Dynatronics (DYNT) 9 Feb 232023 Q2 Earnings call transcript

Welcome to Dynatronics' Second Quarter Fiscal Year 2023 Earnings Call. My name is Jenny and I will be your operator for today's call.

As a reminder this conference call is being recorded for replay purposes.

Following today's presentation, there will be a question-and-answer session with analysts. At this time, all participants are in a listen-only mode.

pleasure the my your over now Mr. host is to floor turn to It company's Executive President, Financial the Krier, John Chief Officer. Officer Chief and John yours. is the floor

Thank to and call. morning, you quarter second earnings welcome operator. Good Dynatronics' everyone

not materially we that harbor I this could results safe conference to cause the Before morning. discussed you in to will to SEC. include discussions differ recent that statements statement. I actual forward-looking forward-looking your remind will with attention company's We are revise statements. obligation begin, this undue forward-looking the We place our the we call you during most call filings statements. no update to Factors make on or reliance caution may undertake

slides posted viewing the that are During our remarks, on our at prepared available webcast in to we dynatronics.com. and Center referring will page Investor for be

will then and of provide On the from And financials. fiscal today's have lines our the for analysts. XXXX, questions phone of quarter commentary as year cover call, well as the operator we the the second open we highlights will on achievements

few highlight growth a of rates business establish recent consistent we continue accomplishments a our market journey and X Slide sustainable generates that revenue as to profitability. exceed our

and industries, at other our continue quarter. for our are to utilization, we results. takeaways dampen to inflationary of key inconsistent Three our the environment all to and somewhat level I face the supply will second to begin highest macroeconomic speak which like challenges quarterly chain briefly seeing. competitors work pressures, We,

our that gross to happy we and report, improve continued however, are headwinds, profile. these to We despite margin stabilize

the achieving or macroeconomic Though expansion. XX.X% quarter-over-quarter headwinds margin from prevented gross QX an year. increase from was the of margin us fiscal Our prior X.X%

net material XXXX. million the million outlook our volatility availability, pressures And We guidance in fiscal in XXXX calendar improve to year of and for expect we'll to and our maintain business $XX remain sales strategy. $XX confident freight differentiated throughout and raw inflationary

execution at/or the set of organic commercial and growth baseline delivered our above market Xth quarter above rates. revenue And finally, XXXX we the growth April consecutive in

a inventory product are our the our managing with the of new increased to executing levels, We while clean appropriate sheet, handling demand backdrop for innovations. products all balance amidst balances

X. slide to Moving

As for period, quarter full of million in compared and an discussion as net million the second $XX.X XX-Q. in prior analysis and will I organic a or be were the growth of in the $XX.X prior financials year sales income compares X.X%. million noted sales statement year. summarize million year was earlier, reminder, to period $X.X the net XX.X% of Gross of to the representing rate the management here. quarter of XX.X% or XXXX. That same the can some $X.X fiscal profit of sales net the key I Net for sales found

gross The of realization profit product was of percentage overall combination increase as a mix. net price net and in sales a driven by better

pressures to XXXX. While and cost the seen we of XXXX freight, cautious during continue of a freight year slowing for specifically in both we QX and have calendar remain inbound cost increases raw of fiscal materials have modeled remainder

XX, increase. expenses Selling, the the increased were primary for Net $X.X today's stock completed its loss programs million XX, presentation. later $X.X and net X, to $X.X reverse be same was year to XXXX million. loss compared December year marketing general or February additional XXXX. in Separately, of on XX.X% administrative compares the for ended quarter million the of fiscal and XXXX. That to provided will of ended company fiscal the $X.X split And quarter a period QX million $X.X in XXXX December details drivers marketing Investments the million for in XXXX.

quarter per our The will share per adjusted The XX,XXX XX,XXX is based balance stock share cash Outstanding price reverse approximately on share. $X.XX depending quarter of June on net on The a reduction XX, on XXXX. per increase million on $XX.X from XX, $X.X million of shares December shares price. approximately to XXXX. split with approximately XX, approximately same the our XXXX. was $X.X million balance a as inventory June We balance reduced

for will We our fiscal inventory, while optimize quarter. strategically to continue seasonal product our fourth growth preparing introductions and new in

million operating $X.X by Cash XXXX, cash generated results. compares first was our activities to which concludes our of six same months by the months year. fiscal This six of operating summary the the financial activities $X.X million year and operating in for the used prior of of

