MISSISSAUGA, ON, May 31, 2021 /CNW/ - Covalon Technologies Ltd.
(the "Company" or "Covalon") (TSXV: COV) (OTCQX: CVALF), an
advanced medical technologies company, today announced its fiscal
2021 second quarter results for the period ended March 31, 2021.
Brian Pedlar, Covalon's President
and CEO said, "I am pleased to report that this past quarter
represents the fourth consecutive quarter of improvement in both
our operations and our financial performance despite having to deal
with the challenges of COVID-19. We were profitable this past
quarter with net income of $421,724
or $0.02 per share for the three
months ended March 31, 2021. Our
continued cost-cutting initiatives resulted in a 52% reduction in
operating expenses compared to the same period in the prior
year. I'm pleased that our efforts have led to a $4.3 million year-over-year improvement in our
net income and a $1.4 million
year-over-year improvement in Adjusted EBITDA(1) in Q2.
We achieved these results while continuing to manage COVID-19
related impacts such as temporary delays in shipments of our
collagen products in the United
States and lower consumption of our products by hospitals
due to delays in elective procedures.
"Our collagen business in the United
States is stronger than it has ever been with significant
increases in orders placed by our distribution customers and
visibility into forecasted orders over the next twelve
months. We are beginning to see signs of revenue recovery
with our United States hospital
customers and international distribution channels. At the same
time, the Covalon team worked very hard to control operating
expenses while working closely with our customers on new products
we launched in 2020. This quarter, we engaged in
approximately 10 medical coating customer development projects of
various sizes with 3 medical product companies and we have a
pipeline of new customer development projects. We are extremely
excited about the future revenue potential of these new projects as
well as the various projects currently underway with the previously
announced major contract with one of the world's largest medical
device companies.
"With cash-on-hand and amounts available under our HSBC
operating bank line, we have sufficient future cash flow to support
our operating needs.
"We are working hard to increase our profitability in our next
fiscal quarter ending June 30, 2021,
and for the remainder of fiscal 2021. Covalon is stronger both
financially and operationally today and I am optimistic that our
positive growth and improved financial performance will
continue."
Outlook for 2021
We are seeing signs of improvement in product usage by our
customer base in the United States
and internationally even though the COVID-19 restrictions have not
completely eased in many of the geographies in which we
operate.
Gross margins are currently expected to remain similar to the
first half of fiscal 2021 through the remainder of the fiscal year.
Reduced operating expenses in the second half of fiscal 2021 are
currently anticipated to be consistent with the past six months
before including reductions from government subsidies related to
COVID-19 relief programs. During the quarter, Covalon applied and
was approved for $1.1 million USD of
funding under the United States Payroll Protection Plan and
$338,862 of funding under the
Canadian Emergency Wage Subsidy Program. We anticipate a smaller
positive impact from additional government subsidies in the fiscal
third quarter.
The positive changes made to our operations have placed the
Company in a position to continue to be profitable in fiscal
2021.
Strategic Review Process
As previously announced, in response to expressions of interest
made by medical industry and private equity organizations,
Covalon's Board of Directors formed a Special Committee and hired
advisors to assist in undertaking a Strategic Review process, to
ensure that available strategic alternatives to enhance value for
our shareholders are being evaluated.
Mr. Amir Boloor, Chair of
Covalon's Board of Directors and Chair of the Special Committee,
said, "I am extremely pleased with the progress made by the Special
Committee to date. Over the past several months, we have been
carefully evaluating a number of expressions of interest and
assessing the impact of these potential strategic alternatives on
the overall value, future profitability and the growth prospects of
Covalon. Each strategic alternative is being evaluated and assessed
as to its impact following any strategic transactions involving one
or more of our patented intellectual properties, technology
platforms, commercialized medical product portfolio and global
sales channels. This process has clearly validated that Covalon
owns a number of valuable medical technologies that are of interest
to the medical industry."
Mr. Boloor continued, "We are carefully deliberating on which
course is in the best interests of the Company's shareholders. The
entire Board of Directors, including the Company's major
shareholders believe that Covalon is significantly undervalued
given its compelling combination of patented intellectual
properties, technology platforms, commercialized medical product
portfolio and global sales channels."
