Covalon Technologies Ltd.

Good morning, ladies and gentlemen, and welcome to Call Valon's second quarter fiscal 2026 conference and recap call. My name is Angela and I will be your conference operator today. As a reminder, today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, You can submit your typed questions via the webcast. Alternatively, if you would like to ask a question over the telephone, simply press star then the number 1 in your telephone keypad. If you would like to withdraw your question, please press star 2. If at any time during this call you require immediate assistance, please press star 0 for the operator. At this time, I would like to turn the conference over to Mr. Brent Ashton, Chief Executive Officer.

Hi. Thanks, Angela. And good morning to all of you on the call today. We really appreciate you connecting in. Kim Crooks, our Chief Operating Officer, and Katie Martinovich, our Chief Financial Officer, have both joined me on the call here. And Celaya Azadada from Covalon is helping to coordinate the conference call and the webcast today. Celaya will now provide us with some instructions.

Thank you, Brent. Good morning, everyone. My name is Talia Asaygoda, and I am the Executive Assistant for COVID-19 Chief Executive Officer. I'd like to thank everyone for taking the time this morning to attend our conference call. Before we begin the discussion, I would like to remind participants that this call and webcast are covered by COVID-19 Safe Harbor Statement. Please read the Safe Harbor Statement on this slide. This is also available on our website. I will now turn the call back over to Brent Ashton, Covalent's Chief Executive Officer.

Hey, thanks so much, Salia. Listen, glad to be able to be with you all today. And as I said, thanks again for everyone on the call taking time out of your morning, probably a busy Thursday morning, afternoon, or evening, depending on where in the world you are, to hear our update. I'm looking forward to sharing the results and the progress that we're making as we advance forward with our growth journey here at Covalent. During today's call, I'd like to really accomplish a few things. First, we're going to walk through a solid second quarter, including strong revenue growth, excellent gross margins, continuing profitability, more than doubling of adjusted EBITDA from the same quarter last year. Second, I want to spend time on what I believe is a much bigger story for Covalent, which is our work to pioneer and build the contamination prevention clinical category in vascular access. This category is anchored by our Valgard and our CovaClear cover products. And let me tell you, it is getting real traction with some of the very best hospitals in the United States and beyond. We'll talk about the clinical, the commercial industry momentum that's been building for this solution over the last few months and last few quarters. And then we'll cover some recent highlights. And we'll wrap up by sharing why I believe Covalon is in the midst of a breakout moment. We've got a clean balance sheet, differentiated technologies, growing customer adoption, and a MedTech category opportunity that really the broader financial markets still don't fully recognize. And after that, we'll open it up for questions. As is typical, we'll prioritize questions submitted through the webcast interface first, so please enter those as we go. Okay, let's start with the financial results for the second quarter. It was a strong quarter for Covalent. Revenue came in at $8.7 million, up almost 15% from $7.6 million in the same quarter last year. All three of our sales channels had positive year-over-year growth in the quarter, with both our U.S. vascular access and surgical consumables business and our U.S. advanced wound care business leading the way, with each of them growing almost 30% over the prior year. Importantly, the quality of the revenue was strong. Gross profit increased by almost 30% year over year to $5.4 million, and gross margin came in at 61.5%. That's nearly 700 basis points above last year's Q2. Our adjusted gross margin was even stronger at just a shy bit near 63%. Those margin numbers, they matter. They show up in the work that we've been doing around product mix and manufacturing rigor and operational execution, and it's showing up in our financial results. We're not just chasing empty revenue here. We're working hard to build the right kind of revenue, the kind that can scale profitably and create meaningful shareholder value. Operating expenses were $4.4 million, up about 15% from last year's Q2. A large portion of that increase relates to investments and some costs that supported the regulatory and operational costs foundation of the company. We're being disciplined, but we're also not starving opportunities that can create long-term value. And the impact of that stronger revenue and margin performance is very clear. Adjusted EBITDA was $1.3 million, up 127% from the same quarter last year. Diluted earnings per share were $0.04 compared to $0.02 last year. So in simple terms, Q2, strong quarter, revenue up, margins up, adjusted EBITDA up significantly, and earnings per share roughly doubled. It's the kind of quarter that gives us continued confidence in where we're heading. Now looking at the year-to-date view through the end of March, revenue for the first six months of fiscal 2026 was $15.6 million, essentially flat with the same period last year. We spoke about this on our Q1 call. The first quarter, It just wasn't reflective of what we were seeing in the business. We had a strong line of sight to Q2 acceleration, and Q2 delivered exactly that. The Q1 challenge was largely on the international side, and like most companies that operate in international markets, that revenue can be lumpy at times. We've talked about that here over the last couple of years on several of these calls. It is worth noting that this international sales channel for us It's one that grew double digits plus last year, and we have line of sight to another double digit plus growth this year, but