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Dynatronics (DYNT)

Participants
John Krier CEO, President, CFO & Director
Scott Henry ROTH Capital Partners
Jeffrey Cohen Ladenburg Thalmann & Co.
Call transcript
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Operator

Good morning, ladies and gentlemen, and welcome to the Dynatronics Fourth Quarter Fiscal Year 2022 Earnings Call. It is now my pleasure to turn the floor over to your host, John Krier, the company's President, Chief Executive Officer and Chief Financial Officer. John, the floor is yours.

John Krier

Thank you, operator. Good morning, everyone, and thanks for joining Dynatronics call today.

will attention I Harbor our begin, statement. we call to your Safe Before during will performance call, regarding note this Please that we business. expectations, projections our our plans, make and to financial relating current statements forward-looking These forward-looking of and differ cause involve they materially could view from and that today. results today uncertainties only, risks actual reflect statements our as to those discussed most or are actual and Important to broader differ and our projected could included pandemic impact those the statements forward-looking cause SEC results environment the XX-K economic reports implied that risks other our on COVID-XX factors from by the the and filed global recent in business materially our of and related with to uncertainties include results. undue make we place forward-looking We not reliance this caution may to statements morning. on you no obligation or revise update to forward-looking We statements. undertake

of Slide on highlights open the today's prepared and progress the market as questions. the the consecutive the our on at referring just Investor for that provide full are we fifth remarks, for to XXXX operator the which year of posted the slides goals. and lines toward On accomplishments, commentary quarter for demonstrate be a we as company we the page financials, fourth have our phone and all recent to exceed then available will our During our few of and the quarter more X enabled highlights webcast call, center growth strategic fiscal rates and will well achievements in cover viewing will diamatronics.com.

begin headline me X with let starters, For points.

to incrementally long-term a well-defined of sight take accretive line to organic profitable strategy. is growth goals have consistent revenue of and we our a and profitability. growth we clear First, reaching Each step be designed to

strictly Please increased exceeding and the the contains Second, our and quarterly are to with a no utilizes required balance X, of choosing mechanism baseline the represents inventory primary expectations. levels to And consecutive the fourth demand fifth to manage due financial our highlights. the third, growth environment. a market products clean managed which for as strategy sheet debt turn chain sales Slide net sales our quarter the that we business supply and quarter our current

by reminder, income analysis The and a can management compares the of found $XX.X Net I $XX.X year-over-year some and which million electric products. fiscal our prior the impact the million was statement the in That key in been of XX-K. for year reduction have products decrease summarize demand As customer fiscal This which we a on and full period financials third-party due will for discussion the reduced which sales year procedures, to in year be the partially sales were 'XX. primarily increase demand associated discontinued. new products, of deferral and 'XX. to sales distributed to compared net offset revenue an in of in precautions is here. experienced COVID-XX from

fiscal high XX.X% to chain compared sales net materials freight, experienced We the COVID-XX XX% challenges, or of the prior labor year. in and fourth net trends, million was quarters. second for across the year in quarters and and in the and fiscal quarters 'XX higher third net Gross lower historical XXXX sales with aligned Our the $XX.X first year of $XX.X and million including sales or throughout profit fiscal costs year. of supply extraordinarily raw

income, retention primarily change the general million of a of year to to and by decrease XXXX The discontinuation compared to period. year-over-year due is $XXX,XXX gross decrease decreased per more decrease Outstanding property the 'XX. inflationary net primarily the property quarter SG&A raw last equipment, in as and of a delivered U.S. result and The net 'XX will Tennessee our million our with decrease credit year we to expenses loss and a fees million by fiscal both 'XX. employee million. seen from of shares $X.X in increase to in quarter, on loan. a the operational the 'XX fiscal the calendar the of administrative income sale the continue $XX.X funds we Protection $XXX,XXX slower freight $XXX,XXX in for Cares year attributable The to decrease cost the was we to expect costs. a $X.X price. costs a one, principally first gain While in be for and SG&A. $XX.X performance basis. X.X% fiscal a and remainder over in a three, debt for of have administrative a year year Net pronounced to profit in million on of in receivable extinguishment That continue half gain materials, or other pressures fiscal of We in business compares income $X.X in Two, the on our government other in and year. a is was $X share in company-wide leverage partially Paycheck savings fiscal $X.X federal Act; year intended resources offset approximately distributed decrease million of general prior depending products, of cost million improve our million primarily net Program of and under on and forgiveness received $X as prior Selling, of personnel

