Q4 2020 Dynatronics Corp Earnings Call
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Good day, ladies and gentlemen, and welcome to your Dynatronics fourth quarter 2020 earnings call. All lines have been placed on a listen only mode and the floor will be open 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 John Grier, President and CEO, Sir the floor is yours good more.
Good morning, and thank you for participating in today's call I'm, John career, President and Chief Executive Officer, and with me is our principal accounting Officer, Scott <unk> block we used.
We issued a press release this morning announcing the financial results of our fourth fiscal quarter and full year ended June 32020 today I will provide a brief commentary and then I will turn it over to Skyler for our financial report.
At the conclusion, we will have the operator open the phone lines for questions I will now ask Skyler to remind you of our reliance on the safe Harbor under the federal Securities laws.
Thank you John before we.
Before we begin let me remind you that during the course of this call. We will make forward looking statements regarding our current expectations plans or projections.
Financial performance really in each of our business you saw.
These forward looking statements reflect our view as of today, only and they 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 those projected or implied by our forward looking statements. Today are included in our most recent 10-K and other reports filed with the FCC.
In addition, the uncertainties and risks related to the impact of the Cobot 19 pandemic on the business results.
We caution you not to place undue reliance on forward looking statements that we make this morning, we undertake no obligation to update or revise the forward looking statements.
Thank you Skyler.
By way of introduction I had been with Dynatronics for six months I joined the company in March of this year to lead Dynatronics as the Chief Financial Officer and commercial leader.
In July of this year my role was expanded to President and Chief Executive Officer, as Brian Baker resigned due to lingering cobot 19 health issues over these initial six months I have focused a great deal of my time, leading our organization through the unprecedented events of the global pandemic, our employees across all of our sites and brands.
I've been tremendous teammates continuously adapting to changing events and remaining committed to taking care of each other and our customers today.
Today, we are providing a report on our fourth quarter and fiscal year ended June 32020, let me start by focusing on a few updates from our prior disclosures and then discuss additional key updates.
In early July 2020, we disclose that our net sales for the fourth quarter of fiscal year, 2020 finished 47% to 49% lower than the same period in fiscal year, 2019, which was a sequential improvement compared to the nearly 65% revenue reduction we experienced in April 2020.
Over the April 2019 period.
Since our disclosure concerning our Q4 fiscal year 2020 revenues, we have experienced continued positive revenue momentum Joe.
July and August 2020, net sales are approximately the 60% to 70% of when compared to the same period in fiscal year 2020, given.
Given the ongoing uncertainty in our markets due to the cobot 19 pandemic, we will continue to suspend guidance.
We continue to take significant actions to improve operating profitability by reducing costs and increasing scalability.
First in June of this year, we announced the decision to close our Chattanooga, Tennessee facility.
We have transferred manufacturing operations from Tennessee to our existing facilities in New Jersey, and Minnesota, and we have to.
And we have transferred distribution operations to a third party logistics provider Millstone medical outsourcing for a service agreement we executed on July eight 2020 operations with Millstone commenced mid September 2020, and the final transition of inventories being completed on schedule.
We continue to pursue the sale of our Chattanooga facility in the coming months to generate additional flexibility to our liquidity goals.
Second we continue to improve operational effectiveness and reduce costs across the company. The cumulative effect of our cost reductions have enabled us to reduce ongoing operating expenses.
Third despite significant revenue reductions due to covert 19 in Q4, the company generated positive cash flow from operations of 541000 in the period as our employees executed a working capital plan.
The cumulative effect of operating efficiencies.
Working capital improvements the ATM stock sale proceeds and the S.P. a paycheck protection program alone has enabled dynatronics to stabilize in this uncertain time and prepare for the future.
Our overall strategy for the company remained steady our focus continues to bounce the uncertain present business environment with the opportunities, we see in our markets and for our products.
Skyler will now provide the financial report.
Thanks, John.
I am pleased to review the financial performance during the quarter and briefly cover the year end results.
Net sales for the quarter ended June 32020 decreased 7.4 million or 48% to 8.1 million compared to $15.5 million in the same quarter of the prior year.
The decrease is primarily due to reduction in sales due to covert 19 stay at home restrictions and holds on elective procedures.
Gross profit for the quarter decreased 3.1 million or 68.9% to 1.4 million.
Presenting 17.4% of sales compared.
Compared to 4.5 million or 29.3% of sales in the same quarter of the prior year.
Lower sales were the primary cause of the decrease reducing gross profit by approximately 2.1 million.
