Zomedica Corp

Good afternoon, ladies and gentlemen, and welcome to the Zomedica Q3 2024 Financial Results Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, November 7th of 2024. I would now like to turn the conference over to Mike Valli. Please go ahead.

Thank you, Robert, and good afternoon, ladies and gentlemen. Welcome to Zamedica's third quarter 2024 earnings results and business update call. Joining me on today's call are Zamedica's chief executive officer, Larry Heaton, and its vice president and corporate controller, Mike Zelke. Before we begin, we would like to remind everyone that on this call, we will be making various remarks about future expectations, plans, and prospects that constitute forward-looking statements. These forward-looking statements are based on assumptions, and there are risks that results may differ materially from those statements. As such, Dometica cannot guarantee that any forward-looking statements will materialize, and you are cautioned not to place undue reliance on them. We refer current and potential investors to the forward-looking information and risk factor sections of our public filings available on CDAR Plus at www.cdarplus.ca and on edgar.sec.gov. Forward-looking statements made on this conference call represent Zomedica's expectations as of today, November 7, 2024. I will now pass the call over to Zomedica's Chief Executive Officer, Larry Heaton. Larry? Thanks, Mike.

I'd like to start by thanking our shareholders for your support, wishing prospective investors, analysts, and others a good afternoon, and welcome all to the Zomedica third quarter earnings results and business update call. I'll start by providing an update on our recent operational performance, followed by a financial update from Mike Zelke, our Vice President of Finance and Corporate Controller, before opening the line for questions. Earlier today, Zomedica released its financial results for the third quarter of 2024. The third quarter was strong for Zomedica. We delivered double-digit top-line growth, executed on a variety of growth initiatives, posted solid gross margins, reduced our operating expenses, and stabilized our operating cash burn. Revenue set a new record for the third quarter at $7 million, reflecting over 10% growth over the third quarter of 2023, driven by year-over-year growth in both our therapeutic devices and diagnostics segments. This marks the 14th quarter in a row that revenue set new quarterly highs, a trend that we expect to continue. Total therapeutic device revenue increased 8.5% year over year due to solid PulseVet performance, which increased 24% over the prior year quarter as our capital sales team returned to normalcy. As we discussed on last quarter's call, we experienced some disruption in the U.S. in the second quarter as a result of short-term productivity headwinds associated with multiple of our sales representatives being out unexpectedly on medical leave. Moving into the third quarter, our sales force was back to full strength, and as expected, we saw a rebound in new system sales and installations. We also noted macroeconomic factors that potentially impacted new system purchases during the second quarter of this year, primarily related to interest rate concerns. Although we noted these concerns abating somewhat as rates declined a bit and stabilized, We still deployed additional placement and pricing models to provide greater access to veterinarians looking to better serve their pet patients. This resulted in multiple customers acquiring a new PulseVet system using one of our flexible models, which highlights the demand for the technology and adds a differentiated revenue stream outside of a typical capital purchase. We believe there is a high likelihood that most of these placements will result in a capital purchase in the future. as these customers realized the value of offering shockwave therapy from PulseVet within their practices. In short, we continue to be encouraged by the demand for the PulseVet system amongst both new and existing customers, and note that our current penetration of the small animal U.S. market is minimal at this point, leaving substantial upside for this product line in the U.S. and abroad. Our diagnostics segment had another strong quarter, with our revenue growing 38% year-over-year. This was largely driven by 80% growth from the Trueforma platform, as we are seeing solid utilization trends with our legacy assays, as well as encouraging adoption trends with our recently launched assays, including CPO and Equine EACTH. Outside of the strong revenue performance during the quarter, we also made noteworthy progress towards a number of our key initiatives to drive growth in 2024 and beyond to ultimately reach cash flow and gap profitability. Let's begin with our focus on commercial expansion efforts. One of the significant commercial expansion opportunities is in international markets. Supporting the broader availability of our portfolio globally is the extensive work we've done this year to make our products available on a global scale. We now have CE marking on all Zomedica products, so we're able to freely sell into markets in the EU, as well as other countries that accept the CE mark. To take advantage of this opportunity, we expanded our global reach through the execution of multiple strategic partnerships with leading distributors in new international markets. In July, we partnered with Leader Healthcare Group to be a distributor of our entire product portfolio to both small animal and equine, and actually also camel, veterinarians in the Middle East, Egypt, and India. In August, we partnered with Sire Veterinario to be the exclusive distributor to veterinarians in Costa Rica to expand our reach within Central America. During the current quarter, we announced the expansion of our partnership with GrowVet, who has been effectively selling the equine pulse vet system in many countries in Europe. In addition to expanding their coverage to all of the EU and the UK, totaling 30 countries in all, GrowVet will be the first international distributor of our TruForma Equine product platform, including Equine EACTH, Equine Cortisol, and soon Equine Insulin and Equine Progesterone in this region. In addition, we are currently in the process of acquiring the necessary approvals to launch our TruForma, TruView, and VetGuardian diagnostic products in Japan in 2025. These will join the Equine PulseVet systems already on the market in Japan and will be directed at the 12,600 companion animal veterinary practices in that country. With new distributor partnerships in place and broad global regulatory approvals, we have significantly expanded our reach outside of the U.S., which provides Zometica with increased opportunities for growth on a global basis. Now, I should note that in each country that we introduce Zometica products, multiple steps are required to generate meaningful revenue. including execution of the distribution agreement, training of the sales and hiring staff, launching the product, engaging key opinion leaders, and developing the market, all leading to a ramp in sales over time. As we're actively engaged in this process in several new countries, we continue to expect the international business to be an incremental contributor to performance during the balance of the year and be a material growth driver for SubMedicaid in 2025 and beyond. In addition, these commercial opportunities provide leverage to our existing operating expenses. Because