Zomedica Corp. (AMEX:ZOM) Q3 2023 Earnings Call Transcript November 13, 2023
Operator: Good afternoon, girls and gents, and thanks for standing by. Welcome to Zomedica’s Third Quarter 2023 Earnings Release and Business Update Call. I wish to remind everybody that this convention name is being recorded at the moment, Monday, November thirteenth, 2023 at 4.30 PM ET. And all individuals are in listen-only mode. A quick query and-answer session will comply with the formal presentation. [Operator Instructions] I’ll now flip the decision over to Elif McDonald, Investor Relations. Please go forward Ms. McDonald.
Elif McDonald: Thank you, Ranchu, and good afternoon girls and gents. Welcome to Zomedica’s third quarter 2023 earnings outcomes and business update name. On at the moment’s name, you’ll hear from Zomedica’s CEO, Larry Heaton, and CFO, Peter Donato. Before we begin, we wish to remind everybody on this name that we are going to be making numerous remarks about future expectations, plans and prospects that represent forward-looking statements. These forward-looking statements are based mostly on assumptions and there are dangers that outcomes might differ materially from these statements. As such Zomedica can not guarantee that any forward-looking statements will materialize and you’re cautioned to not place undue reliance on them. We refer present and potential traders to the forward-looking data and Risk Factor sections of our public filings, available on SEDAR at www.sedar.com and on EDGAR at sec.gov.
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Forward-looking statements made on this convention name characterize Zomedica’s expectations as of at the moment, November 13, 2023. Finally, we wish to remind everybody that every one figures mentioned on this name are in US Dollars. I’ll now move the decision over to Zomedica’s Chief Executive Officer, Mr. Larry Heaton. Larry?
Larry Heaton: Thank you Elif. I’d like to begin by thanking our shareholders on your help. Wish our potential traders and analysts and others a very good afternoon. And welcome all of you to the Zomedica Third Quarter 2023 earnings outcomes and business update name. I’ll begin the decision by offering an update on the general business then Peter Donato, our Chief Financial Officer, will walk you thru our monetary outcomes for the quarter and supply a company update. After our ready remarks, we’ll open the road and internet to your questions. Earlier at the moment, Zomedica launched its monetary outcomes for the quarter ended September 30, 2023. Overall, this was a exceptional quarter. We delivered file revenues, our highest ever quarterly income, beating final 12 months’s file fourth quarter, all whereas sustaining excessive margins and decreasing working money burn.
Let me take a second to spotlight that revenues have been $6.3 million, a progress of 31% over final 12 months’s identical quarter, with almost all the expansion derived organically from earlier acquisitions which have been totally built-in over the previous 12 months, validating that our strategic plan to accumulate, combine, and develop is working. During the third quarter, we launched our equine eACTH assay for the TRUFORMA platform. This assay allows equine veterinarians within the clinic or stall aspect to diagnose equine Cushing’s Disease, identified clinically as pituitary pars intermedia dysfunction, PPID, and monitor constructive sufferers as they titrate remedy initially after which for the remainder of that horse’s life. Accessing such a big and underserved equine market could make a big contribution to our diagnostic phase.
On September fifth, we introduced the acquisition of Structured Monitoring Products, SMP, changing our minority curiosity into full possession, giving us unique industrial rights to VetGuardian merchandise. The VetGuardian platform improves the standard of take care of pets within the ICU throughout restoration from surgical procedure and for in a single day stays within the clinic. By offering employees with real-time alerts when very important indicators [indiscernible] from a pre-set vary, it permits the employees to intervene in well being points extra shortly, bettering care. Its distinctive patented Doppler Technology permits the VetGuardian system to acquire very important indicators in real-time with out wired leaks or a harness on the pet, thus permitting the pet to relaxation comfortably throughout restoration. Much like equine eACTH, we’re happy with the early indicators and see future upside.
