Q2 2024 Zomedica Corp Earnings Call

Speaker Change: Good afternoon, ladies and gentlemen, and welcome to the Zomedica Q2 2024 Financial Results Conference Call.

Unknown Executive: Twenty-four financial results confirmed. At this time, all lines are in relation.

Unknown Executive: And I'm calling them. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator.

Speaker Change: At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session.

Speaker Change: If at any time during this call you require immediate assistance, please press star zero for the operator.

Unknown Executive: This call is being recorded on Wednesday, August 20, 2024. I would now like to bring the conference over to Mr. Mike Valle from ICR. Please go ahead.

Speaker Change: This call is being recorded on Wednesday, August 14, 2024. I would now like to turn the conference over to Mr. Mike Valley from ICR. Please go ahead.

Mike Valle: Thank you, operator, and good afternoon, ladies and gentlemen. Welcome to Zomedica's second quarter 2024 earnings and business update call. Joining me on today's call are Zomedica's Chief Executive Officer, Larry Heaton, and Chief Financial Officer, Peter Donato. Before we begin, we'd like to remind everyone that on this call, we will be making various remarks about future expectations, plans, and prospects that constitute forward-looking statements.

Mr. McValley: Thank you, Operator, and good afternoon, ladies and gentlemen. Welcome to Zomedica's second quarter 2024 earnings and business update call.

Speaker Change: Joining me on today's call are Zomedica's Chief Executive Officer, Larry Heaton, and Chief Financial Officer, Peter Donato.

Unknown Executive: Symedica cannot guarantee that any forward looking statements will materialize and your caution not to place undue reliance on them. We refer current and potential investors to the forward-looking information and risk factors section of our public filings available on CDAR at www.cdarplus.ca and on EDGAR at scc.gov. Forward-looking statements made on this conference call represent Zomedica's expectations as of today, August 14. I will now pass the call over to Zomedica's Chief Executive Officer, Larry Heaton. Thanks, Mike.

Speaker Change: Before we begin, we'd like to remind everyone that on this call, we will be making various remarks about future expectations, plans and prospects that constitute forward-looking statements.

Speaker Change: These forward-looking statements are based on assumptions, and there are risks that the results may differ materially from those statements.

Speaker Change: As such, Zomedica cannot guarantee that any forward-looking statements will materialize, and you are cautioned not to place undue reliance on them.

Speaker Change: We refer current and potential investors to the forward-looking information and risk factors section of our public filings available on CDAR at www.cdarplus.ca and on EDGAR at scc.gov.

Speaker Change: Forward-looking statements made on this conference call represents Omedeca's expectations as of today, August 14th.

Speaker Change: I will now pass the call over to Zomedica's Chief Executive Officer, Larry Heaton. Larry?

Larry Heaton: I'd like to start by thanking our shareholders for your support, wishing our prospective investors and analysts and others a good afternoon, and welcoming all to the Zomedica second quarter earnings results and business update call. I'll start by providing an update on the overall business, then our Chief Financial Officer, Peter Donato, will walk you through our financial results. After our prepared remarks, we'll open the phone line and the web for your questions. Earlier today, Zomedica released its financial results for the second quarter of 2024.

Speaker Change: Thanks, Mike.

Larry Heaton: I'd like to start by thanking our shareholders for your support, wishing our prospective investors and analysts and others a good afternoon, and welcoming all to the Zemedica Second Quarter Earnings Results and Business Update Call.

Larry Heaton: Revenue for the quarter, $6.1 million, reflecting 2% growth over the second quarter of 2018, primarily driven by solid year-over-year growth of 68% within our diagnostic segment, as we are seeing the positive benefits of our recent assay launches with Truforma, as well as the continued demand for MedGuardian. This performance was offset by only 1% growth in our PulseVet product line, with PulseVet consumables up 11%, but PulseVet capital down 15%, reflecting essentially three fewer new systems sold, attributable to what we believe to be temporary headwinds within the PulseFed capital sales area. Capital sales performance within our U.S. direct sales force came in lower than expectations, largely as a result of several territories being open for a period of time during the quarter.

Larry Heaton: While some of this was a result of our recently appointed head of sales, implementing his strategic plan to optimize performance, We were also impacted by some short-term, unexpected productivity headwinds as a result of multiple reps being out on medical leave, reaching at its peak 14% of the sales force. These folks have since returned to their territories, so we expect these Salesforce specific issues to be mitigated moving forward as we are now back up to full strength, with a reinvigorated and healthy sales force, and as a result should see a rebound in new system installations during the back half of the year. We did also know some macroeconomic factors potentially impacting new system purchases, such as the current interest rate environment, potentially causing customers to wait to see if interest rates would decline.

Larry Heaton: I'll start by providing an update on the overall business, then our Chief Financial Officer Peter Donato will walk you through our financial results. After our prepared remarks, we'll open the phone line and the web to your questions.

Speaker Change: Earlier today, Zomedica released its financial results for the second quarter in 2024.

Speaker Change: Revenue for the next 21 million reflecting 2% roll over the second quarter.

Peter Donato: Okay, primarily driven by solid year-over-year growth of 68% within our diagnostic segment. As we are seeing the positive benefits of our recent assay launches with true formum, as the continued demand for Veguardian.

Peter Donato: This performance was offset by only 1% growth in our PulseFed product line with PulseFed consumables up 11% but PulseFed capital down 15% reflecting essentially three fewer new systems sold.

Peter Donato: attributable to what we believe to be temporary headwinds within the Pulse Fed capital sales area.

Peter Donato: Capital sales performance within our U.S. direct sales force came in lower than expectations. Largely as a result of several territories being open for a period of time during the quarter.

Peter Donato: While some of this was a result of our recently appointed head of sales implementing his strategic plan to optimize performance.

Peter Donato: We were also impacted by some short-term, unexpected productivity headwins as a result of multiple reps being now on medical leave, reaching at its peak, 14% of the sales force.

Peter Donato: These folks have since returned to their territories, so we expect these sales force specific issues to be mitigated moving forward as we are now back up to full string, with a reinvigorated and healthy sales force, and as a result, should see a rebound in new system installations during the back half of the year.

Peter Donato: We did also note some macroeconomic factors potentially impacting new system purchases, such as the current interest rate environment potentially causing customers to wait to see if interest rates would decline.

Larry Heaton: If this continues, we have a number of different pricing and placement model options at our disposal, which we will continue to leverage to provide greater access for veterinarians looking to better serve their pet patients. While we expect the vast majority of system placements to be capital purchases, we may see more customers opt for one of our differentiated models over the coming quarters. With that said, We continue to be very encouraged by the underlying demand for and utilization of PulseVet among new and existing customers.

Speaker Change: If this continues, we have a number of different pricing and placement model options at our disposal, which we will continue to leverage to provide greater access for veterinarians looking to better serve their pet patients. While we expect the vast majority of system placements to be capital purchases,

Speaker Change: We may see more customers opt for one of our differentiated models over the coming quarters.

Speaker Change: With that said...

Speaker Change: We continue to be very encouraged by the underlying demand for and utilization of PulseVet among new and existing customers.

Larry Heaton: Highlighting the fact, was the 11% growth we saw year over year in PulseFed consumables revenue, unaffected by having fewer salespeople in the field, as this is driven by customers' repeat usage in their practices, and we expect these trends to continue in the back half of the year.

Speaker Change: Highlighting the fact.

Speaker Change: With the 11% growth we saw year over year in PulseVet consumables revenue, unaffected by having fewer salespeople in the field, as this is driven by customers' repeat usage in their practices, and we expect these trends to continue in the back half of the year.

Larry Heaton: Despite the lower than anticipated revenue during the quarter, we've made significant progress towards a number of our key initiatives to drive growth in 2024 and beyond to cash flow and then gap profitability. I'll start with our commercial expansion efforts. Our international initiatives continue to exceed expectations and look to be a significant contributor to revenue during the back half of the year. One key contributor to that belief is our recently expanded global reach through a strategic alliance with leader healthcare group in key international markets. Leader will be the exclusive distributor of our entire product portfolio to veterinarians in the Middle East, along with Egypt and India.

Speaker Change: Despite the lower than anticipated revenue during the quarter, we made significant progress towards a number of our key initiatives to drive growth in 2024 and beyond to cash flow and then gap profitability.

Speaker Change: I'll start with our commercial expansion efforts.

Speaker Change: Our international initiatives continue to exceed expectations and look to be a significant contributor to revenue during the back half of the year.

Speaker Change: One key contributor to that belief is our recently expanded global reach through a strategic alliance with Leader Healthcare Group in key international markets. Leader will be the exclusive distributor of our entire product portfolio to veterinarians in the Middle East, along with Egypt and India.

Larry Heaton: These are large geographies with significant animal health markets, and this partnership will allow for Zomedica products to enter new parts of the world that we have not previously had access to. In addition, we're in the process of adding our new products to existing distributors as well as adding new distributors in select international markets. Just today, we announced the signing of an agreement with Sire Veterinario, a leading distributor of veterinary equipment in Costa Rica, that will begin offering Zomedica products shortly. With CE marks in hand, we expect additional announcements throughout the rest of the year. Now I would note that these new distributors did not place initial product stocking orders during the second quarter.

Speaker Change: These are large geographies with significant animal health markets, and this partnership will allow for Zomedica products to enter new parts of the world that we have not previously had access to.

Speaker Change: In addition, we're in the process of adding our new products to existing distributors, as well as adding new distributors in select international markets.

Speaker Change: Just today we announced the signing of an agreement with Sire Veterinario, a leading distributor of veterinary equipment in Costa Rica, that will begin offering Zomedica products shortly.

Speaker Change: With CE Marks in hand, we expect additional announcements throughout the rest of the year.

Speaker Change: Now I would note that these new distributors did not place initial product stocking orders during the second quarter.

Larry Heaton: We expect to fulfill these orders this quarter and next, and as a result, we believe our international business to be a strong incremental contributor to revenue performance in the second half of this year. With the increasing demand we're seeing and growing scale of our footprint, we expect our international business to be a material growth driver for Zomedica in 2025 and beyond. We also achieved a number of significant milestones within our product portfolio. I'll start with Assisi.

Speaker Change: We expect to fulfill these orders this quarter and next, and as a result, we believe our international business to be a strong incremental contributor to revenue performance in the second half of this year.

Speaker Change: With the increasing demand we're seeing and growing scale of our footprint, we expect our international business to be a material growth driver for Zomedica in 2025 and beyond.

Speaker Change: We also achieved a number of significant milestones within our product portfolio. I'll start with Assisi. During the quarter, we finalized an arrangement with our online retailer that markets through Amazon.com that will now offer the product line in 10 additional countries around the world.

Larry Heaton: During the quarter, we finalized an arrangement with our online retailer that markets through Amazon.com that will now offer the product line in 10 additional countries around the world. And that's in addition to us establishing new distributor outlets that will sell directly to veterinarians, turning to PulseFed. PulseVet continues to be our leading product, and we have made significant headway in growing its adoption across our customer base.

Speaker Change: And that's an addition to us establishing new distributor outlets that will sell directly to veterinarians.

Speaker Change: Turning to PulseVet. PulseVet continues to be our leading product and we have made significant headway in growing its adoption across our customer base.

Larry Heaton: We started with an installed base of around 1200 systems, primarily with equine veterinarians. We now have had over 2,000 systems installed to date worldwide, including a growing number of mixed and small animal veterinarian customers. This highlights the benefits of the platform to help provide better care for pets, with a timely update, as we all just witnessed the Olympics. Also, that was named the official shockwave therapy of US equestrian, which competed in Paris.

Speaker Change: We started with an installed base of around 1200 systems, primarily with equine veterinarians.

Speaker Change: We now have had over 2,000 systems installed to date worldwide, including a growing number of mixed and small animal veterinarian customers.

Speaker Change: This highlights the benefits of the platform to help provide better care for pets.

Speaker Change: With a timely update, as we all just witnessed the Olympics, PulseFet was named the official shockwave therapy of U.S. Equestria, which competed in Paris.

Larry Heaton: We were thrilled to partner with the Veterinarians Caring for Horses competing in the Olympics to support their efforts to improve the welfare of their horses and ensure our team had access to world-class technology to support their care in Paris and now back home. In support of those efforts on a wider scale, we are working to develop quality research to help expand clinical indications for use. We recently released a white paper showcase in the effect of this a pulse vet therapy for treating exercise induced pulmonary hemorrhage in quarter horses.

Speaker Change: We were thrilled to partner with the Veterinarians Caring for Horses competing in the Olympics to support their efforts to improve the welfare of their horses and ensure our team had access to world-class technology to support their care in Paris and now back home.

Speaker Change: In support of those efforts on a wider scale, we are working to develop quality research to help expand clinical indications for use.

Speaker Change: We recently released a white paper showcasing the effectiveness of PulseVet therapy for treating exercise-induced pulmonary hemorrhage in quarter horses.

Larry Heaton: But importantly, in addition, the paper highlights that PulseFed therapy offers a potential non-invasive, drug-free treatment option for horses suffering from equine asthma, paving the way for new sales opportunities beyond the technology's historic application. Post-op therapy is well-established in treating orthopedic issues like osteoarthritis and tendon and ligament issues and bony.

Speaker Change: But importantly, in addition, the paper highlights that Pulse Fit Therapy offers a potential non-invasive, drug-free treatment option for horses suffering from equine asthma, paving the way for new sales opportunities beyond the technology's historic applications.

