Research Associates, Inc., Research Division - MD [42]

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Just following up on the discussion of your outlook for a strong September quarter. Could you maybe just dig a little bit more into the factors that you expect to drive that strong revenue in the September quarter?

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David P. Tusa, Sharps Compliance Corp. - CEO, President & Director [43]

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Sure. The June quarter prior year was about $10 million. And the September quarter prior year is about the same thing, it's $10.3 million in the prior year. And again, I think we have the opportunity, not a guarantee, but the opportunity for the September quarter revenue to kind of look like June, the June quarter. So I think a lot of the things that are driving the business in the June quarter will continue to drive the business in the September quarter. So I think there'll be contribution from many of the same markets and many of the same solution offerings.

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Kevin Mark Steinke, Barrington Research Associates, Inc., Research Division - MD [44]

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Okay. And in reference to the pharmaceutical market, it sounds like maybe that is one where absent any new patient support program rollouts in fiscal '20, maybe that market is more flattish in the upcoming year. Or how do you see that developing? What's the pipeline like? Just trying to get a sense of what the outlook is there for the coming year.

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David P. Tusa, Sharps Compliance Corp. - CEO, President & Director [45]

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I think that really without adding any new significant programs, [we can put it in this year 4 too]. It can maybe be 5% or 10% higher in 2020 without any significant programs, but if we add more programs, we have the opportunity to increase that number.

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Kevin Mark Steinke, Barrington Research Associates, Inc., Research Division - MD [46]

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Okay. That's helpful. I think on the last call, David, you had talked about opportunities for Med -- more MedSafe penetration in the assisted living long-term care market. So maybe can you talk about that opportunity there? Do you see MedSafe opportunities picking up in the long-term care market that might ignite some more growth in that area?

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David P. Tusa, Sharps Compliance Corp. - CEO, President & Director [47]

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We do. And actually that's one of the areas where Linda is focused. She has a lot of experience in the long-term care market. And she is allocating significant resources towards that long-term care market. So we're hopeful that over the next couple of few quarters we can see that market -- we can have a pickup in MedSafe sales in that long-term care market, so we'll have to watch it over the next couple of quarters, but I think we sure have the opportunity to do that.

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Kevin Mark Steinke, Barrington Research Associates, Inc., Research Division - MD [48]

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Okay. And any update on the Takeaway Recycle System for the single-use medical devices?

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David P. Tusa, Sharps Compliance Corp. - CEO, President & Director [49]

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Right. We're still cautiously optimistic about that. We have a number of pilots going on around the country at various large health care facilities ones you would readily recognize. And as I've said on the last call, I think we need, kind of, to the end of this calendar year to make a call but again, we're still cautiously optimistic and I think you'll see the December quarter positively impacted related to that. I think we have about $0.5 million scheduled in the December quarter for the Takeaway recycle on a program we signed up a year or 2 ago. But we'll know more over the next couple of quarters.

Again, this is another area where Linda is focused and including our regulatory folks as we work with the health care facilities on this. But I got to tell you it's -- we get a lot of inquiries and we do receive -- it's well received with different audiences. So when you actually have something new in health care, it takes time. And when you are introducing a change in health care, it just takes a little bit more time because it's health care and they're treating patients and want to make sure they're doing things right.

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Kevin Mark Steinke, Barrington Research Associates, Inc., Research Division - MD [50]

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Okay. And last question from me. There is an unusually strong growth in what you categorize as that other market segment. I -- just any color perhaps on what drove that in fiscal '19?

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Diana Precht Diaz, Sharps Compliance Corp. - VP, CFO & Corporate Secretary [51]

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In the other markets?

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Kevin Mark Steinke, Barrington Research Associates, Inc., Research Division - MD [52]

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Yes. The -- you gave the billings by market and one is categorized as other and that grew 44%.