Fiscal 2021 Q2 and Year-to-Date Financial Results
Revenue for the three months ended March
31, 2021 increased 28% to $6.7
million, compared to $5.3
million in the prior year, due to increased collagen sales
and increased in shipments to the Middle
East. Revenue in the United
States was $5.3 million in Q2
fiscal 2021 compared to $4.7 million
in Q2 fiscal 2020. Revenue in the United
States was up $0.6 million
predominantly as a result of increased collagen sales. We continued
to experience temporary shipment delays from one of our contract
manufacturers which impacted our collagen sales in Q2. The slowdown
in the consumption of our products in hospitals resulting from
COVID-19 related issues is anticipated to continue until hospitals
and healthcare facilities resume the normal level of elective
procedures.
Product revenue increased 38% to $6.4
million, compared to $4.6
million for the same period in the prior year. Product
revenue increased in the United
States by 23% or $919,808 due
to increased collagen sales, and in the Middle East by 522% to $947,209. Development and consulting services
revenue for the three-month period ended March 31, 2021 decreased by 47% to $0.3 million, compared to $0.6 million for the same period of the prior
year, due to the timing of projects undertaken during the
quarter.
Gross margin for the three months ended March 31, 2021 increased to 54% compared to 53%
in the prior year. Gross margin is significantly influenced by
source of revenue and the relative mix of collagen-based dressings,
silicone-based dressings, medical coated devices, passive
dressings, moisture barriers, repurposing existing inventory to
meet customer orders and related service revenues in any given
financial period.
Adjusted gross margin(1), which excludes inventory
provisions and depreciation, was 55% for Q2 fiscal 2021, compared
to 59% for the prior year. The slight decline is attributed to
product mix.
Operational expenses decreased to $3.1
million compared to $6.5
million for the prior year's comparative period due to a
reduction in headcount and discretional spending across all
departments. Main drivers of the decrease were reductions in
compensation expenses across all departments, travel, and
administrative expenses. The Company also recorded $1 million of government subsidies netted out
against the related expenses.
Net income was $421,724 or
$0.02 per share, compared to a net
loss of $3.9 million or $0.15 per share in Q2 fiscal 2020. Adjusted
EBITDA(1) for Q2 fiscal 2021 was a loss of $141,023 compared to a loss of $1.5 million in the prior year's comparative
period.
Revenue for the six months ended March
31, 2021 decreased 4% to $12.7
million, compared to $13.2
million the prior year. Gross margin for the period
decreased to 57% compared to 58% for the same period the prior
year. Net income was $49,381 or $nil
per share, compared to a net loss of $5.1
million or $0.20 per share in
fiscal 2020.
As consistent with prior quarters, the Company obtained a waiver
from HSBC Bank Canada ("HSBC") related to the covenants that were
not met as of the quarter end. Management is in continued
discussions with HSBC regarding the Company's acquisition and
operating banking credit facility and anticipates making changes to
the banking agreement with HSBC in due course. A further
update will be provided at the appropriate time.
(1)
|
See "Non-IFRS
Measures" below, including for a reconciliation of the non-IFRS
measures used in this release to the most comparable IFRS
measures.
|
Conference Call Scheduled
A conference call to discuss Covalon's Fiscal 2021 Q2 Financial
Results will be held Monday, May
31st, 2021 at 9:00am
EST. To participate in the call, please dial:
North American Toll-Free: 1.888.664.6392
Local (Toronto): 416.764.8659
Confirmation Number: 88451716
A recording of the call will be available by calling
1.888.390.0541 or 416.764.8677 and entering the encore replay enter
code 451716# from May
31st, 2021, at 12:00pm
EST to June 14th,
2021 at 11:59pm EST.
Statement of Operations
The following unaudited table presents Covalon's consolidated
statements of operations for the three-month periods ended
March 31, 2021 and 2020, and for the
six months ended March 31, 2021 and
2020.
