Dynatronics Corporation (DYNT) on Q3 2022 Results - Earnings Call Transcript
Operator: Good morning, ladies and gentlemen, and welcome to the Dynatronics Third Quarter Fiscal Year 2022 Earnings Call. As a reminder, this event is being recorded. It is now my pleasure to turn the floor over to your host, Norm Roegner, the company’s Chief Financial Officer. The floor is yours.
Norm Roegner: Thank you, operator. Skyler is not in the office today, so I will call your attention to our Safe Harbor statement before we begin. Please note that during this call, we will make forward-looking statements regarding our current expectations, plans, projections and the financial performance relating to our business. These forward-looking statements reflect our view as of today only, and they involve risks and uncertainty that could cause 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 are included in our most recent 10-K and other reports filed with the SEC and include uncertainties and risks related to the impact of the COVID-19 global pandemic on our 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. During our prepared remarks, we will be referring to slides that are available for viewing in the webcast and posted in the Investor Relations section of dynatronics.com. I will now turn the call over to John Krier, our President and Chief Executive Officer.
John Krier: Thanks, Norm. Good morning, everyone, and thanks for joining Dynatronics call today. On today’s call, we will cover the recent highlights and achievements. Norm will provide commentary on the financials, and then we will have the operator open the phone lines for questions. Slide 3 highlights just a few of our more recent accomplishments, all of which drive the company’s sales growth to exceed the market growth rates and our baseline sales expectation. Let me begin with three headline points. First and foremost, we have a clear line of sight to profitable growth and a well-defined strategy to execute against. We have been executing an ongoing business transformation and consistently performing each quarter to achieve our goals. Second, we are confident in our outlook. We increased the midpoint of our fiscal year 2022 net sales guidance today. Our third quarter sales and our sales guidance for the fourth quarter are the fourth and fifth consecutive quarters of exceeding the market and our baseline sales expectation. Our accelerating transformation continues even with the greater-than-expected disruption from the impact of COVID-19. And third, our markets generate 5% to 6% organic growth per year. We plan to continue to take market share and releasing new products resulting in growth faster than the 5% to 6% organic growth our collective markets generate. Moving to Slide 4. We will continue to provide guidance on metrics that we are confident with while managing the choppy nature of this business transformation and the impacts of COVID-19. We updated our guidance range and raised our guidance midpoint today. We expect net sales in fiscal year 2022 to be in the range of $44 million to $45 million, assuming current conditions on COVID-19 cases and supply chain impacts. The midpoint of this sales guidance represents a 20.3% organic growth rate relative to the $37 million annual continued product net sales baseline set in April 2021. Our target midpoint net sales in the fourth quarter of fiscal year 2022 is $11.35 million, a planned increase of 15.8% relative to the $9.8 million continued product sales in the same period last year. Customer and dealer reaction to Dynatronics transformation strategy continues to be overwhelmingly positive demonstrating our new business model strength and providing us momentum, building upon the favorable tailwinds in the markets we compete. The company expects the distribution of net sales across the quarters to align with historical trends, highest in the first quarter, lower in the second and third quarters with a bounce back in the fourth quarter. This pattern matched our results in Q3 and our updated net sales expectation in Q4. We have discussed if we only maintain market share, we should deliver annual net sales growth of 5% to 6% in fiscal year 2023. We target higher annual net sales growth by continuing to take market share and releasing new products. We have delivered sales growth four consecutive quarters, well above market growth and above our $9.25 million continued product sales baseline set in April 2021. The double-digit sales growth is driven in response to our business transformation, volume-tiered pricing, and our strategic inventory levels that have been built. We invested in inventory in each of the first three quarters of fiscal year 2022 to serve customer demand on expected double-digit higher sales growth. Our inventory is elevated to meet customer demand and the current market and supply chain conditions. The expected sequential improvement in gross