Michael Kim: Hello everyone. Thank you for joining us today. My name is Michael Kim. I’m a senior analyst here at Zacks Small-Cap Research. And welcome to the next episode of our CEO Fireside Chats. Today, I’m happy to have with us Giorgio Saumat, Chief Executive Officer of Earth Science Tech, a company we recently initiated research coverage on. So Earth Science Tech is a strategic holding company with wholly owned subsidiaries operating in the compounding pharmaceutical, telehealth, real estate, and consumer product sectors. The stock recently uplisted to the OTCID Basic Market and trades under the ticker symbol ETST. So with that, welcome Giorgio. Great to see you and really appreciate your time today.
Giorgio Saumat: Good morning, man. Thank you so much. I appreciate it.
MK: Yep. So I think this is a great time to sit down and chat with you for a number of reasons, but most importantly, it seems like the company is poised for accelerating growth, reflecting a number of drivers, including the activation of more recent acquisitions, building industry tailwinds, and as market shares continue to roll up to scale enabled and differentiated players. So with that, we’ve got a few topics that I think might be top of mind with investors. So maybe just to start, first, can you just provide a brief introduction to the company, your business model, the different subsidiaries under the Earth Science Tech umbrella, and then just how those companies might be positioned within the industries that they operate in?
GS: Thank you, Michael. So Earth Science Tech right now, like you said, does operate as a strategic holding company. The idea is to put together a group or have and acquire a group of companies that can each on it’s own generate cash and bring it back for the shareholders. We have multiple subsidiaries. We have our RxCompoundStore, which is probably our most famous one. We recently launched Mister Meds. We have Peaks Curative and DOConsultation Las Vegas. Those tend, obviously, to be more in the health care area, and there’s clear vertical integration there and synergies there. Then we have Avenvi, which handles our investments, which includes real estate development. And then we have MagneChef, which is our direct-to-consumer subsidiary. And again, the idea is that you have all these different subsidiaries, and some people ask what’s the synergies between health care and real estate. Well, we’ll get to that in a second. But the idea is that they get to share the same legal infrastructure, accounting infrastructure, and administrative infrastructure, which typically those are three big burdens when you have a small company, and you’re trying to grow. So at the Earth Science Tech level, we kind of bring that all together and provide that support for each subsidiary. And I think that that’s our biggest strength.
MK: Great. So as I mentioned earlier, it seems like scale-enabled players, particularly in the compounding pharmacy and telehealth industries, remain well-positioned to gain market share more broadly. It also seems like Earth Science Tech is really positioned to increasingly leverage more recent acquisitions as well as capitalize on other organic growth initiatives. So I think it’d be helpful if you could just speak to the various growth opportunities that you see going forward as it relates to more specific drivers.
GS: All right, so I guess first we’ve got to start with the compounding section or portion of it. We have RxCompound, which is the footprint of the actual facility is small, but we do utilize different off-site areas for storage, for marketing, customer support, and that helps. Now, the RxCompound store is obviously growing incredibly since I got involved, but now with the acquisition and the build-out of Mister Meds, I think that’s the next driver in that particular sector of this business. And the nice thing about Mister Meds, is that it has a lot more capabilities in compounding. Just one example, we do not have a negative pressure room in RX-CS, but we do in the facility of Mister Meds. So that’s gonna allow us to branch out into a lot of other products that we’re not able to do at RxCompound. And that being said, most of the products that are sold, actually I believe that most if not all the products that are sold on our telehealth platforms are compounded. So the goal eventually here is that Peaks and DOConsultations grow to such a level, and they’re getting there, that they become RxCompound store, and Mister Meds largest customer.
GS: As far as the consumer side, I can happily report that they recently got their website fixed and everything else that they needed to get done. And going back to the vertical integration, a lot of people have been asking me, what kind of integration does MagneChef really have with the healthcare? On the surface, probably none. However, if you’ve ever done marketing online or otherwise, you would know that marketing pharmaceutical products is extremely difficult. If you can master that, which I believe our team has, based on the growth that Peaks is showing, and actually DOConsultations too, is really beginning to move, then you can really move into other products and market those products. I think our marketing team is pretty amazing. It took Hims & Hers Health, I think, 15 years to become profitable. Well, Peaks just became profitable last month. Cash flow positive last month. They did it in 18 months. That’s a pretty impressive feat when you have such a marketing-intensive business. That being said, they’ve also done the same thing for Mister Meds.
