DYNT - Earnings call transcript Q4 2018

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Operator

Greetings, and welcome to the Dynatronics Conference Call to report Financial Results for Fourth Quarter and Full Fiscal Year 2018. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Mr. of CEO Jako, von Dynatronics. Chris Thank you.

begin. may You

Christopher von Jako

XX, the XX-K Thank Call Chief Investor quarter Chief fiscal on Executive to Jako, on will Chris earnings of you, We fiscal With and welcome and press June ended which Michele. Officer. Dynatronics year I to for me our later on the our file fourth am von Corporation our morning, This you XXXX. review this results is line Officer. the we our release, Report Annual we Form Wirthlin, morning, XXXX. David Financial issued year the our

reliance today performances At Before this make to forward-looking These June have XXXX. caution obligation included cause could statements forward-looking results Form the fourth reflect will those forward-looking I and quarter those open remind could call, lines XX, year, uncertainties conclusion commentary, materially our recent place or me our ended regarding to and our revise our you from questions. our are materially you they phone update to going talk our of today. on differ operating actual operator cause make about to this our we Important we of statements fiscal involve from risks, on view undue will not the of financial Today, by forward-looking report in statements course the our XX-K. plans, which differ for we we the statements morning. We to no on relating that most today or are undertake statements. begin, we forward-looking our implied expectations, factors our results business. discussed that let to current as that only, during actual projected and results projections from

First, like I introduce to would myself.

operating this of on Systems. partnership I with am honored days, of of sits appointed for previous thank and to assistance his I and years the our Company I Cullimore, turnaround lead startup to the over Most in I announced success growing, many on opportunity CEO, in this a and his medical Senior a investment strategic companies lead about my the roles serve and this my a Covidien be have and to member as on multiple transitioning debt, secured Board for XX me held June the in Dynatronics. Kelvyn and in St. experience Medtronic. CEO to XXXX, my recently, long-term Based Board and significant LifeSciences, first observations April Medical, enthusiastic year, the and acquisitions. results believe with Previously, a I Jude Medical in several industry opportunities like for Integra the Fiscal significant am organization, growth Executive device ourselves to Merit I and has medical we undertaken been of year The create to Board. leading, on over and raised Company improve period Dynatronics. experience device startup has actions Company. Directors leader space. million progress and I like have and therapy the the contributions XXXX where to additional As XX, rehabilitation onboarding. the ran would the of I successfully NinePoint grow company, grateful opportunity and for companies. equity and position $XX XX Medical physical Dynatronics who

of the the Cronin. began Some securities & quarter the & completed credit profit ended to an the made We the XX, to and complete placement we and third the the us necessary In the order and the modification and Asset the September Cronin year the of our activities. second transaction by with we efficient bank end and and ended negotiated acquisition. due integration Bird XX, diligence, for In established March of improvements organizational prepared first modified to we acquire several our XX, following. our immediately integration accomplishments Company completed Bird Cronin. quarter, include most of in Simultaneously, and placement & bank Purchase transaction, to in the XXXX, important the Bird the acquisition. to executed finance By quarter XXXX, to we Company changes the private and business. and successfully enable the This In signing improve our leadership private of and finalized structure scale Agreement. prepare announced Company closed quarter seamless in XXXX, the early changes new facility equity was the ended drive October position December the completed

of division, would Directors strong to He We has made CEO. of legacy we for the with Therapy February Bird execution the is that a steps a Board we device Dynatronics each a division. Based at medical changes designated division the at profitability. me. skills. a be that operations an Therapy called run the to experienced already Cronin reduce Simultaneously, search significant new operations. for in mandate the on report I Division. operations to the appointed newly for hired begin with executive directly together to review, Therapy First, the announced to Brian Division Products taken this streamline restructure division Baker the President, years several assessing Products Brian Brian worked LifeSciences. has Hausmann the business Organizationally, division, Integra Presidents and and the of & numerous costs Products the and