inherently can be a little lumpy quarter to quarter. On the gross margin side, year-to-date performance is strong. Gross profit was $9.4 million, and gross margin was 60%, up about 200 basis points from the first six months of last year. Adjusted gross margin was 61.5%. which was up about 350 basis points year over year. Operating expenses were $8.4 million, up about 11% year over year, similar to the Q2, increased mostly around some one-time costs, including some outsourced product testing for some regulatory work. We continue, though, to be very focused on spending discipline and are making sure that every dollar we spend is tied to value creation. Adjusted EBITDA for the first half was $1.7 million, down from $2.1 million last year, largely really here a function of the softer Q1 and some of the investments and timing of expenses that I just mentioned. EPS was $0.04 for the first half. The important takeaway here, I think, is that the year-to-date picture improved meaningfully with Q2, and our second half expectations remain strong. We believe the business is moving in the right direction. and we are seeing the operational and commercial signals that we want to see. And just as important, we continue to operate from a really strong position of financial strength. At the end of March, Provolet had approximately $16.6 million in cash and absolutely no bank debt, very strong balance sheet, and for a company of our size, really gives us the ability to give us flexibility and the ability to execute on the opportunities in front of us. Now I want to shift from the financial results to, you know, what I alluded to in the open there, around a much bigger strategic opportunity that's developing for Covalon. So Covalon, across our entire business, has unique products. And in the vascular access space in particular, you know, these help address some of the most common and most important parts of modern healthcare. Something like 90% of all hospitalized patients have one or more IV catheters inserted into their body during their stay. Chances are, unfortunately, that most people on this call have probably had one at some point. And if you haven't personally, congratulations. But I'm willing to bet many of your family members or friends have. Now, these IV lines, they are literal lifelines. They deliver critical medications, nutrition, fluids, often used in connection with diagnostic testing. It's not an unfair statement to say healthcare simply could not function without them. It would literally shut down. But there's a challenge that really hasn't received enough historical attention. Anytime you create a pathway from the outside world into a patient's bloodstream, you're creating risk. IV connections, access points, and dressings sit right in the middle of everyday bedside care. And as any nurse that has worked in a hospital can tell you, bedside care, it can be really messy. Patients vomit, diapers leak, wounds drain, fluids spill. And in all of that real-world care, contamination can happen. It's not theoretical. It's not rare enough to ignore. And it's really part of the daily reality that nurses and care teams manage. And when a vulnerable IV connection or dressing is contaminated, the consequences can be serious. It can lead to disruptive care, unnecessary dressing or line changes, increased nursing time, increased supply costs, and in the worst case, it can be a direct cause of a deadly bloodstream infection. These infections can be devastating for patients and families and incredibly difficult for clinicians who are trying so, so hard to protect the people in their care. This is a very, very significant vascular access problem, and it's exactly the kind of problem that Covalon was built to help solve. So, how do we address it? At Covalon, we're pioneering the development of the contamination prevention clinical category in vascular access. This category is anchored by two very complementary product lines that we've developed. The first is ValGuard-LineGuard, Valgard is designed to protect IV line connections and access points from contamination. It's a purpose-built solution for a real clinical vulnerability. The second is our CovaClear cover dressings. CovaClear cover is designed to protect primary IV dressings from contamination and disruption. This is a very practical solution for a problem that nurses see over and over again, especially in patients where dressings are vulnerable to bodily fluids, spills, or other environmental contamination. Together, these products help protect different weak points in the same contamination pathway. One product protects line connection access points. The other protects the primary IV dressing. And together, they create a more complete contamination prevention solution. The customer benefits are really compelling. First, these products can help reduce the risk of patient complications, including serious bloodstream infections. Second, they can reduce reactive nursing time. Every time that a dressing has to be changed unnecessarily or a line component has to be replaced because it was contaminated, well, that takes nurse time away from proactive patient care or interaction with family members. Super important. Third, you know, these products can reduce facility expenses tied to these replacement therapy components, replacement dressings, additional supplies. and unnecessary rework. And this is one of the reasons why we're so excited about this contamination prevention category creation. It's not just a clinical story. It's not just a workflow story. And it's not just an economic story. It's all three. I call it the triple win, a trifecta, so to speak. And most importantly of all, it's a patient benefit story. And I think that's something we can all relate to. Ourselves, personally, our family members, our friends, all patients at one point or many points in our lives. I really wish that every shareholder could spend time in an intensive care unit or an oncology ward or an acute care hospital floor and see what these amazing nurses are having to manage every day. Incredibly