Q3 2020 Earnings Call
Good day, ladies and gentlemen, and welcome to your Dynatronics third quarter 2020 earnings call. All lines have been placed on the listen only mode and the floor will be opened for your questions and comments. Following the presentation. If you should require assistance throughout the conference. Please press star zero to reach a live operator.
At this time it is my pleasure to turn the floor over to your host Brian Baker, President and CEO, Sir the floor is yours.
Good morning, and thank you for participating in today's call Hi, Brian Baker, President and Chief Executive Officer, and with me today is our recently appointed Chief Financial Officer, John Kreger, that's kind of Black corporate controller and head of Investor Relations. We hope you your families and friends are healthy and remains high.
[music]. This morning, we issued a press release announcing the financial results of our third quarter ended March 31st 2020.
On today's call I'll provide some initial commentary and turn it over to John for financial reporting.
Following John's report out for my closing remarks, and then happy operator open the phone lines for questions.
Before we begin let me remind you that during the course of this call. We may make forward looking statements regarding our current expectations plans projections and financial performance relating to our business.
These forward looking statements reflect our view outs to be only and involve risks and uncertainties that could cause our actual results to differ materially from those discounts Tonight.
Important factors that could actually could cause actual results to differ materially from those projected worldwide.
Forward looking statements are included in our most recent 10-K and other reports filed with the yachts easy.
In addition, the uncertainty and risk related to the impact to cope with 19 pandemic on the business results.
We caution you not to place undue reliance on forward looking statements. We make this morning, we undertake no obligation to update or revise forward looking statements.
I'll begin by welcoming John career, that's our newly appointed Chief Financial Officer.
John brings years, well rounded executive leadership experience in multiple functional areas. In addition to finance.
Most recently John was eight Vice President, Brad, which is a longstanding partner dynatronics entering important player in the orthopedic sockets athletic training and physical therapy markets.
Brad you have responsibility for commercial operations, including Gelling services revenue marketing reimbursement patient service customer experience communications and brand strategy.
In addition to leading our finance organization, John will be responsible for our commercial teams I'm pleased to John is joining our executive team I look forward to partnering with him to lead the company.
No I want to take a moment, thank our employees for their unwavering commitment to the company during this challenging toward.
The called at 19 impact to our business employees and community is unprecedented and the effects of beer and remain fluid.
I'm proud of our teams response to this ever changing situation. Our management team quickly responded by implementing modified systems and processes in house employee safety, while keeping our facilities operational to satisfy customer demand for products. In addition, our employees have been nimble and creative couple any.
New ways, just part of customers in our communities in the fight against couple of things too.
We have provided that's like cabinets overbid cable temporary impact medical facilities distributed disinfecting products to our dealer supply channels, and we are manufacturing face masks for local hospitals and healthcare workers.
These products do not contribute significantly to overall revenues, our actions have been important and meaningful to our employees and customers and supporting the frontline medical professionals. During this kind of it.
In response to the initial impact a couple of 19 has had on the U.S. economy, our kings reacted quickly and decisively to control costs and managed working capital.
We accelerated the already planned consolidation activity from you talk to Minnesota, resulting in roughly 20% permanent headcount reduction.
Operation teens household discontinued the use of contract staffing and hurdle of production employees to align our capacity that's produced near term demand.
Eliminated all discretionary spend for fiscal 20, and deferred non essential capital expenditures to physical 21.
Our supply chain leaguers quickly took steps to rightsize incoming materials any Josh inventory management accordingly.
Finance team is providing extra focus on collecting receivables and negotiating extended payment terms, what many of our suppliers.
We're optimistic that many of these new process enhancements will contribute in meaningful ways, even one business normalizes.
We've also taken important steps to improve our access to working capital and it's uncertain environment.
We secured a 3.5 million paycheck protection program long to cover payroll costs and other qualified expenditures and we've raised approximately 2.3 million in cash through the issuance of 3.2 million shares of common stock through our ATM facility.
We also continue to have been very collaborative relationship with the bank of the west and to our asset base bone facility. We have remained in compliance with the financial covenants and got long facility.
And working with our customers suppliers employees. During this difficult time I've seen the best and people my leadership team and I value. These key relationships and our humbled to see somebody get people come together in support of the larger National International community at this critical time.
Now I will turn the call over to John to provide the financial report John.
Thanks, Brian and good morning, everyone.
