MISSISSAUGA, ON, Aug. 29,
2022 /CNW/ - Covalon Technologies Ltd. (the "Company"
or "Covalon") (TSXV: COV) (OTCQX: CVALF), an advanced medical
technologies company, today announced its third quarter fiscal 2022
results.
Brian Pedlar, Covalon's President
and CEO, said, "Covalon is making real and significant progress in
transforming our sales, marketing, and operations teams to position
us to achieve growth over the next few years. We are
currently in active discussion regarding new business
opportunities, while bringing on experienced and talented new
executives that allow us to expand our United States hospital customer base.
Given the adoption of Covalon's products, such as
VALGuard®, IV Clear® and
SurgiClear®, in four of the top five pediatric hospitals
and over 50 major teaching hospitals in the United States to date, we are positioned
to become standard of care in helping doctors and clinicians
prevent blood stream and surgical site infections in these
hospitals.
"The investments we are making today have yet to impact our top
line, as revenue from continuing operations for the nine months
ended June 30, 2022, was $12.8 million, compared to $13.0 last year. Even though our United States product revenue has grown 10%
over the last nine months, revenue during the third quarter was
$4.5 million compared to $6.0 million last year, which simply reflects the
timing of orders from our United
States collagen distributors.
"Covalon is in the fortunate financial position of having a
strong balance sheet with significant cash, no debt, and a loyal
customer base. Our management team is laser-focused on building
Covalon into the healthcare powerhouse we are destined to be, given
our unique life-saving medical technologies and relationships with
major prestigious hospitals and large multinational medical
companies we are actively working with today.
"I'm very encouraged with the growth prospects we are seeing
today and our growing base of customers and clinicians that are
using our products on a daily basis. We are a much stronger company
today than a year ago. We strengthened our balance sheet and
improved our operations since last year at this time. We also have
a stronger, more talented leadership team. These improvements are
already positively impacting our growth prospects and I am looking
forward to seeing their impact on our financial performance in 2023
and 2024," continued Mr. Pedlar.
As previously announced, Covalon's Board of Directors decided to
use our strong cash position to further strengthen the Company by
buying back up to 5% of Covalon's shares for cancellation. The
Company received approval to make a normal course issuer bid
("NCIB") for its common shares with the TSX Venture Exchange, and
to date, has purchased 574,500 shares for cancellation, which
strengthens the value of existing shareholders' shares.
Conference Call
Scheduled
A conference call and webcast to discuss Covalon's Q3 fiscal
2022 financial results will be held Monday,
August 29th, 2022, at 9:00am EST. To view, listen to, and participate
in the live webcast, please follow the link below:
https://app.webinar.net/nwjXzxokLQl
To listen and participate via the conference call, please
dial:
North American Toll-Free: 1-888-664-6392
Local (Toronto):
416-764-8659
Confirmation Number: 97297097
Participants will be able to ask questions of Company management
during the Q&A portion of the conference call either by asking
them on the call or by submitting them using the chat function on
the webcast.
A recording of the call will be available by calling
1-888-390-0541 or 416-764-8677 and entering the encore replay entry
code 297097# until September
12th, 2022. A recording of the call will also be
available on www.covalon.com under News & Events on the
Investors tab.
Q3 Fiscal 2022 Financial
Results
Revenue for the three months ended June
30th, 2022 decreased 25% to $4.5 million, compared to $6.0 million in the prior year. Gross profit was
$2.1 million, compared to
$3.2 million in Q3 fiscal 2021. Net
loss for continuing operations was $1.6
million or $0.06 per share,
compared to net income from continuing operations of $0.7 million or $0.03 per share in Q3 fiscal 2021. Net loss from
discontinued operations was $nil or $nil per share, compared to net
income from discontinued operations of $0.3
million or $0.01 per share in
Q3 fiscal 2021.
Product revenue for the nine-month period ended June 30, 2022 was consistent at $11.6 million compared to the same period of the
prior year. Product revenue for the three months ended
June 30th, 2022 decreased
27% to $4.1 million, compared to
$5.7 million in the previous year.