skilled, dedicated clinicians working their butts off to protect valuable patients, vulnerable patients as well in environments that are complex and inherently messy. If we can give them a product that helps keep a critical IV connection addressed and protected, that matters. It matters to the nurse. It matters to the hospital. And it absolutely matters to the patient and their family. And in a couple of slides, I think I'll be able to get you a better feel from the nurse's view. So, this slide here is one of the most exciting slides in the presentation. because it shows that the adoption of this solution, this contamination prevention solution from Covalon, it's not just theoretical. It's not just, oh, you know, pie in the sky. It is happening, and it is happening quick. Last quarter, we talked about the recent adoption of one or both of Covalon's contamination prevention solution product lines from world-class medical centers. These included names like the Mayo Clinic, like Memorial Sloan Kettering, Nationwide Children's, Seattle Children's, and others. And in just the past few months, the list has continued to grow. You can see additional notable adopters on the right-hand side of this slide, including Stanford Healthcare, Children's Hospital of Philadelphia, Johns Hopkins, Ochsner Health. These are not small, unknown facilities. These are leading institutions. These are hospitals and health systems with really strong clinical teams. robust value analysis processes, and high standards for patients' care. For a small med tech company from Ontario to be gaining adoption at this level is really meaningful. Some of the largest med tech companies in the world would be very proud to win these accounts. And Covalon, while we're doing it with a small focus team, differentiated technology, and a clinical message that is clearly resonating. And really, we've just barely scratched the surface in terms of penetrations. This is a total addressable market in the U.S. alone of over a billion dollars. We're still in the single-digit millions here, which translates to a ton of future opportunity between existing account expansion and new customer acquisition. And this is why we're so focused on building the category the right way. Every strong hospital adoption can become a reference point. Every successful trial can become an internal champion story. Every positive nurse experience helps influence broader use. Super, super exciting. So some of you might be sitting here listening and thinking, well, you know, hey, Fred's the CEO of the company. Of course he's going to be super excited about this solution. And I am, and for many reasons. But I think it's also helpful to share a clinician voice here. Why are they actively choosing to adopt elements of the solution here? Why will they take time out of their incredibly busy lives to champion the change? to get it approved, to bring it on board, to roll it out across different departments. This isn't just sit at your desk, click a button on the laptop, be done. This is like significant effort. And these clinicians, well, you know, they have super, super busy normal day-to-day activities in their role. And we're talking here today about Seattle Children's. It's an incredible hospital. In fact, they were recently recognized by U.S. News & World Report as one of the 10 best children's hospitals in all of the United States. And Megan Stimson is an amazing clinical nurse specialist who works with some of the most vulnerable patients that enter the hospital. Seattle Children's is a longtime ValGuard customer, and several months ago, they completed their contamination prevention solution bundle by adopting COVIDClear Cover. You can see in the quote on the screen here what matters to her. and why the Covalent solution is so compelling. These contamination events, they're happening all the time, all around the hospital. What's it driving? It's driving time-consuming, costly intervention. It creates real patient risk. The Covalent solution, it's been big for them. They've gained back valuable nursing time. They've saved money on supplies, and they've prevented serious patient complications, including bloodstream infections. The core problem of contamination has always been there, and that doesn't go away. But with Covalent's contamination prevention solution, the prevention aspect has been a huge win for the hospital. This is exactly the type of real-world clinical impact that supports our confidence in our portfolio and its long-term opportunity across pediatric, neonatal, and adult acute care settings. Now, one of the important things to understand is that meaningful MedTech categories are not built overnight. They start with a real problem, a significant clinical problem, an economic problem, a workflow problem. Rarely all three, but that is the case here for Covalor. And then the problem gets addressed by a robust solution, which we have. And you get early adopter customers who clearly see the problem, willing to lead. And from there, this flywheel starts to build. Clinical evidence helps validate the solution. Key opinion leaders help educate the market. Scientific meeting presentations elevate the issue. Sales teams become better equipped to explain the value. Early adoption creates real-world outcomes. Strong outcomes create awareness and demand. Single hospitals lead to entire health systems. And the flywheel begins to accelerate and accelerate and take on a life of its own. This is really what category creation looks like in MedTech. And it's exactly what we're seeing in contamination prevention. We have the problem. It's real. It's common. It's costly. We have the products, Valgard and CovaClear IV Cover, our purpose-built to address it. We have early adopter customers, including some of the most respected hospitals in the United States. You heard from one of them a few minutes ago. We have clinical evidence that continues to build. It goes on and on, growing adoption. We're clearly hitting a tipping point here in terms of the category buildings. And some of you may have experience with other