First I want to thank Brian and the board of directors for this opportunity to join Dynatronics, Although new Dynatronics I'm not due to our industry products competitors or customers.
My background is certainly well within my first two months, leading the financial and commercial teams.
Joining the organization on March 23rd in the Middle of the Koby 19 pandemic has brought you new challenges, but did I dynatronics team was ready to execute on a clear set of priorities.
I am impressed with the focus and flexibility of the team its commitment to restructuring the business to drive future profitability and cash flow in the face a challenging revenue declines I will now provide our financial report.
Net sales for the third quarter ended March 31, 2020 decreased 845000 were 5.8% to 13.7 million.
Fair to 14.6 million in the same quarter of the prior year. The decrease was primarily due to a reduction in sales of physical therapy and rehabilitation products.
Notably sales were particularly challenged in the last two weeks of March which would have been traditionally the strongest weeks of the quarter.
Gross profit for the quarter decreased 461000 were 10.5% to 3.9 million, representing 28.8% of sales compared to 4.4 million were 30.3% of sales in the same quarter of the prior year.
Lower sales were the primary causes the degrees, reducing gross profit by approximately 256000.
The decrease in gross margin percentage to 28.8%.
From 30.3% contributed 205000 to the reduction in gross profit.
These reductions were driven primarily by lower sales volume in our physical therapy product line.
Selling general and administrative expenses for the quarter increased approximately 89000 or 1.9% to 4.9 million.
Compared to 4.8 million in the same quarter of the prior year.
The increase was primarily due to an increase in severance costs of 257000, partially offset by lower selling expenses of 219000, consisting primarily of fixed sales management salaries and lower commissions.
Net loss for the quarter was approximately 1.1 million compared to net loss of 563000 in the same quarter of the prior year depreciation amortization and other non cash expenses were 488000 in the quarter.
Cash flow from operating activities was negative 367000 in the quarter, but positive 2.5 million for the nine month period.
As of March 31, 2020.
We had cash balances of approximately 1.5 million.
We have an 11 million dollar asset base line of credit pursuant to which we had borrowed 6.4 million.
More recently as of mid May and taking into account the proceeds from the paycheck protection program loan MD ATM.
Our cash balances are averaging approximately 4 million.
And our line of credit balances, averaging about 3 million.
We have availability on our line of credit of about 4 million based on our current borrowing base.
The number of common shares at the end of Q3 was 10.4 million, which increased 458000 in the third quarter due to weak conversion of series D preferred to common.
Considering the shares issued in April under the ATM. The company currently has approximately 13.8 million common shares outstanding.
And including the preferred shares the total is 17.5 million.
Excluding any future transactions, which may take place under the ATM.
We expect our outstanding common shares to normally increase in the range.
240000 per quarter, depending on our share price.
This concludes our summary of operating results I will now provide comments on the business.
We withdrew our previously provided guidance for the remainder of our fiscal year anticipating that sales profitability and operating cash flow will be negatively impacted in the fourth quarter ended June Thirtyth 2020.
We further explain that we are unable to forecast a breath or depth of cobot 19, the impact on the business.
We believe that legal and practical limitations on clinicians having access to patients in clinics.
The deferral of elective procedures to free up hospital capacity to address the pandemic as well as the reluctance of patients to engage with medical practitioners are the primary drivers of reduced near term demand for our products.
Further customer deferral of Capex spending and the resulting temporary delay of new facility openings has impacted and will likely continue to impact capital equipment sales.
For the month of April we experienced an approximate two thirds reduction in revenue.
Related to these negative impacts.
Our cost reduction and cash flow conserving measures are designed to partially offset the impact of these reductions in revenues.
Given the continued uncertainty we will not provide forward looking guidance for the business.
I will now turn the call back over to Brian.
Thank you John.
In closing I'd like to express my appreciation to our employees customers and investors for their support during this time.
We all recognize the unprecedented challenges we're facing as the result of Cowen 19, we have been forced to act decisively in a rapidly changing environment.
We have implemented a number of new processes in order to effectively manage this crisis.
It does include applying for the Paycheck protection program long.
Moving weekly telephonic meetings with bank of the West.
And frequently updating our forecast, including cash flow estimate among others.
Through these decisive and early actions, we have never position the business to navigate this period about uncertainty and beyond.
Dynatronics employees remain committed to keeping our plants operational to say power supply of our quality products to healthcare workers, while making employee safety job one.