Subsequent to the top of the quarter on October fifth, we introduced the acquisition of Qorvo Biotechnologies LLC, an entirely owned subsidiary of Qorvo US, Inc. Focused on the event of point-of-care diagnostic options, leveraging their modern bulk acoustic wave sensor expertise within the growth of the Omnia point-of-care diagnostic platform designed to carry out assays for human sufferers, together with our TRUFORMA point-of-care diagnostic platform to carry out assays for companion animals, which we now have marketed underneath license previous to this acquisition. A major focus of this acquisition shall be on capturing margin enhancements by assuming QBTs manufacturing methods in addition to accelerating assay growth for the TRUFORMA platform. This acquisition may even permit us to keep away from future working and capital bills incurred by building R&D and manufacturing employees internally as we had deliberate to do in addition to eliminating remaining funds together with license charges, transition charges, and future royalties which might in any other case be on account of Qorvo Biotech underneath the prior settlement.
While we additionally acquired the Human Health business, at the moment we now have no plans to commercialize it. However, we’ll proceed to discover alternatives to appreciate worth from this asset. Strategically, we proceed to actively combine and develop what we now have already acquired and we’ll proceed to hunt M&A alternatives that meet our rigorous inner monetary and strategic hurdles all whereas adhering to our 5 pillars, that are bettering the standard of take care of the pet and the satisfaction of the pet guardian whereas additionally bettering the workflow, money move and profitability of our veterinarian companions. While we’re happy with the quantity and tempo of acquisitions over solely the final two years. We’re not going to relaxation on our laurels. In truth, we now have a strong pipeline of offers into account making use of our 5 pillars.
We’re searching for even sooner prime line progress alternatives with out delaying our pathway to profitability. In different phrases, we’ll stay opportunistically acquisitive. Remembering that we now have a powerful liquidity position of $118 million in money, money equivalents and available on the market securities, we stay well-funded for the foreseeable future. Achieving our strategic priorities requires a mixture of rising income, environment friendly manufacturing that produces substantial margins and investing in industrial and R&D capabilities to allow each natural progress in addition to progress. On the R&D entrance, we plan to leverage our recent acquisition of Qorvo Biotechnologies with higher funding in new assays for our TRUFORMA platform. We’ll additionally proceed to develop the capabilities of our TRUVIEW digital microscope platform and the usability of our VetGuardian monitoring platform whereas exploring new market alternatives.
The launch of equine eACTH is one instance of the place we’re seeing indicators of early success. This is a progress driver for us going ahead and a possibility to develop product choices inside our already giant equine buyer base. On the heels of the equine eACTH launch, we’ll quickly launch one other set of assays for small animals. These for non-infectious GI circumstances like diarrhea and vomiting. One of the highest three causes dogs are dropped at the vet on an emergent foundation, giving us one other shot on objective within the diagnostic phase. Similarly, as we proceed to build the gross sales organization, I’m happy to announce that subsequent to the quarter simply ended, we welcomed a brand new senior Vice President of gross sales to the staff, Kevin Klass, an achieved government from an excellent animal well being firm.
In addition, we proceed to put money into gross sales and advertising applications, and whereas spending is down this quarter versus final 12 months, we’re seeing a rise in year-to-date spending versus ranges seen in 2022, after we have been first building our industrial infrastructure. We’re additionally happy to report that we’re persevering with to see leverage creating on the G&A line as we proceed our journey in the direction of money move and GAAP profitability. Before I hand the decision to Peter, I wish to reiterate that we’re very proud of what we achieved through the third quarter and look ahead to building on this momentum as we proceed to be very optimistic about a good stronger fourth quarter. With that I’ll hand it over to Peter for the monetary evaluate and company update.
After his remarks I’ll present some closing feedback.