third undertook significant or margins Therapy A were Products number division its by division The to contribution on to we and to Products its our processes the in Daryl additions forward-looking of approximately acquire improve $X division standardized These and companies. team, efficiency. decrease running combination, fourth rationalization unprofitable products addition the additional of and the also Much to Black XX margin negligible actions system of review quarters profitability. upgrade XXXX, Controller guidance Chief in our sales enhanced order Skyler Division in profitability. in-force discuss important to annualized changes continued integrate million a XX, capacity In taken impact Corporate and the reduction June ended this the the fourth of as increase as ability individuals, Information to of In completed discontinued. and the our and take ERP to the improve steps had later at on and of are in basis. all The quarter to call. an implemented the Division this our its strengthened comprehensive a Officer. products In an leadership and efficiency, Connell Therapy Therapy Division, slow further reduction Products expected of hiring the Company made corporate additions revenue in will

the reduce search cost completed June. order Finally, quarter, the to in actions corporate me burden. Subsequent the in reduce XX, XXXX, June additional in new of appointed and Board the level taken CEO overhead fourth to we to Directors for have

have investments Products We additional Therapy to Division. in changes also made cost personnel reduce the the

CFO as call in would organizational a additions, we well-positioned financial improvements, now provide flow more and and like turn business With we the over cash to acquisitions the profits process these acquisitions, further reductions are believe cost our improved operations. to and drive report. executive changes, I the David efficiency we Wirthlin, through to to scale strategic

David Wirthlin

ended the for a year Thanks, June ended quarter factors quarter results XX, press that are for Chris. a financial quarter and on impact the year morning, There issued and June highlighting operating this a provide XX, our I that report we XXXX. release financial year. will a now had on and few the Note results the material XXXX.

of of quarters had three First, of of three in included in comparison. the fiscal Hausmann April Bird fiscal year-over-year fiscal results the both Bird & none included the the XXXX, adds all only significant operating year year-over-year adding in October quarter of XXXX. additional XXXX, comparison. three on XXXX results are are XXXX, acquisitions operating additional but but XXXX to also final in XXXX, Hausmann's one Cronin's and XXXX fiscal Cronin of quarters the thereby, comparison a in quarters which in fiscal fiscal the quarters in year impact &

XXXX were the significant in periods. of fourth quarter only fourth the was of operations of acquisition as Cronin & included quarter comparison a the both Bird XXXX, fiscal fiscal For factor Hausmann's the to

the the decrease fees incurred $XXX,XXX in Cronin ended we XXXX primarily fiscal primarily legal associated & with This accounting Hausmann expenses, to SG&A. in Second, of June Bird approximately in included XXXX the connection $XXX,XXX with year XX, in year-over-year acquisition. and acquisition. a $XXX,XXX in acquisition-related This compares is acquisition-related

expenses recorded ended as March Company project year, in in in Third, a we of quarter. executed XX, severance our third expense our an but R&D abandoned. severance significant result Four, quarter in also quarter. CEO, $XXX,XXX XXXX, that in the totaling force of fourth for Cullimore’s second reduction related XXXX we quarter including in Mr. we fourth incurred to primarily The incurred in fiscal $XXX,XXX as departure a expenses $XXX,XXX the which the was our

million XX, Net part rehabilitation as million prior sales the due of compared operations of were of $X.X The $XXX,XXX. million quarter, by the sales came the million $XX.X which XX% write-offs the Bird our These sales reduce acquisition Hausmann prior medical the Gross by sales the XX.X% in and June for increased and million in offset sales contributed addition of or product supplies. $XX.X two profit Cronin. number a The from cause we our equipment, XX.X% XX% the for approximately & sales for of representing we of that & well margin due of other decrease and ended Bird physical XXXX the and to profit was XX.X% $XX.X lower Bird of same Hausmann million, to and contributing growth XX.X% million. to million, year. an half to carry the the growth of this which in improvement SKU the of XXXX, increase increased exceeded a sales, or $X increased write-offs approximately in profit million to due SKUs. same This a $X.X was The the to undertook million acquired million in prior due same in margin. fourth the the $X decrease to of lower in higher review Together, and gross certain $XX.X XXXX XX% XX% primarily year to to pursuant profit quarter inventory medical products of million to primarily lower the XX, driver the of ended of or approximately & million. gross increases of profit $XX.X for attributable initiatives, as XXXX to inclusion year. or $XX in quarter of Bird The representing compared increase Selling, June increased compared of sales the of $X.X to year. the Cronin, the was in general year-over-year of Gross in and $X.X year. and $XX.X margin decrease quarter resulted ended $X.X decided increased half partially $X.X increase from by XXXX, to gross $XX.X decline which Cronin, or to the Cronin of primarily and profit rehabilitation or XX, of year sales quarter Net $X.X profitability & XX.X% sales to XX.X% discontinue contributed operation. gross primarily prior to XX% to approximately Finally, or $X.X sales acquisitions was million increase to therapy which $XX.X million expenses by year. gross prior XX, XX.X% quarter increase, in $X.X the million the to from of inventory came year & offset of was $X.X the million rationalization expenses the write-down The administrative of The higher from Bird together percentage XX.X% in primarily gross of gross million, percentage. for June and a Cronin XX% decrease ended physical sales Approximately sales XX, acquisitions equipment an sales quarter prior contributed sales compared freight This partially of million. $X.X Hausmann Bird of & caused therapy was approximately ended costs from increase million SG&A reductions. contribution product margin million. The increase million a of the of June from in primary supplies. margin the in is Cronin as compared lower gross by and June