companies that you've invested in that hit a tipping point moment. You might not have seen it right there in the moment, but you saw what it did for the company and you saw what it did for your investment. The flywheel is moving here at Koblon. It's still early, but it's moving forward with the very first pace. And this tipping point moment is here. Now, to put this into context and to answer, you know, you may have a so what question. I know Many of our investors here and shareholders are not clinically focused. I think it's worth looking at other examples of category creation in vascular access and infection prevention. I've been super fortunate to work in the vascular access space dating back about 15, a little more than 15 years now. I've seen firsthand how categories developed and evolved. Some easy examples are shown on the slide here. Disinfecting caps became a meaningful category. Patheter-staff stabilization devices became a meaningful category. Single-use CHG skin prep also became a meaningful category. These obviously didn't start as categories with hundreds of millions of dollars in revenue, but they became valuable because they solved real clinical problems, gained evidence in adoption, and eventually became part of the standard of care of how care is delivered. They followed this very similar flywheel that is propelling Covalent forward in the present day. Slide shows many examples, a few examples that many in MedTech know well. Ivera Medical with Kuros disinfecting caps was acquired by 3M Healthcare. This one I know very well because I was running 3M's vascular access business at the time. I led the acquisition process and the integration into 3M. Learned a ton from their founder, Bob Rogers, and the team that he assembled. Benetech with StatLock catheter stabilization acquired by Benetech. barred and then later acquired by Becton-Nickinson, and Turia with Chloroprap. You know, MedPak history doesn't guarantee the future, but it does show us something important. When a company identifies a real clinical problem, develops a differentiated product, builds evidence, earns trust, gains engagement, drives adoption, significant value can be created. And when I look at what we're doing with Valgard and CovaClear Cover, I see many of those same value creation elements really coming together. Okay, so now let me walk through a few recent highlights and achievements that show the category of building work in action and then some others as well. You know, building upon the contamination prevention theme, we secured a significant new global clear cover win. You saw a couple of slides ago that, in fact, we've won business at, you know, more than a dozen other notable institutions that we shared. But what stands out here with this specific account, one of the largest hospitals in the northeastern United States, they had a very successful evaluation for CovaClickCover and chose to implement, not just in one or two departments, but we received word last week that the hospital is placing an initial order to stock more than 30 different supply locations across its main facility and satellite campuses. This is a very strong signal. When a hospital moves from evaluation to broad stocking across that many supply locations, it means the product is solving a real problem, the nurses and clinical teams saw the value, and it means the facility is prepared to support strong broad usage, not just a small one-off implementation. We're seeing this actually more and more with our contamination prevention solution elements. In the past, maybe a strong evaluation might have led to adoption in one department, and then over time, that would spread to another department and so on. Past six or nine months, we're seeing a higher frequency of adoptions, where it's not just one or two departments, but five or ten more different ones, a testament to the clinical need and the power of our solution. The momentum for CovaClear Cover has been particularly exciting. In our most recent quarter, U.S. revenue for this product, and when we look at our tracings, was more than double the prior quarter. and more than six times the same period a year ago. This is the kind of acceleration that tells us the market is really starting to understand the problem and the value of the solution. Second, a new clinical study that included Valgard was published in the Journal on Advances in Neonatal Care. The study was conducted at Children's Hospital Colorado and documented a significant reduction in central line-associated bloodstream infection rates following a phased intervention program that included the adoption of Valgard. This really adds to the growing body of evidence supporting the use of Covalent's contamination prevention products. Third, contamination prevention has been selected for the official education programs at a series of really impactful meetings, clinical meetings. So the 2026 Infusion Nurses Society, the APIC meeting, the AVA annual meeting, These meetings reach thousands of infusion nurses, vascular active specialists, infection preventionists, and other clinicians who are directly involved in the problems we're addressing. This kind of education program inclusion is meaningful. It really demonstrates that this issue of contamination is gaining recognition and demanding action. And on the next slide, the momentum goes beyond the podiums. In late February, Covalent partnered with the Association for Vascular Access and Dr. Nancy Moreau to host a webinar, continuing education webinar, focused on this contamination prevention topic. For those of you that might not know Dr. Moreau, we've talked about her in the past, internationally recognized vascular access expert, incredible educator. When she talks, clinicians listen. The webinar drew more than 600 live clinicians. It's a huge number for this type of event, and more than 100 attendees requested direct follow-up. That's a big deal. It means that clinicians aren't just passively listening to the topic. They're asking for more. They want to understand how they can better manage contamination