Covalon Technologies Ltd. (COV), a leader in medical technologies, has reported a strong financial performance for the third quarter of fiscal year 2024. The company saw a significant increase in revenue, with a 47% growth compared to the same period last year, totaling over $9 million. Adjusted EBITDA reached $2.4 million, marking a notable turnaround from the $400,000 loss reported in the previous year.
Covalon's success was attributed to its strategic focus on the U.S. product business, customer retention, and an expansion in the U.S. hospital market, which resulted in a 60% growth. Over 60 new customers were added, and the company maintained a high retention rate of 98% among its top 50 customers. The solid financial results were also supported by a strong gross margin of 59% and reduced operating expenses.
Key Takeaways
- Covalon reported a 47% increase in quarterly revenue, with a total over $9 million.
- Adjusted EBITDA for Q3 was $2.4 million, a significant improvement from the $400,000 loss the previous year.
- The company achieved a gross margin of 59% and reduced operating expenses by $236,000.
- Covalon's U.S. hospital business grew by 60%, with over 60 new customers contributing to this expansion.
- The nine-month financial performance showed a 13.2% increase in revenue and net income of $2.1 million, resulting in earnings per share of $0.08.
- Covalon's balance sheet remains stable with an increased cash position, supporting future growth strategies.
Company Outlook
- Covalon is committed to its strategic path of growth and continuous improvement.
- The company's strategic priorities include driving growth with current products, product and technology improvements, and market development.
- Plans for innovation, potential M&A activity, and international expansion are on the horizon.
Bearish Highlights
- The company experienced challenges in the Middle East market due to tender delays.
- Adjusted gross profit varied due to a change in product mix, with more sales of lower-margin products in the current quarter.
Bullish Highlights
- Covalon expressed confidence in its ability to acquire new customers despite a smaller sales force.
- The company is optimistic about future growth and revenue opportunities, especially in the U.S. hospital business.
- There is potential to increase revenue per bed and expand beyond children's hospitals into areas like oncology.
Misses
- No specific guidance was provided for the last quarter of the fiscal year.
- The company did not disclose details on the profitability of specific products.
Q&A Highlights
- Executives explained that adjusted gross profit was lower in the current quarter due to a shift in product mix.
- The company's strong cash position allows for flexibility in pursuing growth opportunities.
- Covalon is focused on expanding its U.S. hospital market presence, particularly in the acute care sector for adults.
In conclusion, Covalon's Q3 earnings call revealed a company on the rise, with a strategic focus on the U.S. market driving significant financial growth. The leadership team remains optimistic about the company's future, with plans to leverage its strong cash position for potential growth opportunities. Despite some challenges in international markets, Covalon's robust performance in the U.S. and its strategic initiatives position the company well for continued success.
Full transcript - None (CVALF) Q3 2024:
Operator: Good morning, ladies and gentlemen, and welcome to Covalon's Q3 Fiscal 2024 Conference Call and Webcast. My name is Laura, 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 speakers remarks, there will be a question-and-answer session. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Brent Ashton, Chief Executive Officer; and Ms. Katie Martinovich, Interim Chief Financial Officer. Please go ahead, Mr. Ashton and Ms. Martinovich.
Brent Ashton: Thanks so much, Laura, and good morning to all of you on the call today. We appreciate you connecting in to hear a little bit more about Covalon and our third quarter performance. Katie is joining me in this presentation and we also have Saleha Assadzada from Covalon to help coordinate the conference call and the webcast today, and she will now provide us with some instructions.
