MISSISSAUGA, ON, Jan. 28, 2021 /CNW/ - Covalon Technologies
Ltd. (the "Company" or "Covalon") (TSXV: COV) (OTCQX: CVALF), an
advanced medical technologies company, today announces its fiscal
2020 year-end results for the year ended September 30, 2020.
"2020 was a strategically important year for Covalon but also
one that included challenges related to COVID-19," stated
Brian Pedlar, Covalon's President
and CEO. "Our revenue declined by 10% in Q4 to $5.9 million and 24% for fiscal 2020 to
$25.8 million compare to fiscal 2019,
due to COVID-19 impacts on our customers and our suppliers.
Despite the challenges presented, which included temporary deferral
of elective procedures and supply chain interruptions, we were able
to minimize the impact of the revenue decline by reducing operating
expenses by $3.4 million or 47% in Q4
and $11.5 million or 38% for fiscal
2020. As a result, we improved our Adjusted
EBITDA(1) by $2.0 million
in Q4 2020 as compared to Q4 2019 and by $3.1 million in fiscal 2020 as compared to fiscal
2019."
Mr. Pedlar continued, "The Covalon team worked around the clock
to overcome the difficulties presented by the unprecedented global
pandemic to:
- generate new sales opportunities for our infection prevention
portfolio of products;
- engage virtually and in-person with existing customers;
- significantly reduce operating expenses year-over-year;
- launch several new products; and
- adapt our sales and service processes to engage with our
customers during COVID-19 restrictions.
"With fiscal 2020 in the rear-view mirror, I believe the steps
we have taken to mitigate the impacts of COVID-19 have positioned
Covalon to overcome the pandemic's impact on our Company. We are
now almost four months into our new fiscal year, and I am pleased
with our progress," Mr. Pedlar concluded.
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
eased in many of the geographies in which we operate.
The inventory write-downs we recorded in fiscal 2020 due to
delays in product shipments to the Middle
East are not expected to have any impact on our future
results. As a result, gross margins are expected to return to
pre-COVID-19 levels in 2021.
Reduced operating expenses in 2021 are anticipated to be
consistent with fiscal 2020 and may be reduced by additional
government subsidies related to COVID-19 relief programs.
The changes made to our operations have placed the Company in a
position to return to growth and profitability in 2021.
With cash-on-hand and amounts available under the HSBC operating
bank line, we believe we have sufficient future cash flow to
support our operating needs going forward.
Fiscal 2020 Operating Highlights
- Restrictions imposed by governments and the significant
reduction in elective procedures by hospitals in the United States and internationally
negatively impacted our product sales and our ability to sell to
new customers during a majority of fiscal 2020, which resulted in
negative growth in our sales in key markets.
- We launched three new products during fiscal 2020 into our
United States hospital and clinic
customer base and experienced strong engagement from hospitals in
evaluating these new products despite the lockdown
restrictions.
- We engaged in 39 customer development projects of various sizes
with approximately 10 medical product companies in our medical
coating business. These projects included those associated with our
previously announced major licensing agreement with one of the
world's largest medical device companies.
- Key antimicrobial patents were granted to the Company by the
United States Patent and Trademark Office, the Canadian
Intellectual Property Office, and the European Patent Office that
are integral to the Company's IV Clear, MediClear Pre-Op, and
SurgiClear products.
- To reduce risk and position our product brands for growth in
the Middle East, we transferred
distribution rights in the region to a multinational medical device
company and a new local agent, who has a stronger sales force and
distribution capabilities throughout major markets in that
region.
- In response to the COVID-19 pandemic, we developed and launched
a patent-pending 24-hour persistent hand sanitizer, mask spray, and
surface disinfectant under our CovaGuard and CovalonGuard brands in
various markets.
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 all 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 very pleased with the initial progress made by the
Special Committee. Covalon has been successful in attracting
several additional very interesting expressions of interest which
are currently being evaluated and discussed.
Mr. Boloor continued, "This process has clearly validated that
Covalon owns a number of valuable medical technologies that are of
interest to the medical industry.
"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.
"We will carefully deliberate on what actions, if any, are in
the best interests of the Company's shareholders.
