Rockwell Medical - Earnings Call - Q2 2025
August 14, 2025
Executive Summary
- Q2 2025 was a transition quarter: revenue fell 38% year over year to $16.1M as the largest customer continued transitioning away, but sequential gross margin held at 16% and adjusted EBITDA improved versus Q1; management reiterated full-year guidance (revenue $65–$70M, gross margin 16–18%, adjusted EBITDA $(0.5)M–$0.5M).
- Cash flow from operations was positive $1.8M and cash/investments increased to $18.4M, providing liquidity while the company right-sizes operations and automates manufacturing to support margin stability.
- Commercial momentum continued: new multi-year agreements (e.g., Innovative Renal Care) and broader contract coverage (80%+ of customers under long-term contracts) mitigate concentration risk and support forward growth.
- Setup for potential catalysts in 2H25: ongoing negotiations for a long-term supply arrangement with DaVita and discussions with a very large global provider could impact Q4; West Coast expansion remains a $100M opportunity; competitor recall created near-term share capture opportunities.
What Went Well and What Went Wrong
What Went Well
- Margin/EBITDA resilience in a down-revenue quarter: gross margin remained 16% (in line with guidance), and adjusted EBITDA improved sequentially to $(0.2)M from $(0.4)M in Q1, supported by cost reductions and automation investments.
- Liquidity and cash generation: $1.8M cash flow from operations and $18.4M cash/investments at quarter-end provide runway during the customer transition.
- Contract wins reduce concentration risk: new multi-year contracts (IRC, largest rural health system, South Florida inpatient provider, home-care provider) and 80%+ of customers under long-term agreements; management emphasized long-term supply focus. Quote: “Today, more than 80% of our customers are under long-term contracts.”.
What Went Wrong
- Revenue compression from largest customer transition: net sales declined 38% YoY to $16.1M; gross profit declined 45% YoY to $2.5M; net income swung to a $(1.5)M loss (vs $0.3M profit in Q2’24).
- YoY margin pressure: gross margin dipped to 16% from 18% in Q2’24 as mix shifted away from the former largest customer base (though management noted that customer’s contribution was not margin-accretive historically).
- Sequential revenue decline: Q2 revenue of $16.1M fell from $18.9M in Q1; while EBITDA improved, the lower volume underscores the transition headwind.
Transcript
Speaker 3
Good morning and welcome to Rockwell Medical's second quarter 2025 results conference call and webcast. Please note this event is being recorded. At this time, I would like to turn the conference call over to Heather Hunter, Senior Vice President, Chief Corporate Affairs Officer at Rockwell Medical. Heather, please go ahead.
Good morning and thank you for joining us for this update on Rockwell Medical. Joining me on today's conference call are Dr. Marc Strobeck, Rockwell Medical's President and Chief Executive Officer, and Jesse Neri, Rockwell Medical's Chief Financial Officer. Before we begin, I would like to remind you that this conference call will contain forward-looking statements about Rockwell Medical within the meaning of the federal securities laws, including but not limited to the types of statements identified as forward-looking in our annual report on Form 10-K and our subsequent periodic reports filed with the SEC. These statements are subject to risks and uncertainties that could cause actual results to differ. Please note that these forward-looking statements reflect our opinions and expectations only as of today. Except as required by law, we specifically disclaim any obligation to update or revise these forward-looking statements in light of new information or future events.
Factors that could cause actual results or outcomes to differ materially from those expressed in or implied by such forward-looking statements are discussed in greater detail in our periodic reports filed with the SEC. Rockwell Medical's quarterly report on Form 10-Q for the three months ended June 30, 2025, was filed prior to this call and provides a full analysis of the company's business strategy as well as the company's second quarter 2025 results. The reconciliation of non-GAAP measures we discuss on today's call can also be found in today's press release. Our Form 10-Q and other reports filed with the SEC, along with today's press release and a replay of today's conference call and webcast, can be found on Rockwell Medical's website under the Investors section. Now I would like to turn the conference call over to Rockwell Medical's President and CEO, Dr. Marc Strobeck.