Saleha Assadzada: Thank you, Brent. Good morning, everyone. My name is Saleha Assadzada and I'm the Executive Assistant to Covalon's Chief Executive Officer. I would like to thank everyone for taking the time this morning to attend our conference call. We will be discussing the financial statements, MD&A and press release related to Covalon's third quarter ended June 30, 2024. There will be an opportunity for you to ask questions at the end of the call. Before we begin the discussion, I would like to remind participants that this call and webcast are covered by Covalon's safe harbor statement. Certain statements included on this conference call may be considered forward-looking. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those implied by our statements. And therefore, these statements should not be taken as guarantees of future performance or results. All forward-looking statements are based on management's current beliefs, assumptions and information currently available to us and related to anticipated financial performance, business prospects, partnership opportunities, strategies, regulatory developments, market acceptance and future commitments, among other things. Participants on this conference call are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date of this conference call. Due to risks and uncertainties, including those identified by Covalon in our public securities filings, actual events may differ materially from current expectations. Covalon disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In the management's discussion and analysis, press release and this call, Covalon has provided non-GAAP financial measures that are meant to provide further understanding of our results by helping to highlight trends and assist in comparing different periods. The adjusted gross margin and adjusted EBITDA are terms that do not have any standardized meaning and may not be comparable to other companies. These measures are not meant to replace the similar IFRS accounting standard measures and any adjusting items may occur in the future. I will now turn the call back over to Brent Ashton, Covalon's Chief Executive Officer.
Brent Ashton: Thanks so much, Saleha. Hey, listen, great to be able to share this past quarter's success with the audience here. I hope that all of you are having a great summer so far. With a little more than seven months here at Covalon, I'm very excited with the progress we've made and also very pleased that this progress is translating into strong financial results for the company. If there was one consistent question from investors and analysts after our strong Q2 results about three months ago, it was clearly some version of, hey, great job, but can you do it again? Is it sustainable? And I'm very pleased to be able to sit here today and say a resounding yes to the answer to that question by conveying our Q3 results here. So with that as a lead off, I'll jump right into the third quarter results. With a strong focus on driving profitability for the company, I think we've been clear with that at the AGM and then last quarter as well. We did end our third quarter with adjusted EBITDA of $2.4 million which was a $2.8 million improvement from the $400,000 loss a year ago. We also delivered earnings per share of $0.06. So how did we achieve this? Well, a ton of great work by the team across all of our functions that really led to three key financial drivers. First, we had a very strong quarter for revenue, coming in at over $9 million, which represented 47% growth over our third quarter last year. Really an outcome of the prioritized focus and execution on the U.S. product business. Gross profit was also strong. Gross profit dollars were up more than 50% over last year, which led to a solid gross margin of 59%. And then we're also being very judicious on the operating expense lines, where we were able to drive almost $3 million more of increased revenue with a reduced spend of $236,000 versus the prior year. Katie will provide some more details on that in a minute. Add those three up and those drivers really led to the strong bottom line performance that I highlighted earlier. I will close this slide with a comment on our sustaining or foundational work to advance the company. It's been a big area of focus during my time here at Covalon, a fair bit of cleanup work to really get the company on the right path in a number of areas. I've thrown a lot of change at the organization, and I'm very proud of how the team has responded and what we've been able to accomplish in a short amount of time. That being said, we're not done on this front. There is still work to do here, and I appreciate the patience as we continue to devote bandwidth to this important area of focus. And now for a double-click on our financial performance, I'd like to turn the call over to Katie.
