Earnings call transcript Q3 2023

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Operator

Thank you for standing by. This is the conference operator. Welcome to the Dynatronics Third Quarter Results for Fiscal 2023 Conference Call.

As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. Instructions] [Operator

like CEO conference ahead. of now Krier, to turn and President Dynatronics. to would over the John I Please go

John Krier

you, everyone, quarter morning, operator. to Thank third Dynatronics’ and earnings welcome call. Good

caution statement during to I that will could statements. remind attention safe X. We Before We we not materially we or filings obligation in with differ call undue are on found to the to statements. the recent will call reliance SEC. Slide discussions begin, discussed on place that Factors results most may conference to cause company’s your the make our undertake update you actual forward-looking statements harbor forward-looking this revise this you morning. forward-looking I include no

remarks, are will slides page webcast we in the at to referring available posted viewing prepared on Investor that and be dynatronics.com. During our Center for our

provide of our and operator third phone On XXXX as today’s of achievements for open call, the as on we and will fiscal from have questions the year highlights lines we will the commentary the quarter analysts. the cover well then financials,

external X events, us takeaways for Dynatronics’ three XXXX. I have third which Slide want to highlights this by highlighting of quarter. fiscal impacted begin quarter key year market

half caused one have competitive fiscal us an of year specific to OEM customers; our First, SKUs of by of choppiness second, reexamine acquisitions for from general XXXX. finally, bracing rehabilitation our a back the market reduction customer; assumptions and

year. $X.X XXXX for $XX.X million and for full Net $XX.X sales to million of QX million are expected year fiscal $X.X fiscal million be to to the

Due now the on external revenue quarter events, our anticipate gross fiscal previously external despite market I As margin remain we any we and firmly planned. earlier lower than fourth in events, have focused to improvement. stated

However, has not changed. that

on gross the focus margin versus lower Dynatronics despite revenue, of heightens In gross margin in prior delivered In fact, year. a expansion. QX, the XX.X% continued it XX.X%

made the to expenses cost in March realized baseline approximately million in Using be structure reductions year million lower significant costs $X.X XXXX. the changes made administrative have response have general and run cost we $X rate we and to anticipated to Finally, through reductions selling, of revenue. fiscal to XXXX, of

Slide to X. Moving

and can in period. reminder, million I the and year the key third full be summarize discussion here. were for the management to found some of analysis will quarter $XX.X the $X.X fiscal income the As statement sales net prior financials of XX-Q. Net sales year ‘XX compared million a in of

the earlier, compared for profit was gross profit the noted to combination net Gross pressures net remain sales was of cost The year. or XX.X% calendar net outlook a about of net XXXX. as the realization I continue to quarter mix. the price by $X.X sales external of of the million same driven cautious modeled in as product XX.X% We or overall better percentage the have and increase for in and $X.X million, continued prior period of remainder sales

million for million March the $X.X decrease. quarter March Reductions of drivers XXXX, and or the expenses general in decreased the salaries to million Selling, for compared were $X.X XXXX. quarter the and X.X% ended XX, ended XX, benefits $X.X primary to administrative

the March XX, share in quarter, $X.XX ‘XX net $X.X shares will a to depending $X.X fiscal million for of June increase XXXX, The XXX,XXX The XXXX. loss based period was shares Net year loss approximately compared on Outstanding approximately per was on approximately per million of per $X.X our as fiscal is QX million cash a same year balance XX, the quarter price on price. XXX,XXX share. same XXXX. on net share of

balance from $X.X million. to June by inventory $X.X our We levels million reduced our approximately XXXX

quarters. upcoming introductions product our continue strategically in to inventory and while preparing new will for seasonal optimize our We demands

in of operating generated the to million summary activities operating of nine This concludes cash financial $X.X was and the by used prior our which our results. million year. of XXXX, Cash same operating $X.X compares of nine for fiscal first by the year months months activities the

Slide to Turning X.

a gross percentage earlier, QX, percentage XX.X% margin previously focus. Gross prior discussed, the stated increase macroeconomic in margin customer chain QX key gross As expansion with margin to from reflects margin in year the coupled supply disruption remains Sequentially, point X.X of increased gross XX.X%. of the challenges. from a X.X decrease points

against and execute mergers rationalized three, one, Number to rationalization; continuing scale; plan. are and five, margin new revenue price product; number gross manufacturing acquisitions. introductions; efficiencies; our two, We product six, X-point four,