due double-digit The $X.X of common double-digit outstanding was million. continued in or higher other $X.X million used to chain due We balance a disruption As and key the strategic additional demand, on materials million specifically number 'XX. working of the was $XX.X build safety XXXX, XX, result, for sales cause as decision to inventory shares to on serve operating place fiscal year new million approximately growth, results. on the year company's to raw in June to increase XX, and And investment of orders was activities $X.X the times. fiscal the organization supplies. longer net Cash XX% volatility offset continues cash supply the This lead each capital June operating expected chain invested introduction. a product financial the made of 'XX. Supply quarter customer our to summary inventory in stock concludes expected add additional and in

to Turning X. Slide

We to will provide guidance continue on we that with. metrics confident are

the choppy business While economic and including transformation of managing the nature environment, of this the COVID-XX. broader impact

net $XX strategy Dynatronics to year continues with organic fiscal strength annual in fiscal this $XX.X and quarter, be We lower in results net our net received by back model quarter. a midpoint sales sales of the million growth the in year quarters the to momentum expects new providing third of into matches in the well to expect to with in demonstrating this in fiscal 'XX. sales fiscal 'XX. across our The the to million guidance the 'XX year and historical trends, the align fiscal X% distribution in second The be sales of $XX represents a quarters relative fourth range our million. rate company highest customers, first year transformation pattern year in business 'XX. bounce 'XX This

annual in years, only the to in. net maintain recent rate compete and Over we market growth we competitive have deliver categories share, if released that should market A we market are the of X%. X% approximately X% assumed product acknowledging publicly research X% to materials sales we X growth of a past

meet in updated to higher rate manufacture sales take we 'XX. our share continuing We products. inventory and our net double-digit products and higher annual year target growth growth fiscal the have growth to delivered Dynatronics allowed new expectations the market and in Strategic market sales by releasing target investments customers'

of topic Specifically, was time. persistent chain strategically demand longer inventory been today's including to The team are freight achieved supply few context, Inventory and over To our inventory appropriate chain despite the our of chain margin is past customers leadership levels the and to that proper supply headwinds in disruptions handling was margin utilization quarters. and built sequential market expansion, QX our more levels conditions. discussion in material among and have a current improvement meet the in provide gross environment. target elevated higher customer regular and the costs, supply

On million serve compared supply 'XX $XX.X the year help designed drive the of offset fiscal were QX inventory discussed, and was end of stock maintain additional higher continued $XX.X investments chain customer end million of demand, to to specifically the sales as These I to to introductions. at 'XX. disruptions fiscal product year safety new

caused and products customers in our getting a Importantly, in operating gross headwinds over environment the of to we impacting we our to the supply The company's working the the for margin 'XX X is million for investment reward to quarters last of recognize have advantage used activities was which delivery. competitive the million. our to of us our and due additional challenge year $X.X incur in $X.X expansion. faced pace have The chain costs, are cash continue fiscal primarily organization customers inventory expeditiously, strategic capital

expect subside. will we levels improved throughput issues supply Inventory chain elevated with see However, levels in remain inventory place. the the across to global until

X.X% gross Gross from primarily XX.X% sequential improvement margin QX our of remains we a from the increase margin launched. a margin margin X. of Slide in came new to increases adoption price and from and QX, implemented expansion Gross Moving that improvement XX.X%. products to focus. This the XX.X% of improved the X% gross the QX

increases show for from continued year expansion in products. our inventory Cash should margin operations benefit gross fiscal flow over past built our price the of as the 'XX we in expect We sell-down year fiscal from to begin QX 'XX strategically from benefit year. to of

differentiated we company, on products manufacture. a higher-margin focus that As we

longer QX in to the result COVID-XX year year raw we impacted of million raw $X.XX freight, including gross was addition margins extraordinarily materials labor inflationary XX.X%. and target COVID-XX quarter peers fiscal XX% supply margin of pressures, 'XX and of fiscal over been have labor gross believe approximately the our freight, term, Without in is the of margin as experienced a comparable Gross achieved. materials of costs achieve of Our effects which our and to by would costs. high we is and challenges, each chain what 'XX

quarter higher gross to each Excluding these 'XX prior the margin additional in costs, year year. our relative fiscal of was