Katie Martinovich: Thank you, Brent. For the Q3 financials, the company's financial performance for the third -- three months ended June 30, 2024, reflects significant improvements and strategic adjustments compared to the same period in the previous year. The following are the key financial data points for Q3. Revenue has increased 47.1% from $6.3 million in the prior year period to $9.2 million in the current year. Part of this success has been the increase in product revenue, which has grown 52.6% from $6 million to $9.2 million. This increase is due to the expansion of the company's products within U.S. hospitals, which Brent will cover in more detail in a few slides as well as a stronger customer demand for our collagen wound care dressings. From a geographic standpoint, the United States represents 87% of our total worldwide revenue. Covalon's gross margin increased to 58.9% in Q3 2024 versus 57.5% in the same period a year ago. This improvement is driven by a favorable product mix as well as the investments we've made with internal manufacturing of our collagen dressing. And a gross -- sorry, and our margin performance is even stronger if you factor out adjustments we made for potential obsolete inventory. These provisions relate to some decisions that were made several years ago for some of our noncore products. Excluding the inventory provision, the gross margin improvement versus a year ago comes to almost 1,000 basis points. Covalon has successfully streamlined operations and optimized costs, leading to a stronger financial performance. This quarter, we achieved a $2.9 million increase in revenue while stimulating reducing our operating expenses by $200,000 compared to the same period last year. A significant accomplishment with full credit to our teams for being able to achieve more or less. The bulk of the cost savings came from our actions a few quarters ago to right size our commercial structure. The increase in EBITDA to $1.7 million from a loss of $0.2 million in the prior year period is a notable achievement. It highlights the company's effective management of operating expenses and the benefits of revenue growth. The positive net income achieved for the second time in a row shows Covalon's successful turnaround strategy and improved financial performance. Lastly, by driving strong focus on the U.S. market, [indiscernible] cost management and making sound and strategic financial decisions, Covalon has been able to achieve profitability again this quarter, improving our earnings per share from a loss of $0.02 in Q3 FY 2023 to a positive $0.06 this quarter. Covalon's financial performance for the nine months ending June 30, 2024, reflects a significant improvement compared to the prior year. Revenue increased by 13.2%, rising to $22.3 million from $19.7 million driven by an impressive 63% year-to-date growth in our U.S. product revenue which more than offsets the $2 million decrease in our coatings business. This strong top line growth was achieved while reducing operating expenses by $1 million from $13.1 million to $12.1 million. As a result, net income improved to $2.1 million, a stark contrast to the $1.6 million loss reported in the prior year, leading to earnings per share of $0.08, a $0.14 improvement. This performance underscores our successful efforts in streamlining operations, optimizing costs and making more effective investments in our sales and marketing team. Despite the challenges we have faced related to obsolete inventory. We have continued to achieve strong margin improvement, highlighting the resilience and adaptability of our business model. Our financial performance relates -- reflects a significant turnaround in our business over the past six months. This quarter's profitability was driven by strong revenue growth, improved gross margins and enhanced operational efficiency. Our strategic efforts have successfully transformed prior losses into two consecutive quarters of net income, signaling a strong recovery and setting a solid foundation for future growth. Over the last few quarters, our balance sheet shows stabilization and increased cash position, demonstrating our ability to effectively manage liquidity and maintaining functional flexibility. This solid cash foundation supports our ongoing operations and positions us well for future growth opportunities. There has also been a significant increase in our net working capital, a $4 million increase in the past six months. This growth highlights our effective management of current assets and liabilities, ensuring that we have ample liquidity to support our ongoing in-house manufacturing operations and future investments. Additionally, our balance sheet shows a notable increase in shareholders' equity. This growth is directly linked to our improved profitability over the recent periods, reflecting the effectiveness of our business strategies and operational efficiencies. We continue to have no debt on our balance sheet, which is allowing us to have financial freedom, giving us greater flexibility to allocate resources towards our growth and innovation. And now, I will turn the call back over to Brent.