margin in Q4 assumes current conditions on raw material costs, delivery and shipment costs, supply chain disruptions and handling times. To provide more context, our target is utilization of appropriate inventory levels that have been strategically built over the past three quarters. On the higher expected sales volume I discussed, inventory is currently $5.1 million or 78% higher than when we started fiscal year 2022. These investments were designed specifically to serve customer demand, add additional safety stock to help offset continued expected supply chain disruptions and to drive new product introductions. Importantly, we are getting products to our customers and anticipate that to continue in Q4. That is a strategic competitive advantage in the supply chain challenged environment. Customers are rewarding that. The cash used in operating activities of $3.3 million for the first nine months of fiscal year 2022 was primarily due to the company’s working capital investment in inventory of $5.1 million during those nine months. The challenges we had with inventory over the last three quarters have caused the organization to incur additional cost. We expect to see improved throughput with the inventory levels in place. Inventory levels will remain elevated until issues across the global supply chain return to pre-pandemic levels. Turning to Slide 5. Gross margin expansion remains our short-term focus. Gross margin improved to 22.4% in Q3, a 2.6% sequential increase from the Q2 gross margin of 19.8%. This improvement came primarily because of the price increases that we implemented. Our gross margin in Q4 should continue to benefit from price increases for our products, while our cash flow from operations should benefit from our inventory that has been strategically built over the past three quarters. As a company, we focus on higher margin, differentiated products that we manufacture. Our target is to achieve 40% gross margins over the longer term, which is comparable to what we believe our peers achieve. For example, our competitors, DJO, before they were acquired by Colfax and recently spun out to the standalone Enovis and Ossur. When you break out the bracing segment, maintain margins for bracing and support of approximately 50% and for rehabilitation of roughly 30%. Gross margin in each quarter of fiscal year 2022 was muted by the impact of COVID-19 and supply chain challenges, including extraordinarily high freight, raw materials and labor costs. Without the additional freight, raw materials and labor costs we experienced in Q3 as a result of COVID-19 and inflationary pressures, our gross margin would have been 31.7%. Excluding these additional costs, our gross margin was higher in each quarter of fiscal year 2022 relative to the prior year. We are taking multiple actions to offset these costs, including selective price increases, exploring alternate sourcing relationships and improving factory yields. We are fortunate that Dynatronics does not rely as heavily on long-term agreements as many other companies in our markets. As a result, we can share cost challenges with our dealers and customers through price increases, while giving them the option to buy more products from us to minimize these increases. We anticipate that price increases will offset some of our inflationary cost pressures over time. Slide 6 provides the fiscal year 2022 guidance details. I discussed our net sales guidance range for fiscal year 2022, and we target higher net sales and gross margin in fiscal year 2023. We anticipate selling, general and administrative expenses of 30% to 35% of net sales in fiscal year 2022. Q3 was an excellent example of the team managing SG&A appropriately in the face of mounting input cost pressures. As we gain revenue scale, we expect to continually leverage and improve our scale on this SG&A cost base. We’re going to do what it takes to keep serving demand from our customers. We have a steady eye on the company’s vision to build a scalable platform to grow our customer and sales base to a much larger company in our markets, deliver margin expansion and consistently deliver strong cash flow from operations to create value for shareholders. There continues to be an opportunity to improve all of our financial metrics. This guidance is based on our current operations and is subject to the risk factors and other forward-looking statements and uncertainties contained in this presentation and in our filings with the SEC. Turning to Slide 7. Each of these bullets is important to our sustainable growth platform. I’m proud of our results and the great work of our team over the past several quarters. I want to provide context to the strategy driving the momentum we generate. Our short-term focus is on gross margin expansion, and our target is to achieve 40% gross margins over the longer term. Our transformation continues. We expect that over time, these changes