risk in their own practice. We also had a strong Coglott presence at the Infusion Nurses Society annual meeting and at the Symposium on Advanced Wound Care. At INS, we had outstanding engagement with clinicians across hospitals, clinics, home infusion, and other settings. The contamination prevention message clearly resonated. Conversations were high quality, and the reinforcement from a presentation that Dr. Moreau gave helped further validate the importance of the contamination prevention topic. At SAWC, the Symposium on Advanced Wound Care, we had really productive meetings across the wound care space. including both commercial and clinical leaders. This is important because, you know, Provolon isn't just a one-product company. We have a strong advanced wound care platform that joins up with our strong vascular access and surgical consumables business, and we have multiple ways to create value from our technology base. You know, across these conferences at both INS and SAWC, we actually continue to see engagement from industry participants. Companies are paying attention. They see the customer adoption in the wound care side. They see the customer adoption on the vascular access side. They're seeing the clinical evidence on both sides start to build. They see the podium activity. They see the differentiated technology. And they're trying to understand how Covalon, the small company from Canada, is gaining traction in areas that matter. Some really productive conversations with many different companies across both ends of the business at these events and beyond. It's a really good place to be. And if you'd like to see more about what Koblan is doing and building towards, a plug, make sure to follow us on LinkedIn, on X, used to be known as Twitter, Facebook, or Instagram. So, let me wrap up by the prepared marks here with this summary slide. First, we delivered a solid Q2. Revenue was up almost 15%. Gross margins improved more than 61%. Adjusted EBITDA more than doubled from the same quarter last year. Earnings per share improved. and we continue to have a very strong balance sheet. We told you last quarter that Q1 was an exception, not a trend, and we went out and proved this was true. And we believe the business has meaningful momentum as we move through the rest of fiscal 2046. Our second half growth expectations remain strong for all three of our sales channels, the U.S. vascular access and surgical consumables, the U.S. advanced wound care, and our international sales channels. Second, the contamination prevention category, it's advancing with speed. It's an important strategic story. We're not just selling products. We're helping to define a clinical category around a real under-addressed problem in vascular access. This is how meaningful MedTech value gets created. And while I would hope you believe me, given my experience and depth in the spaces that Covalent operates in, you heard it loud and clear from an amazing nurse at one of the largest and most well-regarded children's hospitals in the United States. This contamination problem is very real, and Covalent's products are making a meaningful difference for everyone involved. The upside opportunity is huge. There's an opportunity to penetrate existing accounts more deeply, win a massively high number of new accounts. It's a billion-dollar TAM, total addressable market, in just the U.S. alone. And finally, I believe Covalent's value is increasing ahead of financial market recognition. I've said before that in my past roles running large global businesses in MedTech, part of my job was evaluating companies for potential partnerships, strategic relationships, and acquisition activity. When I look at Covalent through that historical lens, the value creation ingredients are very clear. I've seen them in my past, and I see them here today with Covalent. We have differentiated products, strong margins, clean balance sheet, a growing base of high-quality hospital customers. We've got evidence building. We've got key opinion leader engagement, podium activity and important meetings, category creation momentum. And we have a market opportunity across all of our businesses that is far larger than what our current revenue base reflects. This is why I believe that Covalent is building towards a breakout moment. The financial markets might not fully recognize it yet, but nurses are seeing it. Infection preventions are seeing it. Industry participants are seeing it. And our team sees it every day when they wake up, super motivated and having conversations with partners, with customers, and doing the day-to-day work that keeps our company growing strong. We're proud of the quarter, but we're even more excited about what this quarter represents. Progress, momentum, and a stronger foundation for the future. And with that, we're going to transition to Q&A. For our questions, we'll start with questions that are typed into the Q&A feature here online. We'll take a 30- to 60-second pause here to take a drink of water and get things in order and then answer your questions. Okay, I think we're back off mute here. I'm more hydrated and ready to take on lots of questions here. We'll do our best to work through them. We have a number of questions from Steven Waldman. Steven, great to see you on the call today. First is congratulations, and do you have any thoughts on nine consecutive quarterly profits after nine consecutive quarterly losses? Thank you. Yeah, it's been a great story here at Kovalon. Really proud. I'm kind of looking around the room here. We've got a couple of our leaders in here and later today we'll be addressing the town hall. And so it's been, you know, a lot of hard work to turn that around. And it's, you know, it's really been driving the revenue, improving our margins, being very deliberate on cost and spend. And that's been the turnaround. You know, I'm always bullish. You can probably tell on where I think our future is going. And, you know, I'd say the future is very bright, and we're looking forward to delivering on high expectations. Second question from