Brent Ashton: Thanks so much, Katie. I appreciate the deeper dive on the outstanding results from Q3 here. Turning to the page, I'd be remiss if I didn't showcase the amazing health care facilities that we have the privilege to work with. These name brand providers all use our highly differentiated products. And you really hope that you are allowed to what doesn't have to end up going to a hospital such as these. But if you do, these are among the very best of the best. Definitely delivering top-notch care to their patients, and we couldn't be more proud to be able to help them on that care delivery. Going to the next page. During the Annual General Meeting, I committed to providing the audience with some examples of some key metrics that we look at to assess success or challenge with our business. And on the U.S. hospital front, where we are focusing on the products that you can see at the bottom of the slide. It isn't a super complicated recipe for success here, but it is one that we feel we're having a great deal of success with. First, it really starts with keeping the customers that you already have. In my past, we referred to this as the leaky bucket. It's really hard to fill the bucket if you're losing water out of leaks at the bottom of it. So you've really got to prevent that as best as possible. The reality is customers always have choices to stay or to go, and we feel really good about our retention rate, the stickiness of our products within our customer base. And when we looked at our top 50 customers from our fiscal 2023 year, 49 of them are still with us. And the one customer we did lose was really an outcome of some important portfolio optimization work that was done in discontinuing two SKUs that just didn't have the volume to warrant continuing to manufacture them. The second metric is our element is a high focus on growing our revenue and the share of wallet with our existing customers. So using that same base of our top 50 customers from last year, our year-to-date revenue growth so far with those customers is more than 50%, which in an environment where the underlying market volume is growing, let's call it, mid-single digits. It's an extremely impressive outcome and really speaks to the value our products are providing to our customers. This is the end outcome from our focus on our account-based marketing and on-the-ground cross-sell initiatives where we look to add greater adoption or added departments for the products we already have in use at a given facility as well as adding new products that the customer wasn't previously purchasing. And then the third area is adding new. And here, we've been able to add over 60 new customers into the Covalon family within the past nine months. These new customers have already accounted for over 15% of our year-to-date revenue growth in the U.S. hospital market. So again, not a super complicated commercial growth strategy, but it's the right one for us at the present day and one that we are driving effectively to achieve encouraging results. As these three growth levers up at our U.S. hospital business is up 60% year-to-date. It's a really significant growth driver for our company. And before we turn to summarize the quarter and wrap up today's call to take questions, I did want to provide a bit of a strategic path forward for Covalon. What are our priorities across these three different Horizon waves that you see on the slide here and a bit of a disclaimer here. These aren't the only priorities we have. I didn't want to overwhelm the story. So just focusing on a relative view here to illustrate the approach we are taking and our thinking as we look ahead. So how we are approaching this is to look at various strategic priorities laid out against the three Horizon’s over the next few years, with the priorities in Horizon 1 being the majority of our team's focus today, but less of a focus as time advances, and we make solid progress against those priorities. Horizon 2 priorities have a portion of our focus today will ramp up a fair bit in the midterm and then also tail off as we make headway. And that leads to Horizon 3 priorities, which we are being more selective with for [indiscernible] allocation in the present, but will become a larger share of our efforts as we advance and make progress. So for Horizon 1, which as I indicated, is the majority of our focus in the here and now today. On the commercial front, it's all about driving significant growth with what we have to sell today. The approach from the previous slide around routine, grow existing and adding new customers are key signaling metrics here. We've also talked a lot about rebuilding the Covalon Foundation, which involves a great deal of focus on sustaining engineering and other activities to strengthen our core abilities as a company. Significant effort that will -- is yielding benefits now and will yield benefits well into the future. And along the way here, one of the things that I think about and we think about for this audience is for us to demonstrate through solid outcomes that we have the management capability and credibility to successfully advance Covalon through the short term and into the longer term with a greater level of consistency in the past. We want to make sure we're setting the company up to achieve sustainable short- and long-term success. Inevitably, there will be some bumps in the road. As a small company, we have less elements that can balance things out. But fundamentally, we are working hard to drive more consistency in our results that show up here. For Horizon 2, this involves us shifting into more activities to drive growth outside of the here and now what we have today. Here, there's a big focus on product and technology, driving relatively simple but impactful product improvements. We do get a lot of good feedback from our customers. And it's our job to incorporate that feedback to make our products even more relevant to them to both prevent a leaky bucket as well as to enable broader adoption and broader use cases. We also see a lot of opportunity to take a different look at some existing products or technologies that we have as a company for a variety of reasons, are either sitting on the shelf or aren't active areas of focus or are being advanced in a more narrow field of play. We've already begun some work here on some different market assessment activities and more to come, but outcomes here could include repositioning some existing products that haven't quite hit the mark commercially, or expanding our focus with Covalon products into adjacent spaces or different go-to-market models. And on the innovation front, this is an area that I know the Covalon team is super excited for. We already have a significant hopper of