GS: It’s the same marketing team, they just now expanded. And we’ve hired a couple more people. They took over the MagneChef marketing. They literally began about four weeks ago. And again, I can happily report to you and to all the shareholders, they’re running at roughly 100% week over week at this point in growth. They’re expanding the product lines, and that’s growing that way. As far as Avenvi is concerned, and the real estate, that’s my biggest background. And for me, I think it’s important for any strong company to have hard assets that you can always fall back to in the event that something else is not performing. And it’s a nice place to store cash because if you look at any real estate chart over time, you’ll know it’s up and to the right, usually. You’ll have blips that go down here and there, but for the most part, real estate always appreciates. And it’s nice to put that underneath as a foundation for the shareholders. And then other thing, and also to report to you on Avenvi, Avenvi just began last month on the development of it’s first few properties.
GS: We should have those probably live and ready to either sell in the next three or four months, it looks like. They’re moving pretty fast, so credit to them on that. At the same time, they also manage the investment portfolio for the overall company and manage the buyback. That’s a big help for the company itself, big savings. Typically, you would pay a third-party company 10% or something to manage your buyback for you, and then, you don’t know if they’re… Who knows better the value of the company than we do, of what we think. So by controlling that, we get to save that 10%, and we get our Avenvi team is able to step in when we know that the intrinsic value of the stock is just not there at the time of what it should be. So all around, while a lot of people question where are you putting all these pieces together, I think if you kind of look at it on that front, you’ll see where everything fits.
MK: Got it. That’s super helpful. And just to follow up on Avenvi, it seems like beyond helping other portfolio companies source and finance assets, the firm is well-positioned, as you fleshed out, to deliver incremental growth, particularly as it relates to the residential development. So just wondering if you could sort of flesh out the opportunity a bit more for Avenvi just from a financial or an economic standpoint looking out over the next couple of years.
GS: All right. So two purposes for Avenvi. Number one, when we decided we were gonna expand to Texas, which is important. Very important in terms of the expansion of the healthcare part of the business. We didn’t wanna have the issues that you have when somebody else owns the property, opening up a compound and pharmacy, the regulations that are involved with it. Not that easy to rent a space to do it. And it can be very costly. So on that front, Avenvi has done a great job for us, saving us tons of money and headaches. And making it a lot easier to navigate through the regulatory stuff in Texas. And it gave us Texas, which was a big state that RxCompound Store didn’t have before. But as far as the residential stuff and that development, so you have a big gap in really all across the United States, but in Florida primarily, a big gap in that middle market. People are priced out of it. They can’t buy a home. If you try to buy a home in Florida and you can buy a home for less than 500,000, you’re lucky. And if you’re close to any major city or anything like that, it’s very difficult.
GS: Whereas, because we’re building these homes the way that we’re building them, because we’re gonna be able to provide the financing and all self-funded through the cash flows generated by all the other subsidiaries, as well as the investments that Avenvi has, we’re gonna be able to be constructing these homes somewhere in the mid-200s for a 2,500 square foot home with very good finishes. Some are on, most of them are on half acre lots, very large property for starting a family and you need a place to get it, which is an extremely difficult market right now, especially in Florida. You talk to anybody with young kids and they’re trying to buy a house and they can’t. And they’re paying an astronomical rent. So our goal is to get it in there, provide that opportunity, solve a problem in the communities where we’re gonna go build or where we are building and get people into these homes at a relatively, at a cost that they can afford and quickly so that they won’t have to sit around, to try to figure out if the bank is gonna appraise it a certain way. Are they gonna approve the loan? Are they going to, how many points are they gonna charge me?