Peter Donato: Thank you, Larry, and good afternoon, everybody. Revenues for the third quarter of 2023 got here in at over $6.3 million, a rise of over $1.5 million or 31% from the third quarter of 2022 of $4.8 million. The improve was primarily on account of natural progress, merchandise that we have now built-in and offered for over a 12 months inside our Assisi, PulseVet, RevoSquared, and TRUFORMA product strains and the inclusion of our VetGuardian merchandise, which weren’t a part of the consolidated figures final 12 months. Revenues year-to-date 2023 got here in at $17.8 million, a rise of $5 million or 39% from the identical interval final 12 months. This improve was primarily pushed by progress in PulseVet and TRUFORMA product gross sales, the inclusion of full 12 months revenues from our Assisi and RevoSquared merchandise and as soon as once more the inclusion of VetGuardian merchandise which weren’t a part of the figures final 12 months.
Consumable revenues have been $4.5 million, a rise of roughly 29% over the third quarter 2022 revenues of $3.5 million. These excessive margin merchandise represented recurring income that’s typically round 70% of our gross sales. Capital revenues have been $1.8 million, a rise of roughly 38% over the third quarter of 2022 revenues of $1.3 million. We proceed to be happy with the variety of units being put in service within the area. This is a number one indicator of future consumable income significantly within the small animal and combined vet practices, which proceed to be a spotlight space of our firm. Therapeutic system phase revenues from PulseVet and Assisi product gross sales have been $6 million, a rise of roughly 28% over the third quarter of final 12 months.
PulseVet product gross sales for the third quarter of 2023 have been up 21% versus the third quarter of 2022, reflecting an acceleration in consumable progress within the excessive margin trode business. We consider PulseVet gross sales will stay robust by means of the top of 2023. We’re already seeing the seasonal step up often noticed within the again half of our promoting 12 months and continued efforts across the growth of our small animal market. We are additionally happy to announce this was one of the best quarter ever for Assisi product gross sales. We are benefiting from robust demand from our retail channels, together with our lately re-established relationship with Chewy. We take this outcome as additional validation of our advertising methods. Diagnostic phase revenues from TRUFORMA, RevoSquared, and VetGuardian product gross sales have been $367,000, greater than tripling revenues of $94,000 reported in the identical quarter final 12 months.
TRUFORMA practically doubled revenues year-over-year pushed by natural progress. We consider the expansion seen throughout the TRUFORMA product will proceed as we proceed our funding within the growth of further assays, together with the primary assay for horses, which was launched in September and a panel of assays for non-infectious GI illness, which plan launches later this 12 months. As Larry famous earlier, our recent acquisition of Qorvo Biotechnologies LLC ought to enhance margins and speed up growth. We accomplished the acquisition of Structured Monitoring Products, SMP, giving us full management over industrial actions and we’re inspired by the early outcomes that included file income for VetGuardian merchandise through the month of September.
We are additionally seeing the early outcomes from our new TRUVIEW digital microscopy platform that we launched on the finish of the second quarter. Revenue from this product is service-based and trails the precise placement of the instrument, and as such, we anticipate recurring income from these placements to extend over the approaching quarters. Overall, we noticed the anticipated sequential step-up in income from the primary half of the 12 months, and we anticipate an extra step-up within the fourth quarter. Our gross revenue for the third quarter of 2023 was $4.4 million, a rise of $0.9 million, or 26%, from the third quarter of 2022. Our margins stay robust at 69%, providing 67% within the second quarter. And as I’ve acknowledged beforehand, we anticipate margins to be round 70% for the upcoming quarters after which going greater from there.
Operating bills have been $10.3 million in comparison with $10.1 million for the three months ended September thirtieth, 2022, a rise of simply $0.2 million or 2%. That compares fairly favourably to our progress and revenues checking in at 31%. Research and growth expense was $0.9 million in comparison with $1.2 million for the three months ended September thirtieth, 2022. That’s a lower of $0.3 million or 25%. The lower was primarily pushed by greater analysis charges for assay growth in the identical interval a 12 months in the past. Selling and advertising expense was $3.3 million in comparison with $3.7 million final 12 months. That’s a lower of $0.4 million or 11%. Although we’re beginning to see some leverage on the promoting and advertising line, this 12 months’s comparability within the quarter benefited from one-time expenses included in final 12 months’s quarterly quantity.