innovation ideas, and we know that there's even more out there. Building out a stronger capability and capacity to be able to innovate is a critical step for us to allow us to create and ultimately capture greater value in the marketplace. A key part of this that is part of the short-term time frame is really broadening out our external focus and approach, getting more of our team members spending more time externally with customers in their facilities or at scientific meetings, scouting work at different industry events to better understand and interact with the broader industry ecosystem. Work to look at emerging technologies from various sources, these types of things, very critical, very excited. And then last in this bucket is around market development. For those of you that aren't as familiar with the med tech space, think of this work as being the answer is helping us answer the question. Why should I use your product? This includes generating and communicating clinical and health economic evidence surrounding our products. How did Covalon products improve outcomes with patients in a cost-effective way for our customers? This also includes more work with key opinion leaders in the space as well as work around highlighting the magnitude and impact of the problems that our products solve for. A great example on this front is around the often underreported challenges of patient skin damage caused by other companies dressings with more aggressive adhesives on them that can sometimes cause skin reaction while in use or damage to the patient's skin upon removal. Big problem wouldn't wish these challenges upon my worst enemies. And then moving to the third Horizon. As we have success building that stronger innovation engine, bringing new to Covalon and even new to the world-type products to market will be really important. And just getting them to market is only one piece of the puzzle through market development actions through a stronger commercial organization how do we bring them to market and drive for impact and scale. M&A activity is also in this third Horizon, where we are and we'll be looking for technologies or entities that could strengthen Covalon or drive more relevance with our customers. And last but not least, we have amazing products that make a world of difference to patient outcomes. Why should they use to be limited to just our existing base of countries that we sell in today. Our international team is constantly examining and advancing new opportunities in various countries but we are seeing such strong returns on our focus on the U.S. market at present. So this is why I've elected to place international expansion in this third Horizon for now. So I hope that this provides you with a little bit of a strategic vision of where we're currently focusing our time and effort and how that will shift over time. As the pie charts would suggest, our goal over the next few years is to shift the percentage of our time spent on the various buckets of activity. In the present day, we're doing work within each of the three Horizon buckets, but the vast majority of our team's effort is spent on Horizon 1 bucket. Over time, we'll see that shifting into the Horizon 2 and 3 buckets, which we believe will be critical ones to get the company to greater scale. And so to wrap up today's call so that we can take some questions, a quick summary. Strong quarter. Really proud of the work that the full team did to make this happen. A lot of success achieved across the board that ultimately showed up financially as the strong growth, strong margins, smart OpEx and ultimately, a second straight quarter with robust profitability. Q2 was not a one and done. We did it again here in Q3. And on that front, we're working incredibly hard to do it again in Q4, a three-peat, so to speak. The team knows very clearly what is needed to have success here, and we are laser-focused on making that happen. While we've made significant progress on the foundational work, the blocking and tackling, so to speak, there is still a good amount of work to do here. And so it's very important to allow us to build the Covalon in the future. And I'd be remiss if I did not put a plug in on the last point around opportunities. As a team, we spent a fair bit of time in the past three or four months really thinking more deliberately about the opportunities of things we could be doing that would drive greater relevance and outcomes with existing or new customers. Things like product innovation, market development activities, adjacent space moves and so on or things that would strengthen us more from an internal front, such as driving cost out, expanding capacity improving things on the QARA front and so on. And the sheer size of the list gives me so much optimism for the future. However, tempered against the reality is that, although we can do anything, we can't do everything. And so some of the toughest choices we have as a leadership team involved deciding what programs or projects will or will not be prioritized, funded and resourced to advance in the short term. With that, this wraps up the formal presentation for today, and Katie and I will be happy to take questions. For our questions, we will start with the questions that are typed into the Q&A feature here online. We will take a couple of minutes of pause here to allow time for those questions to be answered and then we will have Saleha triage the questions for us. She will announce the question and who the question is from and then Katie and I will provide answers. If time permits afterwards we will open the line up for verbal questions.
A - Saleha Assadzada: Our first question comes from Jason Senensky who asked, you mentioned that you acquired 62 new customers in the U.S. hospital business year-to-date. With a smaller sales force, do you believe you can continue to acquire new U.S. hospital customers? If so, how does your sales and marketing strategy you need to adopt?
