Q3 2024 Rockwell Medical Inc Earnings Call
Speaker Change: Good morning and welcome to Rockwell Medical's third quarter 2024 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 Hunter, Senior Vice President, Chief Corporate Affairs Officer at Rockwell Medical. Heather, please go ahead.
Heather Hunter: Good morning and thank you for joining us for this update on Rockwell Medical. Joining me on today's conference call are Dr. Mark Strobeck, Rockwell Medical's President and Chief Executive Officer, and Jesse Neri, Rockwell Medical's Senior Vice President of Finance.
Heather Hunter: 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, including 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.
Heather Hunter: These statements are subject to risks and uncertainties that could cause actual results to differ.
Heather Hunter: Please note that these forward-looking statements reflect our opinions and expectations only as of today. Except 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.
Heather Hunter: Factors that could cause actual results or outcomes to differ materially from those in or implied by such forward-looking statements are discussed in greater detail in our periodic reports filed with the FDC.
Heather Hunter: Rockwell Medical's quarterly report on Form 10-Q for the third quarter of 2024 provides a full analysis of the company's business strategy, as well as the company's financial and operational results for the three and nine months ended in September.
Heather Hunter: The reconciliation of non-gas measures we discussed on today's call can also be found in today's press release.
Heather Hunter: Our form 10-Q and other reports filed with the SBC 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.
Speaker Change: Now, I would like to turn the conference call over to Rockwell Medical's President and CEO, Dr. Mark Strobeck.
Speaker Change: Thank you, Heather. Good morning and thank you for joining us today for Rockwell Medical's third quarter 2024 earnings conference call and webcast.
Speaker Change: First, I'm going to review our third quarter results, then provide you with a preview of what we expect in the fourth quarter, and then our outlook on 2025.
Speaker Change: You're pleased to share with you that for a second consecutive quarter we achieved profitability on a cash flow and adjusted EBITDA basis.
Speaker Change: Additionally, for the third quarter 2024, we achieved the highest quarterly concentrates product sales, the highest quarterly gross profit, and the highest quarterly gross margin in Rockwell's history.
Speaker Change: Revenue for the third quarter was positively impacted by consistent sales from our current customers as well as our largest customer making a special large order of premium price products during the quarter.
Speaker Change: The increase in gross profit was due to higher gross margin on our current business coupled with the special large order of premium priced products from our largest customers.
Speaker Change: This in turn led to an increase in our gross margin for the third quarter and profitability on a cash flow and adjusted EBITDA basis.
Speaker Change: As a result of the third quarter of 2024 being our second consecutive quarter of positive cash flow, we are now eligible to extend the interest-only period of our loan and security agreement with Innovata
Speaker Change: from 30 Months, which has an amortization date of August 1, 2026.
Speaker Change: August 1st, 2026, the 36th month, which has an amortization date of February 1st, 2027.
Dr. Raghuram Selvaraju, Raghuram Selvaraju
Speaker Change: During the third quarter of 2024, we entered into a multi-million dollar distribution agreement with NEPRO Medical Corporation. Under the terms of the agreement, we will continue to supply NEPRO with our liquid and dry acid and bicarbonate hemodialysis concentrates, for which NEPRO has the right to distribute our products outside of the United States.
Speaker Change: The two-year agreement has an option to extend for an additional one-year period and includes product purchasing minimums of $5 million for the first year and incremental increases each subsequent year.
Speaker Change: As we noted in our last earnings call, we expanded our concentrates product portfolio to include a convenience pack that will help Rockwell Medical expand our presence in the at-home market.
Speaker Change: Subsequently, we announced a product purchase agreement with a leading at-home and acute care dialysis equipment manufacturer in the United States.
Speaker Change: Under the terms of the agreement, we will supply this customer with our liquid acid and liquid bicarbonate, both of which will be packaged in either our 4 per case packaging, or larger dialysis settings, or 2 per case packaging for smaller acute care and at home settings.
Rockwell Medical also renewed its supply agreement with Aqua Dialysis.
Speaker Change: As part of the renewal, we expanded our distribution to all Texas-based aqua dialysis clinics.
Speaker Change: supplying them with our liquid and dry acid and bicarbonate hemodialysis concentrates and other associated hemodialysis products.
Speaker Change: Now turning our attention to the fourth quarter of 2024, we project that our revenue will be between $23 million and $25 million. Our gross margin will be in line with previous quarters, and we will be profitable on an adjusted EBITDA basis.
Speaker Change: gross margin to between 16% and 18% and adjusted EBITDA to between 4 million and 5 million dollars. These targets represent significant improvement over what we initially guided at the beginning of this year.