|
(unaudited)
|
Three months
ended,
March
31,
|
|
Six months
ended
March
31,
|
|
|
2021
|
2020
|
|
2021
|
2020
|
Revenue
|
|
|
|
|
|
|
Product
|
$6,376,359
|
$4,626,805
|
|
$11,762,431
|
$11,801,448
|
|
Development and
consulting services
|
315,145
|
599,893
|
|
856,895
|
1,333,021
|
|
Licensing and royalty
fees
|
49,756
|
31,874
|
|
110,346
|
72,662
|
|
|
|
|
|
|
|
Total
revenue
|
6,741,260
|
5,258,572
|
|
12,729,672
|
13,207,131
|
|
|
|
|
|
|
|
Cost of product
sales
|
3,098,870
|
2,466,453
|
|
5,501,754
|
5,579,228
|
|
|
|
|
|
|
|
Gross profit
before operating expenses
|
3,642,390
|
2,792,119
|
|
7,227,918
|
7,627,903
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
Operations
|
259,511
|
530,146
|
|
517,994
|
991,080
|
|
Research and
development activities
|
327,948
|
223,346
|
|
545,176
|
448,651
|
|
Sales, marketing and
agency fees
|
1,046,937
|
2,323,469
|
|
2,663,805
|
5,235,961
|
|
General and
administrative
|
1,468,944
|
3,398,075
|
|
3,215,216
|
5,584,121
|
|
|
3,103,340
|
6,475,036
|
|
6,942,191
|
12,259,813
|
|
|
|
|
|
|
|
Financing
expenses
|
117,326
|
225,705
|
|
236,346
|
451,445
|
|
|
|
|
|
|
|
Net income
(loss)
|
$421,724
|
$(3,908,622)
|
|
$49,381
|
$(5,083,355)
|
|
|
|
|
|
|
|
Other
comprehensive income (loss)
|
|
|
|
|
|
Foreign currency
translation adjustment
|
(215,101)
|
1,770,263
|
|
(1,065,238)
|
1,359,110
|
Other
comprehensive income (loss)
|
$206,623
|
$(2,128,359)
|
|
$(1,015,857)
|
$(3,724,245)
|
|
|
|
|
|
|
Basic earnings (loss)
per share
|
$0.02
|
$(0.15)
|
|
$0.00
|
$(0.20)
|
Diluted earnings
(loss) per share
|
$0.02
|
$(0.15)
|
|
$0.00
|
$(0.20)
|
Non-IFRS Financial Measures
This press release makes reference to certain non-IFRS
measures. These measures are not recognized or defined
measures under IFRS, do not have standardized meaning
prescribed by IFRS and are therefore unlikely to be comparable
to similar measures presented by other companies. Rather,
these measures are provided as additional financial
information to complement those IFRS measures by providing further
understanding of our results of operations from management's
perspective. Accordingly, these measures should not be considered
in isolation or as a substitute for analysis of our financial
information reported under IFRS. The non-IFRS financial measures,
adjustments, and reasons for adjustments should be carefully
evaluated as these measures have limitations as analytical tools
and should not be used in substitution for an analysis of the
Company's results under IFRS. We use non-IFRS measures including
"Adjusted Gross Margin" and "Adjusted EBITDA" to provide investors
with supplemental measures of our operating performance and thus
highlight trends in our core business that may not otherwise be
apparent when relying solely on IFRS measures. We believe that
securities analysts, investors and other interested parties
frequently use non-IFRS measures in the evaluation of issuers. Our
management also uses non-IFRS measures in order to facilitate
operating performance comparisons from period to period,
to prepare annual operating budgets and forecasts and to determine
components of management compensation. The following non-IFRS
financial measures are presented in this news release, and a
description of the calculation for each measure is included
below:
- Adjusted Gross Margin is defined as gross profit before
operating expenses, plus depreciation and amortization included in
cost of sales, plus inventory provision amounts.
- Adjusted EBITDA is defined as net loss, plus interest expense,
plus depreciation and amortization, plus stock-based compensation,
less government subsidies, plus inventory provisions, plus accounts
receivable write-off expenses.
You should also be aware that the Company may recognize income
or incur expenses in the future that are the same as, or similar to
some of the adjustments in these non-IFRS financial measures.
Because these non-IFRS financial measures may be defined
differently by other companies in our industry, our definitions of
these non-IFRS financial measures may not be comparable to
similarly titled measures of other companies, thereby diminishing
their utility.
The table below provides a reconciliation of gross profit before
operating expenses under IFRS in the consolidated financial
statements to Adjusted Gross Margin for the three months, and six
months ended March 31, 2021 and 2020.
Management believes that Adjusted Gross Margin is useful in
assessing the performance of the Company's ongoing operations and
its ability to generate cash flows from period to period. The
adjusting items below are considered to be outside of the Company's
core operating results, and these items can distort the trends
associated with the Company's ongoing performance, even though some
of those expenses may recur.
