Zomedica Corp

Good afternoon and welcome to Zomedica's fiscal year 2022 earnings release call. As a reminder, this call is being recorded and all participants are in a listen-only mode. The call will be open for questions and answers following the presentation. On today's call is Zomedica CEO Larry Heaton and CFO Ann Cotter. Before we begin, the company would like to remind everyone that various remarks about future expectations, plans and prospects constitute forward-looking statements for purposes of safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Dometica cautions that these are forward-looking statements and are subjects to risk and uncertainties that may cause their actual results to differ materially from those indicated, including risk described in the company's filings with the SEC. Any forward-looking statements made on this conference call speak only as of today's date, Wednesday, March 15, 2023. and the company does not intend to update any of these forward-looking statements to reflect events or circumstances that occur after today. I will now pass the call over to Zometica's Chief Executive Officer, Larry Heaton. Please go ahead.

Thank you. I'd like to start by thanking our shareholders for their support and wishing our prospective investors and analysts and others a good afternoon and welcome you. for the Zomedico fiscal year 2022 earnings release call. On this call, I'll be providing an update on the business, followed by Ann Cotter, our chief financial officer, who will review our financial results. After our prepared remarks, we'll open the line to your questions. In a bit, Zomedico will be releasing its financial results for the year ended December 31, 2022. As we reflect on these results, We're very pleased with the progress the team has made on multiple fronts as we continue our transformation into a market leader in point-of-care diagnostics and therapeutic products for companion animals. At SoMedica, we're bringing products to veterinarians to help them do the things they really love to do, improve the quality of care for the pets and the satisfaction of the pet parents. and to help them do the things that they really need to do, improve workflow, cash flow, and profitability. 2022 was another transformational year for Zomedica through acquisitions of products that meet this standard, along with significant improvements in infrastructure, manufacturing capacity, and commercial capabilities. In 2022, we significantly expanded our product portfolio to include five high-value technology platforms, expanded our sales and marketing organization and capabilities, built a comprehensive internal support infrastructure, grew our revenues from zero in 2020 to 4 million in 2021 to almost 19 million in 2022, and established a pipeline of several new product launches for 2023. We were pleased with our progress with our Trueforma platform during the year. This platform is a great example of the razor and blade model in that we provide the instruments at no cost to the customer in return for a lifetime and enduring revenue stream from high-value diagnostic tests. To build the value of this platform, we expand the installed base of instruments and expand the menu by introducing new assays. During the year, we launched two new Truforma assays for AACTH and FreeT4. both providing the only assay of their type available at the point of care. In January of this year, we entered new license agreements with our Trueforma development partner, giving us the opportunity to develop and manufacture assays and instruments ourselves. We are planning to continue our investment in the development of additional assays, which we believe will increase the utility of the Trueforma platform for our customers over time and generate higher revenue for installed instruments. For 2023, these include planned assays for noninfectious gastrointestinal disease and our first assays for horses, both of which we expect to launch this year. Our PulseVet platform continues to perform strongly. While historically used in the treatment of horses, the recent introduction of the Extrode handpiece, which enables use with small animals without sedation, is now being marketed to small animal veterinarians. Over the last decade, equine patients have benefited significantly from this clinically proven non-invasive therapy. Now small animals can be readily treated with shockwave therapy for over 20 clinical applications, backed by peer-reviewed clinical literature, and providing alternatives to costly medication therapy that carries potentially harmful side effects or expensive surgeries. We've been pleased with the uptake of this technology, which is covered by most pet insurance policies, by small animal veterinarians and pet parents alike. In fact, small animal device sales grew 405% in 2022, from 21 devices in 2021 to 106 devices in 2022. We believe pulse pet sales will remain strong into 2023, especially given the efforts around development of the small animal market. Our Assisi Loop line of products, which joined Zomedica's portfolio of offerings in the third quarter, proved to be a solid contributor to our 2022 results with roughly 2.1 million in sales for the year. Like our PulseVet products, the Assisi Loop products, which generate targeted pulsed electromagnetic wave therapy to reduce inflammation and pain, they provide a non-invasive and non-pharmacological approach to pain relief for pets. Also, like PulseVet, our Assisi products showed year-over-year growth, both as part of Zomedica as well as when they were a standalone company. The difference between the two is that the Assisi products are positioned to be used at home by pet parents, including them in the treatment pathway for their pets. So the vet can treat the patient in the clinic with PulseVet shockwave therapy and then send the healing home with the Assisi loop products. As we leverage our communication and marketing networks, we expect a CC recognition and brand awareness to increase, resulting in expected growth in 2023. Although not part of our 2022 results, we do expect additional growth in revenue in 2023 from sales of the VetGuardian ZeroTouch Wireless Vital Signs Monitoring System, which launched in early January, as well as our new TrueView digital microscopy platform, featuring the first automatic slide preparation system available anywhere to improve both workflow and image quality, which is expected to launch in the second quarter. Overall, we're pleased with our progress in 2022 and excited to continue building on this traction and growth trajectory. In addition to putting in place measures to grow our top-line results, we have also put forth considerable focus and effort into developing and enhancing our internal processes, including hiring additional people with significant increases in R&D, business development, and sales and marketing. Included in these hires are industry experts, scientists, veterinarians, and other personnel with extensive experience and knowledge in the companion animal field. and investing over a million dollars to develop our manufacturing capability and capacity through our new global manufacturing and distribution center in Roswell, Georgia. This facility, which we moved into in August of 2022, expands our manufacturing and distribution capabilities, enabling us to meet growing commercial global demand and support future growth and new product offerings. With a healthy cash position and projected sales growth at 2023, We feel we are setting ourselves on a strategic pathway to create and enhance shareholder value. We're pleased with our progress along the pathway to cash flow breakeven and profitability, which we consider to be significant milestones for growth in shareholder value. We believe these require a combination of substantial growing revenue and efficient manufacturing producing substantial margins. while at the same time investing in operating expense to enable both growth from organic sources and growth by acquisition. We have invested in an experienced leadership and growing commercial team and a robust marketing capability, along with expanding our manufacturing capacity. Now we have the opportunity to leverage these investments by launching and growing new products and acquiring new ones as well to generate increased revenue to move us further on the path to profitability. In closing, we are optimistic about Zomedica's future. And with that, I'll turn the call over to Ann to take us through Zomedica's 2022 fiscal performance and provide additional thoughts on what to expect in fiscal 23.

