Zomedica Corp

Good afternoon and welcome to Zomedica's second quarter 2023 earnings release call. As a reminder, this call is being recorded and all participants are in listen-only mode. The call will be opened up for questions and answers following the presentation. On today's call are Zomedica's CEO Larry Heaton and CFO Peter Donato. 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. So, Medica cautions that these forward-looking statements are subject to risks and uncertainties that may cause their actual results to differ materially from those indicated, including risks 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, Thursday, August 10th, 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 Zomedica's Chief Executive Officer, Larry Heaton. Please go ahead, Mr. Heaton.

Thank you. I'd like to start by thanking our shareholders for your support. Wishing our prospective investors and analysts and others a good afternoon. and welcome all of you to the Zomedica second quarter 2023 earnings release call. On this call, I'll be providing an update on the overall business. Then Peter Donato, our chief financial officer, will walk you through our financial results. After our prepared remarks, we'll open the line and the webcast to your questions. Earlier today, Zomedica released its financial results for the quarter ended June 30, 2023. As we reflect on these results, we continue to be pleased and excited with the progress the team is making, not only financially and operationally, but also towards our strategic priorities. Financially, where our top priority is to grow revenue to the point where we are cash flow positive, we saw considerable growth on a year-over-year and quarter-over-quarter basis. Revenue for the second quarter was $6 million, a 43% increase over the second quarter of last year. driven by organic growth within our PulseVet and Trueforma platforms and the inclusion of our Assisi and BedGuardian products, which were not part of our consolidated figures last year. The $6 million in revenue generated in the second quarter also represented a 500,000 or 10% step up from the first quarter of this year and represented not only our best second quarter ever, but also our second best quarter of all time. Truforma continued to show increased utilization and adoption, producing a 98% increase over the second quarter of 2022. We were also pleased with the 14% year-over-year growth in our PulseVet products as we continue to penetrate the small animal veterinary market. Overall, since our acquisition of Pulse Veterinary Technologies about 21 months ago, we've grown the installed base of PulseVet systems over 50% to over 1,800 installations. This is important since this system is a razor and blade model where the consumable trodes produce substantial revenue for the company, averaging approximately 60% of total PulseVac revenue. The trode consumable revenue is up 21% from second quarter of last year, which bodes well for future revenue growth. We continued selling the VetGuardian Zero Touch Vital Signs Remote Monitor, which launched in January. And we're encouraged by the market's response. On May 8th, we announced that we have exercised our option to acquire structured monitoring products, the makers of the VetGuardian system, and expect to close on this acquisition soon, subject to the completion of due diligence. We believe this transaction will enhance Zomedica's ability to bring the VetGuardian groundbreaking touchless monitoring products to clinics around the world. And this acquisition also furthers our efforts to improving margins as we will be transferring manufacturing to our facility in Roswell, Georgia. Overall margins remain strong at 67%, slightly down from Q1 due to costs associated with our true view launch, our true form of transition, and our efforts to fortify the supply chain to keep up with expected demand. We expect margins to return to historic levels in the coming quarters. While we continue to invest in R&D and sales and marketing to grow commercially and through integration of acquired products, we are pleased to see the increase in leverage developing on the G&A line as we continue our journey towards cash flow positive and gap profitability. Strategically, we continue to look for M&A opportunities that meet our rigorous internal financial and strategic hurdles. all while adhering to our five pillars, which are improving the quality of care for the pet, the satisfaction of the pet parent, and the workflow, cash flow, and profitability of our veterinarian customers. We used our first wave of acquisitions to build our commercial infrastructure and provide our salespeople with compelling products to establish the Zomedica brand as an innovator in animal health. Now we are focused on acquisitions that will be accretive to earnings from the outset. Achieving our strategic priorities requires a combination of growing revenue, efficient manufacturing that produces substantial margins, and investing in commercial capabilities to enable both organic growth as well as growth through acquisition. This means that we will be increasing R&D spending over last year's levels as we transition the development of new Truforma assays from Corvo to Zomedica. We will be both compensating Corvo for transition services and also building the internal R&D team at Zomedica. We will be both compensating Corvo for the development of assays already underway equine, EACTH, and non-infectious GI, which are expected to launch later this year, and also beginning development of the next wave of true form of assays by our own team. Looking ahead, our current assay development costs will be significantly lower than what we've been paying historically, but for this year, we will see increases in overall spend for R&D versus 2022 levels when we outsourced R&D totally. Similarly, as we continue to build the sales organization and execute marketing programs, we will continue to see increases over the levels seen in 2022 when we were first building our commercial infrastructure. But we expect the levels that we're at now to remain fairly steady aside from expansion of the sales team itself. We're committed to achieving positive cash flow and profitability and see the steps we're taking now as essential in hitting those objectives as expeditiously as possible. In closing, we're very happy with what we were able to achieve during the second quarter. We look forward to building on this momentum as we continue to be very optimistic about Zomedica's future. And with that, I'll hand it over to our Chief Financial Officer, Peter Tava, who will take us through Zomedica's second quarter 2023 financial performance and provide additional thoughts on what to expect for the rest of the year. Pete?