We to and actions offset sourcing take these improving to yields. taken selective exploring have alternate will factory relationships and multiple continue including price increases, costs,

does fortunate in long-term Dynatronics as heavily as markets. agreements are that other rely many companies We our on not

customers and them our accept price by dealers time. lower successful anticipate detail. fiscal be guidance been price more buy of providing over Slide our that our of and offset our an rewarded have 'XX cost will to from standard year all to option increases increases. pressures products provides inflationary increases We We X or with some price with brands

of midpoint to be sales are $XX recently which range, range Net million are with. organic on would to have year. the we $XX million. to market guidance discussed, The provide of intend expected confident the exceed for growth, As this we we revenue full that metrics in $XX.X X% expectations the represents million

persistent We fiscal our margin longer-term continue gross year of the guidance impact to supply anticipate towards and to That XX% sequential of said, of to reluctant of 'XX. We COVID-XX the be QX general we ongoing and 'XX of expect expansion XX% to selling, inflationary pressure, chain XX%. administrative do net year given in target continue challenges. fiscal provide expenses sales

As keep we leverage takes our serving SG&A what we do customers. continually to this our scale, revenue We're scale going expect base. from improve to cost and do on on demand to it

larger drive understanding value There takes other the deliver much our markets, guidance our company the filings customer sales base on cash to from presentation based risk operations financial SEC. build a solid a have We to This contained to and current and subject opportunity grow our be and scalable in to in and it improve forward-looking in with consistently of strong metrics. flow our our continues be create statements operations expansion to to uncertainties platform, margin for and and is shareholders. to factors what all a is of this

with 'XX driving generate. impacting also of and gross work and was momentum Turning our accelerating to the quarter improvement. third team continually the a will year Each great challenging context sequential expansion. in second gross of Slide our Fiscal be from the strategic targets of The these I our year by significant consecutive platform margin strides X. cost growth team to of quarter, margin. priorities. pace recover strategy Dynatronics the impressed solid seem provide initiatives the has The we pressures to to our am each made I

continuous throughout trend a the XX% Operating Our will short-term achieving margins be to focus continues a term. discipline over our view longer to with organization. gross improve

we selling, grow Over the gross we base, manage past the have can and administrative expand margin. demonstrated but our cost appropriately years, ability recently only X general we have to and sales demonstrated

to will fiscal sales, We margin, gross annual higher to made net changes operations income flow operating higher as we expect cash the year annual from begin and we deliver 'XX. through that have deliver move we

Slide to move Let's X.

X XXXX. developing to driven Dynatronics We continued drive have well our product growth capture net markets delivered macro sales at X% sales baseline consecutive and above product in growth April we innovations for acquisitions. above $X.XX market The has share, to approximately growth quarters, profile, sales serve set through market has multiple a levers growth and X%. million attractive level,

to winning it our customers' Please and make addition as our enable easier the do than won two, products favorable market to one, to We shift market faster competitors as continue us; new XX to currently with introduce share and product market make market from this grow In superior innovation. mix that growth, to and we share. and us market. commercial business dealers will Slide share on possible lives easy take turn execution, the to through

pricing double-digit dealers, rewards reasons have quarters delivering consecutive innovations and operating delivered customer to growth focused remain improvements in give volume-tiered customer to experience, customers that end We using their revenue and our continue loyalty Dynatronics. formula. dealer moving X that in on product end driving this We

within Moving information background Withers XX. our our transformation work vision providing May Mike Dynatronics technology scale experience multinational leadership company collaboration brings Slide a an enabling efficiency recent Officer. initiatives, experience. along sales aligned for and the his as implementations, and XXXX joined Chief to in with Information with customer in and ERP and teams needed with of with analytics Mike exceptional execution his corporate

