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DYNATRONICS CORP (DYNT)·Q2 2024 Earnings Summary

Executive Summary

  • Q2 FY2024 revenue was $8.151M, down sequentially from $9.352M in Q1 and below prior-year Q2’s $10.882M; gross margin was 22.3% vs 24.7% in Q1 and 28.1% in prior-year Q2, with net loss of $(1.011)M and EPS of $(0.27) .
  • Management indicated revenue guidance would be at the lower end of the $34–$37M FY2024 range due to slower rehabilitation demand; gross margin guidance remains withdrawn; SG&A guidance reaffirmed at 29%–33% of net sales .
  • Execution focus continued on cost discipline (SG&A reduced to $2.722M in Q2) and inventory/service levels; operations reduced lead times and backorders, supporting revenue conversion .
  • Potential catalysts: limited launch of new rehabilitation products in Q3 FY2024 and full launch in Q4 FY2024, with positive early customer feedback and expected incremental revenue contribution (timing and magnitude not yet quantified) .

What Went Well and What Went Wrong

What Went Well

  • SG&A reduced materially to $2.722M, led by ~$0.8M reduction in salaries/benefits; management emphasized ongoing operating discipline to align costs with revenue .
  • Supply chain and operations improved service levels, reduced lead times and backorders; CEO: “Our higher service levels continue to improve customer confidence as we outperformed the competition in product quality and lead time.” .
  • New product pipeline progressing with limited Q3 launch and full Q4 launch plan; CEO: “We have been aggressively developing, manufacturing and building stock… optimistic these new product lines will provide incremental revenue to our business.” .

What Went Wrong

  • Revenue declined both sequentially and YoY amid slower rehabilitation demand; CFO highlighted YoY decrease driven by a competitor acquisition affecting a large rehab customer and reduced demand in orthopedic soft bracing .
  • Gross margin compressed to 22.3% vs 24.7% in Q1 and 28.1% prior-year Q2, reflecting lower volumes and product margin mix at current revenue levels .
  • FY2024 revenue outlook skewed to the bottom of the $34–$37M range; gross margin guidance remains withdrawn given revenue reductions and need for stabilization .

Financial Results

MetricQ2 FY2023Q4 FY2023Q1 FY2024Q2 FY2024
Revenue ($USD Millions)$10.882 $8.438 $9.352 $8.151
Gross Margin %28.1% 14.7% 24.7% 22.3%
Net Loss ($USD Millions)$(0.841) $(2.381) $(0.331) $(1.011)
EPS ($USD)$(0.27) $(0.63) $(0.12) $(0.27)
SG&A ($USD Millions)$3.862 $3.593 $2.546 $2.722

KPIs

MetricQ4 FY2023Q1 FY2024Q2 FY2024
Net Cash ($USD Millions)$0.553 $0.587 $0.555
Line of Credit Drawn ($USD Millions)$0.000 $1.804 $1.897
Inventories, Net ($USD Millions)$7.403 $6.838 $6.753
Weighted-Average Shares (Basic/Diluted)4,039,618 4,261,593 4,524,965

Notes:

  • CFO attributed YoY revenue decline to a private-label customer relationship change and soft bracing demand; margin pressure tied to volume and product margin rates .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Sales (Revenue)FY2024$34–$37M $34–$37M; management expects lower end due to slower rehab demand Maintained range; skewed lower
SG&A (% of Net Sales)FY202429%–33% 29%–33% Maintained
Gross MarginFY2024No guidance provided No guidance provided Maintained

