Dynatronics Corporation (DYNT) on Q1 2021 Results - Earnings Call Transcript
Operator: Good morning, ladies and gentlemen, and welcome to your Dynatronics First Quarter 2021 Earnings Call. All lines have been placed on a listen-only mode and the floor will be open questions and comments following the presentation. At this time, it is my pleasure to turn the floor over to your host, John Krier. Sir, the floor is yours.
John Krier: Good morning, and thank you for participating in today’s call. I’m John Krier, President and Chief Executive Officer, and with me is our Principal Accounting Officer, Skyler Black. We issued a press release this morning announcing the financial results of our first quarter ended September 30, 2020. Today, I will provide a brief commentary, and then I will turn it over to Skyler for a financial report. At the conclusion, we will have the operator open the phone lines for questions.
Skyler Black: Thank you, John. Before we begin, let me remind you that during the course of this call, we will make forward-looking statements regarding our current expectations, plans, projections and financial performance relating to our business. These forward-looking statements reflect our view as of today only, and they involve risks and uncertainties that could cause our actual results to differ materially from those discussed today. Important factors that could cause actual results to differ materially from those projected or implied by our forward-looking statements today are included in our most recent 10-K and other reports filed with the SEC and include uncertainties and risks related to the impact of COVID-19 pandemic on the business results. We caution you not to place undue reliance on forward-looking statements we make this morning. We undertake no obligation to update or revise forward-looking statements.
John Krier: Thank you, Skylar. I’ll begin by welcoming Norm Roegner, as our newly appointed Chief Financial Officer. Norm brings years of executive financial and operational leadership to Dynatronics. Most recently, Norm was Vice President of Finance for the Medical Pharma Solutions division of Phillips-Medisize, a Molex company. During his extensive work at multiple Molex companies, Norm led financial execution across the commercial organization, supply chain and manufacturing operations. In addition to leading our finance organization, Norm will also be responsible for our supply chain teams supporting our operational success. I am pleased Norm is joining our executive team and look forward to partnering with him to lead the company. Norm will be joining Skyler and me beginning next quarter for our earnings call. In addition to welcoming Norm, I want to thank our employees across all of our locations who accepted the challenges set before us and worked tirelessly to solve unique and difficult circumstances on a daily basis. Our team’s passion for our products and what we deliver to our health care professionals and facilities is evident in this difficult time. Today, we are providing a report on our first quarter ended September 30, 2020. Let me start by focusing on a few updates from our prior disclosures and then discuss additional key updates. Despite the uncertainty in our markets and operations due to the COVID-19 pandemic, Dynatronics delivered a first quarter that reflects the positive financial impacts of the activities we previously disclosed over the past six months.
Skyler Black: Thanks, John, and good morning, everyone. I am pleased to review the financial performance during the quarter. Net sales for the quarter ended September 30, 2020, decreased $4.3 million or 26% to $12.1 million, compared to $16.4 million in the same quarter of the prior year. The decrease was primarily due to a reduction in sales due to COVID-19 precautions and associated deferral of elective procedures. Gross margin for the quarter decreased $1.3 million or 24.3% to $3.9 million, representing 32.2% of sales, compared to $5.2 million or 31.4% of sales in the same quarter of the prior year. Lower sales were the primary cause of the decrease. The increase in gross margin percentage to 32.2% from 31.4% was due primarily to changes in the mix of sales between our major product categories. Selling, general and administrative expenses for the quarter decreased approximately $0.7 million or 13.8% to $4.2 million compared to $4.9 million in the same quarter of the prior year. The decrease included lower selling expenses of $0.8 million as a result of lower fixed sales management salaries and lower commissions and a decrease of $0.1 million in other general and administrative expenses, primarily related to lower personnel costs.
John Krier: Thank you, Skyler. As a result of the continued ongoing uncertainty in our markets due to the COVID-19 pandemic, we will continue to suspend guidance for the time being. Q1 represented sequential improvement in the business, finishing at approximately 74% of prior year compared to our September expectations of 60% to 70%. October trended in line with Q1. And while we are not going to speculate on the finish to the quarter, we feel good about this level of activity given the uncertain virus environment. Our employees across all of our locations will continue to assess and adapt to the changing market conditions related to COVID-19 and react accordingly. We have demonstrated this ability over the past two quarters, resulting in a stabilization of our business, despite the significant disruption to our end-user customers. Dynatronics remains committed to our brands, our customers, our employees and will continue to execute our recovery plan, and pursue our growth strategy as market opportunities present. We appreciate and thank our investor base and employees for their ongoing support. I will now turn it over to the operator for questions.