Speaker Change: Pulse Threat Therapy is well established in treating orthopedic issues like osteoarthritis and tendon and ligament issues. Bone here.

Larry Heaton: Its effectiveness in treating lung conditions and asthma opens a new field of potential benefits, highlighting that we are just beginning to understand and tap the potential for this energy-based treatment technology. The white paper demonstrates the potential to extend PulseFetch's therapeutic use into new markets, including equine lung conditions and asthma, making it a vital component of Zomedica's growth strategy for the future. Of course, for small animal veterinarians who are just being introduced to the PulseVet system, essentially all of the 20 clinical indications for dogs and cats are new to them, providing compelling reasons for them to adopt the technology

Speaker Change: Its effectiveness in treating lung conditions and asthma opens a new field of potential benefits, highlighting that we are just beginning to understand and tap the potential for this energy-based treatment technology.

Speaker Change: The white paper demonstrates the potential to extend PulseSet's therapeutic use into new markets, including equine lung conditions and asthma, making it a vital component of Zometica's growth strategy for the future.

Speaker Change: Of course, for small animal veterinarians who are just being introduced to the PulseVet system, essentially all of the 20 clinical indications for dogs and cats are new to them, providing compelling reasons to adopt the technology.

Larry Heaton: Turning to an update on TrueView. During the quarter, we continued our activity to add artificial intelligence, or AI, interpretations to the TrueView system. When this is completed, each slide processed will be accompanied by an AI report.

Speaker Change: Turning to an update on TrueView.

Speaker Change: During the quarter, we continued our activity to add artificial intelligence, or AI, interpretations to the TrueView system. When this is completed, each slide processed will be accompanied by an AI report.

Larry Heaton: We expect to launch this feature later this year and will resume more aggressive marketing of the system when it is ready to launch. In addition, we have finalized and will be rolling out shortly a new protocol specifically for ear cytology. Reducing the Time to Produce the Images Needed for Review by the Veterinarian and Streamlining Practice Workflow. This could be potentially impactful to our business as ear cytologies are performed daily at vet clinics to diagnose otitis, which affects between 10 and 20% of dogs and 2-6% of cats. Now to Forma.

Speaker Change: We expect to launch this feature later this year and will resume more aggressive marketing of the system when it is ready to launch.

Speaker Change: In addition, we have finalized, and will be rolling out shortly, a new protocol specifically for ear cytology, reducing the time to produce the images needed for review by the veterinarian and streamlining practice workflow.

Speaker Change: This could be potentially impactful to our business as ear cytologies are performed daily at vet clinics to diagnose otitis, which affects between 10 and 20% of dogs and 2 to 6% of cats.

Larry Heaton: We continue to be encouraged by the growing adoption of Truforma as we're seeing an uptick in increases in our installed base. Importantly, we are seeing expansion into equine veterinary practices as we benefit from our growing portfolio penetration across both equine and small animal veterinary practices. As part of a push into new international markets, we're very excited that in June, we received CE mark approval for Tuformel, which enables us to commercialize the platform across the European economic area.

Speaker Change: Now, two formals.

Speaker Change: We continue to be encouraged by the growing adoption of Truforma, as we're seeing an uptick in increases in our installed base.

Speaker Change: Importantly, we are seeing expansion into equine veterinary practices as we benefit from our growing portfolio penetration across both equine and small animal veterinary practices.

Speaker Change: As part of a push into new international markets, we're very excited that in June we received CE mark approval for 2FORMAL, which enables us to commercialize the platform across the European Economic Area.

Larry Heaton: This is an important milestone as it allows us to bring the benefits of our one-of-a-kind diagnostic testing capabilities to the large and rapidly growing European veterinary diagnostics market. The distributors we recently announced will be carrying the Truforma product in their respective markets, and we expect to introduce it into Europe during the current quarter.

Speaker Change: This is an important milestone as it allows us to bring the benefits of our one-of-a-kind diagnostic testing capabilities to the large and rapidly growing European veterinary diagnostics market.

Speaker Change: The distributors we recently announced will be carrying the Truforma product in their respective markets, and we expect to introduce it into Europe during the current quarter.

Larry Heaton: The core benefit of our acquisition of Corvo Biotechnologies, the developer of Truforma, was our ability to accelerate the development and commercialization of new assays. And during 2024, in addition to the two new assays already launched for both small animals and horses, We continue to expect to launch at least three additional new assays during the balance of the year, with respect to our expansion into equine diagnostics. Following the successful launch late last year of our first equine assay, endogenous ACTH.

Speaker Change: The core benefit of our acquisition of Corvo Biotechnologies, the developer of Truforma, was our ability to accelerate the development and commercialization of new assays.

Speaker Change: And during 2024, in addition to the two new assays already launched for both small animals and horses,

Speaker Change: We continue to expect to launch at least three additional new assays during the balance of the year.

Speaker Change: With respect to our expansion into equine diagnostics.

Speaker Change: Following the successful launch late last year of our first equine assay, endogenous ACTH.

Larry Heaton: During the second quarter of this year, we launched our second equine-focused assay, Cortisol for Equine Serum. Corisol measurement is crucial for assessing the health of sick foals, and has not been available at the point of care until now.

Speaker Change: During the second quarter of this year, we launched our second equine-focused assay, Cortisol for Equine Serum.

Speaker Change: Corisol measurement is crucial for assessing the health of sick foals and has not been available at the point of care until now.

Larry Heaton: Traditionally, equine veterinarians have had to send samples to reference labs and wait several days for results, potentially receiving them too late to make critical treatment decisions. Our new assay will bring a valuable diagnostic tool for equine veterinarians to use in clinic and stall sites, empowering them to make real-time, potentially life-saving treatment decisions. With several hundred thousand foals born each year in the United States alone, this assay will not only be a benefit to veterinarians and the foals they care for, but will also expand the market for the Truforma system amongst equine vets.

Speaker Change: Traditionally, equine veterinarians have had to send samples to reference labs and wait several days for results, potentially receiving them too late to make critical treatment decisions.

Speaker Change: Our new assay will bring a valuable diagnostic tool for equine veterinarians to use in clinic and stall site, empowering them to make real-time, potentially life-saving treatment decisions.

Speaker Change: With several hundred thousand foals born each year in the United States alone, this assay will not only be a benefit to veterinarians and the foals they care for, but will also expand the market for the true form of system amongst equine vets.

Larry Heaton: In addition, in May, we launched an advanced canine cortisol acid [inaudible] This assay, which is one of the most frequently used tests on the platform, now features significant improvements including an increased dynamic range that enhances its precision and accuracy. The cortisol assay is vital for veterinarians, allowing them to perform critical tests, such as the low-dose dex suppression test, with reference lab accuracy directly in their clinics.

Speaker Change: In addition, in May, we launched an advanced canine cortisol assay.

Speaker Change: This assay, which is one of the most frequently used tests on the platform, now features significant improvements including an increased dynamic range that enhances its precision and accuracy.

Speaker Change: The cortisol assay is vital for veterinarians, allowing them to perform critical tests, such as the low-dose DEX suppression test, with reference lab accuracy directly in their clinics.

Larry Heaton: By improving what is already one of our most heavily used assays, we expect to further strengthen the true form of this platform's position in the market. In addition to the launch of multiple assays during the year, we launched over-the-air update capability for Truforma. Each time we launch a new assay, a software update for our installed base is needed to add the capability to run the new assay and provide appropriate reference ranges, etc.

Speaker Change: By improving what is already one of our most heavily used assays, we expect to further strengthen the true form of this platform's position in the market.

Speaker Change: In addition to the launch of multiple assays during the year, we launched over-the-air update capability for true form of

Speaker Change: Each time we launch a new assay, a software update for our install base is needed to add the capability to run the new assay and provide appropriate reference ranges, etc.

Larry Heaton: Up to now, this has required an in-person visit from our sales team. With the introduction of over-the-air updates, customers are prompted when a new software update is available on the device and will be able to apply the update with the push of a button, demonstrating our dedication to accelerating the delivery of highly beneficial assays on the Truforma diagnostic platform. These capabilities further reduce barriers for customer adoption of newly launched assays, as well as provide efficient means for delivering timely enhancements for existing assays to customers. Turning now to BetGuardian.

Speaker Change: Up to now, this has required an in-person visit from our sales team. With the introduction of over-the-air updates, customers are prompted when a new software update is available on the device, and will be able to apply the update with the push of a button.

Speaker Change: Demonstrating our dedication to accelerating delivery of highly beneficial assays on the Trueform, a diagnostic platform.

Speaker Change: These capabilities further reduce barriers for customer adoption of newly launched assays, as well as provide efficient means for delivering timely enhancements for existing assays to customers.

Larry Heaton: The sale of new VetGuardian systems continue to highlight the value of the technology and the benefits our customers are seeing, as we're now in the second year of offering this product. We will be receiving recurring annual revenue for cloud access and extended warranty coverage from charges that began after the first full year of adoption. In May, we announced the achievement of a significant milestone, CE marking for VET Guardian. This certification allows the platform to be sold throughout the European Union and select other countries, giving veterinary professionals seeking an advanced solution to elevate patient care and streamline practice operations access to this innovative technology.

Victoria: Turning now to BitGuardian.

Victoria: The sale of new VetGuardian systems continue to highlight the value of the technology and the benefits our customers are seeing.

Victoria: as we're now in the second year of offering this product.

Victoria: We will be receiving recurring annual revenue for cloud access and extended warranty coverage from charges that began after the first full year of adoption.

Victoria: In May, we announced the achievement of a significant milestone, CE marketing for VetGuardian.

Victoria: This certification allows the platform to be sold throughout the European Union and select other countries, giving veterinary professionals seeking an advanced solution to elevate patient care and streamline practice operations.

Larry Heaton: With CE mark in hand, we're turning our attention to a formal international launch as we evaluate and onboard additional international distribution partners to help meet demand for this product. We're also excited about our development projects to bring VetGuardian to the equine market. Given our deep penetration within the equine vet market with PulseVet and now with Truforma, we believe our launch of an equine vet guardian option will be very well received.

Victoria: access to this innovative technology. With CEMark in hand, we're turning our attention to a formal international launch as we evaluate and onboard additional international distribution partners to help meet demand for this product.

Victoria: We're also excited about our development projects to bring VetGuardian to the equine market.

Victoria: Given our deep penetration within the equine vet market with PulseVet and now with Truforma, we believe our launch of an equine vet guardian option will be very well received.

Larry Heaton: Help drive accelerated adoption by equine veterinarians in 2025 and beyond, and set the stage for potential expansion of the market opportunity to include horse trainers, breeders. Now shifting to operational update. In June, we completed the expansion of our global manufacturing and distribution facility in Roswell, Georgia. The expansion, which increased the facility's total size to 18,400 square feet, adding 6,000 square feet of adjacent space.

Victoria: Help drive accelerated adoption by equine veterinarians in 2025 and beyond. And set the stage for potential expansion of the market opportunity to include horse trainers, breeders, and potentially all animals.

Victoria: Now shifting to operational update.

Victoria: In June, we completed the expansion of our global manufacturing and distribution facility in Roswell, Georgia.

Victoria: The expansion, which increased the facility's total size to 18,400 square feet, adding 6,000 square feet of adjacent space, enhanced warehousing and sales order fulfillment efficiencies,

Larry Heaton: Enhanced Warehousing and Sales Order Fulfillment Efficiencies. This all resulted in us now having capacity from the Roswell facility to support a five-fold increase in demand for our products. In addition to adding capacity in our Georgia facility, in our Minnesota facility, we have installed a new automated robotic manufacturing line that automates steps that previously required high levels of manual labor. We're currently in process of validating this production line, which we expect to be completed during this quarter.

Victoria: This all resulted in us now having capacity from the Roswell facility to support a five-fold increase in demand for our products.

Victoria: In addition to adding capacity in our Georgia facility, in our Minnesota facility, we have installed a new automated robotic manufacturing line that automates steps that previously required high levels of manual labor.

Victoria: We're currently in process of validating this production line, which we expect to be completed during this quarter. This will not only benefit the efficiency of the process, but will also allow us to realize cost benefits, which we expect to be reflected in our improving gross margins.

Larry Heaton: This will not only benefit the efficiency of the process, but will also allow us to realize cost benefits, which we expect to be reflected in our improving gross margins. While we did experience some short-term headwinds during the quarter that impacted our top-line growth, we're very bullish on the future of Zomedica. We achieved a significant number of key commercial and operational milestones, which will support our growth strategy moving forward as we make progress toward our goal of cash flow and gap profitability. I'd now like to turn the call over to Peter to review our financial reports in Morgantown. Peter, thanks, Larry, and good afternoon, everyone.

Victoria: While we did experience some short-term headwinds during the quarter that impacted our top-line growth, we're very bullish on the future of Zometica. We achieved a significant number of key commercial and operational milestones, which will support our growth strategy moving forward as we make progress toward our goal of cash flow and gap profitability.

Victoria: I'd now like to turn the call over to Peter to review our financial report.

Peter Donato: Total revenue for the second quarter of 2024 was six point one million dollars. That's an increase of two percent over the prior second quarter, primarily driven by growth within our diagnostic segment. Second quarter 2024 capital revenues were $1.7 million, and that's down 12% from $2 million in the second quarter of last year.

Peter Donato: Thanks, Larry, and good afternoon, everyone. Total revenue for the second quarter of 2024 was $6.1 million. That's an increase of 2% over the prior second quarter, primarily driven by growth within our diagnostic segment.