Turning slide to X.

align expects metrics $XX.X net sales on company The of net the the the second guidance the And to annual organic a in midpoint sales XXXX relative in million our to provide fiscal be year with. we confident distribution year in with to million in range lower first are this continue the Highest $XX trends. higher sales affirming quarters across will historical The the XXXX. of in represents quarters quarter. in fiscal X% quarter, fourth guidance that and we sales $XX the are rate to that growth with We third million. net expectation again year XXXX fiscal growth of in

quarter second this seasonal trend. historical Our continued

Moving X. to slide

in supply expansion XX.X%. XX.X% As margin increased the macroeconomic from margin calls, focus. an a in in to with of of from seasonality gross increase chain we key decrease remains have challenges. margin the stated QX coupled QX earlier reflects margin gross X.X% X.X% Sequentially, prior-year gross Gross

executing company, on a six-point plan. a As gross margin are we

market. in an competitive rationalization, which rewards our tiered with price one, strategy rehabilitation Number customer pricing is strategy is our This recent loyalty. tested example acquisitions being

our who organization However, dealers And XXX% remain to to loyalty We we our those demonstrate rewarding in strongly a to our aligned remain dealer product rehabilitation dealer-centric brands. committed categories. has strategy. our network remained

product. rationalized two, Number

our over say, In This XXXX, routinely grow we product addition must to the routine streamlining maintenance. major disruption. offering. shift lifecycle in Internally, we simply product execute we the on is April

expansion. longer-term Our to margin disciplined in area this key is execution a

In year six, on remaining product a revenue than and The after quarter, market. six-point scale; plan and opportunities million sales our acquisitions. four manufacturing mergers in introductions. five, efficiencies; the new number three one number number orders the Mammoth three exceeded less we are table past Number in

to additional continue our drive options explore We these elements of plan. three all to

My committed move approximate strategy execute margin us to year-to-date the potential and based to gross our I current future the our plan. performance team XX% are from and on six-point

million million. in Slide guidance fiscal range expected Net X% be details. X reaffirms year midpoint this Dynatronics' $XX to revenue million range XXXX growth. of to The Sales $XX.X of organic are represent the $XX

longer-term guidance. Year-to-date, gross we inflationary net expenses XXXX XXXX. towards general fiscal chain administrative year in margin and X.X%. challenges, impacts We do of have expect supply we gross anticipate deferring of sales Given macroeconomic to target year by the XX%. persistent XX% to improved XX% providing pressure, the expansion margin the our We fiscal and of are selling, continue

takes and create flow understand scalable be value a and a sales. our As are for build we and net revenue XX.X% expansion to general We of the our strong selling, platform this improve administrative we scale, we from gain within company to drive expect base. cost deliver customer grow to range much to margin operations cash we sales markets, in consistently expenses to what firmly it and slightly Year-to-date, expect leverage continually our And larger shareholders. anticipate. base SG&A fall to

focus We will all our to continue improving financial further on metrics.

forward-looking in this operations factors and filings it's This subject to SEC. and and the with and on presentation statements risk current guidance other contained is based uncertainties in the our our

move X. to QX and gross Slide XXXX. these and expansion targets of priorities. been platform margin in building into Dynatronics Turning our The we as Momentum growth initiatives each of differentiated has fiscal QX our strategic on

with our While we acknowledge satisfied the progress. not are year-over-year improvement, we