The decrease in gross margin percentage to 17.4% from 29.3% contributed about 1 million to the reduction in gross profit.
Selling general and administrative expenses for the quarter decreased approximately 1.2 million.
25.4% to 3.6 million compared to 4.9 million in the same quarter of the prior year.
A decrease included lower selling expenses as point Ninemillion as a result of lower fixed sales management salaries and lower commissions.
And a decrease of <unk> point, Threemillion and other general and administrative expenses.
Merely related to lower personnel costs.
Net loss for the quarter was approximately 2.3 million.
Compared to net loss of 8.2 million in the same quarter of the prior year.
For fiscal year 2020, I'll highlight just a few points.
As of June Thirtyth 2020, we had cash balances of approximately 2.3 million and.
And and outstanding balance on our line of credit of 1 million.
We have an 11 million.
Asset based line of credit.
And we currently have the availability on that line of approximately 45.2 million based on our current borrowing base and taking into account that we currently have no borrowings under the line.
The number of common shares outstanding as of June Thirtyth 2020 was approximately 13.8 million.
The company currently has approximately 14.1 million common shares outstanding and including the preferred shares. The total is 17.8 million.
We expect our outstanding shares increased by approximately 240000 per quarter, which is dependent on our share price.
This concludes our summary operating results I will now turn the call back to John.
Thank you Skyler these low.
These last six months have provided tremendous challenges and opportunities for Dynatronics, our employees have reshaped our operating footprint focused our energies on taking care of each other and our customers and.
And highlighted for me the opportunity we have together.
Dynatronics has strong brands and dedicated employees committed to our business.
Despite this uncertain market, we will continue to execute a disciplined operating approach and look to take advantage of mark market opportunities as they present themselves.
We appreciate and thank our investor base and employees for their ongoing support I will 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 a question. Please press star one on your telephone keypad at this time, if you're using a speaker phone well posing your question you pick up your handset to provide the best sound quality.
Again, ladies and gentlemen, if you do have a question or comment. Please press star one on your telephone keypad at this time.
Well take our first question from Nathan Weinstein with Aegis. Please go ahead Sir.
Good morning, John It's Scott Thanks for taking my questions.
Good morning Nathan.
Good morning.
Just firstly personal protective equipment, just curious if it's a material part of your product portfolio and if so kind of how the demand trends being as we come into the back half of the year.
Yes, that's not as significant a portion of our overall sales are portfolio. We do have certain products that we supplied on a limited basis, such as lot of our Houseman division with overhead tables for pop up temporary facilities or face masks for selected providers in Minnesota and for our local partners but.
Other than that it's not a large portion of our business.
Got it Thanks, and then second question just on your manufacturing and distribution footprint with the changes you've described and the relationships. There is that largely intact. So that as demand comes back I'm on the revenue side, you think you're in a good position to meet that demand going forward.
Yeah, that's correct, we have the ability to ramp that up or dial that back based on the different factors that we're seeing in the market. So we do like our operating footprint with the different changes that we've executed in the business.
Got it Thanks, and then just one final question for me I'm just curious if there's any new products you see coming in and some new products that could be interesting and exciting you guys.
We're constantly evaluating that portfolio and we'll continue to look for that especially as we continue to understand what what may or may not be changing with a different demands as a result of of Cowen 19 longer term. We certainly don't have a certain view to that at this point, we're but we're constantly evaluating different products.
Okay. Thanks, a lot for taking my questions.
We'll take our next question from Anthony Vendetti with Maxim Group. Please go ahead.
Thank you.
You know you talked.
You're talking about how they see some tests genie.
Reduction initiatives, just if you could.
You know outlined a little bit more on on where that would be the magnitude of that either on a percentage basis.
Just to try to get a little bit of a better right because right now.
In in July and August sales are about 60% to 70% of <unk>.
Oh, what's elsewhere.
Last year during those same months. So I was just wondering how how you're rightsizing the yesterday.
Yeah, absolutely I would do a couple of different things. So if you look at Q3 Q4, when we had our Q3 earnings call. We talked about the permanent reductions we made in the business and so it was approximately a $1.3 million gross you know change from Q3 to Q4 going into the year. We also talked about the changes we've made for example, with our Tennessee facility.
<unk> the large volume of that was lower salaries and commission related costs and prior to that if you looked at Q1 to Q3, our overall as you know it was running at about 30% of revenue. So we certainly continue to look to have a plan to get back to those points.
[noise] to be about 30% of revenues and total EPS Phoenix.
