Q1 2021 Dynatronics Corp Earnings Call

Good morning, ladies and gentlemen, and welcome to your Dynatronics first quarter 2021 earnings call.

All lines have been placed in a listen only mode. That's why we'll be open for questions and comments following the presentation.

At this time it is my pleasure to turn the floor over to your host John Kreger, Sir the floor is yours. 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 Skyler block, we issued a press release. This morning announcing the financial results of our first quarter ended.

September Thirtyth 2020 today I will provide a brief commentary and then I will turn it over to Scott alert for a 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 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.

In financial performance relating to our business.

These forward looking statements reflect our view as of today, only and they involve risks and uncertainties that could cause our actual.

<unk> 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.

And include uncertainties and risks.

Related to the impact of COVID-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.

Thank you Skyler I'll begin by welcoming norm regner as our newly appointed.

Good Chief Financial Officer, Norm brings years of executive financial and operational leadership the Dynatronics most.

Most recently norm was vice President of finance for the medical Pharma solutions Division of Philips Medecins, a molex company.

During his extensive work at multiple molex companies norm led financial exit.

Execution across the commercial organization supply chain and manufacturing operations. In addition to leading our finance organization norm will also be responsible for our supply chain teams supporting our operational success.

I am pleased enormous joining our executive team and look forward to partnering with him to lead the company.

No.

Norm will be joining Skyler me beginning next quarter for our earnings call.

In addition to welcoming norm I want to thank our employees across all of our locations who accepted the challenges set before us and worked tirelessly to solve unique and difficult circumstances on a daily basis.

Our team's passion for our products and what we delivered.

Over to our health care professionals and facilities is evident in this difficult time.

Today, we are providing a report on our first quarter ended September 32020.

Let me start by focusing on a few updates from our prior disclosures and then discuss additional key updates.

Despite the uncertainty in.

Our markets and operations due to the COVID-19 pandemic Dynatronics delivered a first quarter that reflects the positive financial impacts of the activities. We previously disclosed over the past six months.

Net sales continued the positive momentum from our disclosure in late September 2020, as net sales for the core.

Our ended September 32020 decreased $4.3 million or 26.0% to $12.1 million compared to $16.4 million in the same quarter of the prior year.

As a result of the decisive actions we've taken over the past six months, we have now begun to assess opportunity.

Core to increase the scalability of our business.

Consistent with demonstrating strong financial performance let.

Let me begin by focusing on a few highlights for our first quarter ended September 32020.

First we generated 1.1 million in positive cash flow from operating activities.

The management team continued to manage the company without the need for additional borrowing or outside capital and in fact, we paid down our line of credit by $1 million and currently have no outstanding balance under the facility.

Second we returned to our operating leverage ratios for gross margin and.

These SDMA as a percent of sales to 32.2% and 35.0% respectively. These.

These ratios demonstrate the results of quick actions by the entire organization to align operations to the varying demand we experienced beginning in April 2020.

Third we continued to finalize the closure of our Tennessee facility with the transfer of rehabilitation supplies to our third party logistics provider.

Our focus continues to be to balance the uncertain present business environment with the opportunities, we see in our markets and for our products Scott.

Skyler will now provide.

At a financial report.

Thanks, John and good morning, everyone.

I am pleased to review the financial performance during the quarter.

Net sales for the quarter ended September 32020 decreased $4.3 million or 26% $12.1 million.

Compared to 16.

In point $4 million in the same quarter of the prior year.

The decrease was primarily due to a reduction in sales due to covance, 19th cautions and associated deferral of elective procedures.

Gross margin for the quarter decreased $1.3 million or 24.3%.

$3.9 million.

Representing 32.2% of sales compared to 5.2 million or 31.4% of sales in the same quarter of the prior year.

Lower sales were the primary cause the decrease.

The increase in gross margin percentage to 32.

0.2% from 31.4% was due primarily to changes.

And the mix of sales between our major product categories.

Selling general and administrative expenses for the quarter decreased approximately $3.7 million or 13.8% to 4.2 million.

Okay.

Compared to $4.9 million in the same quarter of the prior year.

The decrease included lower selling expenses of $2.6 million.

As a result of lower fixed sales management salaries.

Lower commissions.

And a decrease of $2.1 million and other general and administrative.

<unk> expenses, primarily related to lower personnel costs.

Net loss for the quarter was approximately $2.4 million compared to a net income of point $1 million in the same quarter the prior year.

As of September 32020.

We held cash.

Cash balances of approximately $2.3 million.

We have an 11 million dollar asset base line of credit.

And we have zero borrowings on the line.

As John mentioned this is a $1 million reduction from the 1 million balance as of June 32020.

We currently have availability on the line of a profit.

Instantly $5.3 million based on our current borrowing base.

The number of common shares outstanding as of September 32020 was approximately $14.1 million.

The company currently has approximately 14.4 million common shares outstanding.

And including the preferred shares the toll.

Will is $18.1 million.

We expect our outstanding shares to increase by approximately 240000 per quarter, which is dependent upon our share price.