GS: Well, by us being the ones to build it, and since we’re building multiple at a time, we’re obviously able to scale the price down, our costs down, which allows us to sell it at a price point that’s probably below the market and is affordable. And then, because we’re the ones financing it, we get to dictate the upfront costs and make our money on the backend. So the idea really is, is try to get them in the home at a much lower price point, something they can afford. And then the interest rate may be a little bit higher than they have to pay somewhere else, but they’re not gonna have to pay the amount of upfront costs that they’re gonna have to pay somewhere else. And that gets them in the home, lets them participate in the appreciation of the value of the home, allows us to make the money, make the profit on the financing, and then ideally, give them a two to three year window where they can go refinance with a traditional bank, we get to pick up our capital, and then we’re making above market money on our investments anyways. And then obviously, once we get the capital back, redeploy it the way we do across our other subsidiaries.
MK: Got it. Sounds like it makes a lot of sense. And then, just from a corporate standpoint, could you just talk a bit about the financial opportunity at a high level for the company just in terms of revenue, profits, margins, as you look out over the next three to five years and increasingly leverage the platform?
GS: Okay, so as the product mix changes, the overall profit margins are gonna change as well. The good news is, on the subsidiaries with the very high margins, such as RX-CS and Mister Meds, those still have a lot of runway to go. So those are those are gonna be growing, Mister Meds is just getting started and RxCompound still, as well as they’ve done, the logistics there is amazing. There’s still room for more capacity. So we’ve got a lot of legroom. A lot of runway there. And I think that’s gonna help maintain high margins across the board. Obviously, when you start talking about the real estate market, that’s going to probably drop the margins, but the actual profits on a sale on a piece of real estate is far greater than the sales in the pharmaceutical stuff. The direct-to-consumer stuff may also bring, may, may, and I say may because we’re not showing signs of that yet. But typically, myself, as an investor, I know that typically the direct-to-consumer stuff will drop your margins.
GS: If you can get 50%, that’s usually pretty good. Right now, with what they’re doing, they’re meeting and exceeding that, at least now as they start their takeoff. So to answer your question in general, what do I expect margins? Do I expect them to expand at the rate that they expanded from fiscal year 2024 to fiscal year 2025? No, I don’t. However, the reality is, is we should eventually settle somewhere in the 60% margin range across all our subsidiaries, and which I think is pretty good. And that’s kind of exciting. On the pharmaceutical side, the nice part is, is that a lot of those products, if you go and look at Peaks or you look at DOConsultation, you’ll notice, and compare with any competitor, they don’t charge a subscription fee. You’re not required to pay a monthly consultation fee. And then, because the products are made at RxCompound Store and at Mister Meds, they’re able to price their products below really what any other competitors would have. At the same time, though, the margins are not dropping because as their volume increases, obviously that increases the volume at Mister Meds and at RxCompound Store, that drops the cost of sourcing the products to make those medications, thereby increasing those margins.
GS: So as we scale, we continue to grow. Right now, what we’re seeing is, a drop at the retail level price sometimes, not in everything, but in some products, dropping in the retail price of it. But because our volume is picking up so much, we’re offsetting that and actually adding to our margins, which is why if you compare fiscal 2024 to fiscal 2025, you’d see we went from like a 63% margin to around the 73% margin. That 10% is operating efficiencies. But if we can stay around the 60%, 63%, I think that’s pretty good. I’d be happy with that.
MK: And then from a balance sheet perspective, certainly the company maintains a strong position and has consistently generated positive net income and operating cash flow. So just with that as a backdrop, curious how you’re thinking about reinvesting in the business, potentially capitalizing on incremental M&A opportunities, as well as returning excess capital to shareholders via ongoing share repurchases.
GS: Okay, so yes, you’re right. But we do have a very strong balance sheet. We do have the repurchase program, which is still ongoing. And I don’t know this for a fact, but I would assume, because we have not been able to use almost, I think, 60% of the capital that we planned in that repurchase program, we have not even deployed yet. So if we don’t get that deployed by the end of the year, I’m sure the board will revisit expanding that buyback. That’s the number one way to do it. Now, as far as the M&A, I’ll tell you, it’s been one heck of a ride over the last two and a half years since I got here. And I think, obviously, as a strategic holding company, what you wanna do is continue to acquire and turn these businesses profitable. As of right now, we have Rx-CS profitable. We have Peaks profitable, returning cash. We’re about two to three months away from DOConsultation in Las Vegas, returning capital back. Avenvi is already profitable and bringing money back to the company. Mister Meds just got started last month.
