Dynatronics(US:DYNT)2021-11-11 18:04Financial Data and Key Metrics Changes - Net sales for Q1 fiscal year 2022 were $12.3 million, compared to $12.1 million in the same quarter of the prior fiscal year, indicating a slight increase [29] - Gross profit for Q1 fiscal year 2022 was $3.7 million, or 29.8% of net sales, down from $3.9 million, or 32.2% of net sales in the same quarter of the prior year, primarily due to inflation on raw materials and higher freight costs [30] - Net income for Q1 fiscal year 2022 was $0.5 million, compared to a net loss of $0.4 million in the first quarter of fiscal year 2021 [32] Business Line Data and Key Metrics Changes - The company has shifted its product sales mix to focus on higher-margin products, eliminating over 1,600 SKUs of low-margin third-party distributed products, which resulted in an approximate $11 million annual net sales reduction [15] - The transition to an exclusively dealer sales model in the rehabilitation market has received overwhelmingly positive feedback from dealers [17] Market Data and Key Metrics Changes - The rehabilitation and bracing and support markets are estimated to be approximately $4.9 billion in total addressable market size [43] - The markets are expected to exhibit organic growth of 5% to 6% per year, with potential for higher growth through market share gains [26] Company Strategy and Development Direction - The ongoing business transformation remains the top priority, focusing on improving gross margin, operating income, and cash flow from operations [12] - The company aims to achieve 40% gross margins over the long term, comparable to industry peers [21] - The M&A strategy focuses on acquiring companies with greater than 40% gross margin and cash flow contribution within the first year, targeting smaller acquisitions in the $5 million to $30 million revenue range [27] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the volatility in the operating environment due to COVID-19 and supply chain challenges, including rising raw material costs and extended handling times [22][37] - The company expects net sales in fiscal year 2022 to be in the range of $40 million to $45 million, assuming no significant adverse effects from COVID-19 [18] Other Important Information - The company ended the quarter with approximately $5.5 million in cash, no debt, and a borrowing base of approximately $5.2 million [14] - Cash used in operating activities was $0.65 million for the three months ended September 30, 2021, due to working capital investments and higher inventory spending [35] Q&A Session Summary Question: What is the current total addressable market (TAM) after restructuring? - The company competes in two markets: rehabilitation and bracing and supports, with a TAM of roughly $4.9 billion [43] Question: Are dealers noting gaps in their portfolio that the company aims to fill? - The company is actively engaging with dealers to understand market needs and is evolving its product portfolio based on their feedback, including potential acquisitions [44] Question: What are the favorable tailwinds for revenue moving into 2022? - The rehabilitation and bracing markets enjoy mid-single-digit organic growth, and the company can achieve higher growth by capturing market share [45] Question: How will SG&A be affected by the termination of the Millstone agreement? - The termination will shift activities to the Minnesota operation, and the current headcount is approximately 175, similar to the end of June [46] Question: Is the company prepared for future supply chain disruptions? - The company has made significant inventory investments and feels comfortable with its current supply levels to meet customer demand [55] Question: Are there mixed signals in the market regarding procedure volume? - There are mixed signals, with strong patient visits reported but concerns about potential slowdowns due to COVID-19 and staffing shortages [58]