Q3 2023 Rockwell Medical Inc Earnings Call

Good morning, and welcome to Rockwell Medical's third quarter 2023 results conference call and webcast.

Please note this event is being recorded.

At this time I would like to turn the conference call over to Heather Hudson.

Senior Vice President Chief Corporate Affairs Officer, and Rockwell medical.

Please go ahead.

Good morning, and thank you for joining us for this update on Rockwell medical.

Joining me on today's conference call, our Doctor marks throwback Rockwell Medical's, President and Chief Executive Officer, and Jesse Mary Rockwell Medical's, New senior Vice President of Finance.

Before we begin I would like to remind you that this conference call will contain forward looking statements about Rockwell medical within the meaning of the federal Securities laws.

But not limited to the types of statements identified as forward looking in our annual report on Form 10-K, and our subsequent periodic reports filed with the SEC.

These statements are subject to risks and uncertainties that could cause actual results to differ.

Please note that these forward looking statements reflect our opinions and expectations only as of today.

Stepped as required by law, we specifically disclaim any obligation to update or revise these forward looking statements in light of new information or future events.

Factors that could cause actual results or outcomes to differ materially from those expressed in or implied by such forward looking statements are discussed in greater detail in our periodic reports filed with the SEC.

Rockwell Medicals quarterly report on Form 10-Q for the three months ended September 32023 was filed prior to this call and provide the full analysis of the Companys business strategy as well as the Companys third quarter 2023 results are.

Our Form 10-Q, and other reports filed with the SEC along with today's press release, our updated investor presentation, and a replay of today's conference call and webcast can be found on Rockwell Medical's website under the investors section.

Now I would like to turn the conference call over to Rockwell Medical's, President and CEO Dr remarks drawback.

Thank you Heather good morning, and thank you for joining us today for Rockwell Medical's third quarter 2023 results conference call and webcast.

I am pleased to report that we continue to make progress on all the strategic objectives and priorities. We outlined this time last year.

Our efforts are keenly focused on enhancing our hemodialysis concentrates business by driving topline revenue enhancing our gross margins, reducing our expenses and achieving profitability all while continuing to delever our business and.

In addition, we made enhancements to our management team and board of Directors, which we believe will further strengthen our organization and elevate our experience base let's.

Let's review each of these updates in further detail.

During the third quarter of 2023, we generated net sales of $23 $8 million, including concentrate product sales of $21 6 million both of which were the highest sales generated to date for the company.

Additionally, we completed our second acquisition in just under a year acquiring the hemodialysis concentrates assets from Evo cold water technologies.

This acquisition adds a number of important strategic elements to Rockwell, including approximately $18 million in annual revenue and over $3 million in EBITDA, which is immediately accretive to our business.

Additionally, this acquisition expands our presence in the concentrates market by adding approximately 1700, new purchasing facilities to our customer base.

As a result, Rockwell now services approximately one third of all purchasing facilities in the United States, including outpatient dialysis clinics and hospitals.

In addition, we have added a fully automated manufacturing process, which when fully unlocked Ken manufactured products at a lower cost than we currently manufacture our products today.

Lastly, as a result of acquiring these assets Rockwell is now the leading supplier of liquid bicarbonate hemodialysis concentrates in the United States.

To successfully integrate these assets into Rockwell, we assembled an integration team led by representatives from both Rockwell <unk> to transition this business into rockwell's platform.

Additionally to ensure that there was no disruption in supply and service to clinics and the patients. They serve we entered into a 90 day transition services agreement with <unk> to support the concentrates business on our behalf as we on boarded and integrated evoke was customers into Rockwell system.

I am pleased to report that on October 9th Rockwell successfully completed the transition and integration of our book was asset and customer base and began directly accepting orders for evoke was customers.

In addition to this important milestone ended the fees associated with the transition services agreement, thereby reducing our expenses going forward.

Now we are exploring how best to unleash the value of this acquisition not only to benefit our customers and the patients we serve but to reduce our overall manufacturing cost to drive better gross margins. We will have more to say about these plans on future calls.

In addition, during the third quarter, we signed a number of customer agreements, which included significant price increases in long term supply arrangements with with purchasing minimum commitments that we believe will continue to have a meaningful impact on rockwell's top and bottom line.

First we entered into a enjoy an amended and restated products purchase agreement with our largest customer under.

Under the amended agreement Rockwell will realize a price increase for our hemodialysis concentrates products, including with a onetime payment on or after December one.

The extended term goes through December 2024, and our largest customer has the right to extend this agreement for another year, which could take this agreement through December 2025.

In the event of such an extension product pricing will also be increased for the extended term in.

In addition, we will receive nine month purchasing forecast and a commitment to purchase at least the forecasted amounts in the event. These forecasts are not met Rockwell will be compensated for the amount forecasted.