Thank you, Larry, and good afternoon, everyone. Revenue for the second quarter of 2023 was just over $6 million, an increase of $1.8 million, or 43% from the second quarter of 2022. Our organic growth was 16%, with the rest coming from acquisition integration of our Assisi and VetGuardian product lines. We are happy to report that roughly two-thirds of our $6 million in revenue came from recurring consumable revenue. In addition, achieving Q2 2023 sales in excess of historical averages is encouraging, given that our second quarter typically represents our second lowest revenue quarter for the year, and our first half of the year typically represents about 42% of our annual sales. Revenue for the first half of 2023 was $11.5 million, an increase of $3.5 million, or 44%, from the first half of last year. This increase was primarily driven by the inclusion of RSCC, REVO, and VetGuardian products that were not part of the consolidated figures last year. PulseVet continues to grow organically, producing a 14% increase over the second quarter of last year and an 11% increase over the first half of last year. This reflects an acceleration in growth from Q1, fueled by high-margin troads and consumables. We believe pulse vet sales will remain strong through the end of 2023, especially given the seasonal step-up observed, usually observed in the back half of our selling year, and we have continued efforts around developing the small animal market. True Pharma generated a 98% increase in revenue over the second quarter of last year and a 145% increase over the first half of this year. This was driven by organic growth and our cortisol, TSH, and TT4 assays, and from our new assays launched last year, FT4 and E-ACTH. We believe the growth seen with Truforma will continue as we continue our investment in the development of additional assays, including the first assay for horses and a panel of assays for non-infectious GI disease that have planned launches later this year. Assisi brought in $1 million of incremental second quarter revenue and $2.2 million of incremental first half revenue that was not present in their respective periods last year. We continue to leverage our communication and marketing networks as well as new distribution channels and expect Assisi brand recognition and awareness to increase, resulting in positive revenue growth for the balance of 2023. We have seen considerable interest in our VetGuardian zero-touch vital signs remote monitoring system and expect to increase revenue as we ramp up introduction of the product through our direct sales force and U.S. animal health distributors that now include Covetris, Patterson, Midwest, and MWI as we enter the third quarter. We're very excited about our TrueView digital microscopy platform that we launched at the tail end of this second quarter. Early feedback is consistent with macroeconomic trends showing a strong interest in the product's fully automated slide preparation designed to significantly improve veterinary practice workflow as well as reduce the number of unreadable images due to suboptimal slide preparation. In general, we expect revenue to increase in subsequent periods. benefited from the expansion of our product lines, our recent acquisitions, and our increased investment in sales, marketing, and related commercialization efforts. In addition, sales are expected to increase sequentially and hit their historical highs as they have in the past in the fourth quarter. Our gross profit for the second quarter of 2023 was $4 million, an increase of $1 million, or 33% from the second quarter of 2022. Our margins remained strong at 67%, even with one time items. And we expect them to return to historically higher levels in the coming quarters. Our operating expenses were up $1.9 million or 21% from the second quarter of 2022. Research and development expenses for the three months ended June 30th, 2023 were just over $900,000 compared to just over $300,000 for the three months ended during 2022. That's an increase of about $600,000 or 200%. The increase was primarily driven by continued buildup of internal capabilities to develop, test, and manufacture our next generation of true formula and other diagnostic products. When backing out one-timers, R&D expense would be about $600,000 up about $300,000 or 100% from the second quarter of last year. This is consistent with Larry's previous comments and relates almost exclusively to headcount increases that were associated with acquisitions as we expect to wrap up our diagnostic segment. Total GNA for the three months ended June 30, 2023, was $9.9 million. This compares to $8.6 million for the three months ended last year, or an increase of $1.3 million, or 15%. The sales and marketing portion of the total $9.9 million G&A spend was $3.1 million, or approximately 31% of the grand total of the SG&A spend. This compares to $1.4 million for the three months ended June 30, 2022, or approximately 16% of last year's total SG&A. The increase in the second quarter was primarily driven by funding our commercial efforts that increased significantly over the first half of 2022. The remaining portion of the $9.9 million SG&A line relates to non-commercial general and administrative expense, and this totaled $6.8 million for the three months ended June 30, 2023. This compares to $7.2 million for the second quarter of last year and a decrease of $400,000 or 6%. I am pleased to see that we're seeing leverage on the administrative portion of this cost category, even with the increased growth and integration expenses that we've been talking about. The operating loss for the second quarter was $6.7 million, up from $5.9 million a year ago, but down from $7.5 million recorded in the first quarter. When adjusted for one-time items primarily associated with our Cuervo true form of related transition and adjustments and other adjustments to REVO earn out liability, our adjusted operating loss fell to just over $6 million. Net loss for the three months ended June 30th, 2023 was $5.3 million or 0.005 per share. That is flat for the net loss of $5.3 million and again 0.005 per share from last year's second quarter. Adjusted for one-time items, you can see that the 0.005 per share is lower. Non-GAAP EBITDA loss, which includes adjustments for stock compensation for the three months ended June 30th, 2023, was $3.7 million, compared to a loss of $2.7 million for the three months ended last year. When adjusted for one-time items associated with Cuervo and Truforma, our transition to a new CFO, adjustments associated with the REVO earn-out, and other one-time consulting work, our adjusted non-GAAP EBITDA fell to about $3 million. While this loss is slightly greater than last year, it could be attributed almost entirely to increased headcount. We were up about 40 people from a year ago. And keeping in mind, during that time, we were very early in the process of building the company's commercial and operating infrastructure. Moving to the balance sheet, our balance sheet remains strong with cash, cash equivalents and available for sale securities of over $142 million at the end of our second quarter this year, compared to $187 million last year's second quarter and just under $148 million at the end of this year's first quarter. The decrease in cash is primarily driven by the acquisitions of Assisi and Revo platforms. formal related transition payments, and general operating activity. Our cash burn for this quarter was just under $3 million when eliminating one-time items for investments, acquisition-related activities, and other one-times. The burn rate is consistent with my previous guidance, and with both expectations and prior periods, we should see improvements in the burn rate as the year progresses, absent any additional one-time investments later in the year. I will now hand the call back to Larry.