will deliver the higher annual net sales, gross margin, operating income, and cash flow from operations that enable sustainable long-term growth. Let’s move to Slide 8. We have delivered sales growth for four consecutive quarters, well above market growth. And above our $9.25 million continued product sales baseline set in April 2021. These are our levers to drive sales growth at a macro level, capturing market share, developing product innovations and acquisitions. The two markets we serve exhibit attractive growth profiles, each about 5% to 6%. In addition to this market growth, we plan to continue to take market share from our competitors, introduce new products that will enable us to grow faster than this 5% to 6% organic growth rate. Importantly, our annual net sales for fiscal year 2022 is approximately $44 million to $45 million and the $5 billion domestic total available market within the rehabilitation and bracing and supports markets. That is the macro level. I will now discuss our initiatives to build sales. Please turn to Slide 9 on winning market share. We win market share through: one, superior commercial execution, make the dealers and customers’ life as easy as possible and make it easier to do business with us; and two, favorable mix shift to product innovations. By delivering on these goals, we have delivered double-digit revenue growth in four consecutive quarters. We remain focused on driving improvements in our dealer and end customer experience offering volume-tiered pricing that rewards customer loyalty and delivering product innovations that give dealers reasons to continue moving their end customers to Dynatronics. Moving to Slide 10. The three takeaways about our recent new products are: number one, ramped up cadence and expanded pipeline of product innovations; two, at the end of January 2022, under the umbrella of Return to Mobility, we launched an exclusive suite of products and additionally three new metal tables; and three, dealer and customer feedback drove the product releases. The new metal tables were launched on January 31, 2022. Due to the typical time line for orders, product build and then shipments, there was a small immaterial revenue impact from these new products in our third quarter of fiscal year 2022. While the corporate-wide impact was immaterial in Q3, booked orders on these new products were almost 200% higher than our baseline expectations in the third quarter, exceeding every metric in the plan. We believe this demonstrates market acceptance of the Mammoth line and expect it to become a more important contributor to our revenues over time. To use a baseball term, the Mammoth launch was a single that drives our net sales growth over time. Looking at Slide 11. Brian Baker rejoined Dynatronics full time as Chief Operating Officer in January 2022. Brian served as our Chief Operating Officer from May 2019 until his promotion to Chief Executive Officer in August 2019. Brian held that position until July 2020, when he resigned due to health issues relating to COVID-19. Thankfully, he has recovered from the COVID-19 virus, and I was delighted when he accepted the opportunity to rejoin our management team full time. As you can see, new leadership hires have been a major focus area at Dynatronics. We also implemented a culture of accountability at the company and focused our employees on overall organic sales growth and consistent profitability. On Slide 12. The markets that we serve are large, growing and highly fragmented. The industry research continues to indicate that the rehabilitation and bracing and support markets exhibit attractive growth profiles, each of about 5% to 6%. Opportunities exist across Dynatronics primary brands to expand market share within existing customers as well as to introduce additional product offerings within the segments in which we compete. As we are all likely experiencing or reading about the statistics of facility activity, orthopedic procedures and other peripheral activities like team sports that create demand for our products are volatile based on COVID-19 activity and staffing shortages. Building on the foundation in the markets we serve, let’s move to Slide 13. Our M&A strategy is detailed here to give you an idea of what we look for. We continue to have conversations and pursue acquisitions, innovation partnerships and other business ventures. We have the leadership team to execute on any that meet our well-defined criteria. Our focused criteria include greater than 40% gross margin and cash flow contribution within the first year. Our focus is on our current markets. Our near-term targets are at the lower end of the $5 million to $30 million revenue range. We prefer to make a smaller acquisition using our balance sheet or bank debt rather than equity because we believe our share price is undervalued and want to unlock some of that value. I will now turn the call over to Norm.