Speaker 2
Thank you, Heather. Good morning and thank you for joining us today for Rockwell Medical's second quarter 2025 earnings conference call and webcast. We are past the midpoint of what we recognize as a transition year for Rockwell Medical. Our core objectives for 2025 have been to secure our base business with long-term contracts, right-size our organization while meeting the demand of our customers, and fill the revenue gap in the wake of our largest customer moving to another supplier. We believe that we are successfully managing through this transition. For the second quarter, we improved our cash position. Our gross margin was consistent with quarter one and in line with guidance. We were only slightly negative on an adjusted EBITDA basis and were cash flow positive from operations.
We continue to work on a number of significant opportunities with new and existing customers that, if successful, could be transformational for Rockwell. We find ourselves in the back half of the year in a steady state and are well positioned for continued growth. Our long-standing reputation for high-quality products, a reliable supply chain, and a customer-centric approach continue to differentiate us in the hemodialysis concentrates marketplace. We remain a leading supplier that has the scalability to manufacture and deliver to the more than 12,000 individual purchasing facilities, including outpatient dialysis clinics and hospitals in the U.S., along with select international markets. Additionally, we remain the leading manufacturer and supplier of liquid bicarbonate products in the United States, which continues to hold strategic value for us. Year to date, we have signed several contracts with new customers and have renewed contracts with existing customers.
Today, more than 80% of our customers are under long-term contracts, which is in stark contrast to where we were just a few years ago. This stickiness is important for Rockwell as it demonstrates stability and predictability in our business and offers strong growth opportunities in the coming years. During the second quarter, we entered into a new product purchase agreement with Innovative Renal Care, formerly American Renal Associates, one of the largest dialysis service providers in the U.S. Under the terms of the agreement, we are supplying IRC with liquid and dry acid and bicarbonate hemodialysis concentrates, as well as our dry acid concentrate mix system, which is 510(k) approved, only to be used with our dry acid concentrate powders. This represents a multimillion-dollar purchase agreement with utilization commitments and will remain in effect for three years with the option to extend an additional one-year period.
Other customer wins include a product purchase agreement with the largest rural health system in the U.S., with a two-year agreement with minimums that has the option to renew for an additional 12-month period, two additional 12-month periods. We have also contracted with the largest provider of inpatient dialysis in South Florida and a provider of specialized home care services to ill, disabled, and vulnerable individuals in their home and places of residence. Both of these agreements are multi-year long-term contracts with purchase minimums and renewal options. As for our largest customer, we are continuing to supply them well past their June 30 transition date and are working with them to find additional ways to support their business going forward. We are still in active discussions about terms for a new contract.
To remain on the conservative side, we are reiterating our guidance for 2025 as follows: net sales will be $65 million and $70 million, gross margin will be between 16% and 18%, and adjusted EBITDA will be between negative $500,000 and positive $500,000. I will now turn the call over to Jesse to review our second quarter 2025 financial results in further detail. Jesse.
Speaker 5
Thank you, Marc. Good morning, everyone. I will now review our second quarter 2025 financial results in greater detail. Net sales for the second quarter were $16.1 million, representing a 38% decrease over net sales of $25.8 million for the same period in 2024. The decrease in net sales was driven by our largest customer transitioning to another supplier. Net sales for the six months ended June 30, 2025, were $35 million, which represents a 28% decrease over net sales of $48.5 million for the same period in 2024. Gross profit for the second quarter was $2.5 million, which represents a 45% decrease over $4.6 million for the same period in 2024. Gross profit for the six months ended June 30 was $5.5 million, which represents a 27% decrease over $7.6 million for the same period in 2024.
Gross margin for the second quarter of 2025 was 16%, which was consistent with the first quarter of 2025 and represents a slight decrease from 18% for the same period in 2024. Gross margin for the six months ended June 30, 2025, was 16%, which is also consistent with the same period in 2024. Net loss for the second quarter of 2025 was $1.5 million, which was consistent with the first quarter of 2025 and represents a decrease from net income of $0.3 million for the same period in 2024. Net loss for the six months ended June 30, 2025, was $3 million compared to a net loss of $1.4 million for the same period in 2024.
