MISSISSAUGA, ON, March 1, 2021 /CNW/ - Covalon Technologies Ltd.
(the "Company" or "Covalon") (TSXV: COV) (OTCQX: CVALF), an
advanced medical technologies company, today announced its first
quarter fiscal 2021 results.
"Our first quarter of fiscal 2021, which ended December 31, 2020, demonstrated continued
sequential improvement in our operations and financial performance
as we continue to deal with the effects of COVID-19," stated
Brian Pedlar, Covalon's President
and CEO. "At the outset of the pandemic, we made an aggressive plan
to significantly reduce our operating expenses and I'm pleased to
report that those efforts led to an $0.8
million year over year improvement in our net loss and a
near break-even Adjusted EBITDA(1) in Q1. More
specifically, a 34% year over year reduction in our operating
expenses resulted in our net loss for the quarter to improve to
$0.4 million from a loss of
$1.2 million during the comparable
quarter last year. This improvement occurred despite our Q1 revenue
being down 25% year over year as a result of COVID-19 related
delays in shipments of our collagen products in the United States and lower consumption of our
products by hospitals."
"We continue to monitor for signs of revenue recovery in our
United States hospital customers
and international distribution channels. The Covalon team worked
very hard to control operating expenses and to mitigate the impact
of COVID-19 on our business during the quarter. I am happy to
report that we are overcoming the delays in our collagen supply
chain and are working closely with our United States hospital customers on new
products we launched in 2020."
"With cash-on-hand and amounts available under our HSBC
operating bank line, we believe we have sufficient future cash flow
to support our operating needs going forward. During the quarter,
Covalon applied and was approved for $0.3
million of funding under the Canadian Emergency Wage Subsidy
Program."
"This quarter, we engaged in approximately 10 customer
development projects of various sizes with 5 medical product
companies. We are very excited about these projects, including the
various projects currently underway with the previously announced
major contract with one of the world's largest medical device
companies."
"We are working hard to return Covalon to profitability in our
next fiscal quarter ending March 31,
2021."
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.
Gross margins are expected to remain similar to Q1 for the
remainder of fiscal 2021.
Reduced operating expenses in 2021 are anticipated to be
consistent with fiscal 2020 and further 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.
(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.
|
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. The Special
Committee is carefully deliberating 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.
Q1 Fiscal 2021 Financial Results
Revenue for the three months ended December 31st 2020 was $6.0 million, compared to $8.0 million in the prior year. This
decrease was largely driven by the impact of the COVID-19 pandemic.
Gross profit was $3.6
million, compared to $4.8
million in Q1 fiscal 2020. Net loss was $0.4 million or $0.01 per share, compared to a net loss of
$1.2 million or $0.05 per share in Q1 fiscal 2020.
Product revenue for the three months ended December 31st 2020 was $5.4 million, compared to $7.2 million in the previous year. Revenue in
the United States was $4.5 million in Q1 fiscal 2021 compared to
$6.4 million in Q1 fiscal 2020.
Revenue in the United
States was down $1.9 million
predominantly as a result of COVID-19. The delay in shipments of
collagen products resulting from COVID-19 related issues at a
contract manufacturer temporarily delayed production and shipment
of collagen products, which accounted for the majority of the
decline. The slowdown in the consumption of our products in
hospitals is anticipated to continue until hospitals and healthcare
facilities resume the normal level of elective procedures.
Revenue in the Middle East was
$0.8 million in Q1 fiscal 2021
compared to $0.9 in Q1 fiscal 2020
and revenue in other international markets was $0.7 million compared to $0.6 million the previous year. Development and
consulting services revenue for the three-month period ended
December 31, 2020 decreased by 26% to
$0.5 million, compared to
$0.7 million for the same period of
the prior year.
Gross margin was 60% for Q1 fiscal 2021, compared to 61% for 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, and related service revenues in any
given financial period.
Adjusted gross margin(1), which excludes inventory
provisions and depreciation, was 61% for Q1 fiscal 2021, compared
to 64% for the prior year. The decline is attributed to product
mix.
Operating expenses decreased $1.9
million to $3.8 million,
compared to $5.8 million for the
prior year's comparative period. The Company made strides to reduce
operating expenses in relation to headcount and discretionary
spending. Main drivers of the decrease were reductions in
compensation expenses across all departments, travel recorded in
sales, and administrative expenses. The Company also recorded
$302,000 of government subsidies
netted out against the related expenses.
Adjusted EBITDA(1) for Q1 fiscal 2021 was a loss of
$134,090 from a loss of $126,126 in the prior year's comparative period.
Conference Call Scheduled
A conference call to discuss Covalon's Q1 fiscal 2021 financial
results will be held Monday, March
1st, 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: 13753009
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 753009# from March
1st, 2021, at 12:00pm
EST to March 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
December 31st, 2020 and
2019.
|
(unaudited)
|
|
Three months
ended
December 31,
|
|
|
|
2020
|
2019
|
Revenue
|
|
|
|
|
Product
|
|
$5,386,072
|
$7,174,643
|
|
Development and
consulting services
|
|
541,750
|
733,128
|
|
Licensing and royalty
fees
|
|
60,590
|
40,788
|
|
|
|
|
|
Total
revenue
|
|
5,988,412
|
7,948,559
|
|
|
|
|
|
Cost of product
sales
|
|
2,402,884
|
3,112,775
|
|
|
|
|
|
Gross profit
before operating expenses
|
|
3,585,528
|
4,835,784
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
Operations
|
|
258,483
|
460,934
|
|
Research and
development activities
|
|
217,228
|
225,305
|
|
Sales, marketing and
agency fees
|
|
1,616,868
|
2,912,492
|
|
General and
administrative
|
|
1,746,272
|
2,186,046
|
|
|
|
3,838,851
|
5,784,777
|
|
|
|
|
|
Financing
expenses
|
|
119,020
|
225,740
|
|
|
|
|
|
Net
loss
|
|
$(372,343)
|
$(1,174,733)
|
|
|
|
|
|
Other
comprehensive loss
|
|
|
|
|
Foreign currency
translation adjustment
|
|
(850,137)
|
(411,153)
|
|
|
|
|
|
Other
comprehensive loss
|
|
$(1,222,480)
|
$(1,585,886)
|
|
|
|
|
|
|
|
|
|
|
Basic loss per
share
|
|
$(0.01)
|
$(0.05)
|
Diluted loss per
share
|
|
$(0.01)
|
$(0.05)
|
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.
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
December 31,
|
|
2020
|
2019
|
Gross profit before
operating expenses
|
3,585,528
|
4,835,784
|
Add: Depreciation and
amortization
|
80,509
|
81,438
|
Add: Inventory
provisions
|
6,909
|
132,000
|
Adjusted Gross
Margin
|
3,672,946
|
5,049,222
|
Adjusted Gross Margin
(%)
|
61.33%
|
63.52%
|
The table below provides a reconciliation of net loss under IFRS
in the consolidated financial statements to Adjusted EBITDA for the
three months ended December 31, 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
December 31,
|
|
2020
|
2019
|
Net loss
|
(372,343)
|
(1,174,733)
|
Add: Interest
expense
|
119,020
|
225,740
|
Add: Depreciation and
amortization
|
290,700
|
293,378
|
Add: Stock based
compensation
|
124,078
|
397,489
|
Less: Government
subsidies
|
(302,454)
|
-
|
Add: Inventory
provisions
|
6,909
|
132,000
|
Adjusted
EBITDA
|
(134,090)
|
(126,126)
|
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 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.
SOURCE Covalon Technologies Ltd.