Norm Roegner: Thanks, John. Please turn to Slide 14, which contains our quarterly financial and business highlights. As a reminder, the full income statement and management discussion and analysis can be found in the 10-Q. I will summarize some of the key financials here. Net sales were $10.3 million for the third quarter of the fiscal year. That compares to net sales of $11.5 million in the same quarter of the prior fiscal year. $10.3 million net sales in the third quarter exceeds the $9.25 million quarterly continued product net sales baseline set in April 2021. Our net sales across the quarters of fiscal year 2022 align with historical trends, lower in the second and third quarters and higher in the first and fourth quarters. We continue to see an increase in overall activity compared to the prior year, which was impacted by COVID-19 shutdowns and other related disruptions. Gross profit for the third quarter of fiscal year 2022 was $2.3 million or 22.4% of net sales compared to $3.3 million or 28.8% of net sales in the same quarter of the prior year. As John mentioned earlier, we saw COVID-19 and supply chain challenges, including extraordinarily high freight, raw materials and labor costs in the third quarter. Specifically, gross margin would have been 31.7% or 9.3 points higher without the impact from COVID-19 in the third quarter. About 60% of the 9.3 points of the inflationary cost impacts are related to freight, with the remainder primarily related to raw materials. Overall, we have seen a slowing of inflationary costs over the last quarter in both freight and raw materials. We expect cost pressures to continue for the remainder of calendar year 2022 with the adverse impacts to be more pronounced in the first half of this year. So freight and raw material costs are probably here for at least a while. We are raising prices to offset these costs, at least partially, as John discussed. Selling, general and administrative expenses were $3.7 million in the third quarter compared to $3.9 million in the prior year period. We delivered year-over-year SG&A cost savings as we continue to improve operational performance and leverage our resources on a company-wide basis. The decrease was due primarily to lower direct selling expenses and reduction in general business fees and administrative personnel costs. Net loss for the third quarter of this fiscal year was $1.5 million, that compares to a net income of $0.1 million in the third quarter of fiscal year 2021, which benefited from $963,000 of employee retention credit. Outstanding shares will increase approximately $280,000 per quarter, depending on our share price. As of May 6, 2022, the number of common shares outstanding was approximately 18.2 million. We expect sequential improvement in gross margin in Q4 in response to our price increases and favorable mix shift to our new product innovations. The net cash balance was $2.5 million on March 31, 2022. We invested in inventory due to double-digit higher sales in each quarter of fiscal year 2022. In addition, supply chain volatility continues to cause longer lead times. As a result, the organization made a strategic decision to place additional orders on key raw materials and other supplies. Cash used in operating activities was $3.3 million for the nine months ended March 31, 2022, due to the company’s working capital investment on effective double-digit growth specifically $5.1 million or 78% increase due to the build in inventory to serve customer demand, additional safety stock to help offset continued expected supply chain disruptions and new product introductions. Before I turn the call back over to John, I will note we continue to navigate a volatile landscape through the continuing challenges from COVID-19, including higher raw material prices, delivery and shipment costs, supply chain disruption, extended handling times and delays or disruptions in procedure volume. At the same time, Dynatronics also expects some continued volatility from the company's business transformation. This concludes our summary of the financial and operating results. I will now turn the call back to John.
John Krier: Thank you, Norm. Slide 15 is the investment highlights for Dynatronics. The markets we serve, rehabilitation and bracing have attractive growth profiles. Our sales growth has been driven by customer and dealer reaction to the business transformation. We are winning market share. Our sales have exceeded the market in four consecutive quarters. Our target is 15.8% sales growth in the fourth quarter relative to the $9.8 million continued product sales in the same period in the prior year. We target sequential improvement in gross margin in the fourth quarter of fiscal year 2022. We have approximately $2.5 million of cash and $11.6 million of inventory on the balance sheet at the end of March with no debt. We are excited to be moving Dynatronics in a direction that will reward our shareholders and provide a consistently differentiated experience to our customers. We are actively sharing our story with the investment community. We will be presenting and hosting one-on-one meetings at upcoming investor events, which will be detailed in upcoming press releases and on our Investor Relations website. We hope to meet with you. I will now turn it over for questions.
Operator: Thank you. Your first question is coming from Jeffrey Cohen of Ladenburg Thalmann. Jeffrey, over to you.
Jeffrey Cohen: Hi, John, Brian and Norm, how are you?
John Krier: Great, Jeff. Good to hear your voice.
Jeffrey Cohen: Please to have you back to work Brian. Hope you’re doing well. And few questions for net rent. So John, can you talk about the number of SKUs? I know you've gone through some rationalization there over the past year. Could you walk us through perhaps aggregate numbers as they stand and any net change from Q3 and anticipated changes going forward in the short and medium term?
John Krier: Thanks, Jeff. Our SKUs run around 5,000 today across all of our brands. No material change across them. We certainly reduced a significant number of SKUs over a year ago when we reset our baseline, and this is now driven by our manufactured products going forward.
Jeffrey Cohen: Got it. Could you talk about margins and pricing a little bit. It sounds like you took some pricing and remind us what – I think you said 9% was from freight and raw material. Is your price taking, I guess, keeping up or net neutral to those increases thus far through Q3 and Q4?