Adjusted EBITDA for Q2 2025 was a negative $0.2 million, which represents an improvement over adjusted EBITDA of negative $0.4 million in Q1 of 2025 and compared to a positive adjusted EBITDA of $1.4 million for Q2 2024. Adjusted EBITDA for the six months ended June 30, 2025, was a negative $0.7 million compared with a positive adjusted EBITDA of $0.9 million for the same period in 2024. Cash, cash equivalents, and investments available for sale at June 30, 2025, was $18.4 million, an increase from $17.3 million at the end of Q1. The increase in cash was driven by $1.8 million in cash flow from operations. Now I'll turn the call back over to Marc.
Speaker 2
Thank you, Jesse. Operator, please open the phone lines for any questions.
Speaker 1
Thank you. If you would like to ask a question, please press star followed by the number one on your telephone keypad. Our first question comes from Ram Selvaraju from H.C. Wainwright. Please go ahead. Your line is open.
Speaker 4
Thanks very much for taking my questions. I just wanted to ask about your expansion plans in the Western United States, and if you can provide us with any additional granularity regarding how those initiatives are proceeding and when we might see additional customer acquisition in those territories.
Speaker 2
Thanks, Rom, for the question. We continue to believe the West is a significant opportunity for Rockwell Medical as there is only one provider of concentrates within that marketplace, and we believe it represents an approximate $100 million opportunity. Our focus right now has been not only in working through this transition period, but also lining up larger customers for that expansion. I think we'll be able to give greater visibility towards that as we get later into the year and some of the discussions that we have ongoing now with DaVita, Fresenius, and others begin to play out. It is still our intent and it is still our belief that that does represent a large opportunity for us, and we should be able to give more clarity at that point.
Speaker 4
The second question I wanted to ask pertains to the negotiations you continue to have with your largest customer. I was wondering if you could give us some sense of what the open questions or key parameters are around potentially reaching a new deal with this customer, if this might ultimately take the form of a long-term agreement like the ones you have in place with the majority of your other customers now, and if by the time we get to the end of those negotiations, such an agreement might be reached in time to have a meaningful upside impact on your 2025 revenue guidance. Thank you.
Speaker 2
Our discussions continue in earnest with DaVita. As I think everyone knows, DaVita had alerted us at the beginning of the year that they were going to begin to transition away with a goal to move away from Rockwell Medical by the middle of the year. DaVita continues to be a purchaser of products from Rockwell Medical. Beyond that point, it is clear that that will continue through the remainder of the year. We are working with DaVita now on putting in place a long-term supply arrangement. Rockwell Medical is not in the business of single small projects of supply in an effort to fill gaps or to supplement other suppliers. We are in the business of putting in place long-term supply arrangements. That message has been communicated and we feel optimistic that we will come out of those discussions with a long-term supply agreement.
I think that will certainly, ideally, impact financials towards the end of the year, but will certainly impact our financials going forward. I think it's also fair to say that we are working with two other incredibly large suppliers, one being the largest dialysis provider in the world, on a supply arrangement that, if completed, would have a meaningful impact on fourth quarter financials. We have a number of really great opportunities. That is a result of the fact that Rockwell Medical continues, despite the changes in the marketplace, to be a reliable, consistent supplier of products that are safe, that are of the highest quality, and the marketplace knows that.
Speaker 4
Just two other very quick things. Firstly, with respect to the available cash on hand, can you give us a sense of how you're thinking about prioritization with respect to allocation of capital? In particular, you know, how you look at the partitioning of capital allocation between debt paydown, debt repayment, and investment into new customer acquisition activities. Also, if you can give us a sense of, you know, given the shift towards ensuring that you have long-term relationships and long-term agreements in place with your key customers, how that might translate into greater predictability of revenue in 2026. Thank you.
Speaker 2
As far as capital allocation, right now the primary focus is the use of that capital in continuing to invest in capital equipment that allows us to further automate our manufacturing processes and reduce the cost of manufacturing our products. That is exclusively where our resources are being focused, all in an effort to be able to make our products more efficiently. We've obviously modeled out the next five years and certainly believe we've got enough resources, and based on the performance of the business, to have cash sufficient to satisfy our debt obligation, and our lender certainly firmly believes that as well. As far as allocation right now, it's primarily in capital equipment and new customer acquisition. As far as your second question, the number one objective for this organization is to create a reliable and reproducible business that is consistently performing and generating positive cash flow and profitability.