With is expansion trend addition profit accelerate team growth pace. I organic faster coming to the Mike at took generate to to for needs leadership in team of built years. leadership the team, the the the opportunity The the fiscal reshape and the a streamlined

the we can the leadership willing the meet been future. see, major of needs to new have team and you are focus area shape As hires a as Dynatronics, to

We have growth overall organic and the employees company and implemented at on a culture accountability of our focused consistent profitability. sales

Slide Let's XX. move to

Our M&A of for. here to is an we you detailed what look give idea strategy

leadership criteria. meet We opportunities well-defined any team on to have that our execute the

partnerships to and continue ventures. We conversations and have innovation business pursue other acquisitions,

Our our the $XX end of share reaction and profiles. and near-term We focused than focused million we take the criteria current customer markets we includes of we'll debt dealer The within Sales margin business our is unlock growth been serve, prefer and to Slide undervalued our smaller year. our highlights gross and to rehabilitation cash to are rather flow range. million has remain have targets than value. a because greater $X investment is on the by bracing and make first XX% for lower want acquisition and transformation. attractive markets believe XX at Dynatronics. equity to contribution driven some the we growth price that revenue using We sheet the balance

our to inventory differentiated provide a year. reward receivable XXXX. will winning new story, we had will the sheet continue margin end and in year inventory and consecutive share. since as gross move our in community market million million fiscal is share June Dynatronics a consistently $XX.X against progress approximately Sales debt. are cash, market is direction of to X 'XX. target at investment We we shareholders customers. improvement of experience quarters. Dynatronics not of that base no the of We listening asset in July fiscal our into update with has to its actively We in borrowed or the on have balance our $X.X the moving and accounts exceeded The

upcoming our meetings will press one-on-one and which in for detailed over upcoming at hosting hope events, investor Relations turn and presenting on will website. be We questions. I now Investor you. be will to releases with it We meet

Operator

Thank gentlemen, you, is questions. and [Operator Ladies the open for John. now Instructions]. floor

question Scott from Henry first Your is of Roth Capital. coming

Scott Henry

questions, to specificity. but to want spoke for of and you just some do clarity hit I have may know, these them John, I

quarter For to positive flow XXXX? cash in would you expect the of starters, be fiscal first

John Krier

cash 'XX. flow fiscal that in Our going expectation year our operations from improve to we is are

As revenue allow and we QX, of of from some positive we to the look move timing will inventory. quarters, through of largest of inventory, our receivables benefit if what sell-down our timing us as the fiscal achieve which year, there's will one it's But flow we operations. from to we cash believe will be

Scott Henry

speak you When say that, you the quarter? for or the year do for

John Krier

position that likely the year quarter the will well. as is the for speak overall business I the it with given follow specifically, revenue but the trend that of first

Scott Henry

which I into sheet, we'd balance you answered leads in expect Yes, the my is sort at and which it $X going for than next we And are clarification. it, of question, when very more cash, million but need be Obviously, -- certainly cash. to you look related. know less to

cash is could do you're have finance getting pretty you timing maybe but a line think credit at in -- plans this through or point? guess, be I to if business Now the XXXX, are to, what of flow don't your you Like close positive, it's need place? but an you issue,

John Krier

Scott, is our the finance operations plan of to the be to the business. through going business

a point. but being enter into case, an the we it avoiding if product significant that would want to we We inventory at the to the $XX.X clear be intentions able focused a primarily enter value We to believe that very liquidity. place million. Step or we fiscal source profitability, acquisition. chain do We line on of year challenges another as have through is to begin our do X. providing dampen, supply for at debt, have this not in to down which be for the an when X throughout opportunity step We're want debt was to into because plan acquisition to this sell have force launch, of that

sheet. So, need is to our have of that is the out certainly, using in improve million, going $X our we the going be to the go we to we through run plan year, that million cash, $X.X confidence and really And that the business balance strategy at as forward.