John Krier: I'll talk first about price and then I can let Norm elaborate on gross margin. So when we look at our Q3 results and the growth that we experienced continued. Roughly 97% of that is driven by volume and only 3% of that driven by price. And so we're not to the point where the price increases are keeping up with the percentage decline and the inflationary cost that Norm alluded to. The other point about price, though, is that we talked about in our last call that most of those price increases went into effect the first of the year. And due to the rolling nature of how they're implemented, it takes one, two and three quarters for them to fully make it into our results. And so we're just seeing the beginning of that with that 2.6 percentage sequential increase that we saw in the quarter.
Norm Roegner: And I can add to that. I mean I do think that in terms of the inflationary costs, yes, we talked about 9 point – 3 point added back. When you look at the inflationary impact, it takes our adjusted margin to 31.7%, which is better year-over-year, obviously. So we're excited about that. Unfortunately, we got the inflationary impacts that we've got to deal with now. And we are making some of it back, as John just spoke to on the price increases. And we'll continue to watch that. We have seen overall, those inflationary costs start to slow a little bit in the third quarter, which is nice. And hopefully, that trend continues.
Jeffrey Cohen: Okay. That's helpful, Norm. And then lastly, for us on the margin front, again, I suppose – I appreciate your longer-term number of the 40%. I'm just trying to get a better handle on – for modeling purposes for fiscal 2023 and 2024, how that may look as far as increases. Do you expect kind of a modest linear increase throughout the next eight quarters, call it, 3% to 5% on an annual basis for the next couple of years at least. And when you talk about longer-term 40%, I imagine you're referring to three or three-ish years going forward?
Norm Roegner: I think starting with just the fourth quarter, we saw a 260 basis point improvement sequentially over the second quarter, and we'd like to see that trend continue, and we think it will in the fourth quarter of this year. And then going forward, yes, I think to get to that 40% margin, we aren't going to be able to do that overnight. But if we consistently move a study pattern forward with 260 basis point type improvements, we'll get there in the next two plus years.
Jeffrey Cohen: Okay. That does it for us taking…
John Krier: Jeff, I would add to Norm's comment, though, just to share what I shared internally with the team. While, I'm proud of the team and our efforts to get to that 31.7% gross margin when you remove those inflationary costs and we're improving it year-over-year. That's not an excuse for us to be able to get to our long-term target. So we need to be effective at launching new products that are greater than 40%, improving our initiatives internally so that we can get to that point, we won't be satisfied until we get to our peers.
Jeffrey Cohen: Got it. Thanks, John.
Operator: Thank you. There appears to be no more questions in the phone line. I will now turn this call over to Jeff Christensen to read through submitted questions through the webcast. Thank you.
Jeff Christensen: Okay. Yes. Thanks, operator. And our first question is for John. And – what – you talked about the market growth, and I just want to make sure this question was submitted in the webcast chat was, what's driving that thinking about going forward, what's going to drive that above market growth?
John Krier: Yes. The first part of it is just we have a clear strategy and the customer reaction to that strategy is very strong. And so that's being demonstrated by the fact that if our markets are growing 5% to 6%, and we're demonstrating 20% year-over-year with our midpoint and even 16% in Q4, that's three times the market. So that reaction is there with how we're driving our dealers and our customers to work with us. As we continue to launch new products. So with the new Mammoth line being launched on January 31, just beginning to take hold. That's not even really in our results yet, will be another reaction to that. So if we can continue this commercial execution, launch new products that will help generate margin. That's how we'll be able to maintain that above market growth rate.
Jeff Christensen: Okay. And our next question in the web chat is just to make – be clear about it. What – how do we think about what's going to drive – what's going to be the most important factors to drive gross margins higher?