This concludes our summary of operating results.

I'll now turn the call back to John.

Thank you Skyler.

As a result of the continued ongoing uncertainty in our markets due to the COVID-19 pandemic, we will continue to suspend guidance for the time being.

Q1 represented sequential improvement in the business, finishing at approximately 74% of prior year compared to our September expectations of 60 days.

70%.

October trended in line with Q1, and while we are not going to speculate on the finish to the quarter. We feel good about this level of activity given the uncertain virus environment.

Our employees across all of our locations, we will continue to assess and adapt to the changing market conditions really.

Related to COVID-19 and react accordingly.

We have demonstrated this ability over the past two quarters, resulting in a stabilization of our business. Despite the significant disruption to our end user customers.

Dynatronics remains committed to our brands our customers our employees and we will continue.

To execute our recovery plan and pursue our growth strategy as market opportunities present.

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 the floor is now open.

Yes, if you would like to ask a question. Please press star one on your telephone keypad, if you're using a speaker. Please.

Please pick up your handset to.

To provide the best sound quality again, ladies and gentlemen, it is star one to ask a question.

And we'll take our first question from Jeffrey Cohen with Ladenburg.

Your comment please go ahead.

Hi, John Scarlett how are you.

Good morning, Jeff.

So firstly any commentary on margins it looks like you had a bit of a positive upside.

For.

This quarter.

One.

For materials for sure.

How october's grown and generally speaking just feel like these are levels that you can sustain indoor grow going forward.

Yeah. Thanks, Jeff I think we are very proud of the margins that we were able to deliver on the gross margin line for Q1, that's a result of the.

Curious levers that our team pulled to match the resources, we have in the business to the demand we we've been experiencing and certainly it was a significant change whether it was in the depths of April May June to what we saw in Q1, we like the activity that we're seeing in the <unk> in the month of October and we're going to continue to match our resources to that demand we can't.

America late on the future, but we definitely like what we delivered in Q1 and the activity were seeing in October.

Okay got it and any commentary on Oh.

October it looks like the first quarter.

<unk> did very well as compared to the previous quarter Q4. So.

Spencer feel like our ordering patterns and facilities euro billing or does it feel like it's too I'm a mixed bag out there depending on geography.

Certainly, it's geography, driven and with the increased activity in the pandemic it.

One of the reasons, we can't speculate.

Laid on the future, but October definitely trended in line with Q1, and we feel good about that level of activity given the environment. We're operating in.

Got it Okay and then lastly for me were there any.

Specific areas, which kind of stood out on the upside as far as.

Ordering patterns.

It comes to.

Some of the product lines, such as Solaris or orthopedics churn et cetera for the quarter. Thanks.

Thanks, Jeff one of the one of the great parts about Dynatronics is that the differences we have in our brands, whether as you mentioned Solaris on the modality side or our houseman tables.

Humor burden ccrone embracing products and so theres definitely differences in product mix as procedures happened on the surgical side or as PT visits come up. So we certainly enjoyed some of that product mix benefit within it nothing notable to stand out, but having the breadth of our product lines certainly helped us during the quarter.

Okay perfect that does it for me thanks.

As for taking the questions.

And as a reminder, ladies and gentlemen, if you would like to ask a question. Please press Star then one on your telephone keypad at any time to join the queue.

And we can pass system I want to give everyone a chance to signal.

And we'll move next to Marc Bolan with Maxim Group.

Hi, this is not pulling them on for Anthony Vendetti.

I was wondering if you guys could comment on.

What your priorities are going forward for the rest of the year for driving down SNA expenses, and then maybe you could comment on any any other product innovation.

Jason you have in the pipeline that might be excited about thanks.

Thanks, Matt and great to have you on this morning for Anthony.

Couple of points I would mention on the US DNA side is that we continue to match those resources to running a scalable organization. So that was certainly a significant focus of us it as weve turned over the last seven months too.

Otherwise the business address cobot address whats happening in the market, we feel very good about what we've done in that period, that's now, allowing us to start to look at what product opportunities exist within our portfolio. It was great that week or two ago. We participated in one of our largest dealers and their supplier showcase and we were able to discuss the depth of the.

Of all three of our brands and what we need to have going forward, which was was fantastic and now we can continue to look at what our new opportunities that that exist in the market as part and parcel to that as we continue to have conversations about.

Historical acquisition partners and potential product opportunities that may exist and given where we are now with our balance.

Balance sheet, we think there's an opportunity there as well so looking forward to some continued focus on the product side.

Great. Thanks very helpful.

Well the reminder, ladies and gentlemen that Pete do you want to ask a question. Please press Star then one on your telephone.

And I'm showing no further questions at this time, so I'll turn it back over to John Cryan crew for any closing remarks.

Thank you Christy and thank you all for the questions and for your interest in Dynatronics. If you have any further questions. Please direct them to our Investor relations contact Skyler Black ops.

Operating may end the call.

Thank you that does conclude today's teleconference.

I appreciate your participation you may disconnect your lines at this time and have a great day.

Oh.

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