Scott Henry

Okay.

when moving I can be? and had cash of then. Now you levels? a steady million state product What of could how But that do generated be course, back that from think extra level lines get flow a you back to it's inventory sense at in look to $XX at those Trying was much normal it now. back XXXX, million inventory inventory all level $XX.X

John Krier

to answer really the not much going be level seeing there. out but more forward, plan environment we're in we due chain as for We're is it's the The that the getting market. that to or safety more question disruption of yet. to still times It's having longer lead move supply there consistent stock that's to carry

the So, that it's be, the along -- what hard that level fact is growth. to tell level need support we inventory will with we're we're our And having to modulate exactly inventory growth. with double-digit growth, what to that that

now, It we to. will think elevated say just shouldn't that ultimately don't would end right we high number and where it's just I is as it know that, be today. as

our I term. the longer in think would be goal

Scott Henry

want could XX% year, guidance, in doable is rebound in I the then gross you is realistic be they trying but Is you know quarter. And in a And I full think first mean, then to of it QX gross similar Okay. strokes. we rebound 'XX I when to were mean margins for margin, a mentioned broad the give don't on the just type 'XX to the that around XX%? could QX see? that target?

John Krier

Yes.

and back at go those I If lowest QX of typically, factors. are margins, modulating bit, QX with X, the in think like materials. years, it but if freight gross margin year, and sort slowly X things part. of is terms I little right is reasonableness, hardest fiscal our raw right. a the without this I mean, now you're one of XX% They been that's looked was inflationary of difficulty gross you

at product just happens you costs. be that fiscal where mix if go year is think to that of then of XX.X%, It's freight a So what number the to the matter reasonable ends attainable. of beginning with can back a and the ultimately last some that,

Scott Henry

Okay. And me. then for question final

to think trying the business? the business Just your With insulated economy it's recessionary. possibly is we a business or feels Do going economy? about is your economy helps Do that COVID get impacted? picture feel challenging, business overall of an being that maybe sense like forward? you your little should probably how of your coming we more the to more out that about you relative the from big How feel economy think to how it's related

John Krier

Yes, today, on here minds we everybody's certainly right, Scott. that's sit as

our I and ago, been a Absolutely. think if with to you X versus years X would COVID? business do I have like the over years said say, today entering little position to

with debt, here we sit company. growing we organically have As no an

We have product introductions. new

great a complementing doing. team, have We we're what leadership

us. We have in avenues multiple of front

health out rehabilitation, As are people get products an are economic get help the and and industry, the medical hurt in better. environment device that care industry going of there, regardless and to still them our

generally, our consumer-driven by the are out whole, of in our affected recession the some in on industry be terms potential pressures that a inflationary of there. more hit might should less that products the So, products

However, doubt it. on There's it will impacts no us. have about

statistics to in called position for we in near in our of the likely other a that market plan research we'll terms that. pointing be some little as today. that growth like that's of the bit conservative. are here confidence business, is sit I down so, why But term others in we've the And to And and the

Operator

Jeffrey of Your is coming question Cohen next from Thalmann. Ladenburg

Jeffrey Cohen

few a Scott's just follow-ups on the well. question just as So

forward? expect So, you going freight a about effect you historically. percentage? call you year-over-year talk net-net freight as and Can out out the would And what maybe haven't called

John Krier

Yes.

what I past. in about talked think the we we've --

look XX-XX, being freight digits freight. extra of typically prior in impact cost terms would around in costs materials, that have higher where labor. raw I of if and quarters we mid-single potentially even was at XX% So, with or It of

we materials. factors, under delta was that was if This were that a X/X about those highlighted was remove X/X quarter, raw and about we X to of percentage freight. a of point little what

the So, become we seeing what saw flip we're And market freights generally stable that's QX the going think I prior in versus mix more as the quarters. forward. in

Jeffrey Cohen

Got as pricing potentially Okay. little the as And those of discussion what's on in down product your of confidence a margin the far as as I as think to some that's helpful. and and back That's inventory inventory bit and wanted get it. And to the far now throughout inventory as 'XX you sell on inventories, what's you sell-through the level levels. what do there? freshness happens as far

John Krier

Right.

