Welcome to Dynatronics' Second Quarter Fiscal Year 2023 earnings call. My name is Jenny, and I will be your operator for today's call. As a reminder, this conference call is being recorded for replay purposes. Following today's presentation, there will be a question and answer session with analysts. At this time, all participants are in a listen-only mode. It is now my pleasure to turn the floor over to your host, Mr. John Krier, the company's President, Chief Executive Officer, and Chief Financial Officer. John, the floor is yours. Thank you, operator. Good morning, everyone, welcome to Dynatronics' Second Quarter earnings call. Before we begin, I will call your attention to our safe harbor statement. I remind you that the discussions during this conference call will include forward-looking statements. Factors that could cause actual results to differ materially are discussed in the company's most recent filings with the SEC. We caution you not to place undue reliance on forward-looking statements we may make this morning. We undertake no obligation to update or revise forward-looking statements. During our prepared remarks, we will be referring to slides that are available for viewing in the webcast and posted on our investor center page at dynatronics.com. On today's call, we will cover the highlights and achievements of the second quarter of fiscal year 2023, as well as provide commentary on the financials, and then we will have the operator open the phone lines for questions from our analysts. Slide three highlights a few of our recent accomplishments as we continue our journey to exceed market revenue growth rates and establish a sustainable business that generates consistent profitability. Three key takeaways for our second quarter. I will begin at the highest level to briefly speak to the macroeconomic environment we are seeing. We, like our competitors in other industries, continue to face inflationary pressures, supply chain challenges, and inconsistent utilization, all of which work to somewhat dampen our quarterly results. We are happy to report, however, that despite these headwinds, we continued to stabilize and improve our gross margin profile. Our Q2 gross margin was 28.1% or an increase of 8.4% from the prior fiscal year, though the macroeconomic headwinds prevented us from achieving quarter-over-quarter margin expansion. We expect raw material availability, inflationary pressures, and freight volatility to improve throughout calendar 2023 and remain confident in the business outlook and in our differentiated strategy. We'll maintain our net sales guidance of $45 million-$48 million for fiscal year 2023. Finally, our commercial execution delivered the seventh consecutive quarter of organic revenue growth above the baseline we set in April 2021 and at or above market growth rates. We are executing with a clean balance sheet, managing our inventory balances to appropriate levels, all while handling the increased demand for our products amidst the backdrop of new product innovations. Moving to slide four. 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 $10.9 million for the second quarter of fiscal year 2023. That compares to net sales of $10.5 million in the prior year period, representing an organic growth rate of 3.3%. Gross profit for the quarter was $3.1 million, or as I noted earlier, 28.1% of net sales, compared to $2.1 million, or 19.8% of net sales in the same period the prior year. The increase in gross profit as a percentage of net sales was driven by a combination of net price realization and better overall product mix. While we have seen a slowing of cost increases during Q2 of fiscal year 2023 in both freight and raw materials, specifically inbound freight, we remain cautious and have modeled cost pressures to continue for the remainder of calendar 2023. Selling, general, and administrative expenses increased $0.4 million or 10.9% to $3.9 million for the quarter ended December 31, 2022, compared to $3.5 million for the quarter ended December 31, 2021. Investments in marketing and marketing programs were the primary drivers of the increase. Net loss for Q2 fiscal year 2023 was $0.8 million. That compares to a net loss of $1.4 million in the same period of fiscal year 2022. Separately, the company completed its reverse stock split on February 1, 2023. Additional details will be provided later in today's presentation. Outstanding shares will increase approximately 75,000 per quarter, depending on our share price. The approximately 75,000 shares per quarter is based on a reverse stock split Adjusted share price of $2.25 per share. The net cash balance was approximately $0.7 million on December 31, 2022, the same as on June 30, 2022. We reduced our inventory balance to $10.7 million, with a reduction of approximately $1.4 million from the balance on June 30, 2022. We will continue to strategically optimize our inventory while preparing for new product introductions and seasonal growth in our fiscal fourth quarter. Cash generated by operating activities was $0.3 million for the first six months of our fiscal year 2023, which compares to cash used by operating activities of $2.4 