All of the arrangements that we've established with our customers, which is a change in direction, as we've mentioned previously from not but a couple of years ago, is to continue to create that reliable revenue source and that reliable performance of our business. Had we not had the change in our largest customer, I think we were well on our way to doing that. I think you can look historically over the last two and a half, three years and see a very consistently reliable, growing revenue base. With this change, it has certainly altered that for the period. We have now gone through that transition. We've restabilized the base and are now positioned for further growth to, I would say, get back to growing at a steady and consistent level, but with a highly reliable and reproducible revenue stream.
Speaker 5
Thank you.
Speaker 1
Our next question comes from Jeremy Pearlman from Maxim Group. Please go ahead. Your line is open.
Speaker 0
Thank you. Good morning. The first question is related to gross margins. You're able to keep them relatively flat quarter over quarter, even though revenue declines. Maybe just talk a little bit about what the actions you're taking, what's going behind that to keep these gross margins at stability.
Speaker 5
Thanks, Jeremy. We've right-sized the organization at the end of Q1 and the beginning of Q2. We've had some staff reductions as it relates to operations, in line with essentially our new revenue base. We've also invested in some new equipment, which has increased our efficiency, which is also helping, and we're expecting to see more results, better results from that in the future.
Speaker 2
Yeah, I might also add to Jesse's comments. As we've said previously, the gross margin and profit we were making on our largest customer was not a significant piece driving our overall business, right? That has proven itself out by the fact that revenue has been reduced as a result of them moving away, and it hasn't ultimately significantly affected our gross margin. I think that's consistent with what Jesse has said. This is another factor here. Looking forward, I think we are in an incredibly good position, and we've already begun to see even this month a tick up in our gross margin and our gross profit. I think that's as a result of the changes that Jesse just outlined that we are making. I think we're well positioned as we go through the second half of the year to be able to maximize that even further.
Speaker 0
Okay, understood. Great. I know, prior to when you had the largest customer on board fully, there was a high customer concentration risk. How much has that been mitigated now that that contract technically ended at the middle of this year? Is there still some concentration risk? Are there still some major customers that make up the bulk of the revenue, or has that really been spread out?
Speaker 5
Back in this time last year, DaVita represented about 40% or 45% of our revenue base. Now they're down to 10%, and the other customers, we have two other large customers, but they're both around, I would say, 10% to 12% of our revenue. That concentration risk has gone way down.
Speaker 2
Yeah, I think to follow on from that, I mean, we knew when we started this about three years ago that one of the major risks within this business was so much of our business was concentrated with a single customer. We've worked continuously to diversify that by adding new customers, by completing the acquisition of Metavators, by doing a number of other things to try to dilute that. The work that we completed in an effort to do that, I think, is what creates the base that allows us to go through that transition of losing our largest customer, right, while still being able to maintain a sizable business. Had that occurred three years ago, I don't think we would be sitting in this position. All of the work that we've done has been essentially to address that, right?
The fact that we continue to exist and continue to be able to grow this business in a meaningful way, I think, speaks to all of the things that we've done. As Jesse points out, we are not going to find ourselves in that position again going forward.
Speaker 0
Okay, great. Just last question, in the beginning of April, one of your competitors had a voluntary recall of a contaminated product. Have you been able to utilize that to any advantage when you're negotiating with customers since then? It's been four months now.
Speaker 2
Yeah, it's a great question. Unfortunately, the organization that our largest customer shifted towards did have a significant issue in the manufacturing of their liquid products. As you pointed out, there was a significant recall of all of their liquid products. Unfortunately, there was contamination associated with the products that led to not only serious health consequences to patients, but apparently, according to what we learned in the Federal Register, actually, unfortunately, killed a patient. We are obviously working quite closely with them to supplement their supply, as well as working with our largest customer to make sure that there is continuous supply of liquid, both acid and bicarbonate products, in an effort to maintain patient care and the ability of patients to continue to access dialysis treatments.
Speaker 0
Okay, great. Thank you so much for taking my questions. Have a nice day.
Speaker 2
Thanks, Jeremy.
Speaker 1
If there are no further questions, I'll turn the call back over to Dr. Strobeck.
Speaker 2
Thank you for joining us today for an update on Rockwell Medical. We look forward to providing you with more updates next quarter.
Speaker 1
This concludes today's call. You may now disconnect.