So, X things say. I would

ago if of you million a at $X.X So, had inventory. looked year time, we at this

Now roughly nature in inventory raw of that we million. goods. have and just key the very that inventory that material the $XX.X health about The it's healthy. is growth is finished XX% build, point of The given XX%

of products we in the year number ability a discontinued that hallmarks exited products, manufacture for you over can't the more intend from manufactured to sheet of second products will the sell for it's That it the we those is, for approximately We and drive business. opposed the give I for to opportunity be where timing when is that focus ours. next of know the very contract leverage distributed if exact XX% as even ago, an and of third-party work we of terms cash our allows you -- through XXX% the It's The Therefore, that and us. down in that high were do it's an to point to strategy I revenue one over today. but manufactured they're us we of was so. we the number time year, us products throughout or a balance nearly tell business, a is is it because to were our sell we us can year.

Jeffrey Cohen

more bit it. and customers the relative versus to ago? year confidence and specifically one Got as talk about X a your X you Okay. to out And from it funnel Could and pipeline that there me. your or looks quarter relates how more little

John Krier

customers. strong very to reaction our be continues The from

demand. our the future this of all opportunities, on are orders very meet pipeline to are been strong Our that point. books that able We've at

gross And released put in Mammoth that as to on reaction they that. just margin take go actually our time levers, that X into price of results not through we really we're results and this we place and our through in so, continue our move process. by on our and forward into We would X to the X that's is March line Similarly, yet to January the new -- positive and get fully fiscal February, to show year. that later looking the one into we X we've discussed largely the up the increases them you year, and quarters and product

And to as that more calendar we of of back the see so, we'll half start into 'XX. move

Operator

Charlie from of Our is coming next question Street Lake Montang Capital.

Unidentified Analyst

Charlie This Lake is on for Brooks with O'Neil Street.

gross what be on drivers main the do expect to Just increases one a that of couple is, Or forward? do you to to of one continued drive moving quick price questions level? margins XX% for first to me. My get plan you

John Krier

in but are, pressures do we're We to we our we price honest brands, increase you to is It's about excellent think with We're lever. have don't subside they the cost customers have inflationary our a Price current product. to be any our see pull. for have going going to conversations Until our have to choice, where and our manage products really the we The products sight represent not, more the on them lessen can which that. spread that quality to pass have a most, across price you. environment. buy for to we more choice. giving If customers' And increase. price we'll then to the you the for

be will an part of margin expansion. it important So, gross our

Unidentified Analyst

to going and next of to to anticipating over you you kind you just pipeline what products ask to still gross and introduce And you, margins close when are to products. I'm turning Thank more on the Can then expect moving Okay. one these your talk year? market. XX% question,

John Krier

Operating Baker, We our Sarah gross are Marketing; margin requirement the absolutely our XX%. Chief profile Officer, to a must them market that them our know way have introduced we ensuring that going Brian It's we customers be new bringing than have in product to Vice in Mealman, efficient well. a greater they're that design market that any that President, and when receive to that products can is are

So our last and market. X product will products related the year to 'XX look back we was new in first of fiscal year last in a If those to products year the bring was Only it. years. produced of X% new to that really be at new introductions piece revenue big

as that factor. continue And number to we grow, need And will so, as be grow well. we see a to that big

in And the produce it's and of the across expectation continue to need factors timing those new Mammoth such launch to portfolio. add dependent we've terms great a of on we and all the our tables then there's to release, Now had when on. products going reaction that environmental really

Operator

the I'm to over Okay. comments. to in no There be further John appears back for any going closing questions turn queue. now to

John Krier

Dynatronics. Thank you operator. interest in you for Thank your

sharing at or are as our forward you future upcoming hope with story events our We markets. meet investor community actively the We in investment one-on-ones. to in we move with

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

Operator

conclude does This and conference call. Thank you, ladies today's gentlemen.

and phone have for You lines time, your may day. you Thank at a disconnect participation. your this wonderful