Pro-Dex(US:PDEX)2024-05-02 20:00PART I — FINANCIAL INFORMATION Financial Statements (Unaudited) Unaudited condensed consolidated financial statements for Q3 and 9M FY2024 are presented, detailing financial position and performance, with notes on restatement and the company's surgical device business - The financial statements for the three and nine months ended March 31, 2023, were restated to correct the estimated fair value of the Monogram Warrant, which impacted unrealized gains, income tax expense, and net income25 - The company specializes in the design, development, and manufacture of autoclavable, battery-powered, and electric multi-function surgical drivers and shavers, primarily for the orthopedic, thoracic, and maxocranial facial markets32 Condensed Consolidated Balance Sheets As of March 31, 2024, total assets were $50.5 million, a slight decrease from $51.8 million at June 30, 2023, primarily due to reduced long-term investments, while total liabilities and shareholders' equity also saw minor decreases Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2024 | June 30, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $3,219 | $2,936 | | Accounts receivable, net | $12,516 | $9,952 | | Inventory | $14,242 | $16,167 | | Total current assets | $35,957 | $30,979 | | Total assets | $50,548 | $51,823 | | Liabilities & Equity | | | | Total current liabilities | $10,419 | $9,676 | | Total liabilities | $19,610 | $20,233 | | Total shareholders' equity | $30,938 | $31,590 | Condensed Consolidated Income Statements For Q3 2024, net sales increased to $14.3 million, but net income fell to $0.7 million due to an unrealized loss on investments, while for the nine-month period, net sales grew to $38.8 million, but net income significantly decreased to $0.5 million due to a $3.8 million unrealized loss Income Statement Summary (in thousands, except per share amounts) | Metric | Q3 2024 | Q3 2023 (restated) | 9M 2024 | 9M 2023 (restated) | | :--- | :--- | :--- | :--- | :--- | | Net sales | $14,293 | $13,079 | $38,819 | $35,448 | | Gross profit | $4,002 | $3,811 | $10,462 | $9,390 | | Operating income | $2,213 | $2,065 | $4,822 | $4,152 | | Net income | $655 | $1,617 | $540 | $5,572 | | Diluted EPS | $0.19 | $0.45 | $0.15 | $1.52 | Condensed Consolidated Statements of Cash Flows For the nine months ended March 31, 2024, net cash provided by operating activities increased to $5.2 million, while net cash used in investing and financing activities also increased, resulting in an overall cash and cash equivalents increase of $283,000 Cash Flow Summary for Nine Months Ended March 31 (in thousands) | Activity | 2024 | 2023 (restated) | | :--- | :--- | :--- | | Net cash provided by operating activities | $5,179 | $4,835 | | Net cash used in investing activities | ($2,126) | ($733) | | Net cash used in financing activities | ($2,770) | ($2,863) | | Net increase in cash and cash equivalents | $283 | $1,239 | Notes to Condensed Consolidated Financial Statements The notes provide detailed explanations of the financial statements, including the basis of presentation, a significant restatement due to the Monogram Warrant valuation, customer concentration, share repurchase activities, and a material weakness in internal controls related to investment valuation - On October 6, 2023, the company exercised its Monogram Warrant in full for $1,250,000, receiving 1,828,551 shares of Monogram common stock. The fair value is now reflected in marketable equity securities40 Major Customer Concentration (Nine Months Ended March 31, 2024) | Metric | Customer 1 | Customer 2 | Total | | :--- | :--- | :--- | :--- | | % of Net Sales | 71% | 10% | 81% | | % of Accounts Receivable | 81% | 13% | 94% | - During the nine months ended March 31, 2024, the company repurchased 96,890 shares of its common stock for an aggregate cost of $1.83 million under its share repurchase program73 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 and 9M FY2024 financial results, highlighting revenue growth, gross margin improvement, increased expenses, investment loss impact on net income, and sufficient liquidity for strategic initiatives - The company's business strategy is focused on maintaining relationships with current medical device customers, expanding manufacturing capacity with the Franklin Property, and investing in R&D for new products like orthopedic shavers and screwdrivers90 - As of March 