Brent Ashton: Thanks, Jason, for the question. Short answer, yes, smaller sales force than we had a year ago. We do believe and we are seeing that we're adding new U.S. hospital customers but we're also looking at when is the right time to expand as we've had success and as the metrics have clearly demonstrated, we do believe that we can -- as we add resources that we can repeat the success there on the metrics. And so looking to expand as we go forward. And then, sorry, you also had on how does your sales and marketing strategy need to adapt? We feel really good about where we're at. And I think a lot of focus for sure as we have worked with the teams around the external environment. So really deeper and deeper understanding of our customers, our competitors, the broader ecosystem we play in and how we can drive for effectiveness there has been a key part of some recent meetings and discussions and looking forward to continued success there.
Saleha Assadzada: Next question is again from Jason Senensky. What is the plan for the device coating business?
Brent Ashton: Yes. Thanks. So a pair of good questions, Jason. On the medical coatings business, it's one that was a bigger part of our company for sure a few years ago. And as we've communicated a few quarters ago, shifted the focus from that business to the U.S., the product business, in particular, on the U.S. side. And so clearly, that shift in focus, you can see from our results is paying off. That being said, that medical coatings space that there's technology know-how and good content there. We've engaged of late with a strategic consulting firm to help assist us in trying to frame up the technology, our capabilities, the external landscape and so that work is ongoing. And I should have -- for next quarter, I should have a report out and a little bit more guidance. We'll make sure we include it as part of the presentation on what we're going to do with that business going forward.
Saleha Assadzada: Our next question is from Arnold Shell (LON:SHEL) who asked, while comparisons to the same quarter last year is good. The results on some measures is flat from 2024 quarter two. If earnings are only going to be $0.06 per share per quarter, the shares are already pretty much fully valued. What are the prospects for improvement in earnings per share?
Brent Ashton: Yes. I think I'd really lean around the growth of the company, right? So yes, from Q2, our margin, our gross margins were essentially flat, down a little bit. We do see quarter-to-quarter mix shifts and previous. So Q2, we had a really, really strong mix of products that helped to get those margins up. When we look at the future of the company, for sure, we're experiencing strong growth now. Obviously, our goal is to continue that. And as we continue to modify and look at different strategies for growth, we do see strong opportunity in the future to grow earnings as well. I think the other thing I would say is we've achieved this. We've highlighted this a couple of times today. We've achieved that growth with a significant reduction in operating expenses. And while it's not our intent to continue to decrease those expenses down, I think it's shown we can be really effective and deliver a very strong return and so as we grow the revenue line, as we continue to make greater investments, I think that will hold out strong prospects for improvement in EPS going forward.
Saleha Assadzada: Our next question is again from Arnold Shell who asked, what is the tariff risk if Trump wins? What are we doing to mitigate that risk?
Brent Ashton: Yes. So I happen to live in the United States. So I can assure you, political season is it's a very interesting one down there, and I think it's going to be sprint to the finish here. As a company, we look at all different outcomes. If former President Trump does win, he has talked about tariffs put some tariffs in the last time he was in office. But we're really looking at decisions on where we choose to manufacture products across the board. We do have a mix of where products are currently manufactured. And so in general, the closer we can get to the customer, usually the better the outcome. And we feel good about our recent move to in-source collagen production here into our facility in Mississauga, Ontario. And going forward, we'll continue to assess and make changes that are warranted.
Saleha Assadzada: Our next question comes from Sergei Maskaro who ask -- first question he ask is, can you show the revenue breakdown for U.S. international for the quarter? And also, what growth did you have during quarter three in U.S. international.
Katie Martinovich: Okay. I'll answer the first question. So the growth, basically, with the U.S. international breakdown between revenue, U.S. mixed up about 87% of our revenue currently for this quarter. The growth mostly is coming from our international firm -- our U.S. business, which is just under 21%, where international has basically been flat between quarter-to-quarter, and that's also due to the international with our tender base. It tends to -- there's always a lumpiness with when orders come in for the international business.
Saleha Assadzada: The second question from Sergei Maskaro was comparing operating expenses quarter three versus quarter two. What makes the slight increase you had quarter-over-quarter do you believe those expenses are sustainable going forward? Or will you need to increase them back?