The decrease is substantially due to the timing of collagen sales
in the United States. During the prior year, collagen sales
in the United States were more
heavily weighted to Q3 and Q4, whereas this year collagen sales
were spread more evenly throughout the three quarters to date.
Development and consulting services revenue for the three-month
period ended June 30th,
2022 increased by 17% to $0.4
million, compared to $0.3
million for the same period of the prior year. Cost of sales
for the three-month period ended June
30th, 2022 decreased by 15% to $2.4 million, compared to $2.8 million for the same period the prior year.
During the quarter, we engaged in 15 customer development projects
of various sizes with 4 medical product companies that included the
various projects underway associated with the previously announced
major contract with one of the world's largest medical device
companies that licensed Covalon's proprietary medical coating
technologies. Licensing revenue and royalty fees was $0.04 million for the quarter ended
June 30th, 2022, compared
to $0.05 million for the prior
year.
Gross margin decreased to 47% for Q3 fiscal 2022, compared to
54% for the prior year. The gross margin is significantly
influenced by provisions, source of revenue and by the relative mix
of products sold in any given financial period.
Adjusted gross margin(1), for the nine-month period
ended June 30, 2022, increased to 58%
compared to 54% for the same period of the prior year.
Operating expenses for the three months ended June 30, 2022 increased $1.3 million to $3.7
million, compared to $2.4
million for the prior year's comparative period. Excluding
the impact of government subsidies of $0.3
million, which were netted against operating expenses in the
prior period, operating expenses increased $1.0 million. The increase is due mostly to
increased headcount in sales and marketing as the Company continues
to invest in growing its direct sales and marketing team in
the United States. To support
continued commercial growth, sales, marketing, operations and
administrative staff previously dedicated to the discontinued
AquaGuard business last year, were re-deployed to continuing
operations accounting for an increase of $0.4 million in the quarter.
Adjusted EBITDA(1) for Q3 fiscal 2022 was a loss of
$1.1 million, compared to positive
EBITDA of $0.9 million in the prior
year's comparative period.
|
|
(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.
|
|
|
Statement of Operations
The following unaudited table presents Covalon's consolidated
statements of operations for the three- and nine-month periods
ended June 30th, 2022 and
2021.
|
|
Three months
ended
June
30,
|
|
Nine months
ended
June
30,
|
|
|
2022
|
2021
|
|
2022
|
2021
|
Revenue
|
|
|
|
|
|
|
Product
|
$4,125,650
|
$5,674,004
|
|
$11,599,140
|
$11,623,110
|
|
Development and
consulting services
|
364,733
|
312,102
|
|
986,424
|
1,168,997
|
|
Licensing and royalty
fees
|
35,623
|
48,268
|
|
170,621
|
158,614
|
|
|
|
|
|
|
|
Total
revenue
|
4,526,006
|
6,034,374
|
|
12,756,185
|
12,950,721
|
|
|
|
|
|
|
|
Cost of
sales
|
2,378,276
|
2,786,874
|
|
6,574,017
|
6,319,487
|
|
|
|
|
|
|
|
Gross profit before
operating expenses
|
2,147,730
|
3,247,500
|
|
6,182,168
|
6,631,234
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
Operations
|
586,071
|
231,772
|
|
1,472,250