million in the same six months of the prior year. This concludes our summary of the financial and operating results. Turning to slide five, we will continue to provide guidance on metrics that we are confident with, and we are affirming our expectation that net sales in fiscal year 2023 be in the range of $45 million-$48 million. The midpoint of this sales guidance represents a 5% organic growth rate relative to the $44.3 million annual net sales in fiscal year 2022. The company expects the distribution of net sales in fiscal year 2023 across the quarters to align with historical trends. Highest in the first quarter, lower in the second and third quarters, with higher growth again in the fourth quarter. Our second quarter continued this historical seasonal trend. Moving to slide six. As we have stated in earlier calls, gross margin expansion remains a key focus. Gross margin increased to 28.1% in Q2, an 8.4% increase from the prior year gross margin of 19.8%. Sequentially, the decrease in gross margin of 2.1% from Q1 reflects seasonality coupled with macroeconomic supply chain challenges. As a company, we are executing on a six point gross margin plan. Number one, price rationalization. An example is our tier pricing strategy, which rewards customer loyalty. This strategy is being tested with recent competitive acquisitions in our rehabilitation market. Our dealer network has remained strongly aligned to our strategy. We remain committed to rewarding those dealers who demonstrate loyalty to our brands, and we remain 100% a dealer-centric organization in our rehabilitation product categories. Number two, rationalize product. In addition to the major shift in April 2021, we routinely execute on streamlining our product offering. Internally, we simply say we must grow over the disruption. This is routine product lifecycle maintenance. Our disciplined execution in this area is a key to longer-term margin expansion. Number three, new product introductions. In the past quarter, we exceeded $1 million in Mammoth table sales orders after less than a year on the market. The remaining three opportunities in our six-point plan are number four, manufacturing efficiencies, number five, revenue scale, and number six, mergers and acquisitions. We continue to explore all options to drive these three additional elements of our plan. My team and I are committed to execute our strategy and move us from the current approximate 30% year-to-date gross margin performance to our future potential based on the six-point plan. Slide seven reaffirms Dynatronics' fiscal year 2023 guidance details. Net sales are expected to be in the range of $45 million-$48 million. The midpoint of this range, $46.5 million, represents 5% organic revenue growth. Given the persistent inflationary pressure, macroeconomic impacts, and supply chain challenges, we are deferring providing gross margin guidance. We do expect fiscal year 2023 to continue the expansion towards our longer-term target of 40%. Year to date, we have improved gross margin by 4.1%. We anticipate selling, general, and administrative expenses of 30%-35% of net sales in the fiscal year 2023. As we gain revenue scale, we expect to continually leverage our SG&A cost base. Year to date, selling general and administrative expenses are 34.8% of net sales, and we expect this to slightly improve and fall firmly within the range we anticipate. We understand what it takes to build a scalable platform to grow our customer and sales base to be a much larger company in our markets, drive margin expansion, and consistently deliver strong cash flow from operations to create value for shareholders. We will continue to focus on further improving all our financial metrics. This guidance is based on our current operations and is subject to the risk factors and other forward-looking statements and uncertainties contained in this presentation and in our filings with the SEC. Turning to slide eight, the Dynatronics differentiated growth platform targets initiatives in each of these strategic priorities. Momentum has been building on our gross margin expansion as we move into Q3 and Q4 of our fiscal 2023. While we acknowledge the year-over-year improvement, we are not satisfied with our progress. New, targeted, and innovative product releases are the third pillar of our gross margin improvement plan, we plan to continue to improve our performance in this area. Let's move to slide nine. Healthy medtech companies, depending on industry or subspecialty, routinely drive 15%-20% of revenue from products released in the past three years. The best companies often raise this bar to 30%+ of net sales. The Dynatronics team has now reached approximately 6% of revenue coming from products released in the past three years, this was launched from a standing start at the end of calendar 2020. I'm incredibly proud of our marketing, engineering, supply chain, and operations teams for helping initiate this growth culture, and there's more to come. Please turn to slide 10 on winning market share. We strive to be an organization that consistently demonstrates execution to its plan, not just words, but solid execution to simple