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DC

DYNATRONICS CORP (DYNT)·Q1 2024 Earnings Summary

Executive Summary

  • Q1 FY2024 net sales were $9.352M, gross margin was 24.7%, and GAAP net loss improved to $(0.331)M; management stated the business was profitable on an EBITDA basis in the quarter .
  • Guidance reaffirmed: FY2024 net sales $34–$37M and SG&A at 29%–33% of net sales; quarterly revenue distribution expected to be highest in Q1, lower in Q2–Q3, with a bounce in Q4 .
  • Operational execution focused on cost reduction, inventory right-sizing, and margin expansion; inventory reduced from ~$12M a year ago to ~$6.838M at 9/30/23, supporting improved flexibility .
  • Estimates context: S&P Global consensus data for Q1 FY2024 was unavailable during this session, so beats/misses vs Street cannot be adjudicated; management commentary and guidance reaffirmation are the near-term stock narrative drivers .

What Went Well and What Went Wrong

What Went Well

  • EBITDA profitability achieved despite lower revenue, reflecting disciplined cost actions and operating plan execution: “delivered EBITDA profitability for the business” .
  • SG&A reduced meaningfully; Q1 SG&A was $2.546M vs $4.118M prior-year, driven by ~$1.3M in salaries/benefits and ~$0.3M other reductions; SG&A percent ran below guidance in Q1 .
  • Inventory levels materially right-sized versus prior year, improving working capital and flexibility, with management affirming the inventory is salable and properly reserved .

What Went Wrong

  • Revenue headwinds persisted from a customer’s vertical integration (rehab segment) and reduced SKUs at an OEM bracing customer; net sales fell to $9.352M from $12.053M YoY .
  • Gross margin compressed YoY to 24.7% from 30.2% (Q1 FY2023) due to lower volume and product margin; management refrained from gross margin guidance amid volume uncertainties .
  • Operating cash outflow of $(1.665)M in Q1, largely driven by payables reductions ($0.9M) and funding prepaid expenses ($0.8M), requiring use of the asset-based line of credit .

Financial Results

MetricQ3 2023 (Oldest)Q4 2023Q1 2024 (Newest)Consensus Estimatevs Estimate
Revenue ($USD Millions)$9.235 $8.438 $9.352 UnavailableN/A
Gross Profit ($USD Millions)$2.207 $1.237 $2.306 UnavailableN/A
Gross Margin (%)23.9% 14.7% 24.7% UnavailableN/A
Net Income (Loss) ($USD Millions)$(1.247) $(2.381) $(0.331) UnavailableN/A
EPS (Basic & Diluted, $)$(0.36) $(0.63) $(0.12) UnavailableN/A
SG&A ($USD Millions)$3.429 $3.593 $2.546 UnavailableN/A

KPIs and Balance Sheet

KPIQ3 2023 (Oldest)Q4 2023Q1 2024 (Newest)
Cash & Equivalents ($USD Millions)$0.670 $0.553 $0.587
Trade AR, net ($USD Millions)$4.367 $3.722 $4.260
Inventories, net ($USD Millions)$9.703 $7.403 $6.838
Line of Credit Balance ($USD Millions)$0.000 $0.000 $1.804
Total Current Liabilities ($USD Millions)$8.589 $7.941 $8.903
Net Cash Flow from Ops ($USD Millions)$0.405 (9M FY23) $(0.033) (Q4) $(1.665) (Q1)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Sales ($USD Millions)FY2024$34–$37 $34–$37 Maintained
SG&A (% of Net Sales)FY202429%–33% 29%–33% Maintained
Gross Margin GuidanceFY2024Not provided Not provided Maintained
Quarterly Net Sales CadenceFY2024Highest in Q1; lower in Q2–Q3; bounce in Q4 Same cadence reaffirmed Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 & Q4 FY2023)Current Period (Q1 FY2024)Trend
Customer Vertical Integration Impact (Rehab)Significant customer acquired competitor; rehab disruption; bracing flat; market “choppiness” Continued YoY revenue decline; margin pressured by volume Persistent headwind
SG&A DisciplinePlanned $1.5–$2.0M cuts heading into FY2024; SG&A % targeted lower range SG&A reduced YoY and ran below guidance; leverage expected as revenue grows Positive execution
Inventory OptimizationReduced from ~$12M to $9.7M (Mar-23); emphasized sellable inventory ~ $6.838M at Sep-23; “right levels” and properly reserved Improving
Gross Margin OutlookNo GM guidance; compression in Q4 FY23; seasonality noted No GM guidance; caution on volume and plant efficiency Cautious
New Product Pipeline~6% revenue from new products; rehab-led introductions; expand into bracing “Half dozen” targeted launches in 6–12 months Building pipeline
M&A/ScaleConsidering asset-based line, ATM; openness to M&A; reset revenue baseline Acquisitions remain part of strategy post-stabilization Opportunistic later
AI/Technology InitiativesAI not a primary lever given scale; focus on manufacturing quality No substantive AI updateNeutral