in $XXX,XXX million approximately approximately from cost primarily costs, of decreased $XXX,XXX SG&A personnel the as In in and a Company's expenses year. primary $XX.X in XXXX, drivers expenses the in due quarter our ended $XXX,XXX million XX% of $X.X compared the expenses incurred from the addition, and Bird net the the quarter in improvement net to $X.X of Cronin million expenses. XX, XX, for severance, additional XX, was and to XX, other in selling project and increase a XXXX, corporate expenses expenses the ended which to XXXX, prior $XXX,XXX, June of XX, prior due to or to $X.X in year. second all June abandonment the or other level. ended G&A SG&A Depreciation, investment prior by incurred Company $X.X Research offset of R&D The to the XXXX an of year the $XXX,XXX June June loss the million $X.X the commissions non-cash additional the were $X.X non-cash management acquisition personnel to in XXXX was costs in decreased approximately approximately R&D Hausmann loss expenses, $XXX,XXX benefits expenses compared of partially increases $X.X in severance $X to million and $XXX,XXX million million the year. quarter. the prior to a compared million due decrease for loss for $XXX,XXX as year loss & compared the increased the Depreciation, the $XXX,XXX. of salaries year for $XXX,XXX $XXX,XXX primarily were ended $XXX,XXX in development $XXX,XXX the million same the in XXXX. was June Net of operations, were during prior $XX.X of increase Net well of ended of driven to increased The were approximately $X.X for at and amortization, other by fiscal quarter million same amortization, XX%, year, year. expenses million of an quarter year. for quarter

in and Series prior a of due of the a the quarter connection recognized reduction of is quarter no million measure year. loss dividend. net stock deemed year. same the June was $X.X one-time The million in performance there XXXX the adjusted $X.X the fiscal attributable loss By of these preferred to loss, which of B the a deemed million loss R&D same comparison $XXX,XXX loss of the quarter and severance associated ended loss to improvement, dividend contributed dividend. $X is in June the was abandoned charge the XX, ended Company the issuance Exclusive of the common $XXX,XXX, quarter XXXX, addition, and $X.X million reduction non-GAAP XX, and decrease prior expenses XXXX, to $XXX,XXX primarily acquisition of net In deemed a charges, related compared In net the $XXX,XXX warrants million with was to year. of project with in the compared to the for to a of $X.X Hausmann. Net stockholders for non-cash a

stockholders of Cronin, in connection prior C the April Bird with the acquisition in and net offset non-voting dividends in approximately the $X.X to the A The discounts For the warrants. the to year net year with to reduction associated loss loss, ended accretion & in $X.X comparison shares is XX, deemed partially and with XXXX, less Series the of was loss non-cash stock issuance attributable shares shares. common June Series $XXX,XXX dividends XXXX to compared by in XXXX the and B preferred decreases million issuance preferred increase a and the stock dividends reduction stock in due fiscal preferred plus was which December year. preferred net in a These associated decreased attributable preferred of of dividend a additional in issuance $XXX,XXX the $XXX,XXX with prior deemed to $XXX,XXX deemed in associated associated The of Series preferred million, stockholders common issuance of XXXX. were loss with in decrease to in warrants

XX, June of balances approximately $X.X million. cash we As XXXX, had of

of XX, which as of $XX asset-based credit, an to million had line XXXX. have We borrowed we June pursuant million $X.X