Operator: Thank you. And we’ll take our first question from Jeffrey Cohen with Ladenburg Thalmann. Please go ahead.
Jeffrey Cohen: Hi, John and Skyler. How are you?
John Krier: Good morning, Jeff.
Jeffrey Cohen: So firstly, any commentary on margins? It looked like you had a bit of positive upside for this quarter, Q1. Any commentary as far as how October is gone? And generally speaking, does it feel like these are levels that you can sustain and/or grow going forward?
John Krier: Yes. Thanks, Jeff. I think we are very proud of the margins that we were able to deliver on the gross margin line for Q1. That’s a result of the various levers that our team pulled to match the resources we had in the business to the demand we’ve been experiencing. And certainly, it was a significant change, whether it was in the depths of April, May, June to what we saw in Q1. We like the activity that we’re seeing in the month of October, and we’re going to continue to match our resources to that demand. We can’t speculate on the future. But we definitely like what we delivered in Q1 and the activity we’re seeing in October.
Jeffrey Cohen: Okay. Got it. And any commentary on October? It looks like the first quarter did very well as compared to the previous quarter, Q4. So does it feel like ordering patterns and facilities are open? Or does it feel like it’s still a mixed bag out there depending on geography?
John Krier: Certainly, it’s geography driven. And with the increased activity in the pandemic, that’s one of the reasons we can’t speculate on the future. But October definitely trended in line with Q1, and we feel good about that level of activity given the environment we’re operating in.
Jeffrey Cohen: Got it. Okay. And then lastly for me, were there any specific areas, which kind of stood out on the upside as far as ordering patterns when it comes to some of the product lines such as Solaris or orthopedics or, et cetera, for the quarter? Thanks.
John Krier: Thanks, Jeff. One of the great parts about Dynatronics is the differences we have in our brands, whether – as you mentioned, Solaris on the modality side or our Hausmann tables or Bird & Cronin embracing products. And so there’s definitely differences in product mix as procedures happen on the surgical side or as PT visits come up, so we certainly enjoyed some of that product mix benefit within it. Nothing notable to stand out, but having the breadth of our product line certainly helped us during the quarter.
Jeffrey Cohen: Okay. Perfect. That’s it for me. Thanks for taking the questions.
Operator: And we’ll move next to Matt Bullock with Maxim Group.
Matt Bullock: This is Matt Bullock. I’m on for Anthony Vendetti. I was wondering if you guys could comment on what your priorities are going forward for the rest of the year for driving down SG&A expenses? And then maybe if you could comment on any other products innovation you have in the pipeline that you might be excited about? Thanks.
John Krier: Thanks, Matt, and great to have you on this morning for Anthony. A couple of points I would mention on the SG&A side is that we continue to match those resources to running a scalable organization. So that was certainly a significant focus of us. As we’ve turned over the last seven months to stabilize the business, address COVID, address what’s happening in the market, we feel very good about what we’ve done in that period. That’s now allowing us to start to look at what product opportunities exist within our portfolio. It was great. A week or two ago, we participated in one of our largest dealers in their supplier showcase, and we were able to discuss the depth of the breadth of all three of our brands. And what we need to have going forward, which was fantastic. And now we can continue to look at what are new opportunities that exist in the market. As part and parcel to that is we continue to have conversations about our historical acquisition partners and potential product opportunities that may exist. And given where we are now with our balance sheet, we think that there’s an opportunity there as well. So looking forward to some continued focus on the product side.
Matt Bullock: Great. Thanks. Very helpful.
Operator: And I’m showing no further questions at this time. So I’ll turn it back over to John Krier for any closing remarks.
John Krier: Thank you, Christie, and thank you all for the questions and for your interest in Dynatronics. If you have any further questions, please direct them to our Investor Relations contact, Skyler Black. Operator, you may end the call.
Operator: Thank you. That does conclude today’s teleconference. We appreciate your participation. You may disconnect your lines at this time, and have a great day.