GS: I would expect them to be cash flow positive by the end of this month. And MagneChef, jeez, at the rate they’re going, they might be profitable next week. But anyways, I think for right now on the M&A front, we’re gonna pause. And we have a very strong team. That is the strength of our science tech is the people, not the businesses. I tell my guys every day, I tell my team every day, they’re the best. I believe that firmly. They are definitely the best crew I’ve ever worked with in any other enterprise that I’ve been involved in. But I think that right now, we need to kind of catch our breath. So I don’t think if we’re see us doing any more M&A in the short term, eventually that will be something the board and myself will look at that and see if there’s something else we wanna acquire. A lot of shareholders have asked me about a dividend. I would love to do that in the future too. There’s some things that need to be cleaned up on the corporate structure side. That’s no secret.
GS: If you go to the OTC markets, it says unsolicited quotes only. We have a broker that is working through the final stages of our 211. So we’re hoping to have some good news on that front. And then I think once we get through those things, we can begin to figure out how we’re going to provide additional shareholder value. My preference always is to invest in ourselves. If we invest in ourselves, we buy our shares back, which I’m always doing on my personal level. And I’m pretty sure every other board member and executive here is doing the same. We prefer to invest in ourselves. We believe we’re the best, and we believe we are the best investment. We don’t need to go out and invest anywhere else. And that’s just the way we view it.
MK: Got it. And then just finally, curious to get your perspective on the regulatory backdrop, particularly as it relates to compounding pharmacies and Big Pharma versus opportunities for more diversified and well-capitalized companies to maybe pick up share as a result of ongoing industry consolidation.
GS: So when people ask me about this, I typically use this analogy. You can either make an investment or take a ride on a big cruise ship. And that’s Big Pharma, big capitalized, big company. Or you can hop on a speedboat, where they can turn and adjust on a dime. Right now, we are that speedboat. We’re able to adjust to the regulatory environment. We’ve already been challenged by Big Pharma and won. We are able to make decisions quickly and adjust to those things. We are able to see what’s coming faster than the bigger guys are, because of how quick we’re moving. And because of the vertical integration in the healthcare, one of the things we haven’t even spoken about is my online consultation, which is our own doctor network. So we actually have our own doctor network that other clinics use to prescribe for their patients. So literally, we’re on the ground in almost every facet. And I know we’re talking about the healthcare. I think that’s what you’re alluding to? The regulatory and the healthcare. So we are on the ground pretty much at every stage of the game, from the marketing, to the acquisition of the patient, to the prescribing of the patient, to fulfilling the patient.
GS: So I think we have our ears and eyes there where you want it to be. We’re seeing things, I think before they are. And I think, yeah, there’s always gonna be regulatory. Can anything happen? Absolutely. But I think we’ve already proven that we can adjust. We’ve adjusted in the past, and I think that anything that gets thrown at us, we’ll adjust in the future. It’s not one of those things that keeps me up at night. And by the way, and the healthcare stuff too. Everybody can go after one product or one specific sector. We are diversifying that. We have been, it’s always been our goal. Same way we diversify the company at the holding level, within the different industries, inside the healthcare section, inside the retail section, inside the Avenvi section, we’re diversifying that too. We have commercial and residential in Avenvi. We have telehealth for men, for women, spread across different things, sexual health, weight loss, hair loss, skin care. And the same thing in the pharmacies. And we’re now, we’re also doing the animal stuff.
GS: We’re also doing for vets. We have that division as well, and we’re expanding that. So I think we’re well diversified in the healthcare side where, yeah, could we get a regulatory issue one day or another? Possible. I can’t deny that. However, I think we’ve done a phenomenal job of navigating that landscape. And I think that Mario and his team have, honestly, they’re geniuses. The way that they’ve navigated through everything, staying within the law and meeting all the regulations, keeping us out of trouble.
MK: Excellent, Giorgio. This has been great. I think it’s clear that Earth Science Tech remains very well positioned to increasingly leverage the company’s unique business model, management’s expertise, more recent acquisitions, and building scale to drive strong and sustainable growth. So again, really appreciate your time today. Looking forward to continuing to follow the company’s progress. If anybody has any follow-up questions, please feel free to contact me at [email protected]. Thanks again, Giorgio, and thanks everyone for joining us today. Have a great day.
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