John Krier: Well, I think when we look at how are we performing in the market and then how are we driving gross margins higher. The first step for us was to generate net sales growth, organic growth at greater than the market. We've now done that for what will be our fourth and fifth consecutive quarters. We've managed SG&A to that midpoint to be able to say, hey, at least in our cost base today. What we've done is improved our gross margin absent the COVID factors of the year, but now we need to improve them regardless of the inflationary pressures. So we're working on sourcing relationships. We're working on our factory yields. We're switching to higher mix products. We're accelerating the cadence of new product innovations. I can't point to any one of them and say that's going to be x percent or y percent, but the culmination of all of those is what's going to allow us to get to our gross margin target.
Jeff Christensen: Okay. Thanks. What are the most important Dynatronics metrics that we should follow in the milestones that we should look for in the next three, six and 18 months?
Norm Roegner: There's three metrics that we're looking at, Jeff. And first, as we talked about, is that consistent net sales growth. And we've seen it over the last four quarters. We want to continue to see that. And we're watching that because it shows that one, we're making inroads with our customers, and our sales strategy is working; and two, it's going to be a measure of our success around our new product launches. The second metric that we're highly focused on and is a key metric for us is that gross margin, and it's specifically the expansion of that. Our goal remains to get to 40% gross margin. And while that's not going to happen overnight, we do want to see a steady improvement each quarter going forward so that we can get to that overall target. And the third metric we're always looking at is focused on is operating – excuse me, EBITDA in operating cash flows, a positive operating cash flow. So those are the metrics we're watching and we're consistently talking about and focused on.
Jeff Christensen: Okay. Thanks. The next question in the chat is what new products will you be offering?
John Krier: Yes. I think if you look at the last few quarters, that's now seven new product releases since January of 2021, six new table lines, a new software application. We'll be launching those new products in both of our segments. The Mammoth is a series of products that as we continue to test the market and receive dealer reaction, we'll cadence them out at the right time and manage the reaction. So we've got a strong pipeline of new products coming. We need to make sure that we vet those, use disciplined product execution management led by our team with Sarah Mealman and others and bring those to market over time.
Jeff Christensen: Okay. Thanks. It is the – the next question in the chat is, is the gross margin on new products launched in Q3 and going forward, are those going to be higher or about the same or lower than the rest of the business?
John Krier: Our target for all of our activities is to get our gross margin over 40% long term. A key tenet of that is that anything we launch or changes we make today must all achieve that target. So new products must be able to achieve greater than 40% gross margin so that we're consistently pulling up our overall portfolio. And as new products released continue to be a greater percentage of our overall revenue, that will raise our margins along with operational improvements led by the return of Brian Baker and the rest of the organization.
Jeff Christensen: Okay. Thanks. Operator, I got a note from Scott Henry that he was trying to ask a question on the phone line. Is that – are you – do you see that? Or is he not able to get in?
Operator: It hasn't come up at all. As I said, Jeff's question came up, no problem. . I can unmute his line. He can ask the question, if he like.
Jeff Christensen: Yes. Can you unmute his line?
Operator: 100%. Just two seconds. Okay. Scott, you can ask your question.
Scott Henry: Guys, can you hear me?
John Krier: Yes, we can hear you, Scott. It's a little fuzzy, but we can try to make it out. Great to hear your voice.
Scott Henry: A lot of pressure. I hope I have two questions. For starters, when I look at 55 on the gross margin, I can't help but ask, you have the bar chart, and if I just look at Q4, it would imply that 26% gross margin. And if I look at fiscal year 2023, it would imply 30% gross margin. The question is – are those bar charts just put there to show growth? Or are they representatives of actual expectations? I know they don't have numbers, but you can eyeball it?
John Krier: So Scott, I'll jump in here. This is John. I would say that what Norm talked about earlier is that if we were able to see a sequential 2.6 percentage point improvement like we saw in Q3 and Q4, that would be a good outcome in the event of these inflationary pressures. We've not provided going forward gross margin guidance and that bar chart is simply to represent that we expect that to continue. The wildcard will be how fast can we see some of the inflationary pressures continue to slowdown and then also as our price increases come in. So I wouldn't imply a direct percentage there, but we would be happy with that similar 2.6% increase that we saw in Q3.
Scott Henry: Okay. And then so you mean there's not a cash flow burn in the quarter, as you mentioned largely for inventory. How should we think about cash for fourth quarter? And more importantly, in 2023 do you expect to be cash flow neutral or how should we think it?