Steven is around preferred shares. So new classes of preferred shares, any insights for us is the question. And yeah, as we were working through with our legal counsel on some updates to our corporate bylaws in advance of the annual general meeting that took place a couple of months ago, you know, our bylaws hadn't really been changed since we went public as a company many years ago. And so our attorneys, as attorneys tend to, you know, made a number of suggestions to us that were reflected in motions that were put forward at the most recent annual general meeting, all of which passed. The preferred chairs were one of these suggestions and Really, it was just to give us flexibility as a company should something emerge where we would want to issue preferred shares. So really, just the story of much better to have the flexibility here in advance. Third question from Steve Steven is, you know, vascular access, sequential growth, and track record and sequential growth. And yeah, that's been a, you know, we talked about the three different sales channels. And the U.S. vascular access and surgical consumables is one that just every quarter it continues to grow and grow. I think in the last nine quarters, seven or eight of them have been sequential growth. Sometimes, you know, single digit, oftentimes double digit sequential growth. And so that's clearly a business. But, you know, kind of as I talked about, right, This isn't even about single-digit or double-digit sequential growth. This is about building to an opportunity, and it maybe feeds into your next question, so I'll segue to it. It feeds into a bigger opportunity. That next question is also from Steven. You know, he referenced last quarter's snowball rolling down the hill analogy, and his question is, can vascular access hit 20 plus 30 million by 2030, as previously stated? I hope you've come away from today's presentation with a resounding confidence that absolutely. When you look at the progress we're making and this category creation, and, yes, I gave you three. I could have picked three or four others that were equally sizable categories that were created. And, yeah, we're running full steam ahead. with the solution and really anchoring our vascular access business. And we see strong opportunity to hit that 20, 30 million and beyond. At this point, I would say, you know, 20 million, 30 million by 2030 would probably be a disappointment. A disappointment in that we think we can do much better, much better than that. I should have clarified that. I am going to break it up a bit here. Stephen might have set the record for the most questions to get in early, but just in the interest of time, I'll start looking at some of the other ones. We have a question from Raheel Galani. I hope I pronounced that correct, Raheel. Raheel from Keystone Financial. On the Q1 earnings call, you discussed your outlook for the rest of the year and sounded quite bullish. Still hold the same view regarding... your forecast for the remainder of the year? Absolutely. As I kind of closed with, you know, we're very excited. This year we're going to see good growth in all three of the sales channels. And the second half, you know, like we talked about, Q1 was an exception, not a trend. And I think we have solid on the site to Q3 and Q4, second half much stronger than the first half. We have a couple of questions from Raheel, and I think I saw this with one other person as well, Mark, around a similar theme, Mark Haas, around medical, how many medical clinics or hospitals are using Covalent products, tracking client locations. Raheel's question is, net new hospital wins in Q2. So we can absolutely look at doing that for next quarter. To be honest, we're having so many accounts where I'm looking across the table at our CFO. We're in the process of really trying to work through our tracings. We're adding so many accounts, and we sell direct to many of our customers. We work through distributors and oftentimes distributors You get different hospital names. And so we're working to make sure we can accurately reflect the reality of the growth we're seeing. And it's a good problem to have, right? There's lots of companies out there, I'm sure, that only add one or two hospitals a month or a quarter. That's a little easier to manage manually. And as a small company, we like to kind of automate things where we can. So, good problem to have, but one we'll look to incorporate in future meetings. Mark Haas has a question as well. Great quarter, excited for the future. Would love to know the strategy around capital allocation. Is there an intention to acquire with so much cash on the balance sheet and a modest valuation? Modest valuation. Why not execute a buyback? Why choose the special dividend over a substantial issuer bid? Would love to see some of this cash being put to use or returned via buybacks. Yeah, so, you know, we're very fortunate. We're in a great position when we think about our financial, our balance sheet and whatnot. And, you know, I've talked to other companies that are – that are struggling to make payroll, dealing with adversity. But I like the position that we're in on a financial basis. We've looked for sure at different, you know, as a board around different ways to allocate capital. We've talked about, you know, a strategy of how do we get bigger quicker or become a part of something bigger quicker? How do we, you know, we have this amazing technology. How do we get it in use more and more. We're choosing to invest, as we stated, in ourselves, in our manufacturing, to drive greater capacity, greater efficiencies, lower costs. And then specific on, you know, we've talked about this in past meetings, around the buyback versus dividend. You know, last year, last calendar year, late in the calendar year, we issued, I think it was more than $4 million dividend, special dividend, and we're delighted to do that. We heard from a lot of shareholders that actually took the proceeds from that and actually bought shares back, and so I think that's, you know, a bit of a de facto share