we sell into international markets primarily through distributors, which cover their overhead expenses for sales and marketing, we're able to enjoy increased revenue without significantly increasing our operating expenses. We also achieved a number of significant milestones within our product portfolio. Turning to the pulse deadline, PulseVet continues to be our leading product, and we have made significant progress in growing its adoption across our customer base, including both equine and small animal veterinarians. As we announced during the quarter, we continue to be the official shockwave therapy of a number of equine associations, including the American Quarter Horse Association, the National Cutting Horse Association, the U.S. Eventing Association, and U.S. Equestrian, which fielded the USA team at the Olympics this past summer. I'd also like to give a shout out to veterinarian Dr. Pam Nichols, past president of the American Animal Hospital Association and a member of Zomedica's Board of Directors, who just last weekend won the World Championship in Level II Amateur Cutting at the AQHA World Championship Show in Oklahoma. Congratulations, Dr. Nichols. To support PulseVet's adoption beyond its existing historic installed base, We continue to focus on developing clinical data across a variety of indications for use, including its potential to treat respiratory conditions in horses and perhaps dogs, improve equine hoof health, and forestall osteoarthritis in small animals, paving the way for new sales opportunities beyond the technology's historic applications and customer base. With respect to our Assisi platform, our Assisi Loop products received a renewal of its fear-free status during the quarter, a designation important to pet parents concerned about their pet's anxiety levels, especially following an injury or surgery, which is when the Assisi Loop is most beneficial. RCC sales were relatively constant quarter over quarter in line with historic seasonality, but lower than the third quarter a year ago due to a substantial one-time initial stocking order from a new online distributor that we received in the third quarter of last year. The loop business gets busy around the holidays in the fourth quarter, so we expect a strong finish for the year in this product line. Turning now to an update on the TrueView digital microscope and pathology platform. During the quarter, we continued our activity to add artificial intelligence, or AI, interpretations to the TrueView system. When this is complete, each hematology slide processed will be accompanied by an AI-generated diagnostic report. We're currently field testing the AI functionality and getting ready to deploy the system later this year with a full launch in the new year. Beyond the development of our AI capabilities, we continue to expand the functionality of the TrueView system. During the quarter, as part of internal R&D efforts, we introduced hardware enhancements, resulting in dramatic improvements in the speed of imaging, which will further bolster the value we're able to deliver to customers moving forward. We also finalized and rolled out a new protocol, specifically for ear cytology. This innovative feature streamlines the slide preparation and scanning of ear cytology cases, allowing veterinary professionals to diagnose and treat companion animals faster and more efficiently. We believe this will be a highly impactful protocol because ear cytologies are performed daily at vet clinics. As otitis, a common ear condition, affects between 10 to 20% of dogs and 2 to 6% of cats. The effect of the various enhancements to both hardware and software of the TrueView system is to allow it to lay claim to being the fastest digital microscope available, the digital microscope with the highest quality image, and the only digital microscope that automatically prepares the slides and soon also able to offer AI-generated diagnostic reports. Turning to the Trueforma platform, we continue to be encouraged by the growing adoption of Truforma platform as we are seeing continuous increases in our installed base. Importantly, we're seeing expansion into equine veterinary practices as we launched equine assays over the past year to benefit from our growing portfolio penetration across both small animal and equine practices. We continue to focus on accelerating the development and commercialization of new assays, both for small animals and horses. In addition to the assays launched earlier this year, We're preparing to launch several new assays during the fourth quarter, including equine insulin, which is needed as a standalone assay for diagnosing insulin dysregulation and is frequently used in conjunction with our EACTH assay with diagnosing PPID, which affects more than 21% of horses over 15 years old. The second is equine progesterone, which is used to monitor progesterone levels in equine breeding. for which there are over 25,000 attempts annually in the U.S. And this assay will be a complement to a recently launched equine cortisol assay for foals. Third is the canine progesterone assay, which is used to identify optimal breeding times for dogs, which currently produces over 4 million puppies per year in the U.S. And finally, canine probian P, which is a screen for heart disease used by breeders concerned due to the fact that around 10% of dogs will develop heart disease in their lifetime. We have a robust effort to launch these assays and develop new high volume assays in 2025 as we look forward to the continued ramp of this fast growing product line. Turning now to an update on the VetGuardian platform. The sale of new VetGuardian systems continue to highlight the value of the technology and the benefits our customers are seeing. We're constantly seeking ways to make the Vet Guardian even better for customers and their pet patients. In August, we launched advanced audio capabilities for the platform, which include cutting-edge features like real-time audio streaming, recorded playback functionality, and customizable alerts, empowering veterinarians with unparalleled insights into animal health through monitoring data. These sophisticated tools build on the existing features of Vet Guardian and further enable veterinarians to detect subtle nuances in animal behavior and health, facilitating enhanced monitoring, and giving veterinarians peace of mind when pet patients are at their most vulnerable in post-surgery, in the ICU, and alone in the clinic overnight. During the quarter, we also expanded the capability of our MizoMedica portal to be able to accommodate more than the previous eight VetGuardian monitors at one time on one screen. This was launched as we had a customer request to buy 10 additional VetGuardian monitors to add to the one that they initially purchased. While still early in the launch cycle for our VetGuardian system, we're pleased with its adoption in the small animal market and expect a strong finish for the year and significant growth in 2025 and beyond. We also remain excited about bringing VetGuardian to the equine market. We delayed development just a bit this year so we could incorporate the various enhancements we've made into the small animal system before customizing it for equine use. We're now planning to develop and launch the equine version in 2025, which we believe will be very well received by the equine veterinary community and set the stage for potential expansion of the market opportunity to horse trainers, breeders, and owners.