Dynatronics(US:DYNT)2019-02-13 18:53Financial Data and Key Metrics Changes - Net sales for Q2 2019 decreased by $2.6 million or 14.6% to $15.4 million compared to $18.1 million in the same quarter of the prior year, primarily due to reduced sales of physical therapy and rehabilitation products [13] - Gross profit for Q2 2019 decreased by approximately $1.1 million or 18.9% to $4.7 million, representing 30.3% of sales, compared to 31.9% in the same quarter of the prior year [15] - Net loss for Q2 2019 was approximately $441,000 compared to net income of $14,000 in the same quarter of the prior year [22] Business Line Data and Key Metrics Changes - Sales of physical therapy and rehabilitation products decreased by $2.6 million in Q2 2019 due to product rationalization initiatives and transitions in the sales force [13] - Selling, general and administrative expenses for Q2 2019 decreased by approximately $0.9 million or 15.7% to $4.8 million compared to $5.7 million in the same quarter of the prior year [19] Market Data and Key Metrics Changes - The company experienced general softness in demand through its direct channel, impacting sales and gross margin percentage [9] - The decline in sales through the direct channel resulted in a higher percentage of sales through the dealer channel, which lowered the average selling price and gross margin [16] Company Strategy and Development Direction - The company is focused on driving profitability through operational improvements in its therapy products business and scaling through organic growth and acquisitions [7] - The strategy includes aggressive actions to eliminate unproductive activities and reduce overhead, which may negatively impact top-line growth in the short term but aims for greater profitability in the long term [11] Management's Comments on Operating Environment and Future Outlook - Management acknowledged that the second quarter financial performance was weaker than expected but remains optimistic about long-term positioning for success [7] - The company expects consolidated sales for fiscal 2019 to be approximately $61 million to $64 million, lower than previous guidance due to second quarter results [28] Other Important Information - As of December 31, 2018, the company had cash balances of approximately $524,000 and an asset-based line of credit of $11 million, with $5.1 million borrowed [26] - The company continues to maintain a focus on improving operational margins and cash flow while delivering restorative products [31] Q&A Session All Questions and Answers Question: Weakness in physical therapy and rehab divisions - Management indicated that the weakness was primarily in the legacy business within the direct channel [36] Question: Guidance for Q3 and gross margins - Management expects gross margins to improve off Q2 levels but not reach Q1 levels, estimating around 31% for the fiscal year [37][38] Question: Changes in the commercial team - The size of the direct sales team has decreased, with some transitions from direct to dealer models in non-performing areas [40][42] Question: Impact of product rationalization on revenue guidance - Management confirmed that the original revenue guidance included a $5 million impact from discontinued products, with additional softness factored into the updated guidance [50] Question: Confidence in returning to growth in fiscal year 2020 - Management expressed optimism about returning to growth in fiscal year 2020 but did not provide specific guidance [53][55] Question: General softness in the direct channel - Management attributed the softness to lower clinic openings and delays in upgrading existing capital equipment, viewing it as a temporary pullback in demand [56]