(unaudited)
|
Three months ended
March 31st,
|
|
Six months ended
March 31st,
|
|
2021
|
2020
|
|
2021
|
2020
|
Gross profit before
operating expenses
|
3,642,390
|
2,792,119
|
|
7,227,918
|
7,627,903
|
Add: Depreciation and
amortization
|
79,821
|
86,547
|
|
160,330
|
167,985
|
Add: Inventory
provisions
|
187
|
214,809
|
|
6,340
|
500,534
|
Adjusted Gross
Margin
|
3,722,398
|
3,093,475
|
|
7,394,588
|
8,296,422
|
Adjusted Gross Margin
(%)
|
55%
|
59%
|
|
58%
|
63%
|
The table below provides a reconciliation of net loss under IFRS
in the consolidated financial statements to Adjusted EBITDA for the
three months, and six months ended March 31,
2021 and 2020. Management believes that these non-IFRS
measures are useful in assessing the performance of the Company's
ongoing operations and its ability to generate cash flows to funds
its cash requirements from period to period. The adjusting items
below are considered to be outside of the Company's core operating
results, and these items can distort the trends associated with the
Company's ongoing performance, even though some of those expenses
may recur.
(unaudited)
|
Three months ended
March 31st, 2021
|
|
Six months ended
March 31st, 2021
|
|
2021
|
2020
|
|
2021
|
2020
|
Net income
(loss)
|
421,724
|
(3,908,622)
|
|
49,381
|
(5,038,355)
|
Add: Interest
expense
|
117,326
|
225,705
|
|
236,346
|
451,445
|
Add: Depreciation and
amortization
|
282,803
|
282,276
|
|
573,503
|
575,654
|
Add: Stock based
compensation
|
80,484
|
221,387
|
|
204,562
|
618,876
|
Less: Government
subsidies
|
(1,043,547)
|
-
|
|
(1,346,001)
|
-
|
Add: Inventory
provisions
|
187
|
214,809
|
|
6,340
|
500,534
|
Add: Accounts
receivable write-off
|
-
|
1,420,002
|
|
-
|
1,420,002
|
Adjusted
EBITDA
|
(141,023)
|
(1,544,443)
|
|
(275,869)
|
(1,516,844)
|
About Covalon
Covalon Technologies Ltd. is a
researcher, developer, manufacturer, and marketer of
patent-protected medical products that improve patient outcomes and
save lives in the areas of advanced wound care, infection
management and surgical procedures. Covalon leverages its patented
medical technology platforms and expertise in two ways: (i) by
developing products that are sold under Covalon's name; and (ii) by
developing and commercializing medical products for other medical
companies under development and license contracts. The Company is
listed on the TSX Venture Exchange, having the symbol COV and
trades on the OTQX Market under the symbol CVALF. To learn
more about Covalon, visit our website at www.covalon.com
Neither TSX Venture Exchange nor its Regulation Services
Provider (as that term is defined in the policies of the TSX
Venture Exchange) accepts responsibility for the adequacy or
accuracy of this release.
This news release contains forward-looking statements which
reflect the Company's current expectations regarding future events.
The forward-looking statements are often, but not always,
identified by the use of words such as "seek", "anticipate", "plan,
"estimate", "expect", "intend" and statements that an event or
result "may", "will", "should", "could" or "might" occur or be
achieved and other similar expressions. These forward-looking
statements involve risk and uncertainties, including the difficulty
in predicting product approvals, acceptance of and demands for new
products, the impact of the products and pricing strategies of
competitors, delays in developing and launching new products, the
regulatory environment, fluctuations in operating results, the
impact and timing of COVID-19 on operating activities and market
conditions, and other risks, any of which could cause
results, performance, or achievements to differ materially from the
results discussed or implied in the forward-looking statements.
Many risks are inherent in the industry; others are more specific
to the Company. Investors should consult the Company's ongoing
quarterly filings for additional information on risks and
uncertainties relating to these forward-looking statements.
Investors should not place undue reliance on any forward-looking
statements. The Company assumes no obligation to update or alter
any forward-looking statements whether as a result of new
information, further events or otherwise.
SOURCE Covalon Technologies Ltd.