buyback, but we're always looking at different options, discussing them as a board. You know, we're fortunate. We're essentially back to the same cash position we were before the $4 million plus dividend, and so we've got options going forward. Raheel asked another good question, so thank you, Raheel. Is 60% plus gross margin sustainable, or should we think about 55% to 60% as a more reasonable level range for the rest of the year? Yeah, I mean, that number can go up or down a little bit. You know, I think I shared last quarter You know, so I would say, I guess to answer the question, you know, we'd like to see gross margins in that kind of 55% to 65% range, high 50s, low 60s. You know, when we look at the industry and you look at other, you know, companies, med tech, consumable companies, our margins are really ahead of many leading companies that, you know, we make the denominator of millions of products per year. A lot of these companies make billions of these consumables per year and have margins well below us. So high 50s, low 60s, and I think is really outstanding for a company of our size and scale. Arnold Schell. Good morning, Arnold. Glad to have you on the call again. What's the exposure or strategy for U.S. tariffs? Yeah, I mean, the U.S. situation is a little interesting at the present time, but I'm not going to comment on Supreme Court decisions or presidential administration side of things. I would just say that at present, there are still some tariffs, especially from China, and I believe still from Europe. For us in particular, we had very, very low immaterial really to the bigger scheme of things. Tariff exposure last year, I think it was something like 0.5% of our revenue was impacted by the tariffs. It was like $30,000 to $40,000. We don't see that being a meaningful number this year as well. If anything, you know, I still think it remains a competitive advantage for us. The tariff level changes and sometimes difficult to calculate coming out of China. But we do see, you know, competition coming there between tariffs there and increased scrutiny for some suppliers that are servicing the U.S. market there. Some shifts towards, you know, more pro, we'll call pro-North American sourcing. So I think that's benefited us. And then, you know, our manufacturing strategy has been very strong. I think it's served us very well as we've gone through this. And I'd say two things. One, Paris is one thing. Supply chain disruption is another. And I think we've done a really good job. We have a great balance sheet. And so we've chosen to invest to strengthen our supply situation. And, you know, I think you're starting to see some other companies that maybe weren't in that great a financial position that are struggling a little more on some of those supply chain disruptions. So I think we've got a good approach there. I think I've taken on – there's some other questions, another one around preferred shares that I feel like I answered. Mark Haas has a question. So last quarter alluded to automations operating efficiencies on productions. Are these fully integrated now and why we're seeing strong margin or is there more to come? Great, great story. The margins you see today are not, in fact, reflecting of those investments in automation. We're actually in the middle of implementing those, getting the broader space up and running and redesigned to support some really strong workflow. So future benefit to come, we should see that start to – really, I think 27 will be a full, solid year of – a strong year of benefit there, and maybe a little bit into 26, the tail end of 26 here as well. I don't think it will be a meaningful number for 26, but 27 will definitely see the benefits for that. So, yeah, I know the margins, more a reflection of, you know, choices we're making and how we promote products that carry higher margins. Okay, so I'm going to go back to some of Stephen's questions here. Stephen also had a question on the item, so I guess I covered two birds with one stone there. Stephen's question is, what's your target for total number of acute care hospitals and target for percentage of pediatric hospitals? So really around, he's talking about market share. I think I understand his question. I would characterize it as penetration. And, you know, I'll be honest with you. I have a lot of personal interactions in my history in the healthcare space with family members and whatnot. All of you have as well. My target is everyone. There's several hundred children's hospitals in the United States, even more outside the U.S. There's something like 5,500, 6,000 acute care hospitals. Our target is every single one of them because I am 100% convinced that every single hospital, children's hospital, acute care hospital, And we haven't even talked about beyond the hospital. There's some big opportunities there. But our target is to get every single one of them. You know, is that realistic within, you know, the next couple of years? Probably not. But the opportunity is huge. You know, from a penetration standpoint, we're in the teens in terms of cobalt penetration of our contamination prevention solution in the children's hospitals and the things. and, like, less than 1% or 2% on the acute care side. So what does that tell you? Hey, work to do for sure, but it gives you a feeling for the upside as well, right? When you start looking at, you know, we're in a few hundred hospitals out of the, call it 6,000 or so in the U.S., and even more opportunity outside the U.S., there is a ton of room to grow with new accounts. And that doesn't even include the benefit from existing account expansion, which we see happen with pretty much every account we take on. It's a really exciting trend. I think just looking through here, I think we've covered the questions here. Arnold Schell asked a question about, so another question, Arnold, thank you, about, you know, where are sales now in Q3? You know, I think the best way to put it is kind of the comments I've already put on the table today. Q1 was an exception. Q2 was much stronger. And we see an even