Rockwell Medical Q1 2023 Earnings Call Transcript

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May 15, 2023

There are 5 speakers on the call.

Operator

Good morning, and welcome to Rockwell Medical's First Quarter 2023 Results Conference Call and Webcast. Please note this event is being recorded. At this time, I would like to turn the 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 Paul McGarry, Rockwell Medical's Senior Vice President, Finance and Chief Accounting 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 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 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 company's business strategy as well as the company's Q1 2023 results. Our Form 10 Thank you 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 Q1 2023 results plan we announced last year to optimize Rockwell and our concentrates business with the goal to achieve profitability in 2024. In the Q1, Rockwell's revenue continued to grow, our gross profit continued to improve and our operating expenses continued to go down. Let me walk you through our results. Rockwell achieved its highest quarterly revenue to date in the Q1 of 2023.

Speaker 2

Our commercial team has been working diligently to execute on 3 key growth strategies, which we believe will enable us to continue to achieve commercial success. First, transition of the Baxter business back to Rockwell and optimize purchase arrangements 2nd and for the first time in a long time, grow our concentrates business in the United States and internationally. 3rd and finally, expand our geographic presence. We are making progress on each of these commercial initiatives. In late 2022, we announced that we acquired the distribution rights back from Baxter to regain control of our hemodialysis concentrates business in the United States and internationally.

Speaker 2

On January 1st this year, we assumed 100% control of this business, which we have been heavily focused on transitioning and optimizing for Rockwell. The first step in This transition was to ensure that we continue to supply Baxter customers based on their existing purchase agreements. Our commercial team prepared for this transition months in advance of this date, has been communicating with customers along the way and was well prepared to assume the control of this business at the start of the year. If you recall, many of the Baxter customers already were ordering directly from Rockwell and had products delivered by our subsidiary Rockwell Transportation. Therefore, this transition in many instances has simply been about removing Baxter from the payment process.

Speaker 2

I am pleased to report that the transition has been a success and we are currently selling and delivering product to customers through Rockwell's platform. Our commercial team is now systematically working with each customer to establish new agreements directly with Rockwell with preferred economics. We are making significant progress in this effort and are already realizing the revenue benefits from these changes. We anticipate we will realize more in the Q2 of 2023 beyond. In addition to the We have been focused on commercially growing our hemodialysis concentrates business by adding new customers as we work to achieve profitability in 2024 and drive towards becoming the leading global supplier of hemodialysis concentrates.

Speaker 2

During the Q1, we announced that we signed 2 Long term supply agreements. The first agreement is a 3 year multimillion dollar product purchase agreement With Concerto Renal Services, the largest provider of dialysis and skilled nursing facilities in the United States. And the second agreement It's a 3 year multimillion dollar supply agreement with the largest non profit dialysis provider in the United States. Each of these arrangements include multi year annual minimum purchase commitments and has the potential to increase as our customers' business grows. During the Q1 of 2023, we also established New nonexclusive agreements with 2 of the largest distributors in the United States.

Speaker 2

The first agreement was with Cardinal Health, the second with Medline Industries. They are the first of many distribution agreements that we anticipate establishing this year. Geographic expansion both domestically Internationally is also a major focus for Rockwell. We continue to look at cost effective ways to expand our distribution capabilities in the Western portion of the United States. We are making great progress and are now distributing our products on a limited basis to California, Arizona and Utah.

Speaker 2

However, we continue to pursue a more consistent and concentrated approach in the West that would allow us to sell and distribute our products Directly to West Coast Dialysis Clinics. Additionally, Rockwell has a large and growing international business and currently sells the hemodialysis concentrate products in various countries throughout North America, South America, Asia and Africa. Our international business accounts for approximately 10% of Rockwell's revenue, produces favorable economics and diversifies our revenue base. Subsequent to the Q1, we announced an expansion of our international business with an agreement to supply for the first time the UAE. Our commercial team is working hard to enhance our efforts internationally as we look to identify regions where our products would have a meaningful impact on patients.

Speaker 2

Another key component of our strategy is focused on reducing expenses. We continue to make changes to our business that have reduced expenses across all functional This includes selective reduction in headcount, better pricing on raw materials, continued optimization of our distribution networks and reduced reliance on 3rd party carriers for delivering our products. We are continuing to examine route optimization strategies as well as automation in our manufacturing processes as additional ways we can lower the cost to manufacture our products. These efforts translated into lower operating expenses and a reduced net loss for the quarter, which were significantly improved from the Q4 of last year. Additional growth opportunities as we've spoken about previously Will come from business development.