John Krier: Yes. I think if you look at this, Scott, in the nine-month period, so we utilize cash flow from operations of $3.3 million. We spent $5.1 million building inventory. We're heading into our 2 largest growth quarters of the year. Our fourth quarter is our second highest. Our first quarter is our highest. And so you shouldn't expect to – we also discussed that our inventory is at elevated levels, and it will be around this level going forward. We're going to continue to meet that demand that's there, especially as we head into our peak season. But as you look ahead, so given the fact that we'll have our strongest revenue quarter, but we're still dealing with a choppy nature. When we go into fiscal year 2023, targeting positive cash flow from operations is absolutely going to be a goal, and we're going to set the business on a path to achieve that.
Scott Henry: Okay, that’s helpful. Thank you. And then the last question is somewhat of a couple question and then I’ve not wanted to ask about I think it's relevant. You're talking about growth; you're talking about gaining market share. But we're still down sequentially and down year-over-year. And I know you reset the base by eliminating SKUs, so it's not apples-to-apples anymore. So the question is, I mean, you can do that once, but after doing that, let's talk about growth, you have to show growth. So the question is, for 2023, will the growth we're talking about show up in the revenue stream?
John Krier: What I would point to, Scott, is we've said all along that we want to generate stability and be confident in the metrics that we put out so that we achieve them. We understand that having confidence in the management team and in our performance is not about the words, it's about the performance that we put up. And so this is the fourth and fifth consecutive quarter of beating not only the net sales baseline but our market. And in this quarter specifically, that we provided guidance for Q4, that is an apples-to-apples comparison of 16% organic growth against the prior year. So our focus is on being able to maintain that. The market is giving us, let's call it 6%, we've proven now that for four and five quarters, we can deliver that. We have to continue to launch new products. We have no intention of not being able to do that. We need to simply execute.
Scott Henry: I guess I want to – I just want to put it in a different way. Because your Q4, yes, you're telling me it's going to grow. But it's not a change based on Q4 of 2021. So it's not going to grow from 2021's Q4 number. My question is, when – is 2022 going to be a based, meaning, say, that's $44 million to $45 million revenue, is that going to be apples-to-apples when we look to 2023? Or are we going to be pulling and pushing things in and out of the 2022 numbers. I just want to know when we're on that kind of organic baseline what we should be thinking about.
John Krier: We are on that right now, Scott. The number we're projecting for Q4 against that $9.8 million from Q4 of last year is on that baseline. And the $44 million to $45 million that we project for this fiscal year is the baseline going into the new fiscal year.
Scott Henry: Okay, perfect. Thank you for that clarity. Then I guess final question is the market for acquisitions, do you find it improving given the challenging economic backdrop, do you find that sellers are perhaps more going to consider alternative financing such as earn outs. And is it working – is the market coming to is basically when you think about – just trying to get a sense of that and how we should think about that aspect of the business?
John Krier: Yes. The market for acquisitions is still very challenged out there in terms of expectations and then the macro environment uncertainty that's out there, that is still the case. So we have to continue to have these conversations. We will continue to have these conversations but it hasn't gotten any easier on being able to find that willing partner that advances us going forward. So the clearest near-term strategy we can do is launch these new products, drive this organic growth and keep those conversations coming and ideally one of those breakthrough in the coming one to two years.
Scott Henry: Okay, great. Thank you for taking the questions.
John Krier: You’re welcome Scott. Great to hear your voice.
Jeff Christensen: So we're all out of time, and I would like to now turn the call back over to John for any closing comments.
John Krier: Thank you. Thank you all for your interest in Dynatronics. We are actively sharing our story with the investment community as we move forward. So we hope to meet you at upcoming investor events. And for all those employees of Dynatronics across all of our great sites, I want to say thank you for driving this organic growth and continuing this transformation together. We continue to exceed the market and have great opportunities in front of us. If you have any further questions, please direct them to Skyler Black or Jeff Christensen. Their contact information is in this presentation and our press release. Have a great day.
Operator: Thank you. This concludes today's conference. All parties may disconnect and have a great day.