stronger Q3 and Q4 moving forward. So strong second half to the year. Very excited about that. And then Steven Waldman had a question. This is – we'll take this – I'll refresh and see if there were any others, but we'll take this as the last question otherwise. And the question was around, like, is the competitive landscape getting any less challenging? Because Ben – 60 minutes, not going to, could spend 60 minutes talking about the competitive situation in the different segments we play in. But I'll talk about two bigger ones. One is for sure the wound care space. And I would say that's a big part of our business, obviously. And that's one where we're definitely seeing some changes. So there's direct competitors and indirect competitors and I'd say the collagen space is a strong one to be in. It's a good spot to be in. Not sure I would say that the competitive situation is getting more challenging or less challenging. Probably the biggest thing we're seeing is a percentage, maybe it's around 15% or 20% of the collagen market is coming in from Chinese suppliers. And certainly with the tariffs and the supply chain disruptions that we've seen, I think that's been disrupted to a certain degree. And so we've seen that as a bit of a strength. And then, you know, just I didn't really talk about on the competitive side on the contamination prevention solution, but that's really more of a greenfield type opportunity. We really – there are – There are some indirect competitors that are not fit for purpose nor clinically indicated to prevent the contamination that we talked through. And so really, you know, from a competitive standpoint, we're leading the way. We're pioneering this category. It's an amazing, exciting activity to be doing. And, you know, competition will increase for sure. But, you know, I look at those competitors. Those three kind of companies that created different categories. And even as competitors came in, you know, Kuros, great example. They really created the category. There are competition that have existed. They're still, you know, many years after the 3M acquisition. As best I understand, still leading the way market share-wise. Chloroprep was a great example. The last I heard, they still had something like 80% of the U.S. market, even as competitors. other competitors have emerged. And so that first mover advantage in med tech is very real. And it's why we are so bullish on how do we keep going? How do we go after every hospital with speed? So I'm going to... I don't see any other questions. Oh, sorry. Last one here. Julian Hoffman talked about a period of inventory normalization after ownership transition and how the situation with the customer channel inventories in general. Yeah, so I'd say, you know, I think we've gotten back to more of a normalized environment. As I indicated, the U.S. advanced wound care business was up close to 30%. in the quarter compared to the prior year and strong sequential growth as well. And so I think we're through that kind of period of bumpiness. It'll continue, I'm sure, to bounce around as we see a much stronger second half. But, you know, the situation with that customer I think is pretty stable and we're going forward from there. And then last question here, Raheel, again, another good question. Thank you, Raheel. Talk about operating leverage coming into play. Yeah, I think coming into play strong second half. I think when you look at our financials, what you see is very clear. When we drive successful revenue growth, that we do so very efficiently, we can add strong levels of revenue. at strong gross margins and very low incremental SG&A. And so, growth is key. And as we grow, a large, large chunk of that can drop to the bottom line. And so, when we think about, you know, this contamination prevention solution that should get to, you know, $30 million, $20 million, $30 million, $40 million, we're not going to have to add $10, $12 million of SG&A or operating expenses to attain that. And so, you know, as we look at the future state of Covalent, we see some really strong operating leverage. So thank you for that question, Raheel. I think we're – yep, we've got four minutes left. And I've got 60 seconds, and I'll wrap up. So we'll give you back a couple minutes here. Listen, thanks again to everyone for joining us today. Thank you for the thoughtful questions. I think this might have set a record for the number of questions, which I'll use as a proxy for shareholder engagement, so thank you very much. What I really hope came through clearly today is that Kobalon is not just reporting a strong quarter. We're building something much larger. Q2 definitely showed the operating progress we wanted to see. Revenue growth, stronger margins, really strong EBITDA growth. remaining strong balance sheet, but even more importantly, the momentum, the clinical momentum, the commercial momentum behind our solution, our contamination prevention solution, really continues to accelerate. We're seeing adoption from some of the most respected hospitals in North America and beyond. We're seeing nurses, infection preventionists, basket access leaders, and industry participants engage really deeply with us on the problem that we're solving. This is what gives me a ton of confidence. Yes, we still have a lot of work ahead of us, and we're definitely not taking anything for granted, but the ingredients for meaningful value creation are becoming clearer every quarter. We've got the products. We've got the team. We've got the balance sheet. We've definitely got the customer traction, and the market opportunity is massive. I really believe that Covalent is entering a super important period in its journey, and And I couldn't be more excited for what's ahead. So thank you so much for your time today. Appreciate your continued support. And I wish all of you the best for the rest of the day, the rest of the week. And for those of you in the United States, I hope you have a good Memorial Day weekend up ahead. Thank you and have a great day.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.