Our million. on borrowings leaving $X final based is million, Chris for $X.X $X.X credit we line base operating That approximately available summarizes of of averaging some results. our balance million of make currently borrowing remarks before the questions. will open

Christopher von Jako

Thank you, David.

have & integration Bird been divisions major As the previously, of completion the over successful a focus Cronin several and and the discussed quarters. past Hausmann

additional leadership positioned make We to with infrastructure have now Company acquisitions. the strategic and

optimistic target numerous on about to of our potential calendar per remain one We average. year continue discussions companies and with hold goal acquisition

opportunistic our we the include & did includes in a Cronin our are in evenly transactions financial not not the In impact approach, will we both be acquisitions fiscal have of We guidance. so financial XXXX, that spaced, divisions. and potential Hausmann any of and will Bird full-year

We consolidated contribute fiscal to The by rather in Cronin three implied will sales XXXX. will by included of four the Bird Products a of of $XX sales Therapy & than largely sales Bird sales lower Cronin approximately Division. expect quarters & of growth million million. consolidating $XX XXXX in offset fiscal in sales full-year quarters

annually positive flow targeted to XXXX. profit to guidance, taken Division by been in have expected we impact approximately cash flow. margin calculated our fiscal improvement improve positive and Products Our previous generate projects in expect Consistent consolidated have our and profitability. personnel operations our to reduce million drive Therapy $X with to operations The from product expected will rationalization, other our cash actions sales reductions we in

SG&A XX% X.X% sales, of of non-cash sum of R&D range June approximately shares $X.X a outstanding at in and margin about We XX, number approximately expect The sales including XXXX common the be was or gross charges. million. $X.X of to in be million XX% and to

We the XX,XXX throughout shares quarter year. approximately the outstanding to expect per increase shares

ends acquisitions. For any does be made this consolidated for operations XXXX, on fourth two based is on we current sales the quarter quarter of and at have to years the focused potential In the guidance September expect the or which we our XXXX, of first last in of we leveraging XX, impact below fiscal not the include prior investments XXXX, profitability. for the Again, year. fiscal summary, are slightly

improve to acquisition by and enable to provide this, their Beyond plan, continue This growth effective with to growing will commitment our for continue which Dynatronics’ to us profits. implement our to clinicians strategic to patients allow we a margins grow and organically and is products shareholder value. cost operating while rehabilitative safe therapy

We will continued investor investor strategic our for of convey our better also conferences to Thus, growth recognize and fall, appropriate key holding the for forward the performance. discussions have investment look participating in objectives the and conferences and on we I in relations number need investors we order a analysts schedule meeting continue the the throughout months. coming to and our in year. with analysts

like Finally, the this of with Board to my entrusting me the business. growing first thanking I exciting conclude for earnings by would call task

employees I our those this products you provide. we shareholders taking dialed now who thank lives commitment, With look we questions in for and which call. to the people's forward successful continued support and quarter, to for the Secondly, want with improving from another produced that, of

Operator

proceed Jeffrey We’ll you. question. session. question Please conducting Thalmann. Cohen Our Ladenburg the now a comes line with your [Operator of from Thank Instructions] be question-and-answer with first

Jeffrey Cohen

and you okay? Chris hear David. Hi, Can me

Christopher von Jako

Jeff, thanks. Perfectly,

Jeffrey Cohen

morning. Good

the concluded bit that a ERP upgrade? little Does begun? that talk and about include has has So divisions it of firstly, the or all can you

David Wirthlin

an that most we and several the in and the was on be over software, on version Division same like on just the upgrade quarters. already Products of was current platform ERP it next The are we the upgrade will working Therapy the just to

for current whole to we on We the two the upgrade will will 'The division, done. an already it corrected take ERP in software.'] get most Division same be just upgrade on. as the on that version and platform are Products just like was a working was It upgrade [Later the the but was that of company probably Therapy the ERP or year by

Jeffrey Cohen

little a Okay. might the low that you and you upcoming bit that would expect how the the the upside? look? far flat? could linear hold and And And then as X% Products margins? with mix decrease margins? XX% that fiscal Therapy increasing Is it be Or this a do outlook for as year? the discuss margins up from coming basically come Does that throughout to Or fairly bump off