Thank you, Larry. And good afternoon, everyone. During this portion of the call, I will be focusing on selected aspects of our income statement, cash flow statement, and balance sheet. While I will be providing brief explanations on variance drivers, much of this information is covered in broader depth within our recently filed 10-K. I encourage you to review this document for additional detail and commentary. Revenue for the fourth quarter of 2022 was a very healthy 6.2 million, an increase of 2.1 million, or 51% from the fourth quarter of 2021, primarily driven by an increase in pulse vet sales and the inclusion of our recently acquired Assisi products. We saw an upward trend of increasing revenue in 2022, going from 3.7 million in sales in Q1, 4.2 million in sales in Q2, $4.8 million in sales in Q3, and $6.2 million in sales in Q4. Revenue for the year ended 2022 was $18.9 million, an increase of $14.8 million, or 361% from the year ended 2021. Again, primarily driven by a full year's worth of post-set sales and the inclusion of the recently acquired SEC products. When considering standalone sales, or sales as if we had owned a CC and PulseVet from January 1st of 2021, our sales were up 25%. Given the continued uptick in sales of our current offerings, that is Trueforma, PulseVet, and CC, as well as our expected launch of VetGuardian and Rebo related products, we expect revenue to continue to grow in 2023. Gross profit margin for the year ended 2022 was 13.7 million or 72% compared to 3.1 million or 74% for the year ended 2021, an increase of 10.6 million. Although our margins continue to be extremely healthy, the drop in margin compared to 2021 relates to a changing mix of product sales, including Assisi Truforma and PulseFit small animal devices and troads. In general, we believe gross margins will remain relatively unchanged in percentage terms due to a variety of factors. Research and development expense for the year ended 2022 was 2.6 million, an increase of 0.9 million or 53% from the year ended 2021, primarily driven by an increase in contracted expenses for research fees and trials as we continue to develop and test our next generation true form of assays. Our new license agreements with our Trueforma development partner gives us the ability to expand our assay development program, which may result in increased total expenditures in the short term, although at a lower cost of development on a per assay basis. Selling general and administrative expenses for the year ended 2022 were $33 million, an increase of 10.2 million or 45% from the year ended 2021. primarily driven by salaries and non-cash stock compensation expense associated with increased hiring campaigns, the inclusion of PulseVet, Revo Squared, and a CC headcount, acquisition-related intangible amortization, increase in office expenses, travel and trade show attendance associated with lifting COVID restrictions, and the marketing of our new Truforma assays and our new product lines. Our net loss for the year ended 2022 was 17 million, a decrease of 1.4 million or 8% from the year ended 2021. The net loss in each period was attributed to the matters described earlier. We expect to continue to record net losses in the future periods until such time as we have sufficient revenue from product sales to offset our operating expenses. Zamedica had cash, cash equivalents, and available-for-sale securities of approximately $156 million as of the year ended 2022, a decrease of $39 million, or 20%, from the year ended 2021, primarily driven by cash used in operating and investing activities, as I will discuss. Net cash in operating activities for the year ended 2022 was $11.7 million, the reduction The reduction in operating expense is a result of the increased revenue we recognized and a reduction of overall operating expenses compared to the prior year. Net cash used in investing activities for the year ended 2022 was $155.9 million, an increase of $84 million or 117% from the prior year, 2021. primarily driven by significant investments in available-for-sale securities, our acquisitions of the CC, Revo Squared, and other leasehold improvements and expenditures to improve our e-commerce, internal sales, and accounting programs. Net cash provided by financing activities for the year end of 2022 was zero. This is a 100% decrease from 2021 of 219.2 million as we did not complete a public offering of our shares in 2022. Our balance sheet continued to show strong ratios in 2022. Our working capital is strong at 115.7 million. Our current and quick ratios are strong at approximately 16, showing a high amount of liquidity. Our debt-to-asset ratio is approximately 4%, showing a high level of solvency. Assets remain flat at $280 million as cash used for Erivo and Assisi purchases were offset by related increases in goodwill and intangibles, as well as cash used to purchase PP&E associated with our manufacturing center upgrade. Liabilities increased primarily due to the earn-out liability recorded from the acquisition of Revo and larger accruals in AP for inventory and other operating expenses, all of which are growth-oriented. Due to our projected increase in sales and decrease in operating cash needs and a very strong balance sheet, we believe Zomedica has a strong future, and we are optimistic about the future of the company. With that, I'll turn the call back over to Larry.