‘XX Slide approximately and to per $X.XX reset highest the for have performance of and the million. fiscal historical $XX.X trends. sales our fiscal range million our ‘XX to Historical net of year quarter I guidance net $XX.X discussed details. we baseline fourth Effectively, seasonality trends year to align performance fiscal X seasonality provides sales in first guidance quarters to year. million the be the tend our

the its margin of recent of providing continuing guidance of forward-looking QX expenses We is and of business of company due of gross ‘XX. events. external the XX% to XX% selling, trend year anticipate nature in administrative choppy noted and the impact to The transformation not fiscal net the sales general

expect This to SG&A and of year filings we As to sales our in in in with this and factors XX% net we of the scale base fiscal XX% contained forward-looking guidance and move continually through return our cost upcoming presentation statements SEC. ‘XX. leverage to on on other is the our and based to improve and subject range our targeted this uncertainties quarters, risk is and operations the current

Turning part able in Dynatronics has of is from coming has consecutive reached The our revenue of a team portfolio the products level to approximately plan. quarters. for Refreshing key years three this released growth X% to and product maintain four our past Slide X. been

disruption improvement The macroeconomic in in environment. serve, target rehabilitation shows quarters revenue We gross Dynatronics X the for and its and Dynatronics. highlights overall product opportunities investment bracing for we margin coming Slide profiles. the markets despite the expand to have

We debt. borrowed not have sheet accounts $X.X XXXX, no $X.X March against of base since cash million quarters its the XX and asset inventory has or at with of on of Dynatronics debt. receivable million end of the representing July inventory of approximately balance consecutive no

Dynatronics a on of capital possible asset-based financial additional flexibility using is focused appropriate. by and reductions, ATM line evaluating as working potentially credit ensuring our facility

to continue updates will as share progress year move fiscal and our We our XXXX. through we

I over will questions. now turn for it

Operator

you. Thank

O’Neil [Operator Street question-and-answer now will Instructions] Lake question from of session. Markets. We comes Please Capital Brooks go the ahead. first Our begin

Brooks O’Neil

name you but the I’m your color mean know happened I disrupt the to nature John. morning, – the just perhaps more could Good of give the hoping I of specific of customer, just with curious, these on customers. customer. need little to the bit I’m a business us what don’t

John Krier

morning, have of we customer that by and competitors look Good problem. We an of we Not rehabilitation – of really a it’s stories. When at revenue a of a the acquisition two the faced, did tale our space. Brooks. one disruption ours our of in

our that’s brands brands, our modalities. so therapeutic that’s Dynatronics of And Hausmann

you that segment, significant in ours. terms now in integrating is a and the a vertically with fact of that disruption our and despite significant if the category in bracing look quarter-over-quarter, see Rehabilitation some the business at had our disruption roughly that’s some that’s our customer was And competitor product where it part was you of we of OEM channel. quarter-over-quarter by Where being flat, impacted and of

the appeared forward there, for be that So that’s as quarter, to we’re in and really well disruption the disruptive. that’s planning that moving

Brooks O’Neil

just they help with Did just And customer me bracing. some Okay. the eliminate – just line items?

John Krier

the that from customers looked Cronin historically, their us are we also to products decision streamline ordered certain portfolio. – These they and correct. our made Bird those & and eliminate have that sell under That’s through brand,

Brooks O’Neil

then of second your the uncertainty general well as inventory ability that your holding? assessment And sort question of of to any sell Okay. the change you’re is, did macro as down

John Krier

last built can It does our down over that it’s that it’s to manufactured base. through inventory $XX it. still change anything, it impact sold $X.X inventory. year, If continue very provide very more inventory, opportunity an our our $X.X up to But now we inventory, million sell because part our to customer million does good potentially products, not and going to through fresh it and our over assessment. reduce ability from about might to million, It’s healthy be it not time. us the The

Brooks O’Neil

think might give that then grow I’m future question. curious, And last activity, offer your just the some to and about one product new are you’d you encouragement about business? as Great. us specific highlights any opportunity your there

John Krier

XXXX, products nine early very and all marketplace. Yes. much product The those well in what are good of part we’ve the done part of since about releases with new They’re doing accepted. the

are brands and still compete. we strong with where Our healthy

Mammoth we collection. refresh the product portfolio, still new opportunity with to that did products the So exists like introduce

the investment in you seen quarter-over-quarter that And up where leaned that’s decline will said that portfolio products, year in well. an our segment, space. we We’ve to our by this rehabilitation was of product in the that’s the which is and before, refresh also as growth we’ve driven business continue what new all into to side really introductions of that to our need with into and had expand our we when revenue, acquisition bracing have –

that So refresh to our we the about have still we’re excited products. opportunity certainly

Brooks O’Neil

much very for taking you Thank questions. my Great.

John Krier

you, Thank Brooks.

Operator

of Our go Thalmann. next Please Ladenburg from question Jeffrey Cohen comes ahead.

Jeffrey Cohen

are morning. Hey, John, How good you?