General and administrative expense was $6.1 million, in comparison with $5.2 million for the three months ended September thirtieth final 12 months. That’s a rise of $0.9 million or 17%. Net loss for the three months ended September thirtieth, 2023 was solely $0.3 million or $0.001 per share. That compares to a web lack of $5.8 million or $0.005 per share final 12 months. Although we’re beginning to see many working enhancements, the general enchancment on this 12 months’s quantity included many one-time advantages such because the achieve from the acquisition of the SMP and the associated tax advantages and we additionally had greater curiosity revenue this 12 months. Turning to the steadiness sheet, Zomedica ended the third quarter with $118 million in money, money equivalents and available on the market securities.
Cash used within the third quarter was $24.4 million, however that included $21.5 million for acquisitions investments and different one-time objects, leaving $2.9 million used for working bills. The adjusted money on this quarter of $2.9 million exhibits that we proceed to lower and was decrease than our historic burn, which is often round $3 million to $4 million per quarter. As a reminder to everybody, we now have zero debt. Before turning the decision again over to Larry, I wish to tackle questions from traders, significantly associated to a possible delisting of our inventory by the New York Stock Exchange American. First, let me provide you with a timeline and actionable objects mandated to our firm. As disclosed in our present report on Form 8-Ok filed with the Securities and Exchange Commission on September 14th, 2023, we obtained a deficiency letter from the New York Stock Exchange American on September twelfth, 2023, indicating that the corporate was not in compliance with the continued itemizing requirements set forth in Section 1003(f)(v) of the Company Guide as a result of our widespread shares have been promoting for a considerable time frame at a cheaper price per share which the alternate decided to be a 30-day buying and selling common of lower than $0.20 per share.
After confirming receipt of mentioned notification the corporate was required to do the next. Number one, challenge a press launch inside two days to fulfill Canadian Regulatory Requirements. We met this requirement by issuing a press launch in each the US and Canada on the thirteenth of September. Number two, file a Form 8-Ok, Section 301 inside 4 days, adopted by the Canadian equal informing of a fabric occasion. We met this requirement the 14th of September. Number three, we then knowledgeable the alternate that we met this requirement. The alternate notated this on its web site and our ticker image accordingly. Number 4, the ultimate requirement was to file a remediation plan of motion with the New York Stock Exchange American by the twenty sixth of September 2023.
This report was filed confidentially on September twenty fifth, 2023 and isn’t a required public disclosure. However, let me share with you a number of the plans. One, as Larry famous in his ready remarks, we proceed to have speedy top-line progress each organically and thru acquisition. Two, we proceed to have industry-leading margins, leveraging our recent integrations to enhance these margins and speed up our pathway to profitability. Three, leverage our robust steadiness sheet and money position to proceed to put money into industrial and R&D actions in addition to remaining opportunistically acquisitive. And 4, along with the operational plans, we shared with the alternate potential capital construction remediation. That consists of however just isn’t restricted to 1, a reverse inventory cut up, two, a share repurchase program, and three, different potential capital desk restructuring.
We plan to execute on these issues as we consider that they’re in one of the best curiosity of the corporate and its shareholders. Please take note we is not going to routinely be delisted and 6 months subsequent to receiving the discover we are able to obtain an extension or conversely the alternate might delist [indiscernible] ought to have didn’t carry out in the direction of bettering our position. While Larry and I are very optimistic about attaining our strategic and operational goals, we’re prone to advocate a reverse inventory cut up. Not solely would this motion carry us again into compliance earlier, it could additionally permit for potential growth of our institutional investor base by eradicating share worth limitations that restrict sure institutional participation in our inventory and potential inclusion into numerous indexes.
We will proceed to offer updates as we progress on this plan and we could also be asking our shareholders soliciting their help. I’ll now hand the decision again over to Larry for closing remarks earlier than the Q&A session.
