Dynatronics Corporation (NASDAQ:DYNT) Q1 2024 Earnings Call Transcript

Dynatronics Corporation (NASDAQ:DYNT) Q1 2024 Earnings Call Transcript November 9, 2023

Dynatronics Corporation beats earnings expectations. Reported EPS is $-0.12, expectations were $-0.26.

Operator: Good morning ladies and gentlemen and welcome to the Dynatronics First Quarter Results for Fiscal 2024 Conference Call. It is now my pleasure to turn the floor over to your host, Brian Baker, the Company’s Chief Executive Officer. Brian, the floor is yours.

Brian Baker: Thank you, operator. Good morning, everyone, and welcome to Dynatronics’ first quarter earnings call. With me today is Gabe Ellwein, our new Chief Financial Officer, and John Krier, our former CEO and CFO. Before we begin, I’ll turn the call over to Gabe to introduce himself, and to review our Safe Harbor Statement.

Gabe Ellwein: Thank you, Brian. This is Gabe Ellwein, Chief Financial Officer of Dynatronics. Let me start by thanking Brian and the Board of Directors for the opportunity to join Dynatronics and to participate with them and leading the company. I believe Dynatronics has established strong vendor and customer relationships, a reputation for quality products and dedicated employees, which positions us well for success. I look forward to building trusted relationships with our shareholders, analysts, and the investment community. Turning to our Safe Harbor Statement. During the course of this call, we will make forward-looking statements regarding our current expectations, plans, projections, and financial performance relating to our business.

These forward-looking statements reflect our view as of today only and involve risks and uncertainties that could cause our actual results to differ materially from those discussed today. Important factors that could cause actual results to differ materially from these projected or implied by our forward-looking statements are included in our most recent 10-K and other reports filed with the SEC. We caution you to not place undue reliance on forward-looking statements we make this morning. We undertake no obligation to update or revise forward-looking statements.

Brian Baker: Thank you, Gabe. This is Brian Baker, President and Chief Executive Officer of Dynatronics. This morning, we issued a press release announcing the financial results of our first quarter ended September 30th, 2023. On today’s call, I’ll provide some initial commentary. Then I’ll turn it over to John for a financial report. Following John, I will confirm our guidance for the 2024 fiscal year and provide closing remarks. The operator will then open the phone lines for questions. For the quarter ended September 30th, 2023, we are pleased to report that we achieved our sales expectations and delivered EBITDA profitability for the business. Our teams continue to be committed to meeting our stated sales objectives and profit goals.

Our commercial teams have been and will continue to work hard to strengthen customer relationships with the goal of improving customer loyalty to the Dynatronics brands. Our operations teams continue to find cost reductions in material, freight and efficient use of labor. These financials represent one quarter only. However, the results reflect continued discipline in our fiscal year 2024 operating plan and progress on our strategic priorities. Our team’s daily commitment to the business has been key to achieving our goals and I want to thank every employee for their ongoing dedication in the business. Before I turn it over to John to deliver our financial report, I want to take a moment and recognize that today’s call represents the 15th and final learnings call for John as he transitioned out of the CEO role on October 1st.

However, he has continued to support myself, the Board of Directors and the management team while we welcome Gabe to the team as the new CFO. Thank you John and I’ll turn it over to you for the financial report.

John Krier: Thank you, Brian. I’m proud of the work you, the management team and all the employees of Dynatronics have led to deliver these first quarter results and I look forward to watching the success moving forward. As a reminder, the full income statement and management discussion and analysis can be found in the 10-Q. I will summarize some of the key financials here. Net sales were $9.4 million for the first quarter of fiscal year 2024. That compares to net sales of $12.1 million in fiscal year 2023. The year-over-year decrease is primarily due to the acquisition of a competitor by one of our larger rehabilitation product category customers and a reduction in demand in our orthopedic soft bracing category. Gross profit for the quarter was $2.3 million or 24.7% of net sales compared to $3.6 million or 30.2% of net sales in the same period the prior year.

The decrease in gross profit as a percentage of net sales was driven two-thirds by the reduction in net sales we previously discussed and one-third by lower product margin as we continue to seek efficiencies at the lower revenue levels. Selling, general and administrative expenses decreased $1.6 million or 38.2% to $2.5 million for the quarter-ended September 30, 2023 compared to $4.1 million for the quarter-ended September 30, 2022. The overall reduction in selling, general and administrative expenses was led by a reduction of $1.3 million in salaries and benefits with the remainder of $0.3 million spread across other professional expenses. Net loss for Q1 fiscal year 2024 was $0.3 million. That compares to a net loss of $0.5 million in the same period of fiscal year 2023.