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Diana Precht Diaz, Sharps Compliance Corp. - VP, CFO & Corporate Secretary [53]

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Right. So it was about 300 -- $350,000. I mean it's really more of that it's the small dollars.

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David P. Tusa, Sharps Compliance Corp. - CEO, President & Director [54]

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We sell...

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Diana Precht Diaz, Sharps Compliance Corp. - VP, CFO & Corporate Secretary [55]

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IV poles and asset return boxes, containers.

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David P. Tusa, Sharps Compliance Corp. - CEO, President & Director [56]

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Sometimes we sell containers only.

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Diana Precht Diaz, Sharps Compliance Corp. - VP, CFO & Corporate Secretary [57]

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Yes.

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David P. Tusa, Sharps Compliance Corp. - CEO, President & Director [58]

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Asset return boxes, IV poles.

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Diana Precht Diaz, Sharps Compliance Corp. - VP, CFO & Corporate Secretary [59]

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Yes.

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David P. Tusa, Sharps Compliance Corp. - CEO, President & Director [60]

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And a number of other smaller solution offerings, and while it is 44%, it is $350,000.

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Diana Precht Diaz, Sharps Compliance Corp. - VP, CFO & Corporate Secretary [61]

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And in the market category though, it's commercial. So some -- we've been seeing some interest from building management companies and our wall mounts with -- that are included in restrooms and such. So that's some part of it there.

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Operator [62]

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Our next question comes from the line of Michael Hoffman with Stifel.

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Michael Edward Hoffman, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Group Head of Diversified Industrials Research [63]

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David, on the unused med and the hazardous med side, what's your form of disposal? Are you able to internalize that disposal? Or do you actually use outside disposal once you've collected the medication?

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David P. Tusa, Sharps Compliance Corp. - CEO, President & Director [64]

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Well, on our unused medication, we have an incinerator. So we're able to treat the unused medication via incineration. On the haz, the true haz business, we use third parties to treat the haz.

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Michael Edward Hoffman, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Group Head of Diversified Industrials Research [65]

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Okay. And then you made a point of defining or qualifying sort of the target markets, and how you characterize it. You were very specific in your -- describe for us if you would what that looks like.

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David P. Tusa, Sharps Compliance Corp. - CEO, President & Director [66]

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Sure. What I was...

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Michael Edward Hoffman, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Group Head of Diversified Industrials Research [67]

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In your prepared remarks you were very specific.

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David P. Tusa, Sharps Compliance Corp. - CEO, President & Director [68]

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Right. I just think it's really important to point out, we used to be a mailback-only company. And it was -- the story was pretty easy. It was a pretty straightforward story. It was an easy story. It was mailbacks. We changed and changed for the better and changed dramatically. So what I think is really important to point out is there are 3 primary revenue streams. There is not only the mailback, there is also the route-based pickup and then the unused medication management, and each one of those grew from 27% to 33% to 41%. And what I am saying is that's what we're focused on. We're focused on those 3 and driving growth in those 3. And we think those 3 revenue streams are the revenue streams that could provide long-term growth and help us grow a much, much larger company. This is where the majority of the resources of the company are allocated.

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Michael Edward Hoffman, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Group Head of Diversified Industrials Research [69]

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Okay. So maybe I asked my question poorly. So those are the lines of business, but in your opening remarks, you made this sort of distinction that we target unique markets with those 3 business lines. What's that unique market look like for you? Is that a MSA that's a certain size? Is that age of population? I'm just curious about that when you made a point of drawing out that market distinction away from the 3 lines of business.

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David P. Tusa, Sharps Compliance Corp. - CEO, President & Director [70]

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Well, I will say this. What we do is we look at markets where we think we have an advantage in selling at ones that are underserved, whether it's the retail clinic or providing the flu solutions or if it's long-term care. Actually, if it's long-term care, we can sell 3 or 4 different solution offerings into that market. But we're really good at the smaller and medium quantity, and whether it's a doctor, dentist, that long-term care or whether we're serving home patients through Pharmaceutical Manufacturer sales. So we want to focus on where we think we're going to close the sale, where that market is underserved, and one where we think that we can drive some significant growth.