"While this process is underway, our Company continues to remain
focused on continuing to execute its growth strategy, promoting its
life-saving products to the medical industry, and providing
meaningful growth opportunities to our dedicated staff," Mr. Boloor
concluded.
Fiscal 2020 Financial Results
Revenue for the year ended September 30,
2020 was $25.8 million,
compared to $34.0 million in the
prior year. This decrease was largely driven by the impact of the
COVID-19 pandemic. Gross profit was $12.5 million in fiscal 2020, compared to
$21.8 million in fiscal 2019. Net
loss was $7.0 million or $0.27 per share, compared to a net loss of
$9.1 million or $0.41 per share in fiscal 2019.
Product revenue for fiscal 2020 was $23.6
million, compared to $30.0
million in the previous year. Product revenue was severely
negatively impacted by a slowdown in orders due to the
uncertainties of COVID-19 and a deferral in elective
procedures.
Revenue in the United States
was down $2.9 million in fiscal 2020
compared to fiscal 2019 due to the impact of COVID-19. This
slowdown in the United States is
anticipated to continue until hospitals and healthcare facilities
resume the normal level of elective procedures. Revenue in the
Middle East was down $6.4 million in fiscal 2020 compared to fiscal
2019 due to both COVID-19 and delays of major shipments under the
previously announced contracts awarded to the Company in the
Middle East, as the Company
transferred distribution rights to a new partner in the
region. To reduce risk in the Middle East, we transferred distribution
rights to a new agent in the region, who has a stronger sales force
and distribution capabilities throughout major markets in the
region. Though this progress was delayed due to the impact of
COVID-19 on the government processes in various Middle East countries, we are pleased to be
working with our new agent and anticipate that deliveries under
these contracts will return to normalized levels in 2021.
Gross margin was 48% for fiscal 2020, compared to 64% for the
prior year. The decline in gross margin is attributed to the
impact of $2.1 million of inventory
provisions and certain non-recurring costs associated with
repurposing existing inventory to meet customer orders during the
fiscal year, which added additional incremental costs. Given
the impact of COVID-19 on product demand, Covalon leveraged its
supply chain to sell personal protective equipment to customers at
lower margins than the Company's core products. 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, and related
service revenues in any given financial period.
Adjusted gross margin(1), which excludes the
inventory provisions, was 58% for fiscal 2020, compared to 66% for
the prior year. The decline is attributed to product mix.
Operating expenses were $18.6
million, a decline of $11.5
million compared to $30.0
million for the prior year. This decrease was
primarily related to a decrease in personnel costs, reduced travel,
and agency fees related to deliveries for tenders in the
Middle East. Covalon also
recorded $2.1 million in government
subsidies related to COVID-19, which were netted out against the
related expenses during the year.
Adjusted EBITDA(1) for 2020 improved to a loss of
$2.6 million from a loss of
$5.7 million in 2019. This
reflects a $3.1 million improvement
in Adjusted EBITDA compared to the prior year primarily driven by
ongoing operating cost reductions.
Fiscal 2020 saw the Company end the year with a strengthened and
more diversified revenue base. In fiscal 2020, approximately
82% of revenue was from sales in the
United States and 9% of revenue was from sales in the Middle
East. Last year's revenue split was 71% in the United States and 26% in the Middle
East.
Conference Call Scheduled
A conference call to discuss Covalon's Fiscal 2020 Year-End
Financial Results will be held Thursday,
January 28th, 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: 10953934
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 953934# from January
28th, 2021, at 12:00pm
EST to February
15th, 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
September 30, 2020 and 2019, and for
the years ended September 30, 2020
and 2019.