We are excited to continue to work with our largest customer to help provide our products to their clinics throughout the United States.

In addition, we continued to secure other long term product purchase agreements with several new and existing customers.

The first is sanderling renal services, a full service provider of in center and renal telemedicine services focusing on patients in rural and underserved communities.

Under the terms of this agreement Rockwell will be the preferred supplier of liquid and dry acid and bicarbonate hemodialysis concentrates to sanderlings facilities, located throughout California, Colorado, Nevada, Oklahoma, Tennessee, Illinois, and Utah.

In addition to supplying hemodialysis concentrates and concentrate Successories Rockwell will also provide sanderling with our dry acid concentrate mixer to support sanderlings preference to conveniently mix acid concentrate onsite.

This product purchase agreement with Sandra only includes supply and purchasing minimum commitments and has the potential to generate millions of dollars in net sales for Rockwell over the course of the contract.

A second agreement, we announced during the third quarter was with centers for dialysis care, the largest nonprofit independent outpatient dialysis provider in Ohio.

As part of this long term multimillion dollar products purchase agreement, which includes supply and purchasing commitments Rockwell medical will be the preferred supplier of liquid and dry acid and bicarbonate hemodialysis concentrates and related accessories to CVC and it's nearly 20 facilities located throughout Ohio.

Third is dialyzed direct a leading provider of dialysis services in the skilled nursing facility setting under the terms of this agreement, which also includes supply and purchasing minimum commitments Rockwell medical will expand its distribution footprint throughout Illinois, Indiana, Kentucky, Maryland, New Jersey, New York, Ohio, and Pennsylvania.

Rockwell medical will be the preferred supplier of liquid and dry acid and bicarbonate hemodialysis concentrates to dialyze direct and we expect to generate over $1 million in net sales annually with disagreement.

Lastly, as Houston Methodist a leading academic medical center was six community hospital, serving the greater Houston area, We signed a three year product purchase agreement that includes minimum purchasing commitments.

As we stated previously we continue to construct these product purchase agreements such that they reflect the inherent value of our products provide to patients are.

Our commercial team is actively selling our products across the United States and internationally as we continue to pursue our vision of becoming the leading global supplier of hemodialysis concentrates.

We continue to improve our gross margins through the successful execution of expense reduction associated with manufacturing and delivery of our products.

During the third quarter of 2023, we consolidated some of our dry powder production into two of our facilities and completed another small workforce reduction that eliminated redundant roles within Rockwell.

In addition, we began our route optimization program that consolidated our delivery schedules further reducing costs associated with delivering our products to customers.

We're going to aggressively continue down this path of finding additional ways to further reduce our expenses and the costs associated with manufacturing our products in the coming quarters, we will be looking to unlock the value of our newly acquired fully automated manufacturing process.

Additionally, we will look to further automate our manufacturing process at our other manufacturing facilities all of which we expect will continue to drive our gross margins higher with the goal of achieving gross margins north of 15% on an annual basis.

Considering the changes we have made including the acquisition of the bulk with hemodialysis concentrates assets and increasing our concentrates product sales, we expect that Rockwell will be profitable on an adjusted EBITDA basis in the fourth quarter of 2023.

Yes.

One of the components of our strategic initiative is to enhance our business by adding industry leaders strategic thinkers and great operators to our business. We are pleased to announce that we have done just that.

First we named Dr. John Lauder Rockwell's Board of Directors, John was appointed to Rockwell's Board in October.

<unk> has more than 20 years of experience as an entrepreneur scientists CEO, operator, investor and board member of public and private biopharmaceutical companies. She is bounded led and scale the number of biotech companies throughout her career possessing a significant amount of business development operational and M&A expertise.

Additionally, her experience as a public company board member will be valuable at the Rockwell as we continued to grow our customer base and portfolio of products to serve the needs of dialysis clinics and the patients they serve and to position Rockwell to achieve its goal of increasing shareholder value.

Okay.

Also I'm incredibly excited to have Jesse Neary joined Rockwell medical as our new senior Vice President of Finance, who oversees all aspects of Rockwell's Finance organization.

<unk> has more than 20 years of experience, leading finance functions at both public and private companies prior to joining Rockwell. He was the head of finance at Hema von Sciences, a clinical stage biopharmaceutical company developing therapeutics to improve the lives of patients with blood disorders in Hematological malignancies.

Previously Jesse was senior Vice President of Finance of <unk> Life Sciences, a public pharmaceutical company with annual revenue of $80 million.

As a member of the senior management team Jesse was responsible for all aspects of its financial organization, including SEC reporting audit controller ship in strategic planning, while at Xylem. Jesse played a pivotal role in multiple product acquisitions financings commercial product launches and regulatory approvals along with <unk> acquisition by <unk>.