New, targeted releases continue and our the are product And gross third in improve this performance plan. plan to margin pillar of innovative our improvement area. we to

the our from the supply marketing, operations start from And XXXX. launched there's med Slide helping often of years. drive XX% XX% a for the years. more And and best engineering, calendar from or culture. X% on I'm depending was tech raise of this three team approximately to to revenue products now to chain incredibly companies, this released past this net of released coming to The move industry growth bar subspecialty, The in of has proud initiate standing X. reached companies past three Healthy of at end sales. Dynatronics in revenue teams products XX%-plus come. Let's routinely

reasons We Not Make through to and loyalty product easy Dynatronics. product simpler just plan. Slide it Please favorable focused shift moving winning mix be to simple our on execution market words make end-customers demonstrates possible as and its business on lives their delivering in improvement number volume-tiered to pricing innovations. end-customer to We turn execution. as give And that share. two, an customers' to share innovations that experience, principles. dealers market offering strive and but and to superior win organization XX commercial customer dealers' the us. driving with remain dealer to solid that execution consistently to rewards continue We one, do

team management landscape focused is differentiated seeking categories the and the on methodical continually commercial a in execution of compete strong, we understanding in. Dynatronics' product

the shown of split to investment as reverse Before highlights completed with Dynatronics, the want details additional close I recently I share of XX. on stock Slide

XX, split stock split shareholders annual split authorized Time ensure the of XXXX. The the approved was Wednesday XXXX. Nasdaq our to bid Eastern authorized on reverse at affect with X The this compliance meeting was February at background, November on $X Directors to the X, minimum As Board shareholder requirement. p.m. effective X-for-X and

split shares from million Key Preferred reverse shares reduced shares Outstanding shares. execution unchanged. points. to approximately remain XX.X stock approximately were common X.X million

However, from in ratio to conversion XXX,XXX shares. the X-for-X same reduced XXX,XXXX the feature was shares

in available are details comparative appendix Additional of presentation. today's the

highlights for bracing growth have Slide we Dynatronics. serve rehabilitation XX markets The investment the profiles. shows stable and

and for Our our have Sales consecutive quarters market been to our have sales transformation. and or by baseline the exceeded customer growth now. expectation reaction driven business share seven dealer

environment. in in despite improvement target the macroeconomic fiscal gross margin XXXX year We

sheet of or against We balance have Dynatronics no the the quarters debt. million and has borrowed representing inventory of consecutive end not million asset base December accounts approximately XXXX inventory no receivable debt. of XX $X.X at with on its cash of July $XX.X since of

investment to to against year our actively share of with our will goals move are update our progress and our to The story through we strategic each demonstrating as community XXXX. more is continue We we fiscal and progress come. listening

now for over questions. will I it turn

At session. you. question-and-answer John. Instructions] be will time, conducting we a this you [Operator Thank Thank

live. your is Lake first is O'Neil Capital. from Your question Brooks coming of Brooks line Street

us and everyone. you morning distressed tell a John or see hoping whether demand and improvement out how bit you whether there? operating environment just you sense to Good the could I'm end-customer little end-customer you. environment beginning a Thank about you're see some is

we're utilization I morning as due than more to say is staffing reporting Good factors such. are what that the anything seeing such would others just and Brooks. inconsistent levels

crazy seeing crazy and market. just or this growth I not maybe stable this utilization decline a think we're inconsistent

We haven't than anything seen different that.

space that for quite all tech med that's the think we've been I consistent with some time. around

Sure.

Secondly, in us Can at to color a and know position if new any in you I be you to you or don't pending any terms will specifics that at or give all want related feel or specifics about products. talk areas opportunity helpful. see, of of interest all future

Absolutely.

say from of I'm I new is product nine in it with incredibly revenue of over thing would the XX releases. new first years XX proud to of X% for X% team to call The months three XX months going our really last sales

very And and range So, revenue of on med of million million tech to and midpoint $XX.X period a a and a approved time. period new X% get a that's in of a that that in commercialized $X through of product product time. think about projected development short up at

plan a also gross is part that margin organic revenue not but of So, only our plan. our key

would of more suspect cadence I happen forward. in the have is consistent next that will what turn this QX. going a to you So, tell going I the we're releases

releases. be And factors fiscal until not benefit going that next year. those is But a so lot into the those go of our there's to felt really of