John Krier

Good, morning, Jeff. good. Good

Jeffrey Cohen

of A couple questions.

talked on about Could build X, you plan. on please? a that, you’d So facility Slide elaborate

John Krier

Yes.

facilities we’re and to ensure plan. manufacturing them. a the through it’s for us allow manufacturing that efficiencies, our take of gross element improve revenue coming to That’s our continuing rightsized perspective, get we if So a look we our from at one efficiency to margin that’s going

Jeffrey Cohen

this to is the XXXX could you business is largely a it. got year? And a Okay, follow-on last little about transformation? business a this bit – transformation talk Or from

John Krier

what it we Back and focus we on was a own manufactured products. at as resetting in XXXX, of XXXX our business look would more transformation. to said a want I

margin products continued the our eliminated this And of to were our point, has distributed then that we be our we lower up pace. So profile. continued third-party to that end at as

the of strategy So changing. is that part not

going going given our forward. our of greater, However, to is revenue that the integrating vertically customers impact that’s now fact one

we’re that we plan so have to And for resetting that’s and where it.

in a what revenue did we of resetting because expectation bit a it’s those So but of of the acquisitions. ‘XX, April competitive continuation

Jeffrey Cohen

between got platform talk the about the XX the one on series? product more you the it. and And Okay, the side. little a difference Solaris Could XXX Series, bit

John Krier

the models. centers is to sought product platform, That’s training Those our XX in physical The which training athletic Yes. in our and products. accessories. strength Solaris biggest most are the Very our available Series the the ThermoStim well have products. our there. light ability therapy our room out is received after It’s about not

models our running highest our customers products, you will, units, but accessories. XX be to on is combination Series Solaris it’s there. really and tend our entry, those They’re our out into Our our what if demand based

Jeffrey Cohen

XX the of ASP the price Series? And is Xx Solaris Xx or differential the

John Krier

not is or but our premium It of market, to the baseline exist in elasticity sort it That doesn’t X compared command Xx. series. does a pricing ASP

Jeffrey Cohen

Okay, to handpiece? got handset, one it. than ability purchase And with Solaris comes more the

John Krier

It does. does. It

Jeffrey Cohen

for Thank questions. Okay. Perfect. for us. That taking it does the

John Krier

Thank you, Jeff.

Operator

next Scott Please Our Capital. go from question of Henry ROTH ahead. comes

Scott Henry

Brooks Thank of follow detail. little you, and up on want questions, just few I just a a morning. to good more

So your total sales, by one percent competitor, the vertically first was What customers that your of sales or was in. approximate? a acquired of of integrated was issue which customer

John Krier

not do way the disclose – the it’s yes, we would significant term the I it, that Yes, approximate Scott. customers –

to revenue impact we’re to to and have for going it’s So going have forward. something going our on an that plan

Scott Henry

you By greater significant, say than X%? would

John Krier

the it’s would a going and but specifically, digits. I that say single wouldn’t it’s number in XX%, less say to be I than

Scott Henry

around All helpful. these as put get the Just events. number then that trying Okay. bracing. on to as some customer magnitude another you the first same right. each Would SKUs impact about the the issue? metrics of of reduced of quantitative That’s And

John Krier

the I than Overall, that going our part be Yes. year-over-year. one rationalizing our would that say less impact segment, which price, was been acquiring to that has product customers in a and our had an of issue, we’ve impactful in first which business it’s of the competitor.

so will new still first fiscal issue, our us And it be impact year. going will into the less but it than

Scott Henry

How choppiness? was a then the do third – I should mean by you And choppiness. issue that’s What Okay. pretty vague term. market market

us sector Just economically, your some think within how do could – about overall that give just we if you term? or

John Krier

X%. to our customer markets, I the highlights are year-over-year investment our you about about tending – it. look Yes, X%, context of we talked basis. on products, would materials customers, me little about our the line our at being X, talk base, to our on X%, we at more we were talked If fiscal coming into our let When this put we’re sort in we to X% products our more markets grow today flat, X% year, competing Page of a that in

competitive reports year overall with QX, that’s in others out at X% folks there the segments, like their public look our X%, QX numbers Novus look seeing you information and going X%, at of if like of into calendar we growth. When of the some you’re

Now also still volumes see to time, when therapy in I some choppiness, being in refer that the but up – we the of or same and mid-single digits the procedure showing digits. at visits mid-single elements patient

I’m those the that’s or in no choppiness patient consistent the to be that business going to in where there’s in products, our will referring is out. show up the volume our to products is that choppiness showing smooth And we’re understand experiencing they’d demand for level. when when at same So competitors what visits one and whether are our trying trend ours up is

