Rockwell Medical Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 14, 2023

There are 6 speakers on the call.

Operator

Good morning, and welcome to Rockwell Medical's Third Quarter 2023 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.

Speaker 1

Good morning, and thank you for joining us for this update on Rockwell Medical. Joining me on today's conference call are Doctor. Mark Strobeck, Rockwell Medical's President and Chief Executive Officer And Jesse Neri, Rockwell Medical's new Senior Vice President of Finance. 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 types of Statements identified as forward looking in our annual report on Form 10 ks and our subsequent periodic reports filed with the SEC. These statements are subject to risks and uncertainties that could cause actual results to differ.

Speaker 1

Please note that these forward Statements reflect our opinions and expectations only as of today. Except as required by law, we specifically Claim any obligation to update or revise these forward looking statements in light of new information or future events. Factors that could cause actual results Filed with the SEC. Rockwell Medical's quarterly report on Form 10 Q for the 3 months ended September 30, 2023, Was filed prior to this call and provides a full analysis of the company's business strategy as well as the company's Q3 2023 results. Our Form 10 Q and other reports filed with the SEC, along with today's press release, our updated investor presentation and a replay of today's conference call and webcast Can be found on Rockwell Medical's website under the Investors section.

Speaker 1

Now I would like to turn the conference call over to Rockwell Medical's President and CEO, Doctor. Mark Strobak?

Speaker 2

Thank you, Heather. Good morning and thank you for joining us today for Rockwell Medical's 3rd quarter 2023 results conference call and webcast. I am pleased to report that we continue to make progress on all the strategic objectives and priorities we outlined this time Our efforts are keenly focused on enhancing our hemodialysis concentrates business by driving top line revenue, enhancing our gross margins, Reducing our expenses and achieving profitability, all while continuing to delever our business. In addition, we made enhancements to our management team Board of Directors, which we believe will further strengthen our organization and elevate our experience base. Let's review each of these updates in further detail.

Speaker 2

During the Q3 of 2023, we generated net sales of $23,800,000 including concentrate product Sales of $21,600,000 both of which were the highest sales generated to date for the company. Additionally, we completed our 2nd acquisition in just under a year acquiring the hemodialysis concentrates assets from Evoqua Water Technologies. This acquisition adds a number of important strategic elements to Rockwell, including approximately $18,000,000 in annual revenue And over $3,000,000 in EBITDA, which is immediately accretive to our business. Additionally, this acquisition expands our presence in the concentrates market By adding approximately 1700 new purchasing facilities to our customer base. As a result, Rockwell now services 1 third of all purchasing facilities in the United States, including outpatient dialysis clinics in hospitals.

Speaker 2

In addition, we have added a fully automated manufacturing process, which when fully unlocked can manufacture products at a lower cost than we currently manufacture our products today. Lastly, as a result of acquiring these assets, Rockwell is now the leading supplier of liquid bicarbonate hemodialysis concentrates in the United States. To successfully integrate these assets into Rockwell, we assembled an integration team led by representatives from both Rockwell and Evoqua To transition this business into Rockwell's platform. Additionally, to ensure that there was no disruption in supply and service to clinics and the patients they serve, We entered into a 90 day transition services agreement with Evoqua to support the concentrates business on our behalf As we onboarded and integrated Evoqua's customers into Rockwell's system. I am pleased to report that on October 9, Rockwell successfully In addition, this important milestone ended the fees associated with the transition services agreement, thereby reducing our expenses going forward.

Speaker 2

Now we are exploring how best to unleash the value of this acquisition, not only to benefit our customers and the patients we serve, but to reduce our overall manufacturing costs to drive better gross margins. We will have more to say about these plans on future calls. In addition, during the Q3, we signed a number of customer agreements, which included significant price increases and long term supply arrangements with purchasing minimum commitments that we believe will continue to have a meaningful impact on Rockwell's top and bottom line. First, we entered into an amended and restated products purchase agreement with our largest customer. Under the amended agreement, Rockwell will realize a price increase for our hemodialysis concentrates products, including With a one time payment on or after December 1st.

Speaker 2

The extended term goes through December 2024 and our largest In the event of such an extension, product pricing will also be increased for the extended term. In addition, we will receive 9 month purchasing forecast And a commitment to purchase at least the forecasted amounts. In the event these forecasts are not met, Rockwell will be compensated for the amount forecasted. We are excited to continue to work with our largest customer to help provide our products to their clinics throughout the United States. [SPEAKER JUAN CARLOS ALVAREZ DE SOTO:] In addition, we continue to secure other long term product purchase agreements with several new and existing customers.