Katie Martinovich: So the slight increase that we had from Q3 versus Q2 is, we did have a lot of engineering and sustainability costs related to the day-to-day business and ensuring that everything is within what we need to do for production. We are making significant improvements in our costing and also to, with IT infrastructure that we have put in place, which will also help keep costing down. We won't need to have to increase the cost versus what we were this time last year.
Saleha Assadzada: The next question from Sergei Maskaro is, do you expect any seasonality in the business?
Brent Ashton: I'll take that one. We don't see a lot of seasonality in the business in the traditional sense. We do see some lumpiness coming out of more of our international business where tenders get announced awarded and ultimately fulfilled and sometimes that schedule can advance or slip. And I'd say the second thing is in our collagen business where we have various partners, a small number of partners that, in turn, have large and small customers. So as things shift there, as they win books of business or turnover books of business, we can see some lumpiness there.
Saleha Assadzada: And the final question from Sergei Maskaro is, what's the outlook on 2025? Do you expect such growth to continue?
Brent Ashton: Yes. It's obviously a great question. And unfortunately, we're not in a position to provide specific guidance. However, I would say that our revenue streams are relatively stable and growing. Given the nature of our products, so think about medical consumables, is it can be challenging to predict quarterly outcomes. The reality is, our current revenue base is quite small in relation to the opportunities that are ahead. So while I've been pleased with the growth since I took over, what really attracted me to Covalon was the potential to significantly grow our revenues over multiyear time frame. We're obviously still in the early stages of our journey. And while there may be some variability quarter-to-quarter, the long-term outlook from my standpoint, from the team standpoint is very promising.
Saleha Assadzada: Our next question comes from Arnold Shell, what is the maximum revenue that can be generated with the current products and current hospital footprint?
Brent Ashton: Yes. Thanks, Arnold. I'll jump in on this one. As part of the metrics we look at and that U.S. hospital business is one that definitely has a lot of potential. So one of the things we look at is when you look at hospital size, there's lots of different ways you can slice and dice, but we tend to look at it from a number of beds. It's a reported metric. It's fairly standard. It's not perfect, but it is a good indicator of kind of hospital size and potential. And so we look at revenue per bed. And if we look at our penetration in our top, call it, 5% or 10% of our customers and then apply that to down the list there are millions and millions, tens of millions of dollars of opportunity if we could get all of our accounts to that highest level of penetration that we've seen with our best accounts. Obviously, that doesn't even include new accounts and whatnot. And it's probably a part of kind of the second part of the question on the current hospital footprint. So really, the goal is simple. We outlined it on the slide there. Keep what we have, retain what we have, sell more, more products, sell more of the same products, new uses, et cetera, to existing customers and then acquire new customers as well. It's an amazing opportunity we have in front of us, but it's one that also requires investment and progress to be made.
Saleha Assadzada: Next question comes from [Jordan Q] (ph) who asks, could you give guidance for the last quarter of the fiscal year? Thank you.
Brent Ashton: Yes. I think I answered that with the previous question that was kind of linked to that. So no, not in a position to provide that specific guidance, but we are very encouraged by the opportunity ahead. I think we're going to pause again because we've had a number of questions come in, and we just want to triage to make sure we can best answer them. So we're going to go on mute again, and then we'll come back in just a few -- in a minute or less.
Saleha Assadzada: Our next question comes from Christian Schimdt who says, why was the adjusted gross profit lower than the previous quarter, even though sales increased?
Katie Martinovich: So this question, basically, the way it is, is that everything is based around the product mix. Some of our products are more profitable than others. And in the previous quarter, we had a lot of sales of our higher margin products versus this quarter, we had a lot more sales with lesser smaller reduced profit margin. So it's all based on the quarter -- from quarter-to-quarter our product mix which is driving the gross profit a little bit lower.
Saleha Assadzada: Our next question is from Trevor Holsinger who asks, was the recent quarters revenue lumpy or more normalized? Please comment on the Middle East revenue and prospective revenue.