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Michael Edward Hoffman, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Group Head of Diversified Industrials Research [71]

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Okay. Last question from me. So you have made this fascinating transition, you do now have these 3 business lines. But if we were being honest to ourselves, there has been lumpiness pace at which the core critical mass of the 3 gets built, so that the incremental growth in the future is always as profitable as opposed to lumpiness in the profitability. Where are we in that, at this point, on those 3? Are we -- are you at critical mass where you can beat 4 quarters in a row of profit?

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David P. Tusa, Sharps Compliance Corp. - CEO, President & Director [72]

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I think we're getting closer. I will tell you this, what's happening in the business. With that unused medication business and with the route-based business, it provides a bit more predictable and recurring revenue whether it's the liners for the MedSafe or the unused -- or the medical waste pickup usually on a monthly or quarterly schedule. So I will tell you we're seeing -- what this is doing for us is, it's allowing us more and more visibility in the business. And it's allowing us to be able to -- to get a better view of the revenue growth rates based upon those recurring revenue markets.

So I think we're getting closer, Michael, and that's a fair question. And I think we're getting closer to the point where not only -- where we can have better quarterly profitability but in my view, better -- where we can forecast better, and where we have visibility and such. It's going to be able to allow us to manage the business better. And I will tell you this, being able to have visibility and see the growth, it sure is helpful, but we work with Linda on bringing in additional salespeople. You want to do that when you see that the revenue is there and be able to support it. And we wouldn't have done that if we didn't have more visibility of the revenue going forward.

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Operator [73]

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Our next question is a follow-up question from the line of Joe Munda with First Analysis.

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Joseph P. Munda, First Analysis Corporation - VP [74]

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David and Diana, just one quick follow-up if I may. You talked about pickups 12,900 sites, coverage of 24 states. So the first part of my question is, I mean how penetrated is -- are those 24 states? Do you have any idea of how many sites are potentially in play in those 24 states relative to what you guys are covering now? And then the second part is thoughts on increasing coverage geographically. If so, would that involve possible M&A? Or do you have the ability to leverage the existing network that you have in place and by adding more trucks?

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David P. Tusa, Sharps Compliance Corp. - CEO, President & Director [75]

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Right. No, I think the way to look at that, Joe, is we're still very low in terms of market penetration rate. And I think that for instance, we have data that shows that there's 800,000 different facilities -- individual facilities in this country that could be served in the small to medium quantity markets. So if we're at 12,000 or 13,000, we're obviously still at a very low penetration rate. But again, that's what we focus on every day and growing those particular markets, and that's what we're so excited about the opportunity because we have a great opportunity to further penetrate that market and drive revenue growth like we have.

As far as expanding the infrastructure, there's a couple of ways to do it. And one is yes, it's through -- potentially through acquisition. We are -- we have a heavy presence in the Northeast, Southeast, South. And we don't have a direct presence in the Midwest and the West Coast. So we're looking at that, and we continue to look at that and see if there's way that we can expand that coverage of the infrastructure. And it's something that we're focused on and something to hope to do.

We'd like to get a little bit more currency in our stock, and that's also one of the benefits of a higher stock price, is being able to give us the ability if we want to go out there because you would do it through -- primarily through acquisition, acquisition of haulers and other companies in those areas where we don't serve. So it's something we look at, and it's something that we think we ultimately have to do.

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Operator [76]

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That's all the time we have for questions. I would like to hand the call back to management for closing comments.

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David P. Tusa, Sharps Compliance Corp. - CEO, President & Director [77]

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Great. Thank you. Thank you, everyone, for participating in the call. We appreciate it and we will be talking to you next quarter. Thanks.

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Operator [78]

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Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.