Management Commentary

  • “We achieved our sales expectations and delivered EBITDA profitability for the business” — Brian Baker, CEO .
  • “SG&A being sub 28%… was lower than our guidance… we try to be very flexible with our labor pool” — John Krier, executive .
  • “We’re at the right inventory levels… it is all sellable inventory… with the right reserves” — Brian Baker .
  • “Net sales were $9.4M… YoY decrease due to acquisition of a competitor by a large rehabilitation customer and reduced demand in Orthopedic Soft Bracing” — John Krier .
  • “Reaffirming net sales $34M to $37M; SG&A 29%–33%… no gross margin guidance” — Brian Baker .

Q&A Highlights

  • Inventory and working capital: Management believes inventory is at appropriate levels and salable; operating cash outflow was driven by payables reduction ($0.9M) and prepaid funding ($0.8M), supported by the line of credit .
  • Margin trajectory: Q1 GM ~24.7% similar to FY23 exit; margins may dip with seasonal lower revenue in Q2–Q3; no formal GM guidance until more data .
  • SG&A leverage: SG&A below guidance in Q1; flexible labor model to maintain operating discipline as revenue fluctuates .
  • New products: Pipeline of ~six additions over 6–12 months, prioritized by customer opportunity to drive pull-through across portfolios .
  • M&A posture: Acquisitions remain strategic but timing awaits business stabilization and profitability .

Estimates Context

  • Wall Street consensus (S&P Global) for Q1 FY2024 EPS and revenue was unavailable during this session; therefore, beats/misses vs Street cannot be determined. Management’s reaffirmed FY2024 guidance and EBITDA profitability in Q1 are the key narrative anchors pending updated estimates .

Key Takeaways for Investors

  • Execution on cost controls is showing up: SG&A reduced materially and EBITDA positive in Q1 despite revenue pressure — supports a potential path toward improving operating profitability if revenue stabilizes .
  • Revenue cadence matters: Expect softer Q2–Q3 and rebound in Q4; monitor gross margin resilience through seasonal troughs given volume sensitivity and plant efficiency .
  • Working capital tightening: Inventory reduction and use of the asset-based line improved flexibility; watch operating cash burn and payables/prepaid dynamics in coming quarters .
  • Product roadmap as a growth lever: Targeted launches in bracing and rehab could drive mix and pull-through; assess adoption to gauge potential margin and revenue upside .
  • Structural headwind from customer vertical integration persists: Revenue recovery likely requires share gains and new product traction; keep expectations tempered until evidence of offsetting wins emerges .
  • Guidance consistency is supportive: FY2024 net sales and SG&A guidance maintained; any deviations in Q2–Q3 should be contextualized by seasonality and operating discipline .
  • Near-term trading lens: Absence of Street estimates limits beat/miss catalysts; narrative hinges on cost execution, inventory optimization, and confirmation of EBITDA trajectory in lower-revenue quarters .