Context: In Q3 FY2024, guidance was later updated to revenue $32.5–$34.0M and SG&A 30%–32% (post-Q2) .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 FY2024)Current Period (Q2 FY2024)Trend
Demand dynamicsAvoiding margin guidance; historical seasonality implies lower revenue in Q2/Q3 Slower new clinic openings and physical therapist shortages; replacement equipment demand continues Near-term demand softer; watching Q4 pickup
New product initiativesHalf-dozen targeted launches over 6–12 months to drive pull-through Limited Q3 launch and full Q4 launch; early feedback positive on quality vs competition Execution progressing; potential revenue enhancement
SG&A disciplineSG&A sub-28% of sales; leverage expected as revenue grows SG&A reduced to $2.7M, led by salaries/benefits cuts Continued cost control
Supply chain & inventoryInventory reduced from ~$12M to ~$7M; right-sized for revenue Backorders low; adequate pipeline and inventory for launches Improved service levels
Guidance postureFY2024 revenue $34–$37M reaffirmed; no margin guidance FY2024 revenue expected at lower end of $34–$37M; no margin guidance More cautious on revenue trajectory

Management Commentary

  • “We continue to make progress on achieving our sales goals and finding our path to positive EBITDA… Our plan is to manage a limited launch of new products in the third quarter fiscal year 2024, and full launch in the fourth quarter fiscal year 2024.” — Brian Baker, CEO .
  • “Net sales were $8.2 million… 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.” — Gabe Ellwein, CFO .
  • “We are not providing gross margin guidance currently… SG&A is anticipated to be in the range of 29% to 33% of net sales for the fiscal year.” — Brian Baker, CEO .
  • “Our operations team manufactured stock on strategic products and reduced lead times… Their customer-centric focus led to backorder reduction and faster revenue conversion.” — Brian Baker, CEO .

Q&A Highlights

  • Market demand: Slower pace of new facility openings by large rehab groups and staffing constraints (physical therapist availability) weighed on demand; replacement equipment demand continues .
  • New product detail: Customers identified portfolio gaps and provided roadmap; early feedback on new products viewed as high quality and better than competition; building stock and engaging key accounts on timing .
  • Inventory position: Backorders very low; supply pipeline strong; inventory optimized to support service levels and new product launches .

Estimates Context

  • Wall Street consensus (S&P Global) for Q2 FY2024 EPS and revenue was unavailable at the time of request due to an SPGI access limit; therefore, a formal beat/miss determination versus consensus could not be made. Attempts were made to retrieve “Primary EPS Consensus Mean,” “Revenue Consensus Mean,” and estimate counts for Q1–Q3 FY2024 and Q2 FY2024 specifically, but the query failed due to request limits. [SPGI data unavailable; GetEstimates returned errors]

Key Takeaways for Investors

  • Revenue softness reflects external demand headwinds and category mix shifts; watch for stabilization in Q4 aligned with historical seasonality and increased quote activity .
  • Cost discipline is tangible (SG&A down) and should provide operating leverage if revenue from new products materializes in Q4 and beyond .
  • Guidance prudence: management expects FY2024 revenue at the lower end of the prior range; gross margin guidance remains withdrawn pending stabilization .
  • Product launches are the main near-term catalyst; initial customer feedback is positive, but contribution levels are not yet quantified—monitor adoption and pull-through across Hausmann/Titan/Timber/related lines introduced in H2 FY2024 (context expanded in Q3) .
  • Liquidity supported by a working capital ABL (LOC drawn ~$1.9M in Q2 with ~$2.5M additional availability); net cash roughly flat QoQ—manage working capital closely through launches and seasonality .
  • Operational improvements (lead times, backorder reduction) strengthen customer relationships and may aid share capture as product portfolio gaps are addressed .
  • With consensus data unavailable, focus on internal execution milestones and Q4 seasonality to gauge trajectory before re-assessing medium-term margin and revenue expectations .

Additional Documents Reviewed / Prior Quarters

  • Q1 FY2024 8-K press release and call: revenue $9.352M; gross margin 24.7%; EPS $(0.12); SG&A $2.546M; FY2024 revenue guidance $34–$37M; SG&A 29%–33%; no margin guidance .
  • Q3 FY2024 8-K press release and call: revenue $7.658M; gross margin 23.7%; EPS $(0.17); guidance updated to $32.5–$34M and SG&A 30%–32%; new Hausmann product lines announced (Timber, Titan Premier, Forged) .

No additional press releases for Q2 FY2024 were found beyond the earnings 8-K furnished Exhibit 99.1 .