Speaker 2

Rockwell continues to look aggressively at opportunities for consolidation within the concentrate space as well as opportunities to add new products to our portfolio that take advantage of our manufacturing expertise and capabilities. These opportunities need to be accretive and consistent with our goals to achieve profitability. We hope to be able to say more about these efforts on future calls. Before I turn the call over to Paul, I wanted to provide you with a brief update on the international development of Triferic. As we've discussed previously, Rockwell has several international partnerships with companies looking to develop and commercialize Triferic in their respective countries.

Speaker 2

As a reminder, these international partnerships require no capital expenditure and very little operational resources from Rockwell. While they have the potential to generate near and long term revenue for the company, there can be no assurance that they will and we have not factored this into our revenue forecast. Subsequent to the Q1, we announced that our partner in Turkey, Drogsan Pharmaceuticals, submitted a marketing authorization application And GMP application for Triferic Avenue to the Turkish Medicines and Medical Devices Agency for which dropsand received Priority status and a high priority status respectively. Taking into consideration that drops in was granted an accelerated review For Triferic Avenue with the Turkish regulatory authority, we anticipate approval for Triferic Avenue in Turkey in 2024. The decisions we have made and continue to make are consistent with our strategy going forward to drive our business to achieve profitability in 2024 and to put the company in a stronger, more stable financial position.

Speaker 2

We are well on our way. With that, I will turn the call over Paul to provide you with our financial updates for the quarter. Paul?

Speaker 3

Thank you, Mark. Revenue for the 3 months ended March 31, 2023 was $19,700,000 This represents a 22% increase over the comparable period in 2022 and an increase over the Q4 of 2022. Gross profit for the 3 months ended March 31, 2023 was $2,600,000 compared with the gross loss of approximately $800,000 for the same period in 2022. During the Q1 of 2023, we continued to see to reduce our operating expenses by focusing on enhanced business performance and more efficient manufacturing processes. For the few months ended March 31, 2023, operating loss was 1,400,000 compared to $6,600,000 for the same period in 2022.

Speaker 3

For the 3 months ended March 31, 2023, Rockwell's net loss was 1 point 7 $5,000,000 or $0.10 per diluted common share compared with a net loss of $7,200,000 or 0 point or $0.84 per share for the same period of 2022. Rockwell's cash and cash equivalents at March 31, 2023 was $16,800,000 The reduction in our cash balance was largely driven by fees Associated with the reacquisition of Rockwell's distribution rights from Baxter, one time severance payments and fees associated with terminating the supply agreement. Overall, we are pleased with our financial performance in the Q1 of 2023 and reiterate our revenue guidance of $78,000,000 to $82,000,000 and gross profit guidance of $7,000,000 to 9,000,000 We remain focused on continuing to position us for future growth as we drive towards profitability in 2024. I will now turn the call back over to Mark.

Speaker 4

Thank you, Paul.

Speaker 2

Operator, please open the phone lines for any questions.

Operator

And our first question comes from the line of Brandon Folkes from Cantor Fitzgerald. Your line is open.

Speaker 4

Hi. Thanks for taking my questions and congratulations on all the progress. Maybe just one for me. Can you just help us think about the gross Margins, sort

Speaker 3

of how

Speaker 4

I guess how high could that gross margin get in a stable environment? And what I mean by stable environment is sort of once you've kind of achieved all the everything you're putting in place. And then secondly, Can you help us just think about gross profit for the rest of the year just given the strong results in 1Q and the reiteration of guidance? Thank you very much.

Speaker 2

Thanks, Brandon. So we haven't issued guidance as it relates to gross margin. However, I think as you can see in the Q1, the gross margin that we've generated It is attractive for us and puts us on a path towards profitability. I can say that certainly our business both in The U. S.

Speaker 2

Is really focused on driving towards higher gross margins and in some cases we've been fortunate enough to be able to achieve that. But I think it's where we are this quarter is a good Sort of target for us, as we continue to drive to improved gross margins. From that perspective, we're continuing to work towards improving that. And I think it obviously clearly demonstrates where we're on path to achieve the guidance that we've given.

Speaker 4

Great. Thank you very much.

Operator

And there are no further questions at this time. I will now turn the call back over to Doctor. Strobek for some final closing remarks.

Speaker 2

Thank you everyone for joining us on today's call. Before we conclude our call, I'd like to take a moment and say thank you to our incredible team at Rockwell Medical For crediting us as a great place to work. Being certified as a great place to work spotlights our culture, Our positive employee experience and the leadership behavior is proven to deliver improving revenue, employee retention and increased innovation. This recognition is a testament to our employees' unwavering commitment to our mission to provide dialysis clinics and the patients they serve with the highest quality products supported by the best customer service in the industry. I'm incredibly proud of what we have achieved together and look forward to sharing our progress on future calls as we collectively work to continue to unlock the value of Rockwell.

Operator

This concludes today's conference call and webcast. You may now disconnect.

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Rockwell Medical Q1 2023
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