I you it's see mean categories see that QX. on rehabilitation look at of was category category it you our and As the can products when revenue the slide our alone of releases significant nine some the space. relates you far have at XX% in one been the growth. you when you up in look this to of page majority the product And see reasons rehabilitation our so

of very product our innovate a such expand And that. so releases need We to other this it We part bracing and going it need the to you and and see you're year. see again to can also of were you'll in but supports that new towards both match end as categories year to next in into see categories product it. tail important that, fiscal growing

Great.

and assume do elevated I balance little ask year? labor during down tamp the to Is kind Let was me of whatnot. that anything the just SG&A there staying bit? market more. tight bit. But you would little one can that that's up fiscal anticipate of the Obviously a just a you

in and of That and product product in marketing, SG&A that's investment new forward. in our And marketing very $XXX,XXX with specific new was marketing our consistent introductions introductions programs. expectations coming

you of end to months at would look sales. to the higher of XX% XX%. XX.X% we're of running fiscal first it year, range of say, if I So the six at our the That's net

you that end So down in squarely and midpoint can range our of by come expect slightly in quarters the the to the the year. upcoming land of

for my taking much very you, question. Thank Great.

you, Thank Brooks.

much. very you, Thank

Your Cohen of is live. coming question next your is Ladenburg Jeffrey Jeffrey, line from Thalmann.

you. Hi, John, are how

well, Doing Jeff. morning. Good

couple a from Just end. of our questions

to any not you're So, on it sounds provide margin guidance specific going the front. like,

further it of some increases from in XX.X% XX.X% in you that six, Is slide the looks first that make year will the the quarter. the accurate that However, an like assessment? based quarter half and second in on back anticipate your

assessment. can the versus of That's too QX. give QX little a an color accurate bit I on

QX collection that us percentage So Typically, 'XX, say if and to a you headwinds of exactly an historically the look macroeconomic gross assets, the at expansion, we show kept historically, what when did Except had much macroeconomic back. XXXX, but back we're different in in continue our same to world, here. operating where of about almost we XXXX, ideal impact, sequential be pre-COVID look labor. margin, dropped we'd environment fiscal QX, it able in points freight two

and core but underlying operations, expanding improving the outrun So the that are headwinds. couldn't we we it means

QX And I continue. think But one our seasonality kicks guidance. of in it's So as to we're deferring expect it that trend the back come will that little reasons in. we'll a bit

million Perfect. of I And job a bit, mean it. the nice Got could on levels for inventory secondly $XX.XX quarter. comment the down one then for hand little us, bringing you to

with if hand, being that the you of freshness to of margins little margins, anticipate kind there bit historic lower the the filled On I inventory you at we with about talk the other level continue inventory talk that new could products more about higher would that could inventory Is and please? guess, still and sitting or inventory current would a or products decrease?

Absolutely.

Our come would down further. expectation that, be it

reductions. We targeting strategic additional are some

million in year inventory As $XX.X is before I mentioned finishing low. before, last too high, at $X.X too fiscal year million the

in adding us our is we're to new product And between. products somewhere so for releases. the related answer The wildcard is,

So in we're those building advance of inventory releases.

move that with slide You're while materials seeing on that the the margin releases certain we improve you see contained today, other to in in mix. gross end-of-life out products nine our

short, level. exactly out, tell So company good land, long because we new really use of healthy depend have fiscally to launches it's down. expect product can and to just driver get it I can't is a to inventory you how going on, going come where a but key a to story it's running I quickly it's

us. for for it taking does That Perfect. Thanks questions. Okay. the

Jeff. you, Thank

I back any very now turn are questions the John for comments. no over to to There queue. like Thank in further the floor would you, much. closing

operator. your for you, in Dynatronics. thank Thank And interest you

on the as story X, We We the XX, Investor with upcoming March investment the are at upcoming actively Conference, the March in our you on our Summit XX we and move through hope Conference March to markets. Investor sharing XXXX. include XXXX, with meet investor forward Musculoskeletal Canaccord Virtual events. events Roth Notable community XXXX, XX,

Have And have great call. you you If end operator please direct day. questions, to them further any may ir@dynatronics.com. the a

phone and today's you conclude does conference disconnect this you This Thank participation. your lines for at John. may time. you, call your Thank