Speaker 2

The first is Sanderling Renal Services, a full service provider of in center and renal telemedicine services focusing on patients in rural and underserved communities. Under the terms of this agreement, Rockwell will be the preferred supplier of liquid and dry acid and bicarbonate hemodialysis concentrates To Sanderling's facilities located throughout California, Colorado, Nevada, Oklahoma, Tennessee, Illinois and Utah. In addition to supplying hemodialysis concentrates and concentrates accessories, Rockwell will also provide Sandrolin with our dry acid concentrate mixer To support Sandrolin's preference to conveniently mix acid concentrate on-site. This product purchase agreement with Sandrolin include Supply and purchasing minimum commitment and has the potential to generate 1,000,000 of dollars in net sales for Rockwell over the course of the contract. A second agreement we announced during the Q3 was with Centers For Dialysis Care, the largest non profit independent outpatient dialysis provider in Ohio.

Speaker 2

As part of this long term multimillion dollar products purchase agreement, which includes supply and purchasing commitments, Rockwell Medical will be the Preferred supplier of liquid and dry acid and bicarbonate hemodialysis concentrates and related accessories to CDC And it's nearly 20 facilities located throughout Ohio. 3rd is Dialyze Direct, a leading provider of dialysis service In the skilled nursing facility setting. Under the terms of this agreement, which also includes supply and purchasing minimum commitments, Rockwell Medical will expand its distribution footprint throughout Illinois, Indiana, Kentucky, Maryland, New Jersey, New York, Ohio and Pennsylvania. Rockwell Medical will be the preferred supplier of liquid and dry acid and bicarbonate hemodialysis concentrates to dialyze direct And we expect to generate over $1,000,000 in net sales annually with this agreement. Lastly is Houston Methodist, a leading academic medical center with 6 community serving the Greater Houston area.

Speaker 2

We signed a 3 year product purchase agreement that includes minimum purchasing commitments. As we stated previously, we continue to construct these product purchase agreements such as they reflect the inherent value of our products, provide to patients. Our commercial team is actively selling our products across the United States and internationally as we continue to pursue our vision of becoming the leading global supplier of We continue to improve our gross margins through the successful execution of expense reduction associated with manufacturing and delivery of our products. During the Q3 of 2023, we consolidated some of our dry powder production in to 2 of our facilities and completed another small workforce reduction that eliminated redundant roles within Rockwell. In addition, we began a route optimization program that consolidated our delivery schedules, further reducing costs associated with delivering our products to customers.

Speaker 2

We are going to aggressively continue down this path of finding additional ways to further reduce our expenses and the costs associated with manufacturing our products. In the coming quarters, we will be looking to unlock the value of our newly acquired fully automated manufacturing process. Additionally, we will look to further automate our manufacturing process at our other manufacturing facilities, all of which we expect will continue to drive our gross margins higher with the goal of achieving gross margins north of 15% on an annual basis. Considering the change We have made including the acquisition of Evoqua's hemodialysis concentrates assets and increasing our concentrates product sales, We expect that Rockwell will be profitable on an adjusted EBITDA basis in the Q4 of 2023. One of the components of our strategic initiative is to enhance our business by adding industry leaders, strategic thinkers and great operators to our business.

Speaker 2

We are pleased to announce that we've done just that. First, we named Doctor. Joan Laut to Rockwell's Board of Directors. Joan was appointed to Rockwell's Board in October. Joan has more than 20 years of experience as an entrepreneur scientist, CEO, operator, investor and Board member of public and private biopharmaceutical companies.

Speaker 2

She has founded, led and scaled a number of biotech companies throughout her career, possessing a significant amount of business development, operational and M and A expertise. Additionally, her experience as a public company board member will be valuable to Rockwell as we continue to grow our customer base And portfolio of products to serve the needs of dialysis clinics and the patients they serve and to position Rockwell to achieve its goal of increasing shareholder value. Also, I'm incredibly excited to have Jesse Neri join Rockwell Medical as our new Senior Vice President of Finance, who oversees all of Rockwell's Finance Organization. Jesse has more than 20 years of experience leading finance functions at both public and private companies. Prior to joining Rockwell, he was the Head of Finance at Hemavant Sciences, a clinical stage biopharmaceutical company developing therapeutics to improve the lives of patients with blood disorders and hematological malignancies.

Speaker 2

Previously, Jesse was Senior Vice President of Finance at Xyllo Life Sciences, A public pharmaceutical company with annual revenue of $80,000,000 As a member of the senior management team, Jesse was responsible for all aspects of its finance organization including SEC reporting, audit controllership and strategic planning. While at Zyla, Jesse played a pivotal role In multiple product acquisitions, financings, commercial product launches and regulatory approvals along with Zyla's acquisition by Assertio Therapeutics in May of 2020. Jesse's expertise will enhance our ability to continue strengthening our financial and operating infrastructure while advancing our ability to meet our strategic objectives. Jesse's extensive experience leading finance organizations within revenue generating growth oriented healthcare businesses will be valuable to Rockwell Medical as we contemplate various avenues of expansion and growth. Now I will turn the call over to Jesse To provide you with our financial results for the Q3.

