Participants

Mark Strobeck; President, Chief Executive Officer, Director; Rockwell Medical Inc

Jesse Neri; Senior Vice President - Finance; Rockwell Medical Inc

Anthony Vendetti; Analyst; Maxim Group

Presentation

Mark Strobeck

Dollars gross profit to between $15 million to $17 million dollars gross margin to between 16% and 18% and adjusted EBIDA to between $4 million and $5 million.
These targets represent significant improvement over what we initially guided at the beginning of this year. In addition, we have significantly fostered our cash position more than doubling it from where our cash position was at the end of the first quarter 2024.
These accomplishments and revised projections are a direct result of our team's hard work and dedication to deliver against the goals and objectives we over 2 years ago, which include focusing on growing Rockwell's revenue, generating business, driving profitability for our overall business and achieving profitability.
In 2024 continually assessing our strategic priorities and capital structure, managing cash, reducing our debt and placing Rockwell Medical on firmer stronger, more stable financial footing.
Every member of our organization has been instrumental in turning Rockwell Medical around helping to rebuild shareholder value and in turn positively impacting more patients with end stage kidney disease.
2024 will reflect the best performance this company has had in 25 plus years of its history.
As we look towards 2025 we expect to encounter a shift in our customer makeup as we move away from less profitable business to focus on more profitable growth opportunities. The first of these changes will come from the relationship with our largest customer.
During the third quarter, we received confirmation that our largest customer will extend their product purchase agreement with Rockwell to the end of 2025. During which product pricing will be increased.
This customer has indicated to us that it expects volumes to decline during this extended period as they work to diversify their supplier base.
We are actively working with this customer in an effort to focus their volume reduction on products that we believe are least profitable for Rockwell.
Currently, we believe that our largest customers net sales in 2025 will decline between $31 million and $38 million depending on the final volume forecast for 2025 which we expect to receive on or by December 15.
Although our top line revenue will be negatively impacted in the short term, we believe we will even a basis in 2025 and this is before any new customer contracts, product purchase agreements, distribution agreements, new product opportunities or potential acquisitions are put in place.
While this revised forecast downward is certainly disappointing. We have always known that we have a significant portion of our revenue with a single customer which presented a risk to Rockwell.
We have been working incredibly hard to mitigate that risk by adding new customers and growing our top line beyond our largest customer, we are working to replace the top line revenue with opportunities that we believe will be more profitable to Rockwell in 2025 and beyond.
Let me walk you through some of the activities we are currently pursuing.
We are in the process of negotiating a large multiyear supply agreement with the world's largest leading provider of dialysis products and services and hope to be able to announce the execution of this agreement later this month.
We are in the final stages of contract negotiations to add two new complementary hemodialysis products to our portfolio.
In 2025 we have new customer contracts under review that we expect to announce shortly. Finally, we have several acquisition opportunities.
We are currently evaluating that would add new capabilities and products to our portfolio because of all the changes we have made here at Rockwell over the last 2 plus years.
The change in our largest customers forecast while the short term set back doesn't impact the strong foundation that we've built.
We have a number of exciting opportunities we are working on that we believe will continue to support a profitable growing business going forward.
Now, I will turn the call over to Jesse to go into further detail about our third quarter financial results.

