Welcome to the Dynatronics Fourth Quarter Results for Fiscal 2023 Conference Call. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would now like to turn the conference over to John Krier, Chief Executive Officer and Chief Financial Officer of Dynatronics. Please go ahead. .

Thank you, operator. Good morning, everyone, and thanks for joining Dynatronics call today. I am John Krier, Chief Executive Officer and Chief Financial Officer; and with me is our President and Chief Operating Officer, Brian Baker..

Before we begin, I will call your attention to our safe harbor statement. Please note that during this call, we will make forward-looking statements regarding our current expectations, plans, projections and financial performance relating to our business.

These forward-looking statements reflect our view as of today only and may involve risks and uncertainties that could cause actual results to differ materially from those discussed today. .

Important factors that could cause actual results to differ materially from those projected or implied by our forward-looking statements are included in our most recent 10-K and other reports filed with the SEC and include uncertainties and risks related to the broader economic environment on our business results..

We caution you not to place undue reliance on forward-looking statements we make this morning. We undertake no obligation to update or revise forward-looking statements.

We issued a press release this morning announcing the financial results of our Fourth Fiscal Quarter and full year ended June 30, 2023, along with additional details of the previously announced CEO succession plan with Brian Baker..

Today, I will provide a few brief opening remarks, turning the call over to Brian for additional commentary. Then I will provide a detailed financial report and turn it back to Brian for closing remarks. At the conclusion, we will have the operator open the phone line for questions..

To begin, it is with great admiration and respect that I welcome Brian Baker back as CEO of Dynatronics effective October 1, 2023, as part of the company's executive transition plan announced in May of this year.

I will continue as an Executive Consultant to Brian, the Board of Directors and the Management Team as the Interim Chief Financial and Accounting Officer, while we continue to search for a permanent CFO. The company will provide the final details of the CEO transition via a press release in the next few days..

Before I turn the call over to Brian, I want to take a moment and thank all our employees, present and past customers, suppliers, investors, analysts and stakeholders for your continued support and partnership during the last 3-plus years.

I am proud of what we have been collectively able to achieve especially during the pandemic extremely challenging operating environment..

I've had the pleasure to work with Brian since I joined the company in 2020, and he has the right talent, skill set and energy to lead Dynatronics as we move forward. I will now turn the call over to Brian. .

Thank you, John. For the past 3 to 4 months, I've been speaking with our employees, customers and vendor partners to assess our forward-looking plans. As a result of these conversations, I believe we have the opportunity to sharpen our focus on our customers' needs and to offer the products they take at competitive pricing.

In order to enable us to do this, we have implemented significant cost reductions in all areas of the business..

These were largely completed by June 30, 2023, and we believe these cuts will improve our financial performance at the revenue levels in our guidance. Our goal is to demonstrate steady improvement in operating profitability during fiscal year 2024.

We also intend to continue to manage our working capital and the line of credit that we executed on August 1, 2023, which will provide us the operating flexibility in this regard. While the business environment in our markets remains uncertain, I believe Dynatronics can be more nimble in navigating both the opportunities and challenges ahead of us.

John will now provide a financial report. .

Thanks, Brian. I will now review the financial performance during the quarter and cover the year-end results. The full income statement and management discussion and analysis can be found in the 10-K, and I will summarize them here..

Net sales were $8.4 million for the quarter ended June 30, 2023 compared to $11.2 million in last year's quarter. For the full fiscal year ended June 30, 2023, net sales were $40.6 million compared to $44.3 million in the prior fiscal year.

The year-over-year decrease is primarily due to the acquisition of a competitor by one of our larger rehabilitation product category customers and a reduction in demand in our Orthopedic Soft Bracing..

Gross profit for the 3 months ended June 30, 2023, decreased to $1.2 million or 14.7% of net sales compared to $2.6 million or 23.4% of net sales in the same quarter of the prior year.