We anticipate that outstanding shares will increase approximately 275,000 per quarter depending on our share price. As of September 30, 2023, the number of common shares outstanding was approximately 4.3 million. The net cash balance was approximately $0.6 million on September 30, 2023. No change to the $0.6 million reported on June 30, 2023. As of September 30, 2023, our line of credit balance was approximately $1.8 million and additional line of credit availability was approximately $2.8 million on a borrowing base of approximately $4.6 million. Cash used by operating activities was $1.7 million for the first quarter of fiscal year 2024. The company used the proceeds from the line of credit to reduce accounts payable and accrued expenses by $0.9 million and fund prepaid expenses of $0.8 million.

The overall net change in cash position for the quarter compared to June 30, 2023 was a positive 34,000. This concludes our summary of the financial and operating results.

Brian Baker: Thank you, John. In terms of guidance for fiscal year 2024, we are reaffirming our net sales to be in the range of $34 million to $37 million. The distribution of revenue is expected to align with historical trends. We are not providing gross margin guidance at this time. Given our reductions in revenue expectations and costs, we would like to have more data before considering and reinstituting such guidance. SG&A is anticipated to be in the range of 29% to 33% of net sales for the fiscal year. In summary, our focus for the current fiscal year is the strength in our customer relationships as we improve our operating profitability and financial flexibility. We appreciate and thank our investors and employees for their ongoing support. I’ll now turn it over to the operator for questions.

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Q&A Session

Operator: Thank you. We’ll now take questions from the telephone lines. [Operator Instructions] The first question is from Brooks O’Neil from Lake Street Capital Markets. Please go ahead.

Brooks O’Neil: Good morning, Brian and John. Thanks for the overview. John. I’m going to miss you, but I wish you well in the future. And Brian, I’m looking forward to working with you as we move forward. So, I just have a couple of quick questions. The first one is, I know that over the last let’s say year or maybe a little bit more, inventory has been relatively high, built up in anticipation of supply chain issues and be sure you could service accounts during the pandemic. Do you feel you’re making good progress, bringing that down to a level at which it’s acceptable? And do you still feel that the items you have in inventory are saleable in the current market environment?

Brian Baker: Brooks, I’ll start with responding to your question by indicating, I think we’re probably at the right inventory levels with where the current revenues in the business and what we need to support the demand. John can probably go back and give you kind of a history where we with inventory and where we’re at with current balances. I think that would be helpful to just provide a reminder of how historically we’ve had higher levels and we believe we’ve got it down to a more reasonable level to support the business. And then to your question on the inventories, is all sellable inventory. We’ve got the right reserves on the books for the inventory that we view as in an excess and obsolete position, but we think that we’re in a pretty good place with the inventory do have on our shelves that they are inventories that will sell through.

Brooks O’Neil: Great.

John Krier: Yes, thanks Brooks and we appreciate the support on that. Just add a little bit of color for Brian. If we go back about a year ago, we were at roughly $12 million of inventory. You see on this balance sheet this morning that we released about $7 million of inventory. Give you a sense of what all the work that Brian and the team led over the last year to get those inventories at the right level. And that is a similar level that we expect with this revenue performance.

Brooks O’Neil: Great. That’s very helpful. And then I’m just curious. I know, John, while we were chatting over the last year or more, one of your focuses has been trying to introduce high quality new products. I don’t know if Brian, you’re in a position to comment about what the outlook might with regard to new items over the next year or whatever, but is that going to remain a priority? And do you see any exciting new things in the pipeline?

Brian Baker: It does remain a priority for us, Brooks, to make sure that we’re providing the right products to our customers. As I’ve started to get re-engaged with customers coming back into this role, we had a lot of good conversations on the products that we need to enhance our current product portfolio. And we’re focusing on the largest opportunities first, but we’ve got probably a good half dozen products that we believe we need to be adding to our product portfolio over, say, the next six to 12 months. And again, we’re just focusing on the ones we’ll launch first based off of the highest opportunity that we’re having with our customers. So, yes, in short, that is a focus of ours to continue to innovate and find new products to support our customers.

Brooks O’Neil: Great. Super. Thanks for taking my question.

Brian Baker: Yes, thank you, Brooks.

John Krier: Thank you, Brooks.

Operator: Thank you. The next question is from Jeffrey Cohen from Ladenburg Thalmann. Please go ahead.

Jeffrey Cohen: Hi, Brian, Gabe, and John. How are you?

Brian Baker: Hey good afternoon Jeff.

Jeffrey Cohen: So, two questions from my end. And can you talk about how you’re thinking about the cash utilization over the coming few quarters? I know that there was some usage in Q1 of 1.7?

Brian Baker: Sure. Jeff, this is Brian. What I’d like to do is just let John provide some details about that cash utilization.