Speaker Change: In addition, we have significantly bolstered our cash position more than doubling it from where our cash position was at the end of the first quarter, 2024.
Speaker Change: These accomplishments and revised projections are a direct result of our team's hard work and dedication to deliver against the goals and objectives we set out to achieve over two years ago, which include focusing on growing Rockwell's revenue-generating business,
Speaker Change: Continually assessing our strategic priorities and capital structure, managing cash, reducing our debt, and placing Rockwell Medical on firmer, stronger, more stable financial footing.
Speaker Change: Every member of our organization has been instrumental in turning Rockwell Medical around, helping to rebuild shareholder value and in turn positively impacting more patients with end-stage kidney disease.
Speaker Change: 2024 will reflect the best performance this company has had in 25 plus years of its history.
Speaker Change: As we look towards 2025, we expect to encounter a shift in our customer makeup as we move away from less profitable business to focus on more profitable growth opportunities.
Speaker Change: The first of these changes will come from the relationship with our largest customer.
Speaker Change: During the third quarter, we received confirmation that our largest customer will extend their product purchase agreement with Rockwell through the end of 2025, during which product pricing will be increased.
Speaker Change: This customer has indicated to us that it expects volume to decline during this extended period as they work to diversify their supplier base.
Speaker Change: We are actively working with this customer in an effort to focus their volume reduction on products that we believe are least profitable for Rockwell.
Speaker Change: Currently, we believe that our largest customers' net sales in 2025 will decline between $31 million and $38 million, depending on the final volume forecast for 2025, which we expect to receive on or by December 15.
Speaker Change: Although our top-line revenue will be negatively impacted in the short-term, we believe we will still be able to meet our short-term goals.
Speaker Change: EBITDA basis in 2025. And this is before any new customer contracts, product purchase agreements, distribution agreements, new product opportunities, or potential acquisitions are put in place.
Speaker Change: While this revised forecast downward is certainly disappointing, we have always known that we have a significant portion of our revenue with a single customer, which presented a risk to Rockwell.
Speaker Change: We have been working incredibly hard to mitigate that risk by adding new customers and growing our top line beyond our largest customer.
Speaker Change: We are working to replace this top-line revenue with opportunities that we believe will be more profitable to Rockwell in 2025 and beyond.
Speaker Change: Let me walk you through some of the activities we are currently pursuing.
Speaker Change: We are in the process of negotiating a large multi-year supply agreement with the world's largest leading provider of dialysis products and services and hope to be able to announce the execution of this agreement later this month.
Speaker Change: We are in the final stages of contract negotiations to add two new complementary hemodialysis products to our portfolio in 2025.
Speaker Change: We have new customer contracts under review that we expect to announce shortly. Finally, we have several acquisition opportunities we are currently evaluating that would add new capabilities and products to our portfolio.
Speaker Change: Because of all the changes we have made here at Rockwell over the last two plus years, the change in our largest customers' forecast, while a short-term setback, doesn't impact the strong foundation that we've built. We have a number of exciting opportunities we are working on that we believe will continue to support a profitable, growing business going forward.
Speaker Change: Now I will turn the call over to Jesse to go into further detail about our third quarter financial results.
Thank you, Mark, and good morning, everyone.
Jesse Neri: For the three and nine months ended September 30, 2024, I will present the financials for the comparable periods in 2023 with and without the Deferred Revenue Recognition in Q1 and Q3 of 2023 related to the termination of the Baxter and Wang-Bang Distribution Agreements respectively.
Jesse Neri: This continues to offer us the opportunity to more accurately present the progress we have made and continue to make specifically within our hemodialysis concentrate segment.
Jesse Neri: Net sales for the third quarter of 2024 were $28.3 million, our highest quarterly concentrate product revenue to date.
Jesse Neri: This represents a 19% increase over net sales of $23.8 million for the same period in 2023.
Jesse Neri: Excluding deferred revenue, net sales for the third quarter 2024 increased 31% over $21.6 million for the third quarter 2023. This increase was driven by a large special order of premium price products by our largest customer.
Jesse Neri: Net sales for the nine months ended September 30, 2024, were $76.8 million. Excluding deferred revenue, this represents a 33% increase over the same period in 2023.
Jesse Neri: Gross profit for Q3 2024 was $6.2 million, which represents a 183% increase over gross profit of $2.2 million for the same period in 2023.
Jesse Neri: Excluding the impact of Deferred Revenue Recognition, gross profit for the third quarter increased 464% over $1.1 million for the same period of 2023, driven by a special order
Jesse Neri: a special large order of premium price products by our largest customer as well as increased sales and price increases to existing customers.