<unk> therapeutics in May of 2020.

Jesse its expertise will enhance our ability to continue strengthening our financial and operating infrastructure, while advancing our ability to meet our strategic objectives.

Jeff has extensive experience leading finance organizations within revenue generating growth oriented health care businesses will be valuable to the Rockwell medical as we contemplate various avenues of expansion and growth.

Now I will turn the call over to Jesse to provide you with our financial results for the third quarter.

Thank you Mark good morning, everyone.

I will now review, our third quarter 2023 financial results and provide you with an update on our cash and debt positions as well as our 2023 guidance.

Net sales for the third quarter of 2023 or $23 $8 million, including concentrate product sales of $21 6 million both of which were the highest sales generated to date for the company.

Net sales for the third quarter represented a 31% increase over the second quarter of 'twenty, three and a 27% increase over the same period in 2022.

The increase of $5 1 million in net sales year over year was primarily driven by our <unk> asset acquisition and our recognition of deferred revenue related to the land Bank agreement.

Net sales for the nine months ended September 32023 were $61 5 million, which represents a 15% increase over the same period in 2022.

Gross profit for the third quarter of 2023 was $2 2 million, which represents a 183% increase over the same period in 2002.

Gross profit increased by $1 4 million, primarily due to the lower distribution costs associated with the concentrates business and in recognition of deferred revenue from the Wang Bank agreement, partially offset by an increase to the Triferic inventory reserve.

Gross margin for the third quarter of 2023 was 9% compared to a gross margin of 6% in the second quarter of 2003 and 4% for the same period in 2022.

We continue to employ strategies to improve our gross margin and anticipate that it will continue to track positively as we close out 2023.

Operating loss for the third quarter of 2023 was $1 7 million, which includes onetime severance expenses of $575000.

This compares to an operating loss of $3 million for the second quarter of 2023, and $3 7 million for the same period in 2020 to the.

The improvement in operating loss reflects rockwell's cost containment efforts as part of our continued business restructuring.

Rockwell's net loss for the third quarter of 2023 was $1 9 million or <unk> <unk> per share compared with a net loss of $4 2 million or 23 per share for the same period in 2022.

For the nine months ended September 32023, Rockwell's net loss was $6 9 million or <unk> 32 per share compared with a net loss of $16 3 million or $1 26 per share for the same period in 2022.

Rockwell reiterated its guidance and expect the company to be profitable on an adjusted EBITDA basis in the fourth quarter of 'twenty three.

Cash cash equivalents and investments available for sale at September 32023 was $11 7 million compared to $14 9 million at June 32023. The decrease in cash was driven primarily by $5 million and principal payments on our outstanding long term loan and a $4 million increase in.

Our accounts receivable primarily related to the local asset acquisition.

We anticipate collection of these receivables in the fourth quarter of 2023.

As mentioned, we began making principal payments on our debt in the third quarter, which decreased our outstanding debt to $9 5 million. The company projects its outstanding debt to further decreased to $8 million by the end of this year.

As we approach the end of the year, we reiterate our 2023 guidance. We expect net sales for 2023 to be between 82, and 86 million, which represents a 17% to 18% increase over 2022.

We expect gross profit for 2023 to be between eight and $10 million.

Which represents a 95% to 144% increase over 2022, and we expect to be profitable on an adjusted EBITDA basis in the fourth quarter of 2023.

As for future guidance and expectations, we intend to provide an outlook on 2024 during our fourth quarter conference call I will now turn the call back over to Mark.

Thank you Jessie operator, please open the phone lines for any questions.

At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.

Pause for just a moment to compile the Q&A roster.

Yes.

Yeah.

Yes.

Yes.

Your first question comes from the line of Anthony Vendetti with Maxim Group Anthony Your line is open.

Thank you.

Thanks Mark.

Heather and welcome aboard.

So on the fully automated.

Facilities that you acquired from Ebola, you mentioned mark that you're looking to.

Hello, you automate your other facilities.

Much capital is required to do that and is that necessary to get to your goal of 15% plus gross margins.

Or could you do that without fully automating your other facilities.

Yes.

Good morning, Anthony Thank you for the question. So we're in the process of evaluating that right now.

We don't believe based on our current projections that we need to fully automate all of our facilities to be able to achieve.

Gross margins that you mentioned.

To fully automate our facilities will likely drive gross margins.

Higher than that.

But we are still in the process of evaluating that.

We will likely begin to make those transitions over a period of time.

Okay, great and just as a follow up so so congrats on being the leading provider of all hemodialysis concentrate.

And accounted for one third of all that.

After the acquisition of Evo guar.

How do you look to.

<unk> to expand.

One of the areas or one of the.

Bob.

In terms of geography.

The western part of the U S.

Looks like.

A large opportunity for Rockwell can you talk about your expansion plans for the West coast.