principles. We win market share through, number one, superior commercial execution. Make the dealers' and customers' lives as easy as possible and make it simpler to do business with us. Two, favorable mix shift to product innovations. We remain focused on driving improvements in our dealer and end customer experience, offering volume tiered pricing that rewards customer loyalty and delivering product innovations that give dealers reasons to continue moving their end customers to Dynatronics. Dynatronics' management team is focused on methodical execution and continually seeking a strong, differentiated understanding of the commercial landscape in the product categories we compete in. Before I close with the investment highlights of Dynatronics, I want to share additional details of the recently completed reverse stock split as shown on slide 11. As background, our shareholders authorized the board of directors to affect this split to ensure Nasdaq compliance with the $1 minimum bid requirement. The reverse stock split was effective at 5:00 P.M. Eastern Time on Wednesday, February 1, 2023. The one for five split was authorized and approved at the annual shareholder meeting on November 17, 2022. Key reverse stock split execution points. Outstanding common shares were reduced from approximately 19.6 million shares to approximately 3.9 million shares. Preferred shares remain unchanged. However, the conversion feature was reduced in the same one for five ratio from 3,351,000 shares to 670,200 shares. Additional comparative details are available in the appendix of today's presentation. Slide 12 shows the investment highlights for Dynatronics. The markets we serve, rehabilitation and bracing, have stable growth profiles. Our sales and share growth have been driven by customer and dealer reaction to our business transformation. Sales have exceeded the market or our baseline expectation for seven consecutive quarters now. We target improvement in gross margin in fiscal year 2023 despite the macroeconomic environment. We have approximately $0.7 million of cash and $10.7 million of inventory on the balance sheet at the end of December with no debt. Dynatronics has not borrowed against its asset base of inventory or accounts receivable since July 2020, representing 10 consecutive quarters of no debt. We are demonstrating progress against each of our strategic goals with more to come. The investment community is actively listening to our story, and we will continue to share our progress and update as we move through our fiscal year 2023. I will now turn it over for questions. Thank you, John. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your phone keypad. Confirmation tone will indicate your line is in the queue. You may press star two if you would like to remove your question from the queue. For anyone using speaker equipment, it might be necessary to pick up your handset before you press the keys. One moment while we poll for questions. Thank you. Your first question is coming from Brooks O'Neil of Lake Street Capital. Brooks, your line is live. Thank you. Good morning, everyone. John, I'm hoping you could just tell us a little bit about how you sense the end customer, demand and operating environment is, and whether you see, you know, a distressed end customer environment or whether you're beginning to see some improvement out there? Good morning, Brooks. I would say what we're seeing more than anything is just inconsistent utilization due to the factors that others are reporting, such as staffing levels and such. I think, you know, we're not seeing, you know, maybe this crazy growth or this crazy decline, just inconsistent utilization and a stable market. We haven't seen anything different than that. I think that's consistent with the medtech space that we've all been around for quite some time. Sure. Secondly, I don't know if you feel in a position or want to talk at all about specifics related to pending or future new products. Can you give us any color at all in terms of areas of interest and opportunity that you see or any specifics would be helpful? Absolutely. The first thing I would say is I'm incredibly proud of our team for going from 0% of revenue of new product sales in three years to 6% over really the last, call it, 24 months, 18-24 months, with nine new releases. To think about that, to get a product, a medtech, a product up and through development and approved and commercialized in that period of time. At 6%, you know, on a $46 and a half million dollar projected midpoint of our range, that's $3 million of new revenue in a very short period of time. That is a key part of not only our organic revenue [audio distortion] plan, but also our gross margin plan. What I would tell you is this, we're gonna have a consistent cadence going forward. I suspect that the next releases will happen more in the turn of Q4, and so the benefit of those is not gonna be felt really until of our next fiscal year, but there's a lot of factors that go into those releases. As it relates to the categories, you see when you look at our slide on page nine and you see some of our products, the majority of the releases so far have