Rockwell Medical, Inc. (NASDAQ:RMTI) Q3 2023 Earnings Call Transcript

Rockwell Medical, Inc. (NASDAQ:RMTI) Q3 2023 Earnings Call Transcript November 14, 2023

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.

Heather Hunter: Good morning, and thank you for joining us for this update on Rockwell Medical. Joining me on today's conference call are Dr. 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-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.

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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 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 third quarter 2023 results. Our Form 10-Q and other reports filed with the SEC, along with today's press release or 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.

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

Mark Strobeck: Thank you, Heather. Good morning, and thank you for joining us today for Rockwell Medical's third 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 last year. 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 and 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.

During the third quarter of 2023, we generated net sales of $23.8 million, including concentrate product sales of $21.6 million, both of which were the highest sales generated to date for the company. Additionally, we completed our second 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 million in annual revenue and over $3 million in EBITDA, which is immediately accretive to our business. Additionally, this acquisition expands our presence in the concentrates market by adding approximately 1,700 new purchasing facilities to our customer base. As a result, Rockwell now services approximately one-third of all purchasing facilities in the United States, including outpatient dialysis clinics and hospitals.

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 served, 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 completed the transition and integration of Evoqua assets and customer base and began directly accepting orders from Evoqua’s customers. In addition, this important milestone ended the fees associated with the transition services agreement, thereby reducing our expenses going forward. 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 third quarter, 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 1. The extended term goes through December 2024, and our largest customer has the right to extend this agreement for another year, which could take this agreement through December 2025. In the event of such an extension, product pricing will also be increased for the extended term. In addition, we will receive nine month purchasing forecasts 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. In addition, we continue to secure other long-term product purchase agreements with several new and existing customers. 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 Sanderling with our dry acid concentrate mixer to support Sanderling's preference to conveniently mix acid concentrate on site.

This products purchase agreement with Sanderling includes supply and purchasing minimum commitment and has the potential to generate millions of dollars in net sales for Rockwell over the course of the contract. A second agreement we announced during the third quarter was with Centers for Dialysis Care, the largest non-profit independent outpatient dialysis provider in Ohio. As part of this long-term, multi-million 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 its nearly 20 facilities located throughout Ohio. Third is Dialyze Direct (ph), a leading provider of dialysis services 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 a million dollars in net sales annually with this agreement. Lastly is Houston Methodist, a leading academic medical center with six community hospitals serving the greater Houston area. We signed a three-year product purchase agreement that includes minimum purchasing commitments. As we stated previously, we continue to construct these product purchase agreements such that 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 hemodialysis concentrates. We continue to improve our gross margins through the successful execution of expense reduction associated with manufacturing and delivery of our products. During the third quarter of 2023, we consolidated some of our dry powder production into two 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. 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 changes we have made, including the acquisition of the Evoqua's hemodialysis concentrate to assets and increasing our concentrates product sales, we expect that Rockwell will be profitable on an adjusted EBITDA basis in the fourth quarter 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.

We are pleased to announce that we have done just that. First, we named Dr. Joan Lau of 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. She has founded, led, and scaled a number of biotech companies throughout her career, possessing a significant amount of business development, operational, and M&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 aspects 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. Previously, Jesse was Senior Vice President of Finance at Zyla Life Sciences, a public pharmaceutical company with annual revenue of $80 million. 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, financing, 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 third quarter.

Jesse Neri: Thank you, Mark. Good morning, everyone. I will now review our third quarter 2023 financial results and provide you with an update on our cash and debt positions as well as our 2023 guidance. Net sales for the third quarter of 2023 were $23.8 million, including concentrate product sales of $21.6 million, both of which were the highest sales generated to date for the company. Net sales for the third quarter represented a 31% increase over the second quarter of ‘23 and a 27% increase over the same period in 2022. The increase of $5.1 million in net sales year-over-year was primarily driven by our Evoqua asset acquisition and our recognition of deferred revenue related to the Wanbang agreement. Net sales for the nine months ended September 30, 2023, were $61.5 million, which represents a 15% increase over the same period in 2022.

Gross profit for the third quarter of 2023 was $2.2 million, which represents a 183% increase over the same period in ‘22. Gross profit increased by $1.4 million, primarily due to the lower distribution costs associated with the concentrate business and a recognition of deferred revenue from the Wanbang agreement, partially offset by an increase to the Triferic Inventory Reserve. Gross margin for the third quarter of 2023 was 9% compared to a gross margin of 6% in the second quarter of ‘23 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. Operating loss for the third quarter of 2023 was $1.7 million, which includes one-time severance expenses of $575,000.

This compares to an operating loss of $3 million for the second quarter of 2023 and $3.7 million 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 third quarter of 2023 was $1.9 million, or $0.07 per share, compared with the net loss of $4.2 million, or $0.23 per share for the same period in 2022. For the nine months ended September 30, 2023, Rockwell's net loss was $6.9 million, or $0.32 per share, compared with the net loss of $16.3 million, 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 fourth quarter of ‘23.

Cash, cash equivalent and investments available for sale at September 30, 2023 was $11.7 million compared to $14.9 million at June 30, 2023. The decrease in cash was driven primarily by $5 million in principal payments on our outstanding long-term loan and a $4 million increase in our accounts receivable, primarily related to the Evoqua asset acquisition. We anticipate collection of these receivables in the fourth quarter of 2023. As mentioned, we began making principal payments on our debt in the third quarter, which decreased our outstanding debt to $9.5 million. The company projects its outstanding debt to further decrease to $8 million by the end of this year. As we approach the end of the year, we reiterate our 2023 guidance. We expect net sales for 2023 to be between $82 million and $86 million, which represents a 17% to 18% increase over 2022.

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

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

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