Speaker Change: Second quarter 2024 capital revenues were $1.7 million, and that's down 12% from $2 million in the second quarter of last year. And as Larry said previously, this is primarily the result of falling about 3 units.

Peter Donato: And as Larry said previously, this is primarily the result of falling about three units short this year as compared to last year, also due to some short-term commercial headwinds, also as Larry discussed. We have taken the appropriate steps to ensure that our commercial team is back on track and expect these issues to be resolved during the back half of the year as we return to a more normal capital sales trajectory. Also in the second quarter, consumable revenue was $4.4 million.

Speaker Change: short this year as compared to last year with also due to some short term commercial headwinds also as Larry discussed.

Larry Heaton: We have taken the appropriate steps to ensure that our commercial team is back on track and expect these issues to be resolved during the back half of the year as we return to a more normal capital sales trajectory.

Speaker Change: Also in the second quarter, consumable revenue was $4.4 million. That's an increase of approximately 8% from the second quarter of 2023 revenues, which were $4 million.

Peter Donato: That's an increase of approximately 8% from the second quarter of 2023 revenues, which were $4 million. Consumable revenue now represents 72% of total revenue in this quarter. Second Quarter Therapeutic Devices, Segment Revenues, from Pulse Fett and Assisi product lines, were $5.7 million.

Speaker Change: Consumable revenue now represents 72% of total revenue in this quarter.

Speaker Change: Second quarter therapeutic devices segment revenues from PulseFed and Assisi product lines were $5.7 million. That's roughly flat compared to the prior year. With that said, we continue to be optimistic about a return to higher growth rates in the back half of the year as we expect capital sales to normalize.

Peter Donato: That's roughly flat compared to the prior year. With that said, we continue to be optimistic about a return to higher growth rates in the back half of the year as we expect capital sales to normalize. Second quarter diagnostic segment revenues were about $420,000.

Speaker Change: Second quarter diagnostic segment revenues were about $420,000. That's an increase of 68% over the second quarter of last year. This was driven by significant year-over-year growth from VetGuardian and Truforma.

Peter Donato: That's an increase of 68% over the second quarter of last year. This was driven by significant year-over-year growth from VetGuardian and Truforma. Within the diagnostic segment, capital revenue grew over 87%, while consumable revenue grew nicely by 62%. Gross profit for the second quarter of 2024 was $4.4 million, and that compares to $4 million in the second quarter of last year. Gross profit margin for the second quarter was 71 percent.

Speaker Change: Within the diagnostic segment, capital revenue grew over 87%, while consumable revenue grew nicely by 62%.

Speaker Change: Gross profit for the second quarter of 2024 was $4.4 million, and that compares to $4 million in the second quarter of last year.

Peter Donato: That's slightly better than the high end of our previously stated target range of 65 to 70 percent and much higher than last year's reported margin of 67 percent. In the quarter, accounting rules required us to take non-cash charges of approximately $16 million to eliminate or reduce the carrying values of goodwill related to product lines associated with the S&P, Revo Squared, and Assisi acquisitions. Please note that these are non-cash charges and have no impact on the ability to drive the adoption of these products.

Speaker Change: Gross profit margin for the second quarter was 71%. That's slightly better than the high end of our previously stated target range of 65 to 70 percent and much higher than last year's reported margin of 67 percent.

Speaker Change: In the quarter, accounting rules required us to take non-cash charges of approximately $16 million to eliminate or reduce the carrying values of goodwill related to product lines associated with the S&P, Revo Squared, and Assisi acquisitions.

Speaker Change: Please note that these are non-cash charges and have no impact on the ability to drive the adoption of these products.

Peter Donato: And as such, we continue to believe in these products and the potential they have to take us to profitability and beyond. However, as a result of these charges, our reported operating expenses for the second quarter of 2024 were $29.4 million.

Speaker Change: And as such, we continue to believe in these products and the potential they have to take us to profitability and beyond. However, as a result of these charges, reported operating expenses for the second quarter of 2024 were $29.4 million.

Peter Donato: When adjusting for these non-cash impairment charges, total operating expenses checked in at $13.4 million, and you can compare that to $10.8 million in the same period of 2023. That's an increase of about $2.6 million. In the second quarter, our R&D expenses were about $1.5 million, that's an increase of about $600,000 over the prior year quarter, with additional spending on AI-related programs, Trueforma and VET Guardian product development, and CE marking for international regulatory approvals. Also in the second quarter, sales and marketing spend was $3.9 million.

Speaker Change: When adjusting for these non-cash impairment charges, total operating expenses checked in at $13.4 million and you can compare that to $10.8 million in the same period of 2023. That's an increase of about $2.6 million.

Speaker Change: In the second quarter, our R&D expenses were about a million and a half dollars. That's an increase of about $600,000 over the prior year quarter with additional spending on AI related programs, true format and vet guardian product development, and CE marking for international regulatory approvals.

Speaker Change: Also in the second quarter, sales and marketing spend was $3.9 million, and that compares to $3.1 million during the same period of 2023. And that's primarily due to our expanded sales force and spending on new product marketing and the related launches.

Peter Donato: And that compares to $3.1 million during the same period of 2023. And that's primarily due to our expanded sales force and spending on new product marketing and the related launches. Also, in the second quarter of 2024, our G&A expense was $8 million, and that compares to $6.8 million during the second quarter of 2023, with most of the increase due to accounting, legal, tax, and audit expenses, and they're primarily related to acquisitions and other compliance-related programs.

Speaker Change: Also in the second quarter of 2024, our G&A expense was $8 million and that compares to $6.8 million

Speaker Change: during the second quarter of 2023.

Speaker Change: with most of the increase due to accounting, legal, tax, and audit expenses, and they're primarily related to acquisitions and other compliance-related programs.

Peter Donato: Net loss for this our second quarter was $23.9 million. That's 2.4 cents per share and it compares to a net loss of $5.2 million or about 0.005 cents per share in the second quarter of 2023. Our non-GAAP EBITDA loss, which includes adjustments for non-cash stock compensation, for the three months ended June 30, 2024, was $22.3 million and compares to a loss of $3.7 million for the same period last year. When adjusting for non-cash and non-recurring items are adjusted, non-GAAP EBITDA loss was approximately $5.2 million.

Speaker Change: Net loss for our second quarter was $23.9 million. That's 2.4 cents per share, and it compares to a net loss of $5.2 million, or about .005 cents per share in the second quarter of 2023.

Speaker Change: Our non-GAAP EBITDA loss, which includes adjustments for non-cash stock compensation, for the three months ended June 30, 2024, was $22.3 million and compares to a loss of $3.7 million for the same period last year.

Speaker Change: When adjusting for non-cash and non-recurring items, our adjusted non-GAAP EBITDA loss was approximately $5.2 million.

Peter Donato: Turning to the balance sheet, Medica ended the second quarter with $83 million in cash, cash equivalents, and available for sale securities. Our cash used in the second quarter was approximately $7.9 million and included $2.7 million of non-recurring items, with the remaining $5.2 million used for operating expenses.

Speaker Change: Turning to the balance sheet.

Speaker Change: So, Medicare ended the second quarter with 83 million dollars in cash, cash equivalence, and available for sale securities. Our cash used in the second quarter was approximately $7.9 million and included $2.7 million of non-recurring items. [inaudible]

Speaker Change: With the remaining $5.2 million used for operating expenses.

Peter Donato: With the non-cash impairment charges taken during the quarter, our balance sheet and related valuation are now more in line with our current market capitalization. And as an always reminder, we have a zero debt. Before wrapping up my prepared remarks, I'd like to announce that this morning I tendered my resignation from Zomedica, making this my last earnings call with the company before I move back into human health, where I've spent most of my senior career.

Speaker Change: With the non-cash impairment charges taken during the quarter, our balance sheet and related valuation are now more in line with our current market capitalization.

Speaker Change: And as an always reminder, we have a zero debt.

Speaker Change: Before wrapping up my prepared remarks...

Speaker Change: I'd like to announce that this morning, I tendered my resignation from Zometica, making this my last earnings call with the company before I move back into human health, where I've spent most of my senior career.

Peter Donato: Since joining the company in March of 2023, I've led efforts that enhanced our control environment. We built a maturing and good finance and accounting function led by our VP and corporate controller. In addition, we've implemented a variety of strategic initiatives aimed at driving growth and putting us in position to achieve profitability. In other words, Zomedica is in good hands.

Speaker Change: Since joining the company in March of 2023, I've led efforts that enhance our control environment. We built a maturing and good finance and accounting function, led by our VP and corporate controller.

Speaker Change: In addition, we've implemented a variety of strategic initiatives aimed at driving growth and putting us in position to achieve profitability. In other words, Zomedica is in good hands.

Peter Donato: The company is currently in the process of identifying my replacement, and I will continue consulting with the company for a period of time to ensure a smooth transition until a new CFO is in the seat and up to speed on our business. Now turning to an update on guidance. With the transition to a new CFO, and to defer to that new CFO, we are suspending our previously issued revenue guidance for 2024. The company will revisit issuing guidance once a new CFO is on board.

Speaker Change: The company is currently in the process of identifying my replacement and I will continue consulting with the company for a period of time to ensure a smooth transition until a new CFO is in the seat and up to speed on our business.

Peter Donato: But directionally, we expect total revenue to grow versus the prior year, with the step up in revenue during the second half of this year, as we anticipate outsized seasonal trends in our third and fourth quarters. While we are suspending revenue guidance, we continue to expect gross margins to approach and maybe exceed 70% for the full year as we continue as we continue to see operational, Turning to cash burn. We continue to expect our adjusted cash burn to be within our previously stated range, guidance range, of $12 to $18 million.

Speaker Change: Now turning to an update on guidance.

Speaker Change: With the transition to a new CFO , and to defer to that new CFO , we are suspending our previously issued revenue guidance for 2024.

Speaker Change: The company will revisit issuing guidance once a new CFO is on board, but directionally, we expect total revenue to grow versus the prior year, with a step-up in revenue during the second half of this year, as we anticipate outsized seasonal trends in our third and fourth quarters.

Speaker Change: While we are suspending revenue guidance, we continue to expect gross margins to approach and maybe exceed 70% for the full year as we continue to see operational deficiencies.

Operator: 24 financial results, conference call. At this time, all lines are in listen, call, leave them. Following the presentation, we will conduct a question and answer session. If at any time during this call, the record immediate assistance, these press are zero for the operator. This call is being recorded on the Wednesday.

Speaker Change: turning to cash burn.

Speaker Change: We continue to expect our adjusted cash burn to be within our previously stated range, guidance range, of $12 to $18 million. That's likely at the high end of that range, and again, I'll defer to the new CFO coming in. With that, I'll turn the call back over to Larry for final remarks before the Q&A session. Larry?

Peter Donato: That's likely at the high end of that range, and again, I'll defer to the new CFO coming in. With that, I'll turn the call back over to Larry for final remarks before the Q&A session. Larry?

Mike: I would now like to turn the conference over to Mr. McValley from ICR. Please go ahead. Thank you operator and good afternoon ladies and gentlemen.

Larry Heaton: Thanks for the update, Peter. And thank you, Peter, for your contributions to Zomedica during your tenure. I appreciate all you've done to now appreciate your ongoing commitment during the transition to a new CFO, and wish you the best in your future endeavors back in the human health market. Thank you. As you can tell, we continue to be excited about the future of Zomedica. We have a significant number of initiatives in place to drive growth in the business while doing the work behind the scenes to set ourselves up to achieve positive cash flow once we reach 50 million in annualized revenue and beyond that, to gap profitability.

Larry Heaton: Thanks for the update Peter and thank you Peter for your contributions to Zomedica during your tenure. I appreciate all you've done to now appreciate your ongoing commitment during the transition to a new CFO and wish you the best in your future endeavors back in the human health market. Thank you.

Mike: Welcome to Zomedicus second quarter, 2024 earnings and business update call. Joining me on today's call are Zomedicus Chief Executive Officer Larry Heaton and Chief Financial Officer Peter Donato. Before we begin, we'd like to remind everyone that on this call, we will be making various remarks about future expectations, plans, and prospects that constitute forward looking statements. These forward looking statements are based on assumptions and there are risks that the results may differ materially from those statements.

Mike: As such, Zomedica cannot guarantee that any forward looking statements will materialize and your caution not to place undue reliance on them. We refer current and potential investors to the forward looking information and risk factor section of our public filings available on C-DAR at www.cdarplus.ca and on edgur at scc.gov. Forward looking statements made on this conference call represent Zomedicus expectations as of today, August 14th.

Speaker Change: As you can tell, we continue to be excited about the future of Submedica. We have a significant number of initiatives in place to drive growth of the business.

Speaker Change: while doing the work behind the scenes to set ourselves up to achieve positive cash flow once we reach 50 million in annualized revenue and beyond that to gap profitability.

Speaker Change: We have plenty of capital, innovative products, and a professionally led sales force to introduce them to veterinarians for the benefit of our pets and yours.

Speaker Change: So let me end our prepared remarks by again thanking those that have been supportive of Zomedica, including animal health professionals and pet parents worldwide, and the many shareholders of Zomedica.

Speaker Change: With that, I'd be happy to open the line for questions.

Larry Heaton: We have plenty of capital, innovative products, and a professionally led sales force to introduce them to veterinarians for the benefit of our pets and yours. So let me end our prepared remarks by again thanking those that have been supportive of Zomedica, including animal health professionals and pet parents worldwide, and the many shareholders of Zomedica. With that, I'd be happy to open the line for questions. Thank you. Ladies and gentlemen, we will now begin the question and answer session.