Jesse Neri: Gross profit for the nine months ended September 30, 2024 was $13.9 million. Excluding deferred revenue, this represents an increase of 342% over the same period in 2023.
Jesse Neri: Gross margin for the third quarter 2024 was 22%, a significant improvement from 9% or 5%, excluding deferred revenue, for the same period in 2023.
Jesse Neri: Gross margin for the nine months ended September 30th, 2024, was 18%.
Jesse Neri: Excluding deferred revenue, this represents an increase of 13 percentage points from 5% for the same period in 2023.
Jesse Neri: Net income for the third quarter of 2024 was $1.7 million, compared to a net loss of $1.9 million for the same period in 2023.
Jesse Neri: Excluding deferred revenue, net income for the third quarter of 2024 represents a $4.6 million improvement over a net loss of $3 million for the same period in 2023.
Jesse Neri: Net income for the nine months ended September 30, 2024 was $300,000, which represents an improvement of $7.2 million over a net loss of $6.9 million for the same period in 2023.
Jesse Neri: Excluding deferred revenue, net income for the nine months ended September 30, 2024 improved by almost $10 million over a net loss of $9.6 million the same period in 2023.
Jesse Neri: Adjusted EBITDA for the third quarter was a positive $2.8 million compared with a negative adjusted EBITDA of $1.2 million for the same period in 2023.
Jesse Neri: Adjusted EBITDA for the nine months ended September 30, 2024 was a positive $3.8 million compared with a negative adjusted EBITDA of $4.4 million for the same period in 2023.
Jesse Neri: Cash, cash equivalents, and investments available for sale at September 30, 2024 was $18.3 million, compared to $11.9 million at June 30, 2024.
Jesse Neri: Once again, the combination of increased sales and greater gross margins
Jesse Neri: led to cash flow from operations of $4.3 million for the third quarter.
I will now turn the call back over to Mark.
Mark Strobeck: Thank you, Jesse. Operator, please open the phone lines for any questions.
Speaker Change: At this time, if you would like to ask a question, simply press star followed by the number 1 on your telephone keypad. To withdraw your question, press star 1 again. We ask that you please unmute yourself to one question and one follow-up. Our first question will come from the line of Anthony Vendetti with Maxim Group. Please go ahead.
Thank you. Good morning.
Speaker Change: Mark, I was just wondering if, obviously, with this customer indicating a decrease in orders for 2025, you have plenty of time to prepare for that.
Speaker Change: At-home dialysis is on an uptick. Can some of that be made up?
From more orders for at home.
Dialysis
Uh.
Concentrate, and then...
Speaker Change: within your core customer base, does that open up more opportunity or are you in the process of...
Speaker Change: identifying new customers to take on this additional, now what you have, additional supply capabilities.
Speaker Change: Thanks, Anthony, for the questions. To address your first point, absolutely.
Speaker Change: You know, I think we continue to see and continue to believe that the at-home dialysis market
who's expanding.
Speaker Change: And, you know, we are working with all of the providers essentially that tap into, you know, that emerging.
Thank you.
Speaker Change: sort of treatment path. So I think there's absolutely an opportunity for us to continue to grow within that as that market expands.
Speaker Change: you know, with our products and the, and the, you know, the convenience pack, which, you know,
we've just recently introduced.
Speaker Change: It may seem like a small change to, you know, our existing portfolio, but it's incredibly meaningful when you think about
Speaker Change: you know, what a patient at home has to do to not only store
Speaker Change: The materials to carry out the dialysis process, but then, you know, what they physically have to manage as far as lifting materials and putting it into the machine. So, it may seem like a small change, but it's actually going to be quite meaningful and has been quite meaningful for the at-home market.
Speaker Change: So I think absolutely that's an area for us to grow.
Speaker Change: As I said, you know, this change is something that, you know,
Speaker Change: I think, you know, for us, we always knew it was a possibility, and so we wanted to prepare ourselves, you know, for that. You know, the first place, obviously, is an expansion of the relationship with the largest dialysis provider on the planet.
in an effort to, you know, to support making up
Speaker Change: that revenue change. Secondly for us, we have an incredibly stable foundational business that we're now looking to expand beyond just concentrate.
Speaker Change: Product opportunities, I think, are going to be key for us in 2025 to continually help fill that gap with a higher margin-based opportunity. It doesn't help us to continue to...
essentially supply product.
Speaker Change: to a very large organization of which we don't make very much money on. And I think the point I was making was that even when you take away that top line, this business stays profitable on an adjusted EBITDA basis, which gives you a sense that it's not really contributing much to the margin that we see here.
Speaker Change: So, you know, for us, it's all about adding more things, developing more of our core business.