Scott Henry

Are that slower I maybe correctly, that interpreting you originally and not. saying is expected? I’m if than am the I’m pie – So growing

John Krier

our That’s market. what we seeing. expectation is in are our That

Scott Henry

Okay.

is the market now Or it even it little – within be that as pie share So your lower could is expected? is higher? a pie or

John Krier

specific we’re its and to that. share, to to competitive be grow – quarter about grow which up was other issue. And on that then for in above we’ve more if by able segment. taking it’s impacted not But been own. this what every market point should one, it’s would talked this do It’s And – materially benefit changed rate do to or this say able – up is way that this we’ve acquisition one the we we at customer the we’ll I

So that’s what we going forward. expect

to pie for want in believe X%, no sort to share. we’re going if If to I of material right that is to have market. share we’re take to some we beat say to change point. now, have market market if would is grow, you going will, some We’re share, that now at take but additional But our if to the going the this X% we flat, there’s the at growing

Scott Henry

a to as is, Okay, which picture you’re at good And you $XX that follow-ups it. can how in positive what’s you in The be then turn adjustments? revenues? on do make would question, are flow amount could with The of far pricing, final the believe Or does to be great. question into the the revenues. depending can And plan you gross some company you to is on have timing need flow guess – a profitable million Or You on think competitive big $XX that? million margins. number higher? pretty may at revenues scale positive? be cash here, size that to stems what’s I depending as the master cash question

John Krier

on in business SG&A level. in have make expand necessary we by still to good We $X positive business our to believe a will that the reducing million business to cash appear million looks like range be to the the We We in FY quarter took to changes this need reductions that ‘XX. the flow at revenue Yes. margin. fourth steps the the our what or $X.X us. running gross in to significant do of That’s

So in you time going we will on able that, a manner I’m flow company line being to to operate not are put exact give Scott. cash a to the on that path an positive. us

certainly us. is appear think in that ‘XX a FY I having target for

executing to on we that. just make However, sure day-to-day, need that we’re

Scott Henry

Okay.

XXXX, to a now, we when EBITDA those of will it positive Do transition? the the those which about it the little So a I loss. Or of bit maybe at the maybe mean looks we a a little How – we not like should jump they the look preferred. think relative around $X you’re think maintain is losses When size is look you at lot all money, losing least this generally million lower. losses higher, at little current right they’re or might during levels? in

John Krier

at or of, new be fiscal the year. this new level the loss loss reduce million year, will EBITDA the we reduce call fiscal targeting will revenue annualized to the that it, we expectation, in into move as even $XX Our reset EBITDA

able uncertainty in there at going to the we EBITDA by so targeting, mentioned If I is reduce it that terms choppiness the the out you our reduce the to look the that. the There’s in to still for making we loss SG&A or plan year. million flattening of reductions have But should and made new it be year, this into call $X an that of we’re that that of point, it, the market, market. up

Scott Henry

Okay, your going can ways follow-up because a ask you in reduce curiosity it’s you just one Do nowadays. in to of I’m utilize think buzzword great. just any out costs? such to business AI

John Krier

There the ways the our for out the we that we that products us, successful business to customers lean, business. that manufacture most our a that to just quality and is compete in, for clean that stay the have, that path But are there continue the run likely for have, us may products transactions for have very scale we best of customer be is products, us. appropriate single opportunity with are for we number the

Scott Henry

Okay. of that extent? a commodity more about less that mean maybe a being brand differentiated, to higher-margin And how some you entail does products? is and think I more of

John Krier

need customers’ Yes. relevant be continue minds with to very in to just our We our brands.

old, in. years respected we XX very the markets that XX, roughly are brands Our well in compete

quality. for known We’re

We’re quality known for for cost.

we’re you, external customers to that, unique by if an continue of say on our do have one acquisition We’re or customers. basics, these with going you time, deliver to events just them deliver of reward going the absent said, our events do those just qualities. And to

Scott Henry

questions. the Thank great. for taking Okay, you

John Krier

Scott. you, Thank

Operator

the over Krier remarks. question-and-answer for closing to I the back conference to turn Mr. would any session. concludes This like

John Krier

operator, Dynatronics. for thank you interest your you, all and in Thank

a direct any further day. please have Have great them ir@dynatronics.com. If to questions, you

Operator

today’s concludes conference call. This

may your and You you for Thank a have pleasant disconnect lines. day. participating,

John Krier	President, Chief Executive Officer and Principal Financial Officer
Brooks O'Neil	Lake Street Capital Markets
Jeffrey Cohen	Ladenburg Thalmann & Co. Inc.
Scott Henry	ROTH Capital Partners, LLC

Dynatronics (DYNT) 11 May 232023 Q3 Earnings call transcript