Speaker Change: Thank you for watching. I will see you next time.

Speaker Change: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number one on your touchtone phone. You will hear a prompt that your hands have been raised.

Larry Heaton: Should you have a question, please press the star followed by the number one on your touchtone phone. You will hear a prompt that your hands have been raised. Should you wish to decline from the polling process, please press the star followed by the number 2. If you are using a speakerphone, please lift the handset before pressing any key.

Larry Heaton: I will now pass the call over to Zomedicus Chief Executive Officer Larry Heaton. Larry? Thanks, Mike. I'd like to start by thanking our shareholders for your support. We shame our prospective investors and analysts and others a good afternoon and welcoming all to the Zomedicus second quarter earnings results and business update call. I'll start by providing an update on the overall business.

Larry Heaton: Then our chief financial officer, Peter DeNado, will walk you through our financial results. After our prepared remarks, we'll open the phone line and the web to your questions.

Speaker Change: Should you wish to decline from the polling process, please press the star followed by the number 2. If you are using a speakerphone, please lift the handset before pressing any keys.

Unknown Executive: One moment, please, for your first question. Our first question will be coming from Andrew Rem from Ogdenson Park. Sorry.

Speaker Change: One moment, please, for your first question.

Speaker Change: Our first question will be coming from Andrew Graham from Odinson Park

Larry Heaton: Earlier today, Zomedica released its financial results for the second quarter of 2024. Revenue for the next $2.1 million reflecting 2% growth over the second quarter of 2020. Primarily driven by solid year over your growth of 68% within our diagnostic segment, as we are seeing the positive benefits of our recent assay launches with Truforma as well as the continued demand for vet guardian. This performance was offset by only 1% growth in our PulseVed product line, with PulseVed consumables up 11%, the PulseVed capital down 15%, reflecting essentially three fewer new systems sold, attributable to what we believe to be temporary headwinds within the PulseVed capital sales area.

Speaker Change: Jason Kolbert, Elif McDonald, Jason Kolbert, Elif McDonald

Speaker Change: [inaudible]

Speaker Change: Thanks for watching, and don't forget to like, share, and subscribe to our channel.

Unknown Executive: Can, can you guys just, Larry, could you talk about. The Salesforce headwinds in the quarters, a little bit more detail and then how you guys will mitigate that, going forward. Yes, and hi, Andrew.

Speaker Change: Sorry.

Speaker Change: The Salesforce headwinds in the quarters is a little bit more detail and then how you guys will mitigate that going forward.

Larry Heaton: So during the quarter, you know, once Kevin Klass came to us from HESCO, he began the process of evaluating the existing sales force. And in some cases, there were salespeople that were replaced, and when you replace salespeople, then there's a little bit of lead time for them to get trained and up to speed and get the pipeline funnel full and so on. That was a little bit of it.

Andrew Graham: Yes, and hi, Andrew.

Speaker Change: So, during the quarter, you know, once Kevin Klass came to us from HESCO, he began the process of evaluating the existing sales force, and in some cases there were sales people that were replaced.

Larry Heaton: Capital sales performance within our US direct sales force came in lower than expectations, largely as a result of several territories being open for a period of time during the quarter. While some of this was a result of our recently appointed head of sales implementing his strategic plan to optimize performance, we were also impacted by some short term, unexpected productivity headwinds as a result of multiple reps being out on medical leave. Reaching at its peak 14% of the sales force.

Speaker Change: and when you replace salespeople then there's a little bit of lead time for them to get trained and up to speed and get the pipeline funnel full and so on. That was a little bit of it.

Larry Heaton: These folks have since returned to their territories, so we expect these sales force specific issues to be mitigated moving forward as we are now back up to full string with a reinvigorated and healthy sales force and as a result should see a rebound in new system installations during the back half of the year. We did also know some macro economic factors potentially impacting new system purchases such as the current interest rate environment, potentially causing customers to wait to see if interest rates would decline.

Larry Heaton: But at one point during the quarter, during the second quarter, we had five salespeople out on medical leave for a variety of conditions. And we only have 35 sales territories, so that's 14% of the reps were out at some point during the course of the second quarter. Now, I'm pleased to report that they all returned to work, they all recovered, they're all healthy, and they're all back in their territories as of the beginning of this quarter.

Speaker Change: But at one point during the quarter, during the second quarter, we had five salespeople out on medical leave for a variety of conditions.

Speaker Change: And we only have 35 sales territories. So that's 14% of the reps were out at some point during the course of the second quarter.

Speaker Change: Now, I'm pleased to report that they all returned to work. They all recovered. They're all healthy. And they're all back in their territories as of the beginning of this quarter. So we don't expect to have to do anything else.

Larry Heaton: So we don't expect to have to do anything else. We've got now a full slate of salespeople out in the territories, and we're beginning to see, I mean, we're seeing the uptick in sales that comes from that. So there's nothing left for us to do, we just have to, you know, sort of accept it, when they're out on sick leave. You know, on the other side, we did see I think we did see I think all of us saw a little bit of reluctance in the second quarter from some customers to, to go ahead and commit to financing a $32,000 piece of equipment. We saw three fewer sales in the second quarter of this year than a year ago. And it could be interest rates. Maybe they think they're gonna come down a little bit later.

Speaker Change: We've got now a full slate of sales people out in the territories and we're beginning to see, I mean, we're seeing the uptick in sales that comes from that. So there's nothing left for us to do, we just have to, you know, sort of accept it.

Larry Heaton: If this continues, we have a number of different pricing and placement placement model options at our disposal, which we will continue to leverage to provide greater access for veterinarians looking to better serve their pet patients. Well, we expect the vast majority of system placements to be capital purchases. We may see more customers up for one of our differentiated models over the coming quarters. With that said, we continue to be very encouraged by the underlying demand for and utilization of pulse that among new and existing customers.

Speaker Change: when they're out on sick leave.

Speaker Change: You know, on the other side, we did see I think we did see I think all of us saw a little bit of reluctance in the second quarter from some customers to

Speaker Change: to go ahead and commit to financing a $32,000 piece of equipment. We saw three fewer sales in the second quarter of this year than a year ago.

Speaker Change: And it could be interest rates. Maybe they think they're going to come down a little bit later. It could be that clinic owners, as we've been reported by other animal health companies in the last

Larry Heaton: It could be that clinic owners, as have been reported by other animal health companies in the last few weeks or over the last week or so, it could be that clinic owners saw visits decline in the second quarter. And so they were going to wait and see what's happening to their business before they make additional financing commitments. But the data that's out there shows that the visits have rebounded in July. And so these are things that, may or may not continue as we move forward. And that's why I mentioned we've got some alternative programs to be able to place devices into these practices. You know, I'll give you an example.

Larry Heaton: Highlighting the fact was the 11% growth we saw year over year in pulse that consumables revenue unaffected by having fewer sales people in the field. As this is driven by customers repeat usage in their practices and we expect these trends to continue in the back half of the year.

Speaker Change: Peter Donato, Larry Heaton, Elif McDonald, Elif McDonald, Larry Heaton, Elif McDonald,

Larry Heaton: Despite the lower than anticipated revenue during the quarter, we made significant progress towards a number of our key initiatives to drive growth in 2024 and beyond the cash flow and then gap profitability. I'll start with our commercial expansion efforts. Our international initiatives continue to exceed expectations and look to be a significant contributor to revenue during the back half of the year. One key contributor to that belief is our recently expanded global reach through a strategic alliance with leader healthcare group in key international markets.

Speaker Change: And so they were going to wait and see what's happening to their business before they make additional financing commitments.

Speaker Change: But the data that's out there shows that the visits have rebounded in July. And so these are things that...

Speaker Change: may or may not continue as we move forward.

Speaker Change: And that's why I mentioned we've got some alternative programs to be able to place devices into these practices.

Larry Heaton: We currently sell the system for $30,000 and the handpiece we call a trode for $2,000. Actually, 2100, with a placement program. We may place the device without requiring them to commit to the fight into the capital up front. And instead of selling in the Trode for $2,100, sell it for $6,000, or even sell a half full trode for $3,000. These are ways for them to not have to make the long-term commitment and instead can get into offering the therapy right away.

Speaker Change: You know, I'll give you an example. We currently sell the system for $30,000 and the handpiece we call a trode for $2,000.

Larry Heaton: Leader will be the exclusive distributor of our entire product portfolio to veterinarians in the Middle East, along with Egypt and India. These are large geographies with significant animal health markets and partnership will allow for some medical products to enter new parts of the world that we've not previously had access to. In addition, we're in the process of adding our new products to existing distributors, as well as adding new distributors in select international markets.

Speaker Change: Actually, 2,100.

Speaker Change: With a placement program, we may sell, we may place the device with now without requiring them to commit to the finance to the capital up front.

Speaker Change: And instead of selling the Matrode for $2,100, sell it for $6,000.

Speaker Change: or even sell a half-full trode for $3,000. These are ways for them to not have to make the long-term commitment.

Larry Heaton: Just today, we announced the signing of an agreement with Sire Veterinaria, a leading distributor of veterinary equipment in Costa Rica that will begin offering synthetic products shortly. With CE marks in hand, we expect additional announcements throughout the rest of the year. I would note that these new distributors did not place initial product stocking orders during the second quarter. We expect to fulfill these orders this quarter and next, and as a result, we believe our international business to be a strong incremental contributor to revenue performance in the second half of this year. With the increasing demand we're seeing and growing scale of our footprint, we expect our international business to be a material growth driver for Zometica in 2025 and beyond.

Larry Heaton: We're confident that once they start using it, they're going to see a very significant return on that investment, and we see this really as a bridge to them being able then in a subsequent quarter or once they go through their first trode to go ahead and order the system. That would then bring their trode costs down to $21,000. So we think we're well prepared as we move forward. You know, a lot of the a lot of the sort of realization that that system sales were going to be light in the second quarter came at the end of the quarter, when typically most of the systems are are closed or sold as we saw a reluctance or a delay. In fact, we believe that many of these will. Transcripts provided by Transcription Outsourcing, LLC.

Speaker Change: and instead can get into offering the therapy right away. We're confident that once they start using it, they're going to see a very significant return on that investment. And we see this really as a bridge to them being able then in a subsequent quarter, or once they go through their first drug.

Speaker Change: to go ahead and order the system. That would then bring their trade costs down to $2,100.

Speaker Change: So we think we're well prepared as we move forward.

Speaker Change: A lot of the realization that system sales were going to be light in the second quarter came at the end of the quarter when typically most of the systems are closed or sold.

Larry Heaton: We also achieved a number of significant milestones within our product portfolio. Let's start with the CC. During the quarter, we finalized an arrangement with our online retailer that markets through Amazon.com that will now offer the product line in 10 additional countries around the world, and that's an addition to us establishing new distributor outlets that will sell directly to veterinarians. Turning to PulseVet. PulseVet continues to be our leading product and we have made significant headway in growing its adoption across our customer base.

Speaker Change: As we saw reluctance or delay. In fact, we believe that many of these will

Speaker Change: turn into customers in a subsequent quarter, just didn't happen in the second quarter, and caught us a little by surprise.

Unknown Executive: Okay, just maybe a couple things on the pulse that so, When when you give the alternative to sell the trode for six grand, are they committing to a certain number of trode purchases or you would read, you know, if they only buy one and then, They don't re-up, there would be a point where you would pull the system back out of the field. Yes, absolutely. We're super clear that if you buy the Trode, you use it.

Speaker Change: Okay, just maybe a couple things on the pulse that so

Speaker Change: When you give the alternative to sell the trode for $6,000, are they committing to a certain number of trode purchases, or you would re... you know, if they only buy one and then...

Larry Heaton: We started with an installed base of around 1200 systems, primarily with equine veterinarians. We now have had over 2000 systems installed today worldwide, including a growing number of mixed and small animal veterinarians and veterinarian customers. This highlights the benefits of the platform to help provide better care for pets. With a timely update, as we all just witnessed the Olympics, PulseVet was named the official shockwave therapy of U.S. Equestrian, which competed in Paris.

Speaker Change: They don't re-up. There would be a point where you would pull the system back out of the field.

Unknown Executive: If you don't want to buy another one, then we'll take the system back. We have a loaner pool, so we don't have to take new systems off the shelf or what have you. However, we don't have any need to put in a minimum reorder quantity of Trodes or whatnot because, Realistically, when you use the PulseFet device on a pet in your clinic... There is a discernible difference in the pet at the time.

Speaker Change: Yes, absolutely. We're super clear that if you buy the Trode, you use it. If you don't want to buy another one, then we'll take the system back. We have a loaner pool, so we don't have to take new systems off the shelf or what have you. However,

Speaker Change: We don't have any need to put in a minimum reorder quantity of droves or whatnot because

Larry Heaton: We were thrilled to partner with the veterinarians caring for horses, competing in the Olympics to support their efforts to improve the welfare of their horses and ensure our team had access to world class technology to support their care in Paris and now back home. In support of those efforts on a wider scale, we are working to develop quality research to help expand clinical indications for use. We recently released a white paper showcase in the effect of the PulseVet therapy for treating exercise-induced pulmonary hemorrhage in quarter horses.

Speaker Change: Realistically, when you use the PULSET device on a pet in your clinic,

Unknown Executive: The vet sees it, the pet parent sees it, the tech sees it, and that's before it actually fully works. Because the way that the shock wave actually works in the animal is the sound wave activates the body's own regenerative processes.