Brent Ashton: Yes, I'd characterize it as more normalized. So thanks for the question, Trevor. More normalized. We are seeing a little more consistency as we look back to the past where things swung quite a bit. We are seeing a more normalized approach and stream. And then as far as -- with that being said, the Middle East in my past, that's been an area of the world where things can be a little more lumpy, seasonal, lots of different words to apply a little more challenging to predict. And so for us, we do believe we have a solid business there working with really strong partners. And do see the outlook. It's been a bit of a softer year than we would have liked, largely driven by some big tenders that have kind of slipped in their execution as the health authorities there kind of think about when to release -- when to tender when to release and ultimately when to drive the consumption. So I think it will be worthwhile in our next call to provide a bit of an update there. But we did see good revenue out of the Middle East but so far this year, I would say it's been less than what we expected. The good news is our strong U.S. business has covered for that and then some. And our goal going forward is to maximize both sides of U.S. and international with a particular focus for sure on the Middle East.
Saleha Assadzada: There was another one from Trevor Holsinger, where he said, congratulations on another successful quarter. And he asked, can you explain the U.S. hospital growth beyond the already successful [indiscernible]
Brent Ashton: Yes. It's certainly -- we definitely historically have tended to have a stronger penetration, stronger presence at the children's hospitals. And there's a lot of reasons for that focus is one. But at its core, children's hospitals tend to place a higher value on the patient experience and reducing pain during treatment and things like that. Having said that, in the U.S., there's a lot of quality measures that -- sorry, I'm just making sure. Are we live? Sorry, something just flashed in and suggest where we were muted. So lots of opportunities in the future areas like oncology and quality measures in the U.S. that relate to the patient experience. And so part of that as well is around market development. So while I think the understanding of medical adhesive related skin injury, as an example, is more pronounced in the children's hospitals. It doesn't mean it doesn't exist in adult populations, acute care hospitals. And part of our job is to develop -- do a better job of developing the market for issues like that. So I guess I'd sum up by saying, yes, U.S. hospital growth in more of the acute care side of things, non-children's not pediatrics. It's definitely an area we work on. We tend to lead through the pediatric facilities. But we have seen some good uptick and good results out of the adult side as well. Thanks, Trevor.
Saleha Assadzada: Our next one comes from Marie Miller, who said, congratulations on a fantastic quarter. A lot of hard work by a great team. With the cash position, which I expect to grow as warrants or exercise and earnings grow, what are the priorities for the use of the balance sheet?
Brent Ashton: Yes. Thanks a lot, Marie. Good to have you on the call. At a high level, I'd say our cash position gives us significant flexibility as we explore different avenues for accelerating growth, whether that's organically or through M&A. I can tell you these topics are discussed in our executive leadership team and at Board meetings, but nothing to report at this time. In an era where cash is king, that flexibility, it gives us that ability to pursue different opportunities as they emerge, I think, is really important.
Saleha Assadzada: Our next question comes from Christian Schimdt, who says, so the sales mix was responsible for the lower gross profit. Which products did you sell more, which less?
Brent Ashton: Yes. I think -- and we'll look for the future if it makes sense to break things out in more detail. But at this point, I don't know that we want to specifically comment on which specific SKUs or products offer more profitability or less. I think at a high level, we did see growth -- strong growth on both the collagen side as well as products, our focused products in the U.S. hospital space such as VALGuard and our IV Clear. But just the level of detail there is a little bit below where we tend to publicly comment. But I appreciate the question. Thank you, Christian.
Saleha Assadzada: That concludes our questions from the webcast.
Brent Ashton: And our trusted folks on the line have informed us that there's nobody on the phone call who's queued up for questions. So with that, I will go to a summary to wrap things up here. Really appreciate the questions from this group. As we've done these calls and had interactions, it's clear that there's a lot of interest in Covalon, our performance and where we're heading. I'm really excited as I kind of closed on a previous slide. I'm really excited. I know the team is really excited. Katie and Saleha and I get to go from here to a town hall this morning, where we'll get to thank the full one Covalon team for the great results and talk a little bit about where we're at and where we're going. And then celebrate as well with an employee event this afternoon. So that's our day here. I hope that each of you have a great day as well. Really appreciate your interest and investments in Covalon. I wish you all the best, and thanks again for your time here this morning. Have a great day.
Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day.
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