Pro-Dex(PDEX) - 2023 Q3 - Quarterly Report

PART I — FINANCIAL INFORMATION Financial Statements For the nine months ended March 31, 2023, Pro-Dex, Inc. reported a 20.5% increase in net sales to $35.4 million and a 33.4% increase in net income to $3.3 million compared to the prior year period Condensed Consolidated Balance Sheets As of March 31, 2023, total assets were $47.0 million, a slight decrease from $47.3 million at June 30, 2022, primarily due to a reduction in accounts receivable offset by increases in cash and inventory Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2023 | June 30, 2022 | Change | | :--- | :--- | :--- | :--- | | Total Current Assets | $31,145 | $31,166 | ($21) | | Cash and cash equivalents | $2,088 | $849 | $1,239 | | Accounts receivable, net | $10,565 | $15,384 | ($4,819) | | Inventory | $15,145 | $12,678 | $2,467 | | Total Assets | $46,975 | $47,326 | ($351) | | Total Current Liabilities | $10,144 | $11,354 | ($1,210) | | Total Liabilities | $21,136 | $23,658 | ($2,522) | | Total Shareholders' Equity | $25,839 | $23,668 | $2,171 | Condensed Consolidated Statements of Income For the third quarter of fiscal 2023, net sales grew 41.2% year-over-year to $13.1 million, driving net income up 184.2% to $1.3 million, while nine-month net sales increased 20.5% to $35.4 million and net income rose 33.4% to $3.3 million Financial Performance (in thousands, except per share amounts) | Metric | Q3 2023 | Q3 2022 | YoY Change | Nine Months 2023 | Nine Months 2022 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net Sales | $13,079 | $9,265 | +41.2% | $35,448 | $29,426 | +20.5% | | Gross Profit | $3,811 | $2,858 | +33.3% | $9,390 | $9,689 | -3.1% | | Operating Income | $2,065 | $1,021 | +102.3% | $4,152 | $3,940 | +5.4% | | Net Income | $1,313 | $462 | +184.2% | $3,268 | $2,450 | +33.4% | | Diluted EPS | $0.36 | $0.12 | +200.0% | $0.89 | $0.65 | +36.9% | Condensed Consolidated Statements of Cash Flows For the nine months ended March 31, 2023, net cash provided by operating activities was $4.8 million, a slight increase from $4.4 million in the prior year period, primarily driven by net income and strong accounts receivable collections Cash Flow Summary for the Nine Months Ended March 31 (in thousands) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $4,835 | $4,432 | | Net cash used in investing activities | ($733) | ($1,636) | | Net cash used in financing activities | ($2,863) | ($1,756) | | Net increase in cash and cash equivalents | $1,239 | $1,040 | | Cash and cash equivalents, end of period | $2,088 | $4,761 | Notes to Condensed Consolidated Financial Statements The notes detail the company's business, which specializes in surgical drivers and shavers, highlighting high customer concentration, ongoing share repurchases, and significant debt with Minnesota Bank & Trust, with the company in compliance with all covenants - The company specializes in the design, development, and manufacture of autoclavable, battery-powered, and electric multi-function surgical drivers and shavers for various medical markets[24] Customer Concentration (Nine Months Ended March 31, 2023) | Metric | Customer 1 | Customer 2 | Total | | :--- | :--- | :--- | :--- | | Net Sales | $23,578 (66%) | $5,912 (17%) | $29,490 (83%) | | Accounts Receivable | $7,861 (74%) | $2,100 (20%) | $9,961 (94%) | - During the nine months ended March 31, 2023, the company repurchased 86,422 shares of its common stock for an aggregate cost of $1.5 million under its share repurchase program[77] - As of March 31, 2023, the company had several loans outstanding with Minnesota Bank & Trust (MBT), including a Property Loan, Term Loan A, Term Loan B, and an Amended Revolving Loan, and believes it is in compliance with all debt covenants[66][68][76] Management's Discussion and Analysis (MD&A) Management attributes the 41% Q3 revenue growth primarily to a 189% increase in repair revenue from its largest customer, related to a handpiece upgrade program, while gross margin for the nine-month period decreased by 7 percentage points to 26% Business Strategy and Future Plans The company's strategy centers on its medical device business, focusing on maintaining customer relationships, expanding manufacturing capacity via the new Franklin Property, investing in R&D for new Pro-Dex branded drivers, and pursuing new product development proposals - The company's largest customer executed an amendment to their supply agreement, extending the supply of surgical handpieces through calendar 2025[93] - The company acquired the 'Franklin Property' to expand manufacturing