Q4 of fiscal year '23, gross profit reduction of $1.4 million compared to Q4 of fiscal year '22 was driven equally by a reduction in revenue and the result of lower product margin on the reduced revenue levels. Q4 included additional inventory reserves of $0.2 million compared to the prior period..

Gross profit for the full fiscal year ended June 30, 2023, was $10.2 million or 25% of net sales compared to $10.7 million or 24.1% of net sales in fiscal year 2022. The year-over-year decrease in gross profit was primarily attributable to a reduction in sales related to the revenue disruption previously discussed.

The improvement in the gross margin as a percentage of net sales year-over-year was driven by net price realization..

Selling, general and administrative expenses were $3.6 million for the 3 months ended June 30, 2023, a decrease of $0.5 million from $4.1 million in last year's period.

SG&A would have been $0.9 million lower compared to the prior year before, including the effect of severance expenses of $0.2 million and other onetime specific charges of $0.2 million..

For the full fiscal year, SG&A was down $0.4 million compared to the prior year due primarily to lower salaries and benefits. Other income was $0 for the 3 months ended June 30, 2023, a decrease of $0.1 million from other expense of $0.1 million in last year's period.

For the full fiscal year, other income was $0 compared to other income of $0.9 million for the fiscal year 2022. The decrease in other income is due to the absence of the employee retention credit in the current year..

Net loss was $2.4 million for the 3 months ended June 30, 2023 compared to a loss of $1.6 million in the same quarter of last year. The Q4 net loss included $0.2 million of additional COGS related to inventory reserves and $0.4 million of SG&A related to severance and other onetime costs for total quarterly costs of $0.6 million.

Net loss was $5.0 million for the full fiscal year ended June 30, 2023, compared to a net loss of $4.0 million in the prior year. .

We expect our outstanding shares to increase in the range of 240,000 per quarter, depending on our share price. As of September 22, 2023, the number of common shares outstanding was approximately 4.3 million. As of June 30, 2023, net cash was $0.6 million compared to $0.7 million on June 30, 2022.

As a reminder, Dynatronics executed a new working capital based line of credit on August 1, 2023. As of September 15, 2023, our line of credit balance was approximately $1.8 million. Additional line of credit availability was approximately $2.6 million on a borrowing base of approximately $4.4 million..

Proceeds from the line of credit enabled the company to reduce the accounts payable balance by approximately $2.0 million as of September 15, 2023 compared to the period ended June 30, 2023. This concludes our summary of financial results. I will now turn the call back to Brian. .

Thank you, John. In terms of guidance for fiscal year 2024, we expect net revenue to be in the range of $34 million to $37 million. The distribution of the revenue is expected to align with historical trends. We are not providing gross margin guidance at this time.

Given the recent reductions in revenue and costs, we'd like to have more data before considering reinstituting such guidance..

SG&A is anticipated to be in the range of 29% to 33% of net sales for the fiscal year. Outstanding shares, currently $4.3 million as of September 22, 2023, will generally increase approximately 240,000 shares per quarter, depending on our share price..

In summary, my focus for the current fiscal year is to strengthen our customer relationships as we improve our operating profitability and financial flexibility. We appreciate and thank our investor base and employees for their ongoing support. I will now turn it over to the operator for questions. .

Thank you. We will now begin the question-and-answer session..

[Operator Instructions].

Our first question comes from [indiscernible] of Lake Street Capital Markets. .

This is [ Aaron ] on the line for Brooks this morning. So I just want to start off talking about the demand in general.

You mentioned a little bit about a reduction in demand in orthopedics, but just in general and overall in terms of product mix now, has there been a significant change from Q3? And how is the macro environment sort of affected your operations?.

[ Aaron], this is John. And I'll start with that. Our overall mix of our product categories is still pretty consistent. When you look at it quarter-over-quarter and where we ended the year, it's roughly 45% in our orthopedic bracing category and 55% of our revenues in the rehabilitation product categories.

We talked about this a little bit last quarter about the overall market demand in our categories is in that low single digits, 1%, 2% to 3% year-over-year growth..