Speaker Change: That's where our goals and objectives are going to be through 2025. As I said, you know...
Speaker Change: We recognize that this is going to have a short-term impact, at least on the top line. But, you know, we're excited and the team is excited about the opportunities that we're pursuing that we hope to be able to announce here in the next couple of weeks.
Speaker Change: Okay, and then just as a follow-up to that, in terms of the impact, obviously you've quantified the revenue impact and it'll have less of an impact.
Speaker Change: because of the lower margin component of it on your EBITDA. Have you been able to or are you still working on what that impact will be?
Speaker Change: to the EBITDA line in terms of either dollars or to the EBITDA margin, any color around that. And then based on the lower.
Speaker Change: revenue footprint. Is there any cost that you're able to take out temporarily as you look to either add new products or new innovation to your current product mix? And then I'll hop back in the queue. Thank you.
Yeah, yeah, no, thanks, Anthony.
So, yeah, let me address each piece of that.
Speaker Change: Right now, we've taken a very conservative look at the business, and as I said, all of the numbers that we've put forward really don't include or incorporate any new items that we're in the process of closing right now.
Speaker Change: So, with that conservative look, you know, we believe gross margin percentage for the business will continue to tick upwards.
as we go forward into 2025.
Speaker Change: You know, we're continuing that positive trend, A, through the efficiencies that we're creating here in the organization.
Speaker Change: and two, obviously, removing products that are currently a drag on that gross margin. So, for most margin percentage, we expect that to continue to increase. We are working on what the final, you know, sort of...
Speaker Change: impact will be on our EBITDA for next year, but as of right now
Speaker Change: All of our modeling is continuing to indicate that the business is going to be profitable. We just don't know yet how profitable. And that may come from some tweaks that we make from a cost perspective in our underlying infrastructure.
Speaker Change: we will obviously you know as we've done in the past
Speaker Change: put out, you know, 2025 guidance, you know, at the beginning of the year, that will very clearly indicate what that is, but I can tell you, you know, from our perspective, we will be a profitable entity on an adjusted EBITDA basis going forward.
Speaker Change: Okay, great. Thanks so much. Appreciate all the call. I'll hop back into the queue.
Thank you, Anthony.
Speaker Change: Our next question comes from the line of Ram Silvaraju with HC Wainwright. Please go ahead.
Speaker Change: Hi, this is Jade for RAM. Thank you so much for taking my call and congrats on the earnings. So could you tell me how the Western expansion is going and when you expect to fully deploy in the territory?
Yeah
Speaker Change: So, on a practical level, we've continued to increase the number of customers that we have in the West.
Speaker Change: and are continuing to enhance our presence there. We are in discussions right now with a potential opportunity that could provide us with a permanent position in the West. And we hope to be able to say more about that in the coming weeks.
Speaker Change: Great, thanks. And to follow up to that more locationally based, so you've mentioned a lot as we move into 2025 that you're, you know, planning that you can't really say anything, but is there anything that you can mention regarding value driving developments in ex-US territories during 2025?
Speaker Change: Yeah, so that too is an area that continues to be, you know, a good opportunity for us. As you know, from the, you know, from the press release, we signed this quarter an extension and enhancement of our relationship with NEPROMedical, which helps, you know,
Speaker Change: put our product into the international market. In addition, we are also in the in the final stages of bidding on multiple contracts.
Speaker Change: in different international locations and seeking those tenders for product, which again, we feel like we're in a really good position to do based on our existing international business. And so again, we hope to have more to say about that here in the coming weeks.
All right, thank you so much.
Thank you.
Speaker Change: And there are no further questions, I'll turn the call back over to Dr. Strobeck.
Speaker Change: Thank you. Before we close, I'd like to take a moment to thank our team members for all their hard work they do every day to provide dialysis clinics and the patients they serve with the highest quality products supported by the best customer service in the industry.
Speaker Change: Our team members at every level within our organization are the nucleus of our success.
Speaker Change: We have developed and continue to build upon a core expertise in manufacturing and delivering hemodialysis concentrates.
Speaker Change: It's because of this dedication and passion that Rockwell Medical was named a Fortune's Best Workplace in Manufacturing and Production in 2024.
Speaker Change: We have a reputation for reliability, quality, and excellent customer service. When patient outcomes are critical, customers, and in turn patients, can depend on Rockwell Medical to deliver.
Speaker Change: We continue to focus on optimization, automation, and streamlining our operations to drive sustainable profitability and shareholder value. We look forward to sharing more with you on our next earnings call. Thank you for your time today.
Speaker Change: This concludes today's conference call and webcast. You may now disconnect.
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