Pro-Dex
Q2 2021
By Manuel Maurício
February 05, 2020
Pro-Dex’s results came out yesterday and Mr. Market clearly didn’t like them. I was about to write a short post on the Facebook Group, but then I figured that given the fact that it’s on the Portfolio, I should be writing a “formal” post instead.
The results weren’t that great. Revenue went up by 4% due to the sale of the new thoracic driver, but then there were several costs that lowered the profits substantially.
The Cost of Good Sold was negatively impacted due to paid absences of some workers because of COVID-19.
The Operating Expenses also went up, in great part due to higher Research and Development costs, but also due to General and Administrative costs.
The result was a net income of $337K, down from $1.2 million one year ago.
It’s worth mentioning that the company now has $8.4 Million in debt after it raised $5.2 Million to pay for the manufacturing facility that should be up and running by mid year. This loan has a 3.55% fixed rate maturing in 2030. The company should have a Interest Coverage Ratio of around 28x, so it’s still very conservatively financed.
CONCLUSION
These are clearly not great results, but my conviction in Pro-Dex’s business is as high as when I first bought it for the Portfolio. This is why it’s important to know the businesses we own.
The company has mentioned that some of its clients have requested to delay the shipment of their existing orders, and although the largest customer isn’t among them, we should expect further requests even from that customer.
Right now it’s not easy to be selling medical devices to hospitals (that’s what my girlfriend does for a living, so I know it firsthand) and the company mentions that the most important product it sells is used in “elective surgeries”. This means that these aren’t urgent surgeries, so they might be delayed.
In addition to that, the company mentions that the repair revenue for the next couple of quarters should decrease due to a “downward trend they are seeing in repair units of the orthopedic handpiece they sell to the largest customer, coupled with price concessions that went into effect on January 1, 2021″. Price and concessions are two words that Mr. Market doesn’t like to see together.
Until we gather further information, the thesis remains unchanged. I trust that the Management and Board of Directors know very well what they are doing. In the meantime, investors should expect pretty weak results in the next couple of quarters. Growth pains of a microcap.
Summing it all up, I wish I hadn’t bought Pro-Dex a couple of weeks ago so I could be buying it now.
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