capacity and expects to begin operations in the new facility during the fourth quarter of the current fiscal year[94] - Strategic objectives include investing in R&D for branded drivers leveraging proprietary torque-limiting software and promoting development proposals for new medical devices to new and existing customers[95] Results of Operations For Q3 2023, revenue increased 41% YoY, driven by a $3.2 million (189%) surge in repair revenue and a 7% rise in medical device product sales, while gross margin declined from 33% to 26% for the nine-month period due to higher costs and under-absorbed manufacturing expenses Revenue Breakdown (in thousands) | Revenue Type | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Medical device products | $6,990 | $6,527 | $23,631 | $23,199 | | NRE & Proto-type | $970 | $549 | $2,361 | $859 | | Repairs and other | $4,816 | $1,665 | $8,583 | $4,245 | | Total Net Sales | $13,079 | $9,265 | $35,448 | $29,426 | - Repair revenue increased by $3.2 million (189%) for the third quarter and $4.3 million (102%) for the nine months, driven by an upgrade and enhanced repair program for the orthopedic handpiece sold to its largest customer[103] Gross Margin Performance | Period | 2023 | 2022 | YoY Change (ppt) | | :--- | :--- | :--- | :--- | | Three Months Ended March 31 | 29% | 31% | (2) | | Nine Months Ended March 31 | 26% | 33% | (7) | - General and administrative (G&A) expenses decreased by $419,000 for the nine months ended March 31, 2023, primarily due to reduced legal/settlement expenses and lower non-cash stock compensation[112] Liquidity and Capital Resources As of March 31, 2023, the company had $2.1 million in cash and $21.0 million in working capital, with operating activities generating $4.8 million in cash for the nine-month period, and believes existing cash, cash flows, and available credit are sufficient to fund operations for the next 12 months Key Liquidity Metrics (as of March 31, 2023, in thousands) | Metric | Amount | | :--- | :--- | | Cash and cash equivalents | $2,088 | | Working capital | $21,001 | - Net cash used in financing activities for the nine months ended March 31, 2023, was $2.9 million, primarily for $1.5 million in common stock repurchases and $4.8 million in debt payments, offset by $3.6 million in new borrowings[131] - The company has an Amended Revolving Loan with MBT, with an availability of $5.2 million as of March 31, 2023, which can be used for liquidity needs[133] Quantitative and Qualitative Disclosures About Market Risk The company has indicated that this section is not applicable - The company states that this item is not applicable[136] Controls and Procedures Based on an evaluation as of March 31, 2023, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures are effective, with no material changes in internal controls over financial reporting during the quarter - The CEO and CFO concluded that as of March 31, 2023, the company's disclosure controls and procedures were effective[139] - No changes in internal controls over financial reporting occurred during the three months ended March 31, 2023, that have materially affected, or are reasonably likely to materially affect, these controls[140] PART II — OTHER INFORMATION Legal Proceedings The company states that it may be involved in various legal proceedings from time to time in the ordinary course of business, but does not disclose any specific material proceedings - The company may be involved in various legal proceedings arising in the ordinary course of business, but there is no certainty of material adverse liability[82][144] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended June 30, 2022 - No material changes have been made to the risk factors as disclosed in the Annual Report on Form 10-K for the fiscal year ended June 30, 2022[146] Unregistered Sales of Equity Securities and Use of Proceeds During the third quarter ended March 31, 2023, the company repurchased a total of 11,576 shares of its common stock at an average price of $17.13 per share under its publicly announced repurchase program Common Stock Repurchases (Quarter Ended March 31, 2023) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | January 2023 | 6,047 | $17.17 | | February 2023 | 5,529 | $17.09 | | March 2023 | 0 | $0.00 | | Total | 11,576 | $17.13 | Exhibits This section lists the exhibits filed with the Form 10-Q, including officer certifications and XBRL data files - The report includes a list of filed exhibits, such as CEO/CFO certifications (Exhibits 31.1, 31.2, 32) and XBRL interactive data files (Exhibit 101 series)[149]