Release Date: August 21, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Covalon Technologies Ltd (CVALF, Financial) reported a significant improvement in adjusted EBITDA, reaching $2.4 million, a $2.8 million increase from the previous year's $400,000 loss.
- Revenue for Q3 2024 increased by 47.1%, reaching $9.2 million compared to $6.3 million in the prior year.
- Gross profit dollars were up more than 50% over last year, leading to a solid gross margin of 59%.
- The company achieved a positive net income for the second consecutive quarter, with earnings per share of $0.06.
- Covalon Technologies Ltd (CVALF) successfully streamlined operations and optimized costs, reducing operating expenses by $236,000 while increasing revenue by almost $3 million.
Negative Points
- Despite the strong performance, the adjusted gross profit was lower than the previous quarter due to a less favorable product mix.
- The company's international revenue, particularly from the Middle East, has been flat and did not meet expectations.
- There is a risk of tariff implications if political changes occur in the United States, which could impact manufacturing and costs.
- Operating expenses saw a slight increase quarter-over-quarter due to engineering and sustainability costs, raising concerns about future cost management.
- The company faces challenges in maintaining consistent quarterly outcomes due to the small revenue base and variability in international tender schedules.
Q & A Highlights
Highlights from Covalon Technologies Ltd (CVALF) Q3 2024 Earnings Call
Q: You mentioned that you acquired 62 new customers in the US hospital business year-to-date. With a smaller sales force, do you believe you can continue to acquire new US hospital customers? If so, how does your sales and marketing strategy need to adapt?
A: (Brent Ashton, CEO) Yes, despite a smaller sales force, we believe we can continue to acquire new US hospital customers. We are also considering the right time to expand our resources. Our strategy focuses on deeper understanding of our customers, competitors, and the broader ecosystem to drive effectiveness.
Q: What is the plan for the device coating business?
A: (Brent Ashton, CEO) The medical coatings business was a larger part of our company a few years ago. We shifted focus to the US product business, which has shown positive results. We are currently working with a strategic consulting firm to assess our technology and capabilities in this area, and we will provide more guidance next quarter.
Q: While comparisons to the same quarter last year are good, some measures are flat from Q2 2024. What are the prospects for improvement in earnings per share?
A: (Brent Ashton, CEO) We are focused on growth and have achieved significant revenue increases with reduced operating expenses. As we continue to grow revenue and make strategic investments, we expect to see improvements in earnings per share.
Q: What is the tariff risk if Trump wins? What are we doing to mitigate that risk?
A: (Brent Ashton, CEO) We are considering various outcomes, including potential tariffs. We manufacture products in different locations and recently in-sourced collagen production to Mississauga, Ontario. We will continue to assess and make necessary changes.
Q: Can you show the revenue breakdown for US and international for the quarter? What growth did you have during Q3 in US and international?
A: (Katie Martinovich, Interim CFO) The US accounted for 87% of our revenue this quarter, with significant growth from the US business at just under 21%. International revenue remained flat due to the lumpiness of tender-based orders.
Q: Comparing operating expenses Q3 versus Q2, what makes the slight increase quarter-over-quarter? Are these expenses sustainable?
A: (Katie Martinovich, Interim CFO) The slight increase was due to engineering and sustainability costs. We are making significant improvements in costing and IT infrastructure, which will help keep costs down. We do not anticipate needing to increase expenses significantly.
Q: Do you expect any seasonality in the business?
A: (Brent Ashton, CEO) We do not see traditional seasonality but experience lumpiness in international business and collagen business due to tender schedules and partner dynamics.
Q: What is the outlook for 2025? Do you expect such growth to continue?
A: (Brent Ashton, CEO) While we cannot provide specific guidance, our revenue streams are stable and growing. We see significant long-term growth potential and are optimistic about the future.
Q: What is the maximum revenue that can be generated with the current products and current hospital footprint?
A: (Brent Ashton, CEO) We see tens of millions of dollars of opportunity if we can achieve higher penetration levels across our accounts. Our strategy focuses on retaining existing customers, growing revenue with current customers, and acquiring new customers.
Q: Can you explain the US hospital growth beyond the already successful changes?
A: (Brent Ashton, CEO) We have strong penetration in children's hospitals and see opportunities in adult acute care hospitals. Our market development efforts aim to highlight issues like medical adhesive-related skin injury to drive broader adoption.
Q: With the cash position expected to grow, what are the priorities for the use of the balance sheet?
A: (Brent Ashton, CEO) Our cash position provides flexibility to explore growth opportunities, both organically and through M&A. These topics are discussed at the executive and board levels, but no specific plans to report at this time.
Q: Why was the adjusted gross profit lower than the previous quarter, even though sales increased?
A: (Katie Martinovich, Interim CFO) The lower adjusted gross profit was due to the product mix. Some products have higher margins than others, and the mix of products sold this quarter had a lower overall margin.
Q: Was the recent quarter's revenue lumpy or more normalized? Please comment on the Middle East revenue and prospective revenue.
A: (Brent Ashton, CEO) The recent quarter's revenue was more normalized. Middle East revenue has been softer than expected due to tender delays, but we see strong potential and will provide updates in future calls.
Q: Could you give guidance for the last quarter of the fiscal year?
A: (Brent Ashton, CEO) We are not in a position to provide specific guidance but are encouraged by the opportunities ahead. Our revenue streams are stable and growing, and we see significant long-term potential.
Q: What are the priorities for the use of the balance sheet?
A: (Brent Ashton, CEO) Our cash position provides flexibility to explore growth opportunities, both organically and through M&A. These topics are discussed at the executive and board levels, but no specific plans to report at this time.
Q: Why was the adjusted gross profit lower than the previous quarter, even though sales increased?
A: (Katie Martinovich, Interim CFO) The lower adjusted gross profit was due to the product mix. Some products have higher margins than others, and the mix of products sold this quarter had a lower overall margin.
Q: Was the recent quarter's revenue lumpy or more normalized? Please comment on the Middle East revenue and prospective revenue.
A: (Brent Ashton, CEO) The recent quarter's revenue was more normalized. Middle East revenue has been softer than expected due to tender delays, but we see strong potential and will provide updates in future calls.
Q: Could you give guidance for the last quarter of the fiscal year?
A: (Brent Ashton, CEO) We are not in a
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