Speaker Change: there is a discernible difference in the pet at the time. The vet sees it, the pet parent sees it, the tech sees it, and that's before it actually fully works because the way that the shockwave

Speaker Change: actually works in the animal is the sound wave activates the body's own regenerative processes.

Larry Heaton: It releases certain proteins that increase cytokine production, increase blood vessel formation, neural growth, reduces inflammation, and that process takes a couple of weeks to fully work. And so we're super confident that once a veterinarian starts using the PulseNet system, they're gonna keep using it. Plus, it's really profitable for them, even at the higher trode price, if the veterinarian is charging the typical average price per treatment of $300, they're making $200 on each of those treatments.

Speaker Change: It releases certain proteins that increase cytokine production, increase blood vessel formation, neural growth, reduces inflammation, and that process takes a couple of weeks to fully work. And so we're super confident that once a veterinarian starts using the PulseFed system, they're going to keep using it.

Larry Heaton: But importantly, in addition, the paper highlights that PulseVet therapy offers a potential non-invasive drug-free treatment option for horses suffering from equine asthma, paving the way for new sales opportunities beyond the technology's historic applications. PulseVet therapy is well-established in treating orthopedic issues like osteoarthritis, intending to ligament issues, bonyne. It's affected this in treating lung conditions in asthma, opens a new field of potential benefits, highlighting that we are just beginning to understand and tap the potential for this energy-based treatment technology.

Speaker Change: Plus, it's really profitable for them, even...

Speaker Change: Even at the higher trode price, if the veterinarian is charging the typical average price per treatment of $300, they're making $200 on each of those treatments. So there's economic motor, there's clinical motor driver for them to continue to use it.

Larry Heaton: So there's economic motor, there's clinical motor driver for them to continue to use it. Yeah, I mean, it sounds like, They basically could fund a third of a future system purchase with the first trode. If they roughly generate 15 grand in revenue, and then they got to pay you guys six grand for the trode, they're left with nine, not exactly a third, but close enough. So I guess that's interesting. Can you also what was the for the salespeople that were out? Was there a duration to that?

Speaker Change: Yeah, I mean, it sounds like.

Larry Heaton: The white paper demonstrates the potential to extend PulseVet therapy to use in the new markets, including equine lung conditions in asthma, making it a vital component of zometicist growth strategy for the future. Of course, for small animal veterinarians who are just being introduced to the PulseVet system, essentially all of the 20 clinical indications for dogs and cats are new to them, providing compelling reasons to adopt the technology.

Speaker Change: They basically could fund a third of a future system purchase with the first trode if they roughly generate

Speaker Change: $15,000 in revenue, and then they got to pay you guys $6,000 for the trode. They're left with $9,000, not exactly a third, but close enough. So I guess that's interesting. Can you also – what was the – for the salespeople that were out

Unknown Executive: I mean, were people out for a week or two? So we had, I'm just thinking now we had one, two, at least three that were out for a full 12 weeks, essentially the whole quarter. And then the other two, I don't recall off the top of my head, they may have been lesser duration.

Speaker Change: Was there a duration to that? I mean, were people out for a week or two?

Larry Heaton: But at one point during the course of the quarter, I think in mid to late, I think it was in May, we had these, But the good news is, they're all healthy, and they all came back. The issues that presented weren't sort of things that you would expect to happen again and again. All right, and then Peter on the 16 million is, Um... I guess I'll charge off. You guys did a similar expense in the fourth quarter. I guess that was specifically related to a credit card.

Larry Heaton: Turning to an update on TrueView. During the quarter, we continued our activity to add artificial intelligence or AI interpretations to the TrueView system. When this is completed, each slide process will be accompanied by an AI report. We expect to launch this feature later this year, and we'll resume more aggressive marketing of the system when it is ready to launch. In addition, we have finalized and will be rolling out shortly a new protocol specifically for ear cytology, reducing the time to produce the images needed for review by the veterinarian and streamlining practice workflow. This could be potentially impactful to our business as ear cytologies are performed daily in vet clinics to diagnose otitis, which affects between 10 and 20% of dogs and 2 to 6% of cats.

Speaker Change: So we had, I'm just thinking now, we had one, two...

Speaker Change: At least three that were out for a full 12 weeks.

Speaker Change: sent you the whole quarter.

Speaker Change: And then the other two, I don't recall off the top of my head, they may have been lesser duration. But at one point during the course of the quarter, I think in mid to late, I think it was in May, we had

Speaker Change: But the good news is, they're all healthy and they all came back. You know, so the issues that presented weren't sort of things that you would expect to happen again and again.

Speaker Change: All right, and then Peter on the $16 million in

Speaker Change: I guess it's hard job. You guys did a similar expense in the fourth quarter. I guess that was specifically related to a CC.

Larry Heaton: Now to form a... We continue to be encouraged by the growing adoption of true forma as we're seeing an uptick and increases in our installed base. Importantly, we are seeing expansion into equine veterinary practices as we benefit from our growing portfolio penetration across both equine and small animal veterinary practices. As part of our push into new international markets, we're very excited that in June we received CE market approval for true formal, which enables us to commercialize the platform across the European economic area.

Unknown Executive: So you've had some pretty material write downs the past, well, this quarter and then fourth quarter. So is there more to go there? Or what's driving?

Speaker Change: So you've had some pretty material write-downs the past, well, this quarter and then fourth quarter. So is there more to go there or what's driving this?

Peter Donato: Yeah, so I encourage you to look at what's left on the balance sheet. The short answer is there's not much left, and most of it is associated with PulseVet. There's a small amount left for Assisi, but Revo has been eliminated, and there's, I believe, $2 million left for Assisi, and Vet Guardian is eliminated as well. So most of it is gone. All right, and then maybe lastly, if I got it right, you guys said cash from 7.9 to 2.7 ish was one time related, which is just over 5 billion in cash burn, but let's, quite a bit higher than what you've demonstrated in prior quarters, which has been kind of 3 million-ish or below.

Speaker Change: Yeah, so I encourage you to look at what's left on the balance sheet. The short answer is there's not much left and most of it is associated with PulseVet. There's a small amount left for Assisi, but Revo has been eliminated and there's, I believe, $2 million left for Assisi.

Larry Heaton: This is an important milestone as it allows us to bring the benefits of our one-of-a-kind diagnostic testing capabilities to the large and rapidly growing European veterinary diagnostics market. The distributors we recently announced will be carrying the true form of product in their respective markets, and we expect to introduce it into Europe during the current quarter. The core benefit of our acquisition of core mobile technologies, the developer of true forma, was our ability to accelerate the development and commercialization of new assays. And during 2024, in addition to the two new assays already launched for both small animals and horses, we continue to expect to launch at least three additional new assays during the balance of the year.

Speaker Change: And Vet Guardian is eliminated as well. So most of it is gone.

Speaker Change: And then maybe lastly, if I got it right, you guys said cash from 7.9 to 2.7-ish was one-time related, which is just over $5 million in cash burn.

Speaker Change: higher than what you've demonstrated in prior quarters, which has been kind of three million-ish or below. And so should we be – I mean, I know you said cash for towards the high end of the 12 to 18 million, but

Peter Donato: And so should we be, I mean, I know you said cash for, towards the high end of the 12 to 18 million, but. Can we infer that CashFern is actually going to be running a little bit higher than.., well below five but about three, So three was never the guidance, right?

Speaker Change: Can we infer that CashFern is actually going to be running a little bit higher than...

Peter Donato: That was last year's guidance, and it was prior to the Cuervo acquisition, right? So I've said very publicly that the headwind associated with the Cuervo acquisition is at least a million and probably close to, and I think we, you and I talked even in Minnesota, it's about a million and a quarter per quarter, so roughly $5 million.

Speaker Change: Well, below five, but about three.

Larry Heaton: With respect to our expansion into equine diagnostics. The late last year of our first equine assay in Dodge and Assay CTH. During the second quarter of this year, we launched our second equine-focused assay, Cortisol for equine serum. Cortisol measurement is crucial for assessing the health of sick foals, and it's not been available at the point of care until now. Traditionally, equine veterinarians have had to send samples to reference labs and wait several days for results.

Speaker Change: So three was never the guidance, right? That was last year's guidance and it was prior to the Corvo acquisition, right? So I've said very publicly that

Speaker Change: The headwind associated with the Cuervo acquisition is at least a million, and probably close to, and I think we, you and I talked even in Minnesota, it's about a million and a quarter.

Speaker Change: per quarter, so roughly $5 million. So we had to absorb that. But essentially, the shortfall can be attributed to two items. It's a revenue miss, right? We're falling behind on revenue. And if you adjust for some one-offs,

Peter Donato: But essentially, the shortfall can be attributed to two items. It's a revenue miss, right, where we're falling behind on revenue, and if you adjust for some one-offs on the operating expense side, particularly on the G&A line, you'll get, you know, towards the middle or bottom part of the range. But essentially, if the revenue bounces back, as we expect it will, the range still stands, right, the high end of the range. So, you know, if you do the math on that, you know, the 18 divided by 4, that's probably a burn rate that looks right to me going forward.

Larry Heaton: Potentially receiving them too late to make critical treatment decisions. Our new assay will bring a valuable diagnostic tool for equine veterinarians to use in clinic and stall site, empowering them to make real-time, potentially life-saving treatment decisions. With several hundred thousand foals more in each year in the United States alone, this assay will not only be a benefit to veterinarians and the foals they care for. But we'll also expand the market for the true form of system amongst equine beds.

Speaker Change: On the operating expense side, particularly on the GNA line, you'll get towards the middle or bottom part of the range.

Speaker Change: But essentially, if the revenue bounces back, as we expect it will, the range still stands, right? The high end of the range. So, you know, if you do the math on that, you know, the 18 divided by 4, that's probably a burn rate that will...that looks...

Larry Heaton: In addition, in May, we launched an advanced canine Cortisol assay. This assay, which is one of the most frequently used tests on the platform, now features significant improvements including an increased dynamic range that enhances its precision and accuracy. The Cortisol assay is vital for veterinarians, allowing them to perform critical tests, such as the low dose dex suppression test, with reference lab accuracy directly in their clinics. By improving what is already one of our most heavily used assays, we expect a further strengthen the true form of forms positioned in the market.

Peter Donato: You know, I'll defer to the new guy coming in to do his or her own math, but I'm comfortable. And if we miss, right, it's not going to be a huge material miss, and it'll be a retimed.

Speaker Change: write to me.

Speaker Change: going forward. You know, I'll defer to the new guy coming in to do his or her own math.

Speaker Change: But I'm comfortable. And if we miss, right, it's not going to be a huge material miss, and it'll be a retimed, if you recall.

Peter Donato: If you recall, you know, we gave a low watermark of cash of $65 million. So if the revenue starts to bounce back before profitability, you know, we shouldn't be in danger of missing that low watermark. And if we do, it's measured in singular millions of dollars. It's not going to be a big difference.

Speaker Change: You know, we gave a low watermark of cash of $65 million. So if the revenue starts to bounce back before profitability.

Speaker Change: You know, we shouldn't be in danger of missing that low water market. If we do, it's measured in singular millions of dollars. It's not going to be a big difference.

Unknown Executive: And maybe just lastly, on your original guidance for revenue of $31 to $35 million, how much of that was international sales related? What was the expectation for international sales? Yeah, so we didn't give an expectation on that.

Larry Heaton: In addition to the launch of multiple assays during the year, we launched over-the-air update capability for true form. Each time we launch a new assay, a software update for our install base is needed to add the capability to run a new assay and provide appropriate reference ranges, etc. Up to now, this has required an in-person visit from our sales team. With the introduction of over-the-air updates, customers are prompted when a new software update is available on the device and will be able to apply the update with the pushable button.

Speaker Change: And maybe just lastly, on your original guidance for revenue of 31 to 35 million, how much of that was international sales related?

Peter Donato: What we've said historically, you know, that about 15% of that revenue, give or take a point or two, last year's 25 too, about 14 or 15% of that was international. So the expectation would be, you know, right around that. And I think you and I have talked offline, it's tough to gauge it on a percentage basis because the domestic business, you know, could be growing faster. We could be hitting it out of the park internationally, and that number could be 10%, right?

Speaker Change: What was the expectation for international film? Yeah, so we didn't give an expectation on that. What we've said historically, you know, that about 15% of that revenue, give or take a point or two.

Speaker Change: Last year's 25-2, about 14 or 15 percent of that was international, so the expectation would be right around that, and I think you and I have talked.

Larry Heaton: Demonstrating our dedication to accelerating delivery of highly beneficial assays on the true form of diagnostic platform. These capabilities further reduce barriers for customer adoption of newly launched assays, as well as provide efficient means for delivering timely enhancements for existing assays to customers.

Speaker Change: Offline, it's tough to engage it on a percentage basis because the domestic business, you know, could be growing faster We could be hitting it out of the park internationally and that could number could be 10% .

Unknown Executive: Because of how domestic is growing, you know, on a percentage basis, this quarter, you know, in, you know, kind of the coming quarters, it should be a large chunk on a percentage basis. But it's tough to tell if the capital sales recover like we think we do, then it'll probably gravitate right to the mid teens, as it were, it's been historically. All right, maybe my last last one.

Speaker Change: Right, because of how domestic is growing at, you know, on a percentage basis.

Larry Heaton: Turning now to the Vett Guardian. The sale of new Vett Guardian systems continue to highlight the value of the technology and the benefits our customers are seeing. As we're now in the second year of offering this product, we will be receiving recurring annual revenue for cloud access and extended warranty coverage from charges that began after the first full year of adoption. In May, we announced the achievement of a significant milestone, CE marking for Vett Guardian.