Jesse Neri

Thank you, Mark and good morning everyone for the 3 and 9 months ended September 30, 2024.
I will present the financials for the comparable periods in 2023 with and without the deferred revenue recognition in Q1 and Q3 of 2023 related to the termination of the Baxter and Wang Bang distribution agreements respectively.
This continues to offer us the opportunity to more accurately present the progress we have made and continue to make specifically within our hemodialysis concentrate segment net sales for the third quarter of 2024 were $28.3 million. Our highest quarterly concentrate product revenue to date.
This represents a 19% increase over net sales of $23.8 million for the same period in 2023 excluding deferred revenue net sales for the third quarter, 2024 increased 31% over $21.6 million for the third quarter. 2023.
This increase was driven by a large special order of premium priced products by our largest customer net sales for the 9 months ended September 30, 2024 were $76.8 million excluding deferred revenue.
This represents a 33% increase over the same period in 2023 gross profit for Q3, 2024 was $6.2 million, which represents a 183% increase over a gross profit of $2.2 million for the same period in 2023 excluding the impact of deferred revenue recognition.
Gross profit for the third quarter increased 464% over $1.1 million for the same period of 2023. Driven by a special order. A special large order of premium priced products by our largest customer as well as increased sales and price increases to existing customers.
Gross profit for the 9 months ended September 30, 2024, was $13.9 million excluding deferred revenue. This represents an increase of 342% over the same period in 2023 gross margin for the third quarter 2024 was 22%.
A significant improvement from 9% or 5% excluding deferred revenue for the same period in 2023 gross margin for the 9 months ended September 30, 2024 was 18% excluding deferred revenue.
This represents an increase of 13% points from 5% for the same period in 2023.
Net income for the third quarter of 2024 was $1.7 million compared to a net loss of $1.9 million for the same period in 2023 excluding deferred revenue net income for the third quarter of 2024 represents a $4.6 million improvement over a net loss of $3 million for the same period.
In 2023 net income for the 9 months ended September 30, 2024 was $300,000 which represents an improvement of $7.2 million over a net loss of $6.9 million in the same period in 2023 excluding deferred revenue net income for the 9 months ended September 30, 2024 improved by almost $10 million over a net loss of $9.6 million.
The same period in 2023 adjusted EBIDA for the third quarter was a positive $2.8 million compared with a negative adjusted EBIDA of $1.2 million for the same period in 2023.
Adjusted EBITA for the 9 months ended September 30, 2024 with a positive $3.8 million compared with a negative adjusted EBITA of $4.4 million for the same period in 2023.
Excluding the revenue adjusted, ended up for the 9 months ended September 30, 2024 increased by $9.7 million over the same period in 2023.
Cash equivalent and investments available for sale at September 30, 2024 was $18.3 million compared to 11.9 at June 30, 2024.
Once again, the combination of increased sales and greater gross margins led to cash flow from operations of $4.3 million for the third quarter.
I will now turn the call back over to mark.

Mark Strobeck

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

Question and Answer Session

Operator

At this time. (operator instruction).
Anthony Vendetti, Maxim Group.

Anthony Vendetti

Thank you. Good morning.
Mark. I was just wondering if obviously with this customer indicating a decrease in orders for 2025 you have plenty of time to prepare for that. At home dialysis is on an uptick.
Can some of that be made up from more orders for at home dialysis pass and treat and then where else are you looking to diversify within your core customer base?
Does that open up more opportunity or are you in the process of identifying new customers to take on this, this additional? Now what you have additional supply capabilities?

Mark Strobeck

Yeah, thanks Anthony for the questions. You know, to address your first point. Absolutely.
You know, I think we continue to see and continue to believe that the at home dialysis market is expanding.
And, you know, we are working with all of the providers, essentially that tap into, you know, that emerging, sort of treatment path.
So I think there's absolutely an opportunity for us to continue to grow within that as that market expands.
You know, with our products and the you know, the convenience pack, which, you know, we just recently introduced is it may seem like a small change to you know.
Our existing portfolio but is incredibly meaningful when you think about, you know, what a patient at home has to do to not only store the materials to carry out the dialysis process, but then, you know what they physically have to manage as far as lifting materials and putting it into the machine.
So it may seem like a small change, but it's actually going to be quite meaningful and has been quite meaningful for the at home market. So I think absolutely, that's an area for us to grow.
As I said you know this change is something that, you know, I think, you know, for us, we always knew was a possibility. And so we wanted to prepare ourselves, you know, for that.
You know, the first place obviously is an expansion of the relationship with the largest dialysis provider on the planet in an effort to, you know, to support making up that revenue change.
You know, secondly, for us, you know, we have an incredibly stable foundational business that we're now looking to expand beyond, just concentrate you know, product opportunities I think are going to be key for us in 2025 to continually help build that that GAAP with a higher margin based opportunity.
It doesn't help us to continue to essentially supply product to a very large organization of which we don't make very much money on.
And I think the point I was making was that even when you take away that top line, this business stays profitable on an adjusted EBITA basis, which gives you a sense that it's not really contributing much to the margin that we see here.
So, you know, for us, it's all about adding more things, developing more of our core business, you know, in a much more profitable fashion. And, you know, that's where our goals and objectives are going to be through 2025.
As I said, you know, we recognize that this is going to have a short term impact on at least on the top line.
But, you know, we're excited and the team is excited about the opportunities that we're pursuing that we hope to be able to announce here in the next couple of weeks.