That's what we had for Q1 and through Q3.
Okay.
Okay, and then and then.
Just in terms of of new new products or or opportunities you see on the horizon [noise].
You know there used to be stated goal of trying to.
Make an acquisition or you know.
At least I know you probably have a pipeline, but are you seeing more opportunities because of cove. It.
Or fewer opportunities and then even if you are seeing opportunities because you're you're focused on and getting your business back or those opportunities.
Been put on the backburner just in terms of how you look at at the the acquisition pipeline.
Let me try to talk about a couple of different ways I would say I don't know if there's more or less per se I would say that we do maintain an active pipeline and it is a very very important part of our strategy going forward. I would also say you know given all those moves that I highlighted at the start of this call that we've made in the operating footprint and continued in the business.
That working capital execution that we've had has put us in a stronger position to be able to take advantage of an opportunity. If it presents itself and Skyler highlighted that you know where we are currently for example, with our cash balances and no borrowings on our current line of credit we are in a in a good operating position. Despite this uncertain environment I'm so certain.
We look forward to continuing those conversations with our pipeline targets and take advantage of it.
Comes around.
Okay, Great all right I'll hop back in the queue. Thanks.
Thanks.
Well take our next question from Scott Henry with Roth Capital. Please go ahead.
Thank you <unk> good morning.
A couple of questions first could you repeat what you said about July and August they I wanted to make sure I had that correct.
Absolutely. So what we discussed was that in July and August revenues are running approximately 60% to 70% compared to prior year.
Okay, great and how was that.
How do you see that trend.
Is it getting better or is it getting worse or staying the same and within that trend. How are you seeing it in the United States first internationally.
Yeah. So let's talk about a couple of things that we know at this point so running at about 60% to 70% of prior year Q1 of F. Y 20 was our largest quarter of the year. Our trend continues to be positive. So nearly two thirds reduction in April finished the quarter at approximately 48% for Q4, so that demonstrated the sick.
Actual improvement we've certainly continued to see that in July and August.
No certainty for the future we know what we've seen to this point that will all be dependent on continued activity within the facilities that we serve relative to domestic versus international we have a very small international business approximately 2.5%. So that's not a significant contributor to our activities and will focus all of our energies here in the U.S.
Okay great.
And.
You know assuming these trends continue how should we think about that gross margin line.
Cogs as a percent jumped again from Q4 over Q3.
Yes, the rate, we should think about at these levels or should we see some improvement in the coming quarters.
Oh wait a couple of points on that so certainly our gross margin percent.
Percentage was 17.4% for Q4, that's certainly related to the decline in the sales volume. If you look prior to that Q1 Q3, that's running at approximately that 30% level as well. So you know our plan is to go to take a hard look and continue to look at those levels and focus our energies with you know the staffing change.
Is that we've made the production changes we've made the transition out of our facility in Tennessee to work to those levels.
Okay and do you think those levels are achievable at lower revenue run rate.
[noise] can't comment on the future I don't have a view to what that would be I do know that we worked very hard to rightsize, our resources to the demand and to be able to plan to get back to those points.
Hey, kind of final question, which I I know some of the other guys. If that's kinda kinda.
Kind of circled around as well.
Given this what you guys make the type of products you, we think there might be some some PPP opportunities out there.
Hi, maybe some innovative products that could be beneficial to have higher margins I'm curious <unk> are there opportunities out there that you think you could capitalize on or perhaps that business is just very little margin right now.
Just wanted to get your sense of that market.
And that market for us is as insignificant contributor to US speaking just broadly about the products that there are product opportunities out there I'm just in general irrespective of say a personal protective equipment and that's what we're focusing our energy on and we've got some excellent brands with great products that we can we can make a difference on and so were folks.
Putting all of our energy there <unk>, regardless of how the pandemic continues Ur Cobot 19, you know our products get people back to health and are really a key need for for the rehabilitation space and so we're focusing our thoughts and energy there.
Okay, great. Thank you for taking the questions.
So thanks.
As a reminder, ladies and gentlemen, if you do have a question or comment you May press star one on your telephone keypad at this time again Thats star one on your telephone keypad to queue up for questions.
And that appears to be all the questions that we have for today I'll turn the call back over to Mr. <unk> for closing remark.
Thank you everyone for the questions and for your interest in Dynatronics. If you have any further questions. Please direct them to our Investor relations contacts Skyler block and operator, you may end the call.
Thank you ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation you may disconnect. Your lines at this time and have a great day.
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