Speaker 3

Thank you, Mark. Good morning, everyone. I will now review our Q3 results and provide you with an update on our cash and debt positions as well as our 2023 guidance. Net sales for the Q3 of 2023 were $23,800,000 including concentrate product sales of $21,600,000 both of which were the highest sales generated to date for the company. Net sales for the Q3 represented a 31% increase over the Q2 of 'twenty 3 and a 27% increase over the same period in 2022.

Speaker 3

The increase of $5,100,000 in net sales year over year was primarily driven by our Evoqua asset acquisition And our recognition of deferred revenue related to the land bank agreement. Net sales for the 9 months ended September 30, 2023 Gross profit for the Q3 of 2023 was $2,200,000 which represents a 183% increase over the same period in 2022. Gross profit increased by $1,400,000 primarily due to the lower distribution costs associated with the concentrates business And the recognition of deferred revenue from the Wang Bang agreement, partially offset by an increase to the Triferic inventory reserve. Gross margin for the Q3 of 2023 was 9% compared to a gross margin of 6% in the Q2 of 'twenty 3 And 4% for the same period in 2022. We continue to employ strategies to improve our gross margin and anticipate That it will continue to track positively as we close out 2023.

Speaker 3

Operating loss for the Q3 of 2023 was 1,700,000 which includes one time severance expenses of $575,000 This compares to an operating loss of $3,000,000 for the Q2 of 2023 $3,700,000 for the same period in 2022. The improvement in operating loss reflects Rockwell's cost containment efforts as part of our continued business restructuring. Rockwell's net loss for the Q3 of 2023 was 1,900,000 or $0.07 per share compared with a net loss of $4,200,000 or $0.23 per share for the same period in 2022. For the 9 months ended September 30, 2023, Rockwell's net loss was $6,900,000 or $0.32 per share compared with a net loss of $16,300,000 or $1.26 per share for the same period in 2022. Rockwell reiterates its guidance and expects the company to be profitable on an adjusted EBITDA basis in the Q4 of 'twenty 3.

Speaker 3

Cash, cash equivalents and investments available for sale at September 30, 2023 was $11,700,000 compared to 14,900,000 at June 30, 2023. The decrease in cash was driven primarily by $5,000,000 in principal payments on our outstanding long term loan $4,000,000 increase in our accounts receivable, primarily related to the Evoqua asset acquisition. We anticipate collection of these receivables in the Q4 of 2023. As mentioned, we began making principal payments on our debt in the 3rd quarter, which decreased our outstanding debt to $9,500,000 The company projects its outstanding debt to further decrease to $8,000,000 by the end of this year. As we approach the end of the year, we reiterate our 2020 We expect net sales for 2023 to be between $82,000,000 $86,000,000 which represents 17% to 18% increase over 2022.

Speaker 3

We expect gross profit for 2023 to be between $8,000,000 $10,000,000 which represents a 95% to 144% increase over 2022, and we expect to be profitable on an adjusted EBITDA basis in the Q4 of 2023. As for future guidance and expectations, we intend to provide an outlook on 2024 during our Q4 conference call. I will now turn the call back over to Mark.

Speaker 2

Thank you, Jesse. Operator, please open the phone lines for any questions.

Operator

Your first question comes from The line is Anthony Vendetti with Maxim Group. Anthony, your line is open.

Speaker 4

Thank you. Thanks, Mark, Heather, and welcome aboard. So on the fully automated Facilities that you acquired from Evoqua, you mentioned Mark that you're looking to fully automate your other facilities. How much capital is required to do that? And is that necessary to get to your goal of 15% plus gross margins?

Speaker 4

Or could you do that without fully automating your other facilities?

Speaker 2

Good morning, Anthony. Thank you for So we're in the process of evaluating that right now. We don't believe based on our current projections that We need to fully automate all of our facilities to be able to achieve gross margins that you mentioned. To fully automate our facilities, we'll likely drive gross margins higher than that. But we are still in the process of evaluating that, and will likely begin to make those transitions over a period of time.

Speaker 4

Okay, great. And just as a follow-up, so congrats on being the leading provider of all hemodialysis concentrate And accounting for 1 third of all that after the acquisition of Evoqua. As you look to continue to expand, I think one of the areas or one of the In terms of geography, the western part of the U. S. Looks like a large opportunity for Rockwell.

Speaker 4

Can you talk about your expansion plans for the West Coast?