David Wirthlin

the Jeff, in to expect to margins. cost we higher and opportunities for about continue of focus on our to on focusing XX% are sales We're on In margin our on identify our gross Yes. longer-term, product products practices reviewing increase margins resources the we're we improvement and we and reduction. marketing business. manufacturing portfolio and on also focusing continual combined engineering

product the in on project of point. our the this to We not expect gross increasing benefits, expect longer-term, some we see margin – from rationalization guidance are but we at

Jeffrey Cohen

And the their inventories got further inventories year? see you from down on expect of currently? inventory million expect Do Okay, we further? write-downs to it. see come reduce inventories throughout Should $XX.XX side, would you the

David Wirthlin

We to to We writing level. in future. that inventory be expect off the be about expect significant don't inventories

expect So be level we is the now. inventory would it to about

Jeffrey Cohen

Okay, is the then for got deemed of dividend? this positive your year cash as far coming that statement, it. guidance inclusive the on as And

Christopher von Jako

your following I'm Jeff. question sure, Not

Jeffrey Cohen

right. All

on cash, Your producing that’s… positive to guidance year coming that's for bottom this the line

Christopher von Jako

expect generate positive we cash to Yes, flow.

are that non-cash know the to don't we the deemed deemed dividends equity expect generate except do and additional dividends. deemed potentially in extent future, dividends could As we the raises you non-cash additional

Jeffrey Cohen

Any Okay, your then as got far are seeing? you trends? there of could the any areas interest speaking, from pipeline Or generally that's types it. that general out opportunities And the about lastly, standpoint? talk of as you

Christopher von Jako

talking about… you’re say talking acquisitions you you’re when about Jeff, pipeline, or

Jeffrey Cohen

Yes.

Christopher von Jako

Okay.

various but our And we're we in we're to in these focusing these, companies. on so – with opportunistic So hopeful, on stages obviously, but discussions opportunities things. several we're of approach remain

Jeffrey Cohen

the it. me. for taking for got I Okay. Thanks That’s it questions.

Christopher von Jako

Thanks, Jeff.

Operator

Michael of question. you. Please the Thank Instructions] [Operator Overbrook from Our your Markowski Capital. comes line proceed with with next question

Michael Markowski

Couple taking Can shares what Hi. structure. C, Series regarding diluted us number fully – of you capital you of fully Good guys have factoring guys. preferred, the outstanding call. the be guys out questions there? the for the that all would the tell warrants, morning, Thanks everything

David Wirthlin

Approximately just of XX million million, XX north shares.

Michael Markowski

XX Thank your a regarding of for guess levels shelf been about acquisition And the talks another for raise your are that's your you. little – type another a while million. strategic out – little now, and and can I capital bit Okay, you any potentially of cash and your there, there? talk what plans plans

Christopher von Jako

a to we last of for supplemental basis best shelf Yes, another under time. quarter. our a exceeds It’s look a provides universal value the it. a disclosure registration access will capital. out additional the to issue just one-third There to The shelf. providing on acquisitions, next to public we three there raise cap put market up of securities only It’s do years registration, are our the the use may way until specific details. million. tool no plans shelf If the Company over we're $XX immediate Company extent for does available to And issue that finance a going float to that file rolling XX-month we at the and

Michael Markowski

one? is And what is to parameters your are year accretive Or have willing pursue? that internally accretive? decisions Does to something be accept do it you to there regarding not you guys – on around put those acquisitions,

Darth Wirthlin

accretive be definitely accretive look for definitely and We to immediately. the as acquisitions. definitely [Later but accretive. hard 'We We any corrected fast look by find we that have company rules, will are don’t for companies trying

to be years.'] companies stated cash first previously or flow have must the clear two positive, flow within have cash that We path a

Michael Markowski

Okay. Thank you, guys.

Christopher von Jako

Thank you.

Operator

at you. over von are Jako Thank no to questions call this I'd closing to Mr. for time. back any turn There further remarks. like the

Christopher von Jako

interest you in thank and Well, for Michele. your your Thanks, questions Dynatronics.

any them to Operator, direct may Investor Ogilvie. you call. questions, Relations our you If please Jim further contact, have the end

Operator

Thank concludes you. This today's teleconference.

have your time. your disconnect Thank lines participation. day. this And at you a wonderful for may You

Dynatronics (DYNT) 27 Sep 182018 Q4 Earnings call transcript