Anthony Vendetti

Okay.
And then it just as a follow up that in, in terms of the impact, obviously, you've quantified the revenue impact and it'll have less of an impact because of the lower margin component of it on your, on your EBITA.
Have you been able to or are you still working on what that impact will be to the to the EBITA line in terms of either dollars or to the EBITA margin. Any colour around that.
And then based on the, on the lower revenue footprint, is there any cost that you're able to take out temporarily as you look to either add new products or new innovation to your current product mix.
And then I'll hop back in the queue. Thank You.

Mark Strobeck

Yeah. No, thanks Anthony. So yeah, let me address each piece of that.
Right now we've taken a very conservative look at the business and as I said, all of the numbers that we've put forward really don't include or incorporate any new items that we're in the process of, of closing right now.
So with that conservative look, you know, we believe gross margin percentage for the business will continue to tick upwards as we go forward into 2025.
You know, we're continuing that positive trend a through the efficiencies that we're creating here in the organization. And 2 obviously removing you know, products that are currently a drag on that gross margin.
So from gross margin percentage, we expect that to continue to, to increase, we are working on what the final, you know, sort of, impact will be on our EBITA for next year.
But as of right now, all of our modelling is continuing to indicate that the business is going to be profitable. We just don't know yet how profitable and that may come from some tweaks that we, we make from a cost perspective.
You know, in our underlying infrastructure, we will obviously, you know, as we've done in the past, put out, you know, 2025 guidance, you know, at the beginning of the year, that will very clearly indicate what that is.
But I can tell you know, from our perspective, we will be a profitable entity on an adjusted EBITA basis going forward.

Anthony Vendetti

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

Mark Strobeck

Thanks Anthony.

Operator

(in audible) [Ram ZBA Raju with HC Wainwright].

Hi. This is [Jade Fran]. Thank you so much for taking my call and congrats on the earnings.
So could you tell me how the Western expansion is going and when you expect to fully deploy in the territory?

Mark Strobeck

Yes. So on a, you know, on a practical level, we continue to increase the number of customers that we have in the web and are continuing to enhance our presence there.
We are in discussions right now with the potential opportunity that could provide us with a permanent position in the West. And we hope to be able to say more about that in the coming week.

Great, thanks.
And the follow up to that more locationally based. So you've mentioned a lot as we move into 2025 that you're, you know, planning, that you can't really say anything.
But is there anything that you can mention regarding value driving development in ex US territories during 2025?

Mark Strobeck

Yeah, so that too is an area that continues to be, you know, a good opportunity for us as you know, from the, you know, from the press release.
We find this quarter an extension and enhancement of our relationship with Nepro Medical, which helps you know, put our products into the international market.
In addition, we are also in the in the final stages of bidding on multiple contracts in different international locations and seeking those tenders for product which again, we feel like we're in a really good position to do based on our existing international business.
And so again, we hope to have more to say about that here in the coming weeks.

Great. Thank you so much.

Mark Strobeck

Thank you.

Operator

And there are no further questions. I'll turn the call back over to Mark Strobeck.

Mark Strobeck

Thank you. Before we close.
I would like to take a moment to thank our team members for all their hard work they do every day to provide dialysis clinics and the patients they serve with the highest quality products supported by the best customer service in the industry.
Our team members at every level within our organization are the nucleus of our success, we have developed and continue to build upon a core expertise in manufacturing and delivering hemodialysis concentrates.
It's because of this dedication and passion that Rockwell Medical was named the Fortune's Best workplace in manufacturing and production in 2024.
We have a reputation for reliability quality and excellent customer service. When patient outcomes are critical customers and in turn, patients can depend on Rockwell Medical to deliver.
We continue to focus on optimization, automation and streamlining our operations to drive sustainable profitability and shareholder value.
We look forward to sharing more with you on our next earnings call. Thank you for your time. Today.

Operator

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