Larry Heaton: Thanks, Peter. Let me take a second to additional touch upon Peter’s remarks round a possible reverse inventory cut up. Our administration staff and I’m totally conscious that lots of you’re against such a plan given the stigma related to reverse inventory splits typically. Keep in thoughts that many reverse inventory splits are performed underneath excessive duress as a result of a business is underperforming and/or wants desperately to boost capital to stay solvent. While we will not guarantee constructive outcomes of any potential reverse cut up. Our firm has a a lot completely different profile than most firms who discover a reverse cut up. Our operational efficiency stays glorious and we now have a powerful steadiness sheet. We additionally wish to remind you of the practicalities of a reverse cut up.
After such a cut up, whilst you would have much less shares, your general possession share and funding {dollars} stay the identical. And after a reverse cut up, the chance of delisting and the related lack of liquidity goes away, which permits administration to focus solely on executing the business and attracting further traders, which might assist improve our market cap over the long-term. So why take into account a reverse cut up now once I myself have mentioned many occasions that we might not pursue one till we’re money move constructive, and we’re not but at that time. Simply put, the New York Exchange discover of potential delisting has modified the sport. The uncertainty round a possible delisting looming over us, to not point out an precise delisting itself that might put us within the over-the-counter markets, are likely to put downward strain on shares.
Remember what Peter talked about earlier. If there’s nothing inherent in a reverse cut up that routinely leads to a lack of market cap. The fundamentals of the business and different macroeconomic circumstances are essential components. Fundamentally, we’re stronger each quarter, which we consider would in any other case result in broader curiosity from institutional traders that at the moment merely can not purchase the shares since they’re underneath their minimal worth thresholds of $1 or $3 and even $5 a share. So the scales have modified earlier than we balanced the potential threat of a discount in market cap worth following a reverse cut up in opposition to a delayed alternative to draw institutional traders and indices and got here down on the aspect of ready till we have been money move constructive.
But now we now have so as to add the chance of being delisted and transferring to OTC markets to that restricted potential of attracting institutional traders and indices. It is as a result of we consider that these components could be extra dangerous to individual traders in Zomedica than a possible loss in market cap following a reverse cut up that may be mitigated by demonstrating the variations in firm conditions to doubtlessly be one of many exceptions to the norm that we’re actively contemplating this to be in one of the best curiosity of our shareholders. Now please observe a reverse cut up has not been formally permitted by our board and it is nonetheless one in every of a number of choices. So please maintain an eye fixed out for ongoing updates on the matter and please maintain an open thoughts that the corporate will at all times work for an answer in one of the best curiosity of our shareholders.
Remember, there’s nothing inherent in a reverse cut up that diminishes our loyal individual traders’ skills to carry on to their possession of Zomedica. We respect every one in every of our shareholders and proceed to make each effort to drive long-term worth. Now let me shut with why we’re right here. Good information of the business. We had a really robust record-breaking third quarter. We have been capable of develop income by 31% whereas sustaining close to 70% gross margins. We anticipate to see incremental gross sales from our lately launched merchandise, VetGuardian and TRUVIEW and have new assays on the way in which for TRUFORMA. While we’re happy with the early success of the expanded gross sales organization, we anticipate much more efficiency from the involved staff with new management and as they turn out to be extra seasoned.
This coupled with efficiencies gained by means of the Qorvo and SMP acquisitions and the centralization of producing and distribution capabilities mixed to make for a shiny future for Zomedica. Looking into the rest of 2023, we’ll proceed to work diligently to carry Zomedica Suite, the world-leading merchandise, to a good higher variety of veterinarians and their pet households whereas persevering with to leverage our rising community of vet professionals utilizing our merchandise. So let me finish our name by once more thanking these which have been supportive of Zomedica, together with animal well being professionals and pet homeowners worldwide and the various shareholders of Zomedica. With that I’d be completely satisfied to open the road for questions.
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