Thank you for standing by. This is the conference operator. Welcome to the Dynatronics Second Quarter Results for Fiscal 2024 Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions.

[Operator Instructions] I would now like to turn the conference over to Brian Baker, President and CEO of Dynatronics. Please go ahead..

Thank you, operator. Good morning, everyone and welcome to Dynatronics Second Quarter Earnings Call. This is Brian Baker, President and CEO. With me today is Gabe Ellwein, our Chief Financial Officer. Before we get started, I'll ask Gabe to read our safe harbor statement..

Thank you, Brian. During the course of 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 view as of today only and involve risks and uncertainties that could cause our 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 are included in our most recent 10-K and other reports filed with the SEC. 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..

Thank you, Gabe. This morning, we issued a press release announcing the financial results of our second quarter ended December 31, 2023. On today's call, I'll provide some initial commentary, then I'll turn it over to Gabe for a financial report. Following Gabe's report, I will discuss our guidance for the 2024 fiscal year and provide closing remarks.

The operator will then open the phone line for questions. For the quarter ended December 31, 2023, we continue to make progress on achieving our sales goals and finding our path to positive EBITDA.

Although the second quarter historically has been a period with lower revenue, our commercial team worked very closely with our strategic customers to optimize sales opportunities for each of our brands. Our ability to work so closely with these key customers, demonstrate renewed strength in our partnerships.

In addition, our strategic customers have identified new products they desire to begin sourcing from Dynatronics. We have been aggressively developing, manufacturing and building stock to support our customer demand.

Our plan is to manage a limited launch of the new products in the third quarter of fiscal year 2024, and a whole launch in the fourth quarter fiscal year 2024. We are optimistic these new product lines will provide incremental revenue to our business. However, it is too early to estimate the level of revenue contribution to the business.

Complementing the work of our commercial team, during the quarter, our operations team manufactured stock on strategic products and reduced lead times for make-to-order products. Their customer-centric focus led to backorder reduction and faster revenue commission.

Our higher service levels continue to improve customer confidence, as we outperformed the competition and product quality and lead time. These results reflect continued focus on our fiscal year 2024 operating plans and progress on our strategic priorities.

Our team's daily commitment to the business has been key to achieving our goals and I want to thank every employee for their ongoing to the business. I'll now turn it over to Gabe to provide a financial report..

Thank you, Brian. As a reminder, the full income statement and management discussion and analysis can be found in the 10-Q. I will summarize some of the key financials here. Net sales were $8.2 million for the second quarter of fiscal year 2024. That compares to net sales of $10.9 million in fiscal year 2023.

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 category.

Gross profit for the quarter was $1.8 million or 22.3% of net sales, compared to $3.1 million or 28.1% of net sales in the same period the prior year. The decrease in gross profit was driven evenly by the reduction in net sales we previously discussed and by lower product margins, as we continue to see efficiencies at the lower revenue levels.

Selling, general and administrative expenses decreased $1.1 million or 29% to $2.7 million for the quarter ended December 31st 2023, compared to $3.9 million for the quarter ended December 31st 2022.

The overall reduction in selling, general and administrative expenses was led a reduction of $0.8 million in salaries and benefits with the remainder of the $0.3 million spread across other professional expenses. Net loss for Q2 fiscal year 2024 was $1.0 million. That compares to a net loss of $0.8 million in the same period of fiscal year 2023.

Outstanding shares will increase approximately $300,000 per quarter, depending on our share price. As of December 31st 2023, the number of common shares outstanding was approximately $4.5 million. The net cash balance was approximately $0.6 million on December 31st 2023, no change to the $0.6 million reported on June 30th 2023.

As of December 31st 2023, our line of credit balance was approximately $1.9 million. Additional line of credit availability was approximately $2.5 million on a borrowing base of approximately $4.4 million. Cash used by operating activities was $1.5 million for the first six months of fiscal year 2024.