|
806,158
|
|
Research and
development activities
|
288,882
|
295,716
|
|
846,530
|
840,892
|
|
Sales, marketing and
agency fees
|
1,580,128
|
555,536
|
|
4,316,515
|
1,621,888
|
|
General and
administrative
|
1,269,873
|
1,343,662
|
|
4,643,373
|
3,667,101
|
|
|
3,724,954
|
2,426,686
|
|
11,278,668
|
6,936,039
|
|
|
|
|
|
|
|
Finance
expenses
|
31,376
|
105,769
|
|
81,617
|
301,475
|
|
|
|
|
|
|
|
Net income (loss)
from continuing operations
|
(1,608,600)
|
715,045
|
|
(5,178,117)
|
(606,280)
|
Net income (loss)
from discontinued operations
|
-
|
342,886
|
|
(409,295)
|
1,713,592
|
Net income
(loss)
|
$(1,608,600)
|
$1,057,931
|
|
$(5,587,412)
|
$1,107,312
|
|
|
|
|
|
|
|
Other comprehensive
income (loss)
Amount that may be
reclassified to profit or loss
|
|
|
|
|
|
Foreign currency
translation adjustment -
continued operations
|
995,098
|
(169,487)
|
|
631,546
|
(884,706)
|
|
Foreign currency
translation adjustment -
discontinued operations
|
-
|
(72,940)
|
|
-
|
(422,959)
|
Total comprehensive
income (loss)
|
$(613,502)
|
$815,504
|
|
$(4,955,866)
|
$(200,353)
|
|
|
|
|
|
|
|
(Loss) per common
share of continuing operations
|
Basic earnings (loss)
per share (Note 12)
|
$(0.06)
|
$0.03
|
|
$(0.20)
|
$(0.02)
|
Diluted earnings (loss)
per share (Note 12)
|
$(0.06)
|
$0.03
|
|
$(0.20)
|
$(0.02)
|
|
|
|
|
|
|
Income (loss) per
common share of discontinued operations
|
Basic earnings (loss)
per share (Note 12)
|
$0.00
|
$0.01
|
|
$(0.02)
|
$0.06
|
Diluted earnings (loss)
per share (Note 12)
|
$0.00
|
$0.01
|
|
$(0.02)
|
$0.06
|
Income (loss) per
common share
|
Basic earnings (loss)
per share (Note 12)
|
$(0.06)
|
$0.04
|
|
$(0.22)
|
$0.04
|
Diluted earnings (loss)
per share (Note 12)
|
$(0.06)
|
$0.04
|
|
$(0.22)
|
$0.04
|
|
|
|
|
|
|
|
|
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 and nine months
ended June 30th, 2022 and
2021. 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.
|
Three months ended
June 30th,
|
|
Nine months
ended
June
30th,
|
|
2022
|
2021
|
|
2022
|
2021
|
Gross profit before
operating
expenses
|
$2,147,730
|
$3,247,500
|
|
$6,182,168
|
$6,631,234
|
Add: Depreciation and
amortization
|
55,949
|
73,043
|
|
151,774
|
233,373
|
Add: Inventory
provisions
|
216,803
|
123,598
|
|
1,009,772
|
129,938
|
Adjusted Gross
Margin
|
2,420,482
|
3,444,141
|
|
7,343,714
|
6,994,545
|
Adjusted Gross Margin
(%)
|
53 %
|
57 %
|
|
58 %
|
54 %
|
The table below provides a reconciliation of net loss under IFRS
in the consolidated financial statements to Adjusted EBITDA for the
three and nine months ended June
30th, 2022 and 2021. 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.
|
Three months
ended June 30,
|
|
Nine months
ended
June 30,
|
|
2022
|
2021
|
|
2022
|
2021
|
Net income
(loss)
|
($1,608,600)
|
$715,045
|
|
($5,178,117)
|
$(606,280)
|
Add: Interest
expense
|
31,376
|
105,769
|
|
81,617
|
301,475
|
Add: Depreciation and
amortization
|
171,450
|
227,478
|
|
488,063
|
660,282
|
Add: Share based
compensation
|
87,737
|
(16,537)
|
|
126,988
|
147,024
|
Less: Government
subsidies
|
-
|
(282,400)
|
|
-
|
(793,152)
|
Add: Inventory
provisions
|
216,803
|
123,598
|
|
1,009,772
|
715,343
|
Adjusted
EBITDA
|
$(1,101,234)
|
$872,953
|
|
$(3,471,677)
|
$424,692
|
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.
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SOURCE Covalon Technologies Ltd.