Speaker Change: This quarter, you know, in kind of the coming quarters, it should be a large chunk on a percentage basis, but it's tough to tell. If the capital sales recover like we think we do, then it'll probably gravitate right to the mid-teens, as it were, it's been historically.

Unknown Executive: If I'm just going to speculate here, and so if you could just comment on my speculation, if you have people going out on maternity or paternity leave on your sales force, is there a way that you can mitigate that type of or those situations in the future? So well, first of all, if any, any reps go out on maternity or paternity leave, we respect the heck out of that. And we, you know, we hold that territory open.

Speaker Change: All right, maybe...

Speaker Change: My last last one, if I'm just going to speculate here, and so if you could just comment on my speculation, if you have people going out on maternity or paternity leave,

Larry Heaton: This certification allows the platform to be sold throughout the European Union and select other countries, give veterinary professionals seeking an advanced solution to elevate patient care and streamline practice operations, access to this innovative technology. With CE Mark in hand, we're turning our attention to a formal international launch as we evaluate and onboard additional international distribution partners to help me demand for this product. We're also excited about our development projects to bring Vett Guardian to the Equine market.

Speaker Change: On your sales force, is there a way that you can mitigate that type of or those situations in the future?

Unknown Executive: But what we have done when we were sort of caught a little bit by surprise, by the number of people out on medical leave, we have taken steps to make sure that we have additional salespeople that would be able to fill in, for example, as it affected as we went through the quarter, we were able to find someone that was able to step into a territory that had been vacated for medical leave. And then once the sales rep came back, then that person, we are using that person in another capacity.

Speaker Change: So, well, first of all, if any reps go out on maternity or paternity leave, we respect the heck out of that, and we, you know, we hold that territory open. But what we have done, when we were sort of caught a little bit by surprise by the number of people out on medical leave.

Larry Heaton: Given our deep penetration within the Equine Vett market with Pulse Vett and now with Trueforma, we believe our launch of an Equine Vett Guardian option will be very well received. Help drive accelerated adoption by Equine Veterinarians in 2020 and beyond and set the stage for potential expansion of the market opportunity to include horse trainers, breeders, potentially owners.

Speaker Change: We have taken steps to make sure that we have additional salespeople that would be able to fill in, for example, as it affected, as we went through the quarter, we were able to find someone that was able to step into a territory.

Larry Heaton: Now shifting to operational update. In June, we completed the expansion of our Global Manufacturing and Distribution Facility in Roswell, Georgia, the expansion, which increased the facility's total size to 18,400 square feet, adding 6,000 square feet of adjacent space, enhanced warehousing and sales order fulfillment efficiencies. This all resulted in us now having capacity from the Roswell facility to support a fivefold increase in demand for our products. In addition to adding capacity in our Georgia facility, in our Minnesota facility, we have installed a new automated robotic manufacturing line that automates steps that previously required high levels of manual labor.

Speaker Change: that had been vacated for medical leave. And then once the sales rep came back, then that person, we were using that person in another capacity.

Unknown Executive: So the other thing is, is that we have now a full complement of professional services, veterinarians that are also able to step in to territories when there's a vacancy. So we've, we've thought about that and we've taken some steps to make sure that we won't be adversely affected. Should we have reps go out on medical leave going forward.

Speaker Change: So the other thing is, is that we have now a full.

Speaker Change: complement of professional services veterinarians that are also able to step in to territories when there's a vacancy. So we've thought about that and we've taken some steps to make sure that we won't be adversely affected should we have reps go out on medical leave going forward.

Larry Heaton: All right. Well, thanks. You're welcome. Should you have a question, please press the star followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised. Again, if we have any questions, please press the stop, followed by the number 1 on your touchtone phone, and you will hear a prompt that your hand has been raised. There are no further questions over the phone.

Speaker Change: All right. Well, thank

Speaker Change: You're welcome.

Speaker Change: Should you have a question, please press the star followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised.

Larry Heaton: We're currently in process of validating this production line, which we expect to be completed during this quarter. This will not only benefit the efficiency of the process, but will also allow us to realize cost benefits, which we expect to be reflected in our improving growth margins.

Speaker Change #100: Again, if you have any questions, please press the stop, followed by the number 1 on your touch screen phone, and you will hear a prompt that your hand has been raised.

Unknown Executive: Mr. Heaton, please proceed with web-based questions. Okay. So, let's see, we have a question from the web that is, can you give a rough timeline for when you expect to see meaningful sales from the recent CE in Europe for Bed Guardian and Truforma, as well as the Middle Eastern and Costa Rica agreements? Do you expect that to start in 2025 or earlier? So we expect, to see sales in Costa Rica, in the Middle East and Africa this year, this this quarter. You know, Middle East and Africa is really a slow time for businesses and vets there in July and August, but it picks up quite a bit in September.

Mr. Ethan: There are no further questions over the phone. Mr. Heaton, please proceed with web-based questions.

Larry Heaton: While we did experience some short-term headwinds during the quarter that impacted our top line growth, we're very bullish on the future of Zomeneca. We achieved a significant number of key commercial and operational milestones, which will support our growth strategy moving forward as we make progress toward our goal of cash flow and gap profitability.

Mr. Ethan: Peter Donato, Jason Kolbert, Elif

Mr. Ethan: Okay.

Speaker Change #102: So, let's see, we have a question from the web that is, can you give a rough timeline for when you expect to see meaningful sales from the recent CE in Europe for Bed Guardian and Truforma, as well as the Middle Eastern and Costa Rica agreements? Do you expect that to start in 2025 or earlier?

Peter Donato: I'd now like to turn the call over to Peter to review our financial efforts in more detail. Peter, thanks Larry, and good afternoon everyone. Total revenue for the second quarter of 2024 was $6.1 million. That's an increase of 2% over the prior second quarter, primarily driven by growth within our diagnostic segment. Second Quarter, 2024 Capital Revenues, or $1.7 million, and that's down 12% from $2 million and the second quarter of last year.

Larry Heaton: So we expect to see, you know, sort of the first sales to to customers as we get closer to September in Costa Rica. We've completed the training for the staff, and we expect to see sales begin to customers in Costa Rica, this quarter. You know, potentially even this month when we just did the training.

Speaker Change #103: So we expect to see sales in Costa Rica.

Speaker Change #103: in the Middle East and Africa.

Speaker Change #103: this year.

Speaker Change #103: this quarter.

Speaker Change #103: You know, Middle East and Africa is really a slow time for businesses and vets there in July and August, but it picks up quite a bit in September. So we expect to see, you know, sort of the first sales to to customers, uh, as we get closer to September in Costa Rica. Um

Peter Donato: And as Larry said previously, this has primarily resolved falling about three units short this year as compared to last year, with also due to some short term commercial headwinds also as Larry discussed. We have taken the appropriate steps to ensure that our commercial team is back on track and expect these issues to be resolved during the back half of the year as we return to a more normal capital sales trajectory. Also in the second quarter, consumable revenue was $4.4 million.

Speaker Change #103: We've completed the training for the staff and we expect to see sales begin to customers in Costa Rica.

Larry Heaton: The difference is, of course, sales to the distributors for inventory, stocking orders and demo equipment and stuff that precedes sales to customers. So in any event, we expect to see sales from those distributors during the quarter. Now, in Europe, which which the CE mark applies to, I should say this. The CE mark is essential to import products, to export products into Europe. It's also useful, however, in other countries that look to the CE mark and say, well, if you have a CE mark, then you're clear to come market in our country right away. In Europe, of course, they take the month of August off for vacation.

Speaker Change #104: The difference is, of course, sales to the distributors.

Peter Donato: That's an increase of approximately 8% from the second quarter of 2023 revenues, which were $4 million, consumable revenue now represents 72% of total revenue in this quarter. Second quarter therapeutic devices segment revenues from Pulse Fett and the CC product lines were $5.7 million. That's roughly flat compared to the prior year. With that said, we continue to be optimistic about a return to higher growth rates in the back half of the year as we expect capital sales to normalize.

Speaker Change #104: for inventory stocking orders and demo equipment and stuff. That precedes sales to customers. So, in any event, we expect to see sales from those distributors during the quarter. Now, in Europe,

Speaker Change #104: which the CE mark applies to. I should say this, the CE mark is essential to import products, to export products into Europe.

Speaker Change #104: It's also useful, however, in other countries that look to the CE mark and say, well, if you have the CE mark, then you're clear to come market in our country right away. In Europe, of course, they take the month of August off for vacation.

Peter Donato: Second quarter diagnostic segment revenues were about $420,000. That's an increase of 68% over the second quarter of last year. This was driven by significant year-over-year growth from vet guardian and true forma. Within the diagnostic segment, capital revenue grew over 87% while consumable revenue grew nicely by 62%. Growth profit for the second quarter of 2024 was $4.4 million. And that compares to $4 million in the second quarter of last year. Growth profit margin for the second quarter was 71%. That's slightly better than the high end of our previously stated target range of 65% to 70% and much higher than last year's reported margin of 67%.

Larry Heaton: And that includes a lot of businesses around the continent. So we expect to see some, you know, some uptake in new distributor arrangements as we get out of this month and into September.

Speaker Change #104: and that includes a lot of businesses around the continent.

Speaker Change #104: So, we expect to see some uptake in new distributor arrangements as we get out of this month and into September.

Larry Heaton: And so we have a number of initiatives underway, not just with brand new distributors, but also with distributors that currently sell PulseFet for equine. We have the opportunity to add PulseFet for small animal. We have the opportunity to add all the additional products now that we got the CE mark. So from the beginning, the gating has been getting a CE mark. We have it for Truforma.

Speaker Change #105: But there's a big world out there that's not all just Europe . And so we have a number of initiatives underway, not just with brand new distributors, but also...

Speaker Change #105: with distributors that currently sell PulseVet for equine, we have the opportunity to add PulseVet for small animal, we have the opportunity to add all the additional products now that we got the CE mark. So, from the beginning, the gating has been getting a CE mark. We have it for Truforma, we have it for VetGuardian, we expect to have it shortly for TruView as well.

Peter Donato: In the quarter, accounting rules required us to take non-cast charges of approximately $16 million to eliminate or reduce the carrying values of good will related to product lines associated with the S&P, Revo squared, and a CC acquisition. Please note that these are non-cast charges and have no impact on the ability to drive the adoption of these products. And as such, we continue to believe in these products and the potential they have to take its to profitability and beyond.

Larry Heaton: We have it for VetGuardian. We will, and we expect to have it shortly for TruView as well. But for the first two products, PulseFet and Assisi, you know, we expect that now that we have that CE mark, that's sort of the last thing that had to get done before we could start exporting the products. So international sales have run ahead of our expectations in the first half. And we expect international sales to contribute significantly in the second half and be substantially above where we did what we did last year in international sales. We'll see.

Speaker Change #105: But for the first two products, a PulseFET and a CC, you know, we expect that now that we have that CE mark, that's sort of the last thing that had to get done before we could start exporting the products.

Speaker Change #106: International sales have run ahead of our expectations in the first half and we expect international sales to contribute significantly in the second half and be substantially above where we did what we did last year in international.

Peter Donato: However, as a result of these charges reported operating expenses for the second quarter of 2024 were $29.4 million. When adjusting for these non-cast impairment charges, total operating expenses checked in at $13.4 million and you can compare that to $10.8 million in the same period of 2023. That's an increase of about $2.6 million. In the second quarter, our R&D expenses were about a million and a half dollars. That's an increase of about $600,000 over the prior year quarter with additional spending on AI-related programs, true format and vet guardian product development, and CE marking for international regulatory approvals, also in the second quarter, sales and marketing spend was $3.9 million and that compares to $3.1 million during the same period of 2023 and that's primarily due to our expanded sales force and spending on new product marketing and their related launches.

Speaker Change #107: Ersy.

Speaker Change #108: Is your team content with the results of Q2?

Larry Heaton: We expected to do a little bit better in PulseFed, in particular in PulseFed Capital. We're super pleased with PulseFed consumable revenue. That was really good to see, because that's a reflection of the fact that our user base is expanding. Those new systems we put out there are being used, and our existing user base is using the product, and if they're using the product, they're gaining benefits for themselves, for their pet parent clients, and most of all, for the pets that they're treating, right? So we're very happy about that. We were happy with diagnostics up 68%.

Speaker Change #109: In a word, no, we're not.

Speaker Change #109: We expected to do a little bit better in PulseFed, in particular in PulseFed capital. We're super pleased with PulseFed consumable revenue.

Speaker Change #110: That was really good to see because that's a reflection of the fact that our user base is expanding. Those new systems we put out there are being used and our existing user base is using the product and if they're using the product they're gaining benefits for themselves.

Speaker Change #110: for their pet parent clients, and most of all for the pets that they're treating. So we're very happy about that. We're happy with diagnostics up 68%. It's a small base, but it's significant growth. We're happy with the vet guardian uptake. There are a lot of things we're happy about, but...

Larry Heaton: It's a small base, but it's significant growth. We're happy with the vet guardian uptake. There are a lot of things we're happy about, but, You know, very straightforwardly, we were not happy with the level of PulseVet system sales, and we intend to make it different in the second half of the year already started. How about getting access to European markets? I think we covered that. I should say that for equine, we're very well covered in Europe. We have a master distributor that has basically all of the EU. I think there might be one or two carve-outs where we had existing distributors there before, but it's pretty much all of Europe for them.