31, 2024, the company had a sales backlog of approximately $25.2 million, with $9.9 million scheduled for delivery in the fourth quarter of fiscal 202496 Results of Operations For the nine months ended March 31, 2024, net sales increased 9.6% to $38.8 million, driven by medical device sales, with gross profit up 11% to $10.5 million and operating income growing 16% to $4.8 million, despite a $3.8 million unrealized investment loss impacting pre-tax income Net Sales by Type (Nine Months Ended March 31, in thousands) | Sales Type | 2024 | 2023 | | :--- | :--- | :--- | | Medical device products | $26,536 | $23,631 | | NRE & Proto-type | $762 | $2,361 | | Repairs | $11,749 | $9,410 | | Total Net Sales | $38,819 | $35,448 | Medical Device Sales by Type (Nine Months Ended March 31, in thousands) | Device Type | 2024 | 2023 | | :--- | :--- | :--- | | Orthopedic | $17,136 | $15,271 | | CMF | $6,641 | $7,208 | | Thoracic | $2,759 | $1,152 | | Total Medical Device Sales | $26,536 | $23,631 | - Gross margin for the nine months ended March 31, 2024, increased by 1 percentage point to 27% compared to the prior year period97101 - Research and development costs for the nine months ended March 31, 2024, increased by 12% to $2.4 million, reflecting continued investment in product development efforts104 Liquidity and Capital Resources As of March 31, 2024, the company had $3.2 million in cash and cash equivalents and working capital of $25.5 million, with management confident in sufficient liquidity from existing cash, operations, and available credit facilities for the next 12 months, managed by an Investment Committee Liquidity Summary (as of March 31, 2024, in thousands) | Metric | Amount | | :--- | :--- | | Cash and cash equivalents | $3,219 | | Working capital | $25,538 | - The company believes its existing cash, operational cash flows, and available credit will be sufficient to fund its requirements for at least the next 12 months123 - The company has an Investment Committee, chaired by Nicholas Swenson, to manage surplus operating capital or borrowed funds, investing in a portfolio of marketable public equity securities valued at $6.1 million as of March 31, 2024125 Quantitative and Qualitative Disclosures About Market Risk This section is not applicable for the reporting period - The company has indicated that Quantitative and Qualitative Disclosures About Market Risk are not applicable127 Controls and Procedures Management, including the CEO and CFO, concluded that as of March 31, 2024, the company's disclosure controls and procedures were not effective due to an ongoing material weakness related to the valuation and disclosure of Level 2 and Level 3 investments - A material weakness was identified in internal control over financial reporting concerning the valuation and disclosure of level 3 investments during fiscal 2023 and level 2 investments for the quarter ended December 31, 2023. Remediation is ongoing129 - Based on their evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of March 31, 2024, the company's disclosure controls and procedures were not effective130 PART II — OTHER INFORMATION Legal Proceedings The company may be involved in various legal proceedings from time to time in the ordinary course of business, with further details referenced in Note 13 of the financial statements - Information regarding legal proceedings is referenced in Note 13 to the condensed consolidated financial statements136 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, 2023 - No material changes have occurred in the risk factors as disclosed in the Annual Report on Form 10-K for the fiscal year ended June 30, 2023138 Unregistered Sales of Equity Securities and Use of Proceeds During the quarter ended March 31, 2024, the company repurchased a total of 90,605 shares of its common stock at an average price of $19.01 per share under its publicly announced repurchase program Common Stock Repurchases for the Quarter Ended March 31, 2024 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | January 2024 | 23,838 | $20.84 | | February 2024 | 34,565 | $19.10 | | March 2024 | 32,202 | $17.56 | | Total | 90,605 | $19.01 | Other Information During the quarter ended March 31, 2024, no director or officer of the company adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the third quarter of fiscal 2024142 Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL data files