We continue to monitor changes in the commercial financial and regulatory environments and look forward to returning to a more normalized economic environment.
I'll now turn it over to the operator for questions.
Thank you ladies and gentlemen, the floor is now open for questions. If you do have any question. Please press star one and your telephone keypad at this time, if you're using a speaker phone we asked well posing your question you pick up your handset to provide the best down quality.
And ladies and gentlemen, if you do have a question or comment. Please press star one and your telephone keypad at this time.
As management is in separate locations right now due to social Dustin scene, there maybe a slight delay is they on mute to answer your questions today and we thank you in advance for your patience.
We'll take our first question from Nathan Weinstein with Aegis capital. Please go ahead Sir.
Good morning, guys and thanks for taking my question.
Good morning Nathan.
So I guess, if we just think about the organization and your current expectations for when a patient volumes in the end markets might start to come back.
They were to come back faster or if they were to take longer than currently expected in both of those scenarios kind of whats your organizations ability to adjust.
Yeah.
We can be adjusting very quickly to volumes since the start to increase Nathan.
We have our furloughed employees that have the ability come back in 20 hours up notice.
So we're able to flex in labor very quickly is needed and we're also staying in close contact with all of our suppliers Nathan.
Many of those key suppliers.
Our material ready to shift its units have we need to come back to normal demand. So I think we're well positioned to ramp up very quickly.
Thanks, and then in terms of virtual capabilities of the organization have you done any.
Virtual sales and marketing efforts.
Yes.
Nathan <unk> Weve I think from an I.T. perspective.
We had to get our networks working really well so that we could start doing virtualization and we get that activity pretty quickly and then I'll ask John did its weigh in here.
Yes, absolutely great to hear your voice I think going up on the sales and marketing perspective, we've been communicating with our sales reps daily talking to our key customers in our calls where they can admittedly most of the practices directly are focused on their own employees and their own a patient care and so we're being delicate with sales and marketing activities that deadline, but we're absolutely communication.
With our key dealers and customers around the country and our sales force.
Thank you and I suppose is just one more for me I'm curious about your supply chain and have you noticed that it's become more difficult are challenging to secure materials across the product portfolio.
No.
We haven't seen any of those challenges Nathan and supply chain.
As I mentioned earlier, we're staying very close contact with key suppliers.
I actually have tied to lever each stage to ship to us as soon as we're ready to receive those materials back in.
A big piece of that is when we are managing our suppliers. We were in communication with them very early on in the process and they did have things stage counts that they're willing to push out deliveries and that's why we've got the got supply in Q1, we're ready to proceed those those material Tim.
Okay. Thanks, a lot that's helpful.
Our next question comes from Jeffrey Cohen with Ladenburg Thalmann. Please go ahead Sir.
Hi, Brian German inscribed or how are you.
Hi, Jeff.
So I guess I'm trying to get a better search of or your Q4 and.
Maybe in particular, obviously, you're going to reduce junior but are you seeing some bounce back and maybe what do you see you know with T. a good conditions in the field and show facilities should begin to open up in particular stage.
Yeah, I think Jeff you know just you good discussion we talked about in our remarks was focused on what we've seen in April were not implying that has any bearing on the future. We what we do know is what's happening in April we are to your point watching what is happening in each of the states as they reopen as you know they're not.
Opening up consistently all at once and so each of those markets will be different they'll have different impacts on our business, where where our dealers are touching and we look forward to seeing that rebound.
Got it and then just trying to go to recap on Uh Huh.
I would shoot in some of the cash flow movements from 3.5.
For the Triple P. 2.3.
In the each year.
I believe the total availability Tim is.
Sure.
For from not mistaken and in a 1.5 the cash.
6.4 board out of 11 on line of credit was there anything unless I missed there.
I think that's correct.
Okay and the share count you gave a 13.8.
It was as you're going.
So that's out of the 20 points April.
24 in <unk>.
Okay. So has there any more due to good use shut ins or.
Your commentary on the three 2.3 million from these to report you really sure.
Oh, that's you're kind of slacker.
Okay.
That does your for me thanks very much.
Thanks, Jeff.
As a reminder, ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad at this time.
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Certainly our appear to be no further questions at this time.
Okay. Thank you for your questions and for your interest in Dynatronics you have any further questions. Please direct them to our Investor relations contact scatter Black operator may end the call.
Thank you. This does conclude today's teleconference. We thank you all for your participation you may disconnect. Your lines at this time and have a great day.
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