|
(unaudited)
|
Three months
ended,
September
30,
|
|
Year
ended
September
30,
|
|
|
2020
|
2019
|
|
2020
|
2019
|
Revenue
|
|
|
|
|
|
|
Product
|
$5,454,101
|
$5,322,475
|
|
$23,621,388
|
$30,147,854
|
|
Development and
consulting services
|
424,318
|
1,201,981
|
|
1,979,282
|
3,265,636
|
|
Licensing and royalty
fees
|
41,162
|
52,145
|
|
199,436
|
591,132
|
|
|
|
|
|
|
|
Total
revenue
|
5,919,581
|
6,576,601
|
|
25,800,106
|
34,004,622
|
|
|
|
|
|
|
|
Cost of product
sales
|
4,106,092
|
2,641,257
|
|
13,313,976
|
12,182,263
|
|
|
|
|
|
|
|
Gross profit
before operating expenses
|
1,813,489
|
3,935,344
|
|
12,486,130
|
21,822,359
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
Operations
|
227,615
|
527,354
|
|
1,355,851
|
1,909,748
|
|
Research and
development activities
|
140,457
|
224,399
|
|
794,241
|
1,359,417
|
|
Sales, marketing and
agency fees
|
1,633,724
|
2,581,422
|
|
7,789,305
|
14,952,989
|
|
General and
administrative
|
1,791,597
|
3,886,068
|
|
8,638,800
|
11,848,837
|
|
|
3,793,393
|
7,219,243
|
|
18,578,197
|
30,070,991
|
|
|
|
|
|
|
|
Financing
expenses
|
203,132
|
231,101
|
|
860,157
|
889,141
|
|
|
|
|
|
|
|
Net income
(loss)
|
$(2,183,036)
|
$(3,515,000)
|
|
$(6,952,224)
|
$(9,137,773)
|
|
|
|
|
|
|
|
Other
comprehensive loss
|
|
|
|
|
|
|
Foreign currency
translation adjustment
|
(327,745)
|
539,273
|
|
193,160
|
448,726
|
|
|
|
|
|
|
|
Other
comprehensive loss
|
$(2,510,781)
|
$(2,975,727)
|
|
$(6,759,064)
|
$(8,689,047)
|
|
|
|
|
|
|
|
Basic loss per
share
|
$(0.08)
|
$(0.16)
|
|
$(0.27)
|
$(0.41)
|
Diluted loss per
share
|
$(0.08)
|
$(0.16)
|
|
$(0.27)
|
$(0.41)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See "Non-IFRS Measures" below, including for a reconciliation of
the non-IFRS measures used in this release to the most comparable
IFRS measures.
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 year
ended September 30, 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
September 30,
|
|
Year ended September
30,
|
|
2020
|
2019
|
|
2020
|
2019
|
Gross profit before
operating expenses
|
1,813,489
|
3,935,344
|
|
12,486,130
|
21,822,359
|
Add: Depreciation and
amortization
|
89,705
|
85,742
|
|
349,595
|
328,056
|
Add: Inventory
provisions
|
1,353,653
|
69,330
|
|
2,083,932
|
111,019
|
Adjusted Gross
Margin
|
3,256,847
|
4,090,416
|
|
14,919,657
|
22,261,434
|
Adjusted Gross Margin
(%)
|
55.0%
|
62.2%
|
|
57.8%
|
65.5%
|
The table below provides a reconciliation of net loss under IFRS
in the consolidated financial statements to Adjusted EBITDA for the
three months, and year ended September 30,
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
September 30,
|
|
Year ended September
30,
|
|
2020
|
2019
|
|
2020
|
2019
|
Net loss
|
(2,183,036)
|
(3,515,000)
|
|
(6,952,224)
|
(9,137,773)
|
Add: Interest
expense
|
203,132
|
231,101
|
|
860,157
|
889,141
|
Add: Depreciation and
amortization
|
284,266
|
189,954
|
|
1,206,094
|
629,888
|
Add: Stock based
compensation
|
89,656
|
383,833
|
|
935,624
|
1,717,091
|
Less: Government
subsidies
|
(412,932)
|
-
|
|
(2,147,174)
|
-
|
Add: Inventory
provisions
|
1,353,653
|
69,330
|
|
2,083,932
|
111,019
|
Add: Accounts
receivable write-off
|
-
|
-
|
|
1,420,002
|
-
|
Adjusted
EBITDA
|
(665,261)
|
(2,640,782)
|
|
(2,593,589)
|
(5,790,634)
|
About Covalon
Covalon Technologies Ltd. researches,
develops, and commercializes new healthcare technologies that help
save lives around the world. Covalon's patented technologies,
products, and services address the advanced healthcare needs of
medical device companies, healthcare providers, and individual
consumers. Covalon's technologies are used to prevent, detect, and
manage medical conditions in specialty areas such as infection
control, vascular access, surgical procedures, advanced wound care,
and medical device coatings. 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 completion of
integration of the AquaGuard acquisition, 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.