Speaker Change #111: You know, very straightforwardly, we were not happy with the level of post vet system sales, and we intend to make it different in the second half of the year already started.

Speaker Change #112: How about getting access to European markets? I think we covered that. I should say that for equine, we're very well covered in Europe . We have a master distributor that has basically all of the EU.

Peter Donato: They increase due to accounting, legal, tax and audit expenses and they're primarily related to acquisitions and other compliance related programs. Net loss for our second quarter was $23.9 million, that's 2.4 cents per share and it compares to a net loss of $5.2 million or about 0.005 cents per share in the second quarter of 2023. Our non-gap EBITDAW loss, which includes adjustments for non-cash stock compensation for the three months end of June 30, 2024, was $22.3 million and compares to a loss of $3.7 million for the same period last year.

Speaker Change #113: I think there might be one or two power bouts.

Speaker Change #113: where we had existing distributors there before.

Larry Heaton: And they're super excited to get their hands on Trueforma for equine application in the near term, and in the longer term when we have it ready for that Guardian equine. But they're an equine-only distributor. And so in this case, we'll be adding either a single pan-European distributor or multiple distributors. And you can expect that to happen here in the second half, now that we have the CE mark. What are the plans to best utilize cash on hand? And... Prudently. And, and maybe miserly, right.

Speaker Change #113: But it's pretty much all of Europe for them. And they're super excited to get their hands on Truforma for equine application.

Speaker Change #113: in the near term.

Speaker Change #113: and in the longer term when we have it ready for that Guardian equine.

Speaker Change #113: But they're an equine-only distributor.

Speaker Change #113: and so in in this case we'll be adding either a single pan-european distributor or multiple distributors and you can expect that to happen here in the second half now that we have the CV marker.

Peter Donato: One adjusting for non-cash and non-recurring items are adjusted, non-gap EBITDAW loss was approximately $5.2 million. Turning to the balance sheet, Zomedica ended the second quarter with $83 million in cash, cash equivalence and available for sale securities. Our cash used in the second quarter was approximately $7.9 million and included $2.7 million of non-recurring items with the remaining $5.2 million used for operating expenses. With the non-cash and payment charges taking during the quarter, our balance sheet and related valuation are now more in line with our current market capitalization. As a reminder, we have a zero debt.

Speaker Change #113: [inaudible]

Speaker Change #114: What are the plans to best utilize cash on hand?

Larry Heaton: So while we have a very solid foundation on the balance sheet, we have plenty of capital. We are focused, We are as focused on reducing operating expenses and eliminating any extraneous expenses that might have popped up over the last two or three years as we would be if we had very little cash on hand, because in order for us to get to cash flow profitability. And beyond that gap profitability, in order to get there, we need revenue to increase and we're working very hard to make that happen, remembering that most of our products are novel, even though PulseVet's been established in the equine market, in the small animal market, it's a new product to small animal vets. VetGuardian, not only a new product but a new category. Truforma, each of the assays are new to the vet to be able to do in the clinic.

Speaker Change #114: Prudently.

Speaker Change #115: and maybe miserly, right? So while we have a very solid foundation on the balance sheet, we have plenty of capital, we are focused

Speaker Change #116: We are as focused on reducing operating expenses and eliminating any extraneous expenses that might have popped up over the last two or three years as we would be if we had very little cash on hand.

Speaker Change #116: because in order for us to get to cash flow profitability

Speaker Change #116: and beyond that gap profitability. In order to get there, we need revenue to increase, and we're working very hard to make that happen, remembering that most of our products are novel. Even though PulseVet's been established in the equine market, in the small animal market, it's a new product to small animal vets.

Peter Donato: Before wrapping up my prepared remarks, I'd like to announce that this morning I tendered my resignation from Zomedica, making this my last earnings call with the company before I move back into human health where I've spent most of my senior career. Since joining the company in March of 2023, I've led efforts that enhance our control environment. We built a maturing and good finance and accounting function led by our VPN corporate controller.

Speaker Change #116: VetGuardian, not only a new product, but a new category. Gru Forma, each of the assays are new to the vet to be able to do in the clinic.

Larry Heaton: And TrueView is completely novel in terms of slide prep, has competition in the marketplace with respect to AI reports. Adding AI to TrueView then makes customers not have to choose between AI reports and automatic slide prep. They get both in the TrueView.

Speaker Change #116: and TrueView is completely novel in terms of slide prep, has competition in the marketplace with respect to AI reports.

Peter Donato: In addition, we've implemented a variety of strategic initiatives aimed at driving growth and putting a position to achieve profitability. In other words, Zomedica is in good hands. The company is currently in the process of identifying my replacement and I will continue consulting with the company for a period of time to ensure a smooth transition until a new CFO is in the seat that upspeed our business.

Speaker Change #116: Adding AI to TrueView then makes customers not have to choose between AI reports and automatic slide prep. They get both in the TrueView. But having said that, when you launch new products, it takes time.

Larry Heaton: But having said that, when you launch new products, it takes time. It takes time to get the word out. It takes time to build your early adopter base so that you have testimonials, so that you can put key opinion leaders on the podium at conferences and start and have that word spread. In the classic way of looking at a venture product or a brand new product, they refer to sort of a hockey stick of growth, right, where it starts out slow and grows modestly, and then at some point you reach an inflection point where it then takes off. Now, I'm not suggesting that we're all of a sudden going to go from zero to 100 in a minute. It takes a little time.

Speaker Change #116: It takes time to get the word out, it takes time to build your early adopter base so that you have testimonials, so that you can put key opinion leaders on the podium at conferences and start and have that word spread.

Peter Donato: Now turning to an update on guidance, with the transition to a new CFO and to defer to that new CFO, we are suspending our previously issued revenue guidance for 2024. The company will revisit issuing guidance once a new CFO is on board, but directionally we expect total revenue to grow versus the prior year, with the step up and revenue during the second half of this year as we anticipate outsized seasonal trends in our third and fourth quarters. While we are suspending revenue guidance, we continue to expect gross margins to approach and maybe exceed 70% for the full year as we continue to see operational conditions.

Speaker Change #117: In the classic way of looking at a venture product or a brand new product, they refer to sort of a hockey stick of growth, right? Where it starts out slow, it grows modestly, and then at some point you reach an inflection point where it then takes off. Now I'm not.

Speaker Change #117: suggesting that you know we're all of a sudden going to go from you know zero to a hundred in a minute. It takes, it takes a little time so

Larry Heaton: So, with that said, in order for us to get to cash flow profitability and gap profitability, we have to increase revenue, which we're doing, but also we can affect that time frame for that by reducing expense. And while we made a lot of investments over the last two and a half years, just witness the facilities that we have to manufacture the products in Georgia and in Minnesota. We made acquisitions, and based on the impairment charge, maybe we paid a premium for them, but we've got novel products.

Speaker Change #117: With that said, in order for us to get to cash flow profitability and GAAP profitability, we have to increase revenue, which we're doing, but also we can affect that timeframe for that by reducing expense.

Peter Donato: Turning to cashburn. We continue to expect our adjusted cashburn to be within our previously stated range, guidance range of 12 to 18 million. That's likely at the high end of that range. And again, I'll defer to the new CFO coming in.

Speaker Change #117: And while, you know, we made a lot of investments over the last two and a half years, just witness

Speaker Change #117: You know, the facilities that we have to manufacture the products.

Speaker Change #117: in Georgia and in Minnesota. We made acquisitions.

Larry Heaton: With that, I'll turn the call back over to Larry for final remarks before the Q&A session. Larry? Thanks for the update, Peter. And thank you, Peter, for your contributions to Zomedica during your tenure. I appreciate all you've done to now, appreciate your ongoing commitment during the transition to a new CFO. And wish you the best in your future endeavors back in the human health market. Thank you.

Speaker Change #117: and based on the impairment charge, maybe we pay a premium for them. But we've got novel products. We've got highly differentiated products. And so our cash, I think, is best used in making sure that we fund the appropriate initiatives to drive sales growth.

Larry Heaton: We've got highly differentiated products. And so, our cash, I think, is best used in making sure that we fund the appropriate initiatives to drive sales growth, and anything else we take a really long hard look at and make sure that we're, you know, we're pressing two pennies together to see if we need to spend them both. I see there's a call, a question from someone on the, or is there, no, I thought I saw a hand raised.

Speaker Change #117: and anything else we take a really long hard look at and make sure that we're you know we're pressing two pennies together to see if if we need to spend them both.

Larry Heaton: As you could tell, we continue to be excited about the future of Zomedica. We have a significant number of initiatives in place to drive growth in the business. While doing the work behind the scenes to set ourselves up to achieve positive cash flow, once we reach 50 million in annualized revenue, and beyond that, to gap profitability. We have plenty of capital, innovative products, and a professionally led sales force to introduce them to veterinarians for the benefit of our pets and yours.

Speaker Change #118: I see there's a call a question from someone on the or is there no I thought I saw a hand raised oh okay never mind

Unknown Executive: Oh, okay, never mind. All right. Are there any updates on the second half earnings? Peter, you want to take that one?

Unknown Executive: that I'm not sure what the question is. What do we expect? I guess what do we expect to see in the second half?

Speaker Change #118: Are there any updates on the second half earnings? Peter, you want to take that one?

Peter Donato: I'm not sure what the question is. What do we expect to say? I guess what do we expect to see in the second half?

Unknown Executive: Yeah, so I mean, what I said in the prepared remarks, right? So if you the way I look at this, and I'm the guy who's parting, right? If you if you kind of look at what we did last year, in the second half, and historically have done it's 55 or 56% of the revenue. So I think that that assumption that trend holds true. And if you listen to my prepared remarks, we talked about oversize.

Larry Heaton: So let me hand our preparator marks by again thanking those that have been supportive of Zomedica, including animal health professionals and pet parents worldwide, and the many shareholders of Zomedica.

Peter Donato: Yeah, so I mean, what I said in the prepared remarks, right? So if you the way I look at this, and I'm the guy who's parting, right, if you if you kind of look at what we did last year,

Operator: That, I'd be happy to open the line for questions. Thank you. Ladies and gentlemen, we will now begin with a question and answer session. Should you have a question, please press the star, follow bid and number one on your touch phone. You will hear a prompt that your hands have been raised. Should you wish to decline from the polling process, please press the star, follow bid and number two. If you are using a speaker phone, please click the hand set before pressing any seats. One moment please for your first question.

Peter Donato: in the second half and historically have done. It's 55 or 56 percent of the revenue. So I think that assumption, that trend holds true. And if you listen to my prepared remarks, we talked about oversize. So I think that you'll see a greater proportion of that. But even if you just take the historical 55 or 56 percent,

Peter Donato: So I think that you'll see a greater proportion of that. But even if you just take the historical 55 or 56%, that takes you to a number approaching $28 million, right? And then you can handicap the delta for international sales, right? So I think that there's a tailwind internationally.

Peter Donato: That takes you to a number approaching $28 million, right? And then you can handicap.

Speaker Change #119: the delta for the international sales, right? So I think that there's a tailwind internationally, and if you apply even a modest growth rate, it gets you a number, you know, approaching $30 million. So again, I'll let Larry and my successor come up with guidance. It might be to reiterate the guidance that we had out there, right? But at the end of the day, it's going to be higher, it should be higher, right, than 25.2 for the reasons I cited.

Peter Donato: And if you apply even a modest gross rate, it gets you a number, you know, approaching $30 million. So again, I'll let Larry and my successor come up with guidance, it might be to reiterate the guidance that we had out there, right? But at the end of the day, it's going to be higher, it should be higher, right than 25.2 for the reasons I cited, Salesforce back at full strength and a variety of other initiatives, forget about being at full strength, right?

Andrew Graham: Our first question will be coming from Andrew Graham from Odinson Park. Sorry.

Peter Donato: If you think about that Guardian, the consumable stream, albeit small, is starting to kick in, you get the first year free. So that's just starting to kick in, and we'll continue to multiply the multiple unit sales on that Guardian are a nice growth driver going forward. So there's a variety of kind of upside. In addition to mitigating some of the headwinds that we had, I think there's a variety of things that could push this company, you know, closer to the guidance range as we exit the year and kind of reset the bar to how we were thinking about 2025. And in fact, there might be even upside to some of the thinking initially on 2025. But I'm certainly not going to commit my successor to those numbers. Thanks, Peter.

Speaker Change #119: Salesforce back at full strength and a variety of other initiatives. Forget about being at full strength, right? If you think about.

Speaker Change #119: VET Guardian, the consumable stream, albeit small, is starting to kick in. You get the first year free. So that's just starting to kick in and will continue to multiply. The multiple unit sales on VET Guardian are a nice growth driver going forward. So there's a variety of kind of upside.

Larry Heaton: Can you guys just, Larry, could you talk about the sales force headwinds in the quarters to a little bit more detail and then how you guys will mitigate that going forward? Yes, and hi, Andrew. So during the quarter, you know, once Kevin Klas came to us from Heska, he began the process of evaluating the existing sales force, and at some cases there were sales people that were replaced. And when you replace sales people, then there's a little bit of lead time for them to get trained and up to speed and get the pipeline of funnel full and so on.

Speaker Change #120: In addition to mitigating some of the headwinds that we had, I think there's a variety of things that could push this company, you know, closer to the guidance range as we exit the year and kind of reset the bar to how we were thinking about 2025, and in fact, there might be even upside to some of the thinking initially on 2025, but I'm certainly not going to commit my successor to those numbers.