The company used the proceeds from the line of credit to fund prepaid expenses of $0.8 million and reduced accounts payable and accrued expenses by $0.7 million. This concludes our summary of the financial and operating results..

Thank you, Gabe. In terms of guidance for the fiscal year 2024, we are now estimating net revenue to be in the lower end of our guidance of $34 million to $37 million due to slower demand in the rehabilitation space. The distribution of revenue is expected to align with historical trends. We are not providing gross margin guidance currently.

Given our reductions in revenue expectations we are seeking improved stabilization in the business before considering reinstituting fresh guidance. SG&A is anticipated to be in the range of 29% to 33% of net sales for the fiscal year.

In summary, our 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'll 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 Brooks O'Neil of Lake Street Capital Markets. Please go ahead. .

Good morning, guys. I have a couple of questions. I guess, first off as I talked to a variety of health care companies both towards the end of the fourth quarter and so far early in the quarter of the calendar year.

I sensed a relatively solid level of activity in the hospital and outpatient surgery areas, which I might guess would translate to increased demand for physical therapy services. But I sense in some of your comments that maybe demand is somewhat weak.

So can you help me think about what's going on out there in the marketplace right now?.

Good morning, Brooks. Thanks for the question. So the way that I would respond to that Brooks is based on the feedback that we're getting from our customers.

And the customers that are specifically doing new facility openings and there are some of the larger groups that have historically done new facility openings and there has been a slowdown in those new facility openings and it will continue from what they're telling us through the first quarter of this calendar year.

And there are several reasons for that. One of the explanations that we've been giving from our customers is there's not enough physical therapists that are graduating that they can staff.

And then they're also trying to be very strategic about where they want to open new clinics so that they're the best pull-through revenue with the patients that they see. So we're hoping as we're getting into our Q4 of our fiscal year or the second quarter in the calendar that we start to see a pickup there.

But we are still seeing ongoing demand of replacement equipment. So that continues to come in from the rehab space..

Great. Okay. That's great color. I appreciate that.

So secondly, you commented about some of the new product activities I'm sure for competitive reasons you don't want to say a lot about the new products you're working on but can you just give us any color about areas where you see opportunity to service your customers?.

Sure. And I'll reflect back to some of my earlier comments where our customers are actually coming to us and they're identifying where we have gaps in our product portfolio. So they're providing us a product road map if you will of the product adjustments that we need to make.

And by doing that we're going to see that incremental revenue start to come through. And we think that's also going to provide some pull-through revenue is when we add those products to our product portfolio that the existing products we have they'll start to purchase those as well.

And in terms of what that looks like, we are as I mentioned earlier in the process of building stock. We have a limited supply right now. We're working with some of our key accounts and getting those out in the market, we’re talking with other key accounts on the timing of when we're going to be able to support their demand.

And so far feedback on the product has been very positive. They look at it as very high quality and actually from a quality perspective and functioning perspective probably a better product than the competition..

That's great. Let me just ask one more. Historically, I think under John's leadership priority or coming back Brian, inventory was built up a little bit supply chain issues just trying to be prudent about being prepared to service customers.

How would you assess your inventory position today, recognize capital constraints et cetera? Just curious where you see you stand in that regard..

Yeah. Our current back order level has been quite low. And relative to revenue, it's very low. And where we've got the supply pipeline with key suppliers, we've got plenty that's in the pipeline. And then again with the new product launches that's -- as we're building inventory also a key to start meeting customer demand.

So I'm quite happy with what the supply chain team has been doing to optimize inventory. We're not too high in inventory, but I think we have the right amount of inventory on the shelf to provide these high service levels. So I'm quite pleased with how we've been managing that..

Great. Looking forward to the next few quarters..

Okay. Thank you, Brooks..

Thank you, Brooks..

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

Thank you for your time this morning and for your ongoing interest in Dynatronics. If you have any further questions, please direct them to ir@dynatronics.com. And 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..