We've certainly seen pricing become more of an issue in the recent term. But the general demand out there is steady. And as we continue to reorganize the business and position ourselves going forward, we think that demand will be consistent. .

That's helpful. And then as you sort of think about new product activity. You leased 8 or 9 products since early 2021.

Are there any specific highlights that you'd offer that might give us some encouragement about the future and the opportunity to grow in this next year? How are these current products being accepted? If you could give some more color there, that would be great. .

Yes. This is Brian. I'll jump in on this [ Aaron ]. As far as new products go, we're still tracking about 6% of our overall revenue for -- related to new products. And we are getting some feedback from our customers. There are some modifications that we can do to existing products or a few additions that we can add to our product portfolio.

And with these changes or new additions, we're seeing some new opportunity come in. .

Our next question comes from Jeffrey Cohen of Ladenburg. .

John and Brian, just a couple of questions from our end.

Firstly, could you give us any further insight on the line of credit and the terms there, please?.

Yes. The terms there, we executed that line of credit on August 1. It's an asset-based line of credit centered around our inventory and accounts receivable. So as I said, it's a $7.5 million facility. Our borrowing base as of September 15th is roughly $4.4 million. That's going to be driven by our AR size and our inventory size. .

In terms of the terms of the agreement, it's roughly at about 11% today in terms of interest rate and SOFR of 5%, and it has one primary covenant on it. But overall, it's been a great addition for the working capital flexibility for our team going forward. .

Okay. Got it. And big picture for '24.

Could you talk about number of customers and current channels and how we may see any potential shift in channels, customers, geographical process, et cetera?.

I think when we look at the overall business, Jeff, it's going to be very consistent to what we're seeing today. Both in the mix of product category revenue, we're seeing very similar results. Brian highlighted that some of the new product discussions we're having and we may continue to see some penetration with our existing customers.

But there should be no major shift in our overall customer base going forward as we see now..

We took obviously a major shift for last year with the acquisition of one of our competitors by a significant customer, and we're still digesting that throughout this first half of this next fiscal year. But other than that, pretty consistent. .

Got it.

And then lastly for us, any color on cadence '24 readout? Should we assume that previous years are a good indication as far as any seasonality quarter-wise?.

We should assume that. We believe, at least the way the quarter is playing out and the way that we expect the season to play out, seasonality should be the same. Revenue higher in the First and Fourth Quarters. Typically, they account for about 26% of our revenue, a little lower in Q2 and Q3. That's about 24% of our revenue.

So we do expect that to play out and to follow the guidance that we've given out there for revenue. .

Got it. Okay. And then lastly, one more on margins.

Any outlook expectations, helps aspirations on margin levels for '24?.

Yes, I'd say a couple of things. One, let's talk SG&A first. One thing you'll notice in SG&A is this range that we provided this fiscal year is lower than we've provided in the past at 29% to 33% like Brian highlighted.

That's a continuation of what we talked about in May that when we recognize that we needed to steer the business to be profitable at lower revenue levels, we made significant changes in the business..

So we will be on the lower end of that range in our higher quarters, in a little bit at the higher end of that range in our middle quarters just based on the overall revenue number. We're not ready to give gross margin guidance now, and we know that that's something that all of us want to see in the future.

And that's just because of the revenue shifts and the change and as we rightsize operations in our plants..

Typically, our First Quarter is one of our higher-margin quarters. However, that's not reliable in our current state because we had such disruption in Q3 and Q4. So we'd be looking -- we're looking at Q3 and Q4 and saying, is that more likelihood while we digest getting our plants rightsized and our operations rightsized going into the year.

But as soon as we have a little more data, we'll get back to everybody with that and try to provide more clarity. .

This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Krier for any closing remarks. .

Thank you, operator, and thank you all for your interest in Dynatronics. I'm pleased to be supporting Brian in this transition and look forward to watching the success of the organization in the quarters and the years to come. If you have any further questions, please direct them to ir@dynatronics.com. Have a great day. Operator, you may end the call. .

Thank you. This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day..