been in our rehabilitation space. It's one of the reasons when you look at the rehabilitation product category revenue, you can see this significant growth. I mean, that category alone was up 17% in Q2. You can see that new product releases were a very important part of that. We need to expand it. We need to also innovate in our other product categories, such as bracing and supports, to match that. You'll see it in both categories, and you're going to see it towards the tail end of this fiscal year and again growing into next year. Great. Let me just ask one more. Obviously, SG&A was up a little bit. I assume that's just the tight labor market and whatnot. Would you anticipate that staying elevated during the balance of the fiscal year? Is there anything you could do to kinda tamp that down a little bit? That investment in SG&A was very specific in marketing, $400,000 in marketing and marketing programs. That's consistent with our new product introductions and our expectations of new product introductions coming forward. I would say, if you look at it through the first six months of the fiscal year, we're running 34.8% of net sales. That's at the higher end of our range of 30%-35%. You can expect that to slightly come down in the upcoming quarters and land squarely in the midpoint of our range by the end of the year. Great. Thank you very much for taking my questions. Thank you, Brooks. Thank you very much. Your next question is coming from Jeffrey Cohen of Ladenburg Thalmann. Jeffrey, your line is live. Oh, hi, John. How are you? Doing well, Jeff. Good morning. Just a couple questions from our end. It sounds like you're not gonna provide any specific guidance on the margin front. However, based on your slide six, it looks like you anticipate that will make some further increases in the back half of the year from 30.2% in the first quarter and 28.1% in the second quarter. Is that an accurate assessment? That's an accurate assessment. I can give a little bit of color too on the Q1 versus Q2. If you look at Q1, you know, in an ideal world, we'd be able to continue to show sequential expansion, but the macroeconomic headwinds kept us back. Typically, when we look back historically, say fiscal 18, 19, 20, where we had the same collection of assets, pre-COVID impact, our Q2 historically dropped about two percentage points in gross margin, almost exactly what it did here, except that we're operating in a much different macroeconomic environment of freight and labor. It means that we are expanding and improving the underlying core operations, but we couldn't outrun the headwinds. I think that that trend will continue, and it's one of the reasons we're deferring guidance, but we'll expect it to come back a little bit in Q4 as our seasonality kicks in. Perfect. Got it. And then secondly, for us, can you comment a little bit... I mean, on one hand, nice job, bringing the inventory levels down to 10.75 for the quarter. On the, on the other hand, I guess, could you talk about current inventory and the freshness of inventory and if we would anticipate that that would continue to decrease? Is that inventory level being filled with new products at higher margins with, you know, kind of the more historic products, still sitting there at lower margins, or could you talk about the inventory a little bit, please? Absolutely. Our expectation would be that it come down further. We are targeting some additional strategic reductions. You know, as I mentioned before, finishing last fiscal year at $12.1 million in inventory is too high, $6.5 million the year before, too low. The answer is somewhere in between. The wild card for us is we're adding new products related to our product releases, so we're building inventory in advance of those releases. You're seeing that with the releases that you see contained in the materials on slide nine today, while we move out and end of life certain other products to improve our gross margin mix. Long story short, I expect it to come down. I can't tell you exactly where it's gonna land because it's gonna really depend on how quickly we can get new product launches out. It's a, it's a key driver of just running a fiscally healthy company, is to use and have a good inventory level. Okay, perfect. That does it for us. Thanks for taking the questions. Thank you, Jeff. Thank you very much. There are no further questions in the queue. I would now like to turn the floor back over to John for any closing comments. Thank you, operator, and thank you for your interest in Dynatronics. We are actively sharing our story with the investment community as we move forward in our markets. We hope to meet with you at upcoming investor events. Notable upcoming events include the Canaccord Musculoskeletal Conference on March seventh, 2023, Roth Investor Conference, March 12th through the 14th, 2023, and the Virtual Investor Summit on March 29, 2023. If you have any further questions, please direct them to ir@dynatronics.com. Have a great day, and operator, you may end the call. Thank you, John. This does conclude today's conference call. You may disconnect your phone lines at this time. Thank you for your participation.