Speaker 2

Yes. So That does continue to be a large opportunity, which we are looking to aggressively access. Through the Evoqua acquisition And the activities of our commercial team, we've already begun to expand our presence in the Western portion of the United States. So we have more customers In the West than we've ever had historically here at Rockwell. But I think for us to more meaningfully access that, We're going to have to do more to establish a fundamental presence there.

Speaker 2

And so that's an opportunity that we Are looking and considering now whether that's establishing our own facility there, whether that's acquiring a facility that may exist out there. But I think for us to really, I think on a cost effective way address the market in the West, We're going to have to seek a more permanent sort of position there.

Speaker 4

Okay. And then just lastly, International, I know the focus is primarily in the United States, but can you talk a little bit about your International opportunity, what is it now as a percent of revenues? And what's sort of the opportunity over the next couple of years?

Speaker 5

Thank you.

Speaker 2

Yes. So right now it's just around 10% of our overall revenue. We think that there is a big opportunity internationally for us. The majority of international markets are largely Being addressed by some smaller hemodialysis concentrates players that Much like in the United States, struggle at times to maintain effective supply and distribution. So we think that there's an opportunity for us given our expertise, not only manufacturing, but being able to work with organizations Outside the United States to distribute the product, to expand that.

Speaker 2

It's a very cost effective business for us, I know our commercial team has a number of potential international partnerships that are currently in the pipeline, which we are looking to establish relationships with.

Speaker 4

Okay, great. Thanks so much. I'll hop back in the queue. Appreciate it.

Speaker 2

Thanks, Anthony.

Operator

Our next question Come from the line of Dipesh Patel for H. C. Wainwright. Dipesh, your line is open.

Speaker 5

Thank you, and congrats guys on the update. This is Dipesh on for Ram Selvaraju. You noted some good examples on several product purchase agreements. Could you provide a sense of how you might see the number of agreements evolving through 202425? And perhaps any challenges that you might see around managing these Current agreements or obtaining new ones.

Speaker 2

Good morning, Dheepesh. Thank you for the question. So we continue to be the largest independent supplier of hemodialysis Concentrates here in the United States. And by independent, I mean, this is our focus. This is our expertise.

Speaker 2

We're not bundling these products with Other products and thereby forcing customers to buy our other products in an effort to get to our human dialysis concentrate. So By that fact that opens up really the entire U. S. Market for those organizations that are looking to find a cost effective Supplier that has its own distribution capabilities and customer service capabilities to handle Their needs around these products. We continue to see over the course of the next year and the year after, Multiple opportunities to continue to not only expand our existing relationships with our current customer base, But then to continue to add new customers as well.

Speaker 2

If you look at the dialysis Clinics and dialysis providers in the United States, although we are working with the top organizations within the There is still a number of very large providers that we still are working to establish Customer and product purchase arrangements with. So we think that offers us a great opportunity. And then as Anthony raised, an opportunity to get The West really allows us to expand our presence with those 2 large customers, and the 2 largest providers of dialysis in the United States. We see an opportunity to continue to grow this business and continue to add revenue, and our commercial team is very focused on doing that. But as Jesse mentioned, we're going to provide a much greater sort of details around what 2024 and beyond look like at our Q4 conference call.

Speaker 5

Okay, great. I appreciate the color. And then final question, related to your stated Target, I guess, of the gross margin goal being north of 15% on an annual basis. How soon are you looking to achieve that goal, if you can kind of elaborate on that?

Speaker 2

Yes. So I think it's I think a couple of things. I think it's important for everyone to realize that We've come from a place in this business where this business itself, the concentrates business, did not generate a gross profit. It generated a gross loss from Rockwell. And through the strategy that we put in place Shortly after I joined and the management team has now been executing on has really Turn this business around to the point of where we're now not only generating a gross profit, but now we're looking to maximize that gross profit.

Speaker 2

So I think that's an continues to be an important contextual element that folks need to consider in the transition of Rockwell into a meaningful profitable organization. Our goal is to do that To get to the 15% gross margin as quickly as we possibly can, we haven't given guidance as to when we're looking to achieve that. But As you can see in this quarter, our gross margin was 9%. As Jesse suggested, we continue to believe that that will trend positively through the remainder of the year, And we expect that to continue to trend positively in 2024. So Again, I think we'll be able to give everybody greater visibility as to when that will be achieved during our Q4 conference call.

Speaker 5

Great. Thank you so much, guys. Congrats again. Thanks.

Operator

I would now like to turn the call over back to Mark.

Speaker 2

Thank you everyone for joining us on today's call. Overall, we are pleased with the progress we continue to make in the financial performance of our business in 23, and we remain focused on continuing to position Rockwell for future growth. We look forward to sharing our progress on future calls.

Operator

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Powered by Quartr
Earnings Conference Call
Rockwell Medical Q3 2023
00:00 / 00:00