Yeah. So that that does continue to be a large opportunity, which we are we are looking to aggressively access.

Through the <unk> acquisition.

And the activities of our commercial team, we've already begun to expand our presence.

In the western portion of the United States. So we have more customers now in the west than we've ever had historically here at Rockwell.

But I think for us to do more meaningfully access that.

We're going to have to do due more to establish a fundamental presence there.

And so that's an opportunity that we are looking and considering now whether thats, establishing our own facility there whether thats acquiring a facility that may exist out there but.

But I think for us to really I think on a cost effective way address the market.

We're going to have to seek a more permanent sort of position there.

Okay, and then just lastly international I know the focus is primarily in the United States, but can you talk a little bit about.

Your international opportunity what is it now as a percent of revenues.

And what's sort of the opportunity over the next couple of years.

Okay.

Yes, so so right now it's.

It's just around 10% of our overall revenue.

We think that there is a big opportunity internationally.

For us the majority of international markets are largely.

Being addressed by some smaller hemodialysis concentrates players.

That much like in the United States struggle at times, two to maintain effective supply and distribution.

So we think that there is an opportunity for us given our expertise.

Not only manufacturing, but being able to work with organizations outside the United States to distribute the product to expand that.

It's a very cost effective business for us.

As distribution is usually carried by the by the customer.

So we're looking to expand that aggressively and I know our commercial team has a number of.

Potential international partnerships that are currently in the pipeline, which we are looking to establish relationships with.

Okay, great. Thanks, so much I'll hop back in the queue. Appreciate thanks Anthony.

Our next question comes from the line of <unk> <unk> with <unk>.

Wainwright to pass your line is open.

Thank you and congrats guys on the update this is deepak on for Ross sells Roger.

You noted some good examples on several product purchase agreements could you provide a sense of how you might see the number of agreements evolving through 'twenty four 'twenty five and perhaps any challenges that you might see around managing these current agreements or obtaining new ones.

Good morning to pass thank you for the question.

So we continue to be the largest independent supplier of hemodialysis concentrates here in the United States and by independent I mean.

This is our focus this is our expertise.

We're not bundling these products with other products and thereby forcing customers to buy our other products in an effort to get to our.

The hemodialysis concentrates so by that fact that opens up.

Really the entire U S market for those organizations that are looking to find a cost effective supplier that has its own distribution capabilities and customer service capabilities too to handle there.

Their needs around these products.

We continue to see over the course of the next year and the year after.

Multiple opportunities to continue to not only expand.

Our existing relationships with our current customer base, but then to continue to add new customers.

As well if you look at the.

Dialysis clinics and dialysis providers in the United States, Although we are working with the.

The top organizations within the marketplace. There is still a number of very large providers that.

We still are working to establish.

Customer and product purchase arrangements with so we think that offers us.

Great opportunity and then as the Anthony raised an opportunity to get to the west really allows us to expand our presence with those two large customers.

The two largest providers of dialysis in the United States. So.

We see an opportunity to continue to grow this business and continue to add revenue.

In our commercial team is very focused on doing that but.

But as Jesse mentioned, we're going to provide a much greater sort of details around what 2024 and beyond look like at our fourth quarter Conference call.

Okay, Great appreciate the color and then final question.

Related to your stated.

I guess of the gross margin goals being north of the fourth being north of 15% on an annual basis.

How soon are you looking to achieve that goal. If you can kind of elaborate on that.

Yes, So I think it's I think a couple of things I think it's important for everyone to realize that we've come from a place in this business where.

This business itself the concentrates business did not generate a gross profit it generated a gross loss from Rockwell and through the strategy that we put in place.

Shortly after I joined and the management team has now been executing on has really turned this business around to the point of where we are now not only generating a gross profit, but now we're looking to maximize that gross profit.

So I think thats and it continues to be an important contextual element that.

Folks need to consider.

In the transition of Rockwell into.

Into a meaningful profitable organization.

Our goal.

Is to do that.

Is to get to the 15% gross margin.

As quickly as we possibly can we haven't given guidance as to when we're looking to achieve that but as you can see in this quarter. We are gross margin was 9% as Jesse suggested we continue to believe that that will trend positively.

Through the remainder of the year.

And we expect that to continue to trend positively.

In 2024 so.

Again, I think we'll be able to give everybody a greater visibility as to when that will be achieved during our fourth quarter conference call.

Great. Thank you so much guys congrats again.

Thanks.

I would now like to turn the call over back to Mike.

Thank you everyone for joining us on today's call. Overall, we are pleased with the progress we continue to make in the financial performance of our business in 2023, and we remain focused on continuing to position Rockwell for future growth, we look forward to sharing our progress on future calls.

Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.

Okay.

Okay.

Okay.

Thank you.

Okay.

Sure.