Larry Heaton: We have another one here is where do we stand on compliance? I assume that's compliance with the NYSE exchange, and the answer would be that it is status quo. It's the same place we were a quarter ago and then a month or so before that.

Peter Donato: Thanks, Peter.

Speaker Change #121: We have another one here is where do we stand on compliance?

Larry Heaton: That was a little bit of it. But at one point during the quarter, during the second quarter, we had five sales people out on medical leave for a variety of conditions. And we only have 35 sales territories. So that's 14% of the reps were out at some point during the course of the second quarter. Now, I'm pleased to report that they all returned to work. They all recovered. They're all healthy and they're all back in their territories as of the beginning of this quarter.

Speaker Change #122: I assume that's compliance with the NYSE exchange, and the answer would be that it is status quo.

Speaker Change #123: It's the same place we were a quarter ago and and then a month or so before that. The exchange continues to monitor our stock price and has

Unknown Executive: The exchange continues to monitor our stock price, and has. Without giving us any date certain that we have to increase it to 20 cents has allowed us to stay listed, and we expect that to continue as we move forward. Let's see.

Speaker Change #123: Without giving us any date certain that we have to increase it to 20 cents has allowed us to stay listed and we expect that to continue as we move forward.

Larry Heaton: So we don't expect to have to do anything else. We've got now a full slate of sales people out in the territories, and we're beginning to see him. We're seeing the uptick and sales that comes from that. So there's nothing left for us to do. We just have to, you know, sort of accept it when they're out on sick leave.

Speaker Change #124: Let's see.

Speaker Change #125: Thanks for watching, and don't forget to like, share, and subscribe to our channel.

Larry Heaton: Is there a program available to entice the small animal vet to consider purchasing? The I think that, It's first of all, there's two programs, right? So in particular, with PulseFed, with our with our TruForma system, we provide the capital at no charge. They simply have to buy the cartridges. And if they don't want to buy the cartridges, they wouldn't want the capital in the first place. So that's pretty straightforward.

Speaker Change #126: Is there a program available to entice the small animal vet to consider purchasing?

Speaker Change #127: The, I think that...

Speaker Change #127: It's

Speaker Change #128: First of all, there's two programs, right? So in particular with PulseFed, with our true form of system, we provide the capital at no charge. They simply have to buy the cartridges.

Larry Heaton: You know, on the other side, we did see, I think we did see, I think all of us saw a little bit of reluctance in the second quarter from some customers to, to go ahead and commit to financing $32,000 piece of equipment and saw three fewer sales and second quarter of this year than a year ago. And it could be interest rates, maybe they think they're going to come down a little later, it could be that clinic owners, as we've been reported by other animal health companies in the last few weeks or last week or so, it could be that clinic owners saw visits decline in the second quarter.

Speaker Change #129: And if they didn't want to buy the cartridges, they wouldn't want the capital in the first place. So that's pretty straightforward. The barrier to entry for TrueView is not capital dependent. It's a $500 a month subscription, and then they pay on a per-use basis for the telepathology services.

Larry Heaton: The barrier to entry for TrueView is not capital dependent. It's a $500 a month subscription. And then they pay on a per use basis for the telepathology services. The VetGuardian is $4,500 for the device. On the other hand, it provides a new revenue stream for the veterinarian, and so we haven't seen that be a significant barrier to getting into that product. So which brings us to PulseSat.

Speaker Change #130: The VetGuardian is $4,500 for the device.

Speaker Change #130: On the other hand, it provides a new revenue stream for the veterinarian, and so we haven't seen that be a significant barrier to getting into that product.

Larry Heaton: So with PulseSat, our standard program is a finance program that is provided by a third party, arm's length, we don't fund them or control them. So for $32,000 device and Trode. They pay no money down, and no money for six months, and then $100 a month for six months, at which point they begin to, the note begins to amortize over a five-year period.

Larry Heaton: And so they were going to wait and see what's happening to their business before they make additional financing commitments, but the data that's out there shows that the visits have rebounded in July. And so these are things that may or may not continue as we move forward.

Speaker Change #131: Which brings us to Polsat. So with Polsat, our standard program is a finance program that is provided by a third party, arm's-length, we don't we don't fund them or control them.

Speaker Change #132: So, for $32,000, DeVice and Trode.

Speaker Change #132: They pay no money down and no money for six months and then a hundred dollars a month for six months.

Larry Heaton: And that's why I mentioned we've got some alternative programs to be able to place devices into these practices. You know, I'll give you an example, we currently sell the the system for $30,000 and the hand piece we call a trod for 2000, actually 2100. With a placement program, we may sell, we may place the device with now without requiring them to commit to the finance to the capital upfront. And instead of selling them the trod for 2100 dollars, sell it for $6,000 or even sell a half full trod for $3,000.

Speaker Change #132: At which point, the note begins to amortize over a five-year period. Now, having said that, you would think, and that trode will allow a small animal vet to do 30 to 35 procedures.

Larry Heaton: Now, having said that, you would think, and that trode will allow a small animal vet to do 30 to 35 procedures. And if you're doing, I'm sorry, 60 to 65 procedures, and if you're doing 60 procedures and you're charging $300 a piece, you're generating enough money. If you use the average number of troads in a year, which is two for small animal vets, you're generating enough income, enough not only revenue, but income in that first year to pay that whole note off and there's no prepayment penalty.

Speaker Change #132: and if you're doing, I'm sorry, 60 to 65 procedures, and if you're doing 60 procedures and you're charging $300 a piece

Speaker Change #132: You're generating enough money, if you use the average number of troads in a year, which is two for small animal vets, you're generating enough income, enough not only revenue, but income in that first year to pay that whole note off and there's no prepayment penalty.

Larry Heaton: These are ways for them to not have to make the long term commitment and instead can get into offering the therapy right away. We're confident that once they start using it, they're going to see a very significant return on that investment. And we see this really as a bridge to them being able that in a subsequent quarter or once they go through their first trod to go ahead and order the system. That would then bring their trod costs down to 2100. So we think we're well prepared as we move forward.

Larry Heaton: That's a great program and we've used that to great effect for the last several years. Having said that, it still requires a commitment on the part of that clinic owner, the practice owner, whoever's purchasing it, to finance that product. And we saw a little bit of pullback from that in the second quarter, and that's why we have a new program, which we'll make available if capital, a commitment to the capital, as I described earlier, where you simply buy a Trode, and it costs more, it costs three times as much as if you bought the system, but you don't have that same barrier, and you don't have to make the commitment, which is what I suspect certain pet owners have been averse to doing at this point.

Speaker Change #133: That's a great program and we've used that to great effect for the last several years.

Speaker Change #134: Having said that, it still requires a commitment on the part of that clinic owner, the practice owner, whoever's purchasing it, to finance that.

Speaker Change #135: product. And we saw a little bit of pullback from that in the second quarter, and that's why we have a new program.

Speaker Change #136: Which we'll make available if that's if capital commitment to the capital

Larry Heaton: You know, a lot of the a lot of the sort of realization that that system sales were going to be light in the second quarter came at the end of the quarter when typically most of the systems are are closed or sold as we saw reluctance or delay. In fact, we believe that many of these will turn into customers at a subsequent quarter just didn't happen in the second quarter and caught us a little by surprise.

Speaker Change #136: Thank you, as I described earlier, where you simply buy a Trode and it costs more. It costs three times as much as if you bought the system, but you don't have that same barrier and you don't have to make the commitment.

Speaker Change #137: which is what I suspect certain pet owners have been averse to doing at this point.

Larry Heaton: Okay, just maybe a couple things on the pulse that so when when you give the alternative to sell the trod for $6,000, are they committing to a certain number of trod purchases? Or you would re, you know, if they only buy one and then they don't re up, there would be a point where you would pull the system back out of the field. Yes, absolutely. We're super clear that if you buy the trod, use it.

Larry Heaton: If you don't want to buy another one, then we'll take the system back. We have a loner pool so we don't have to take new systems off the shelf or what have you. However, we don't have any need to put in a minimum reorder quantity of trods or whatnot because. Fox, Realistically, when you use the pulse of that device on a pet in your clinic, there's a discernible difference in the pet at the time.

Larry Heaton: The vet sees it, the pet parent sees it, the tech sees it. And that's before it actually fully works because the way that the shock wave actually works in the animal is the sound wave activates the bodies on regenerative processes. It releases certain proteins that increase cytokine production, increased blood vessel formation, neural growth, reduces inflammation and that process takes a couple of weeks to fully to fully work. And so we're super confident that once a veterinarian starts using the pulse that system, they're going to keep using it.

Larry Heaton: Plus, it's really profitable for them, even at the, at the higher trod price, if the veterinarian is charging the typical average price per treatment of $300, they're making $200 on each of those treatments. So there's economic motor, there's clinical motor driver for them to continue to use it. Yeah, I mean, it sounds like they basically could fund a third of a future system purchase with the first trod if they roughly generate 15 grand in in revenue.

Larry Heaton: And then they got to you guys six grand for the trod they're left with nine, not not exactly a third, but close enough. So I guess that's interesting. Can you also, what was it for the sales people that were out? Was there duration to that? I mean, were people out for a week or two? So we had, I'm just thinking that we had one, two, at least three that were out for a full 12 weeks, essentially the whole quarter.

Larry Heaton: And then the other two, I don't recall off the top of my head, they may have been lesser duration. But at one point during the course of the quarter, I think in mid to late, I think it was in May, we had. But the good news is, they're healthy and they all came back. You know, so the issues that presented weren't sort of things that you would expect to happen again and again. All right.

Peter Donato: And then Peter on the 16 million in, I guess, charge off. You guys did a similar expense in the fourth quarter. I guess that was specifically related to a CC. So you've had some pretty material write down to the past, well, this quarter, and then fourth quarter.

Peter Donato: So is there more to go there or what's driving this? Yeah, so I encourage you to look at what's left on the balance sheet. The short answer is there's not much left. And most of it is associated with pulse vet. There's a small amount left for a CC. But Revo has been eliminated. And there's, I believe, $2 million left for a CC. And vet guardian is eliminated as well.

Peter Donato: So most of it is gone. All right. And then maybe lastly, I got it right. You guys said cash from 7.9 to 2.7 ish was one time related. And it leaves you just over 5 million in cash, was quite a bit higher than what you demonstrated in prior quarters, which has been kind of 3 million ish for below. And so should we be, I mean, I know you said cash for and towards the high end of the 12 to 18 million, but can we infer that cash for and is actually going to be running a little bit higher than, well, below five, but about three, so three was never the guidance, right?

Peter Donato: That was last year's guidance, and it was prior to the Corvo acquisition, right? So I've said very publicly that the headwind associated with the Corvo acquisition is at least a million and probably close to, and I think we, we and I talked even in Minnesota. It's about a million and a quarter per quarter, so roughly $5 million. So we're, we're absorbed, you know, we had to absorb that, but essentially the shortfall can be attributed to two items.

Peter Donato: It's a revenue miss, right? Where we're falling behind on revenue, and if you adjust for some one offs on the operating expense side, particularly on the GNA line, you'll get, you know, towards the middle or bottom part of the range, but essentially if the revenue bounces back as we expect it will, the range still stands, right? The high end of the range. So, you know, if you do the math on, on that, you know, the 18 divided by four, that's probably a burn rate that, that will, that looks right to me going forward.

Peter Donato: You know, I'll defer to the new guy coming in to, to do his, or her own math, but I'm comfortable. And if we miss, right, it's, it's not going to be a huge material miss, and it'll be a re-timed, if you recall, you know, we gave a low-water mark of cash of $65 million. So if the revenue starts to bounce back before profitability, you know, we shouldn't be in danger of missing that low-water mark. And if we do, it's, it's measured in singular millions of dollars, it's not going to be a big difference.

Peter Donato: And maybe just lastly, on your original guidance for revenue, 31 to 35 million, how much of that was international sales related to what was the expectation for international sales? Yeah, so we didn't give an expectation on that. What we've said historically, you know, that about 15% of that revenue, give or take a point or two, last year's 25 to about 14 or 15% of that was international. So the expectation would be, you know, right around that.

Peter Donato: And I think you and I have talked offline. It's tough to engage it on a percentage basis because the domestic business, you know, could be growing faster. We could be hitting out of the park internationally and that could number could be 10%. Right? Because of how domestic is growing at, you know, on a percentage basis, this quarter, you know, in kind of the coming quarters, it should be a large chunk on a percentage basis, but it's tough to tell if the capital sales recover like we think we do, then it'll probably gravitate right to the mid teens as it were, it's been historically.

Larry Heaton: All right, maybe my last last one, if I'm just going to speculate here, and so if you can just comment on my speculation, if you have people going out on maternity or paternity leave on your sales force, is there a way that you can mitigate that type of or those situations in the future? So, well, first of all, if any reps go out on maternity or maternity leave, we respect the heck out of that.

Larry Heaton: And we, you know, we hold that territory open. But what we have done when we were sort of caught a little bit by surprise by the number of people out on medical leave, we have taken steps to make sure that we have additional sales people that would be able to fill in in. For example, as it affected as we went through the quarter, we were able to find someone that was able to step into a territory that had been vacated for medical leave.

Larry Heaton: And then once the sales rep came back, then that person, we were using that person and other capacity. So, the other thing is is that we have now a full complement of professional services veterinarians that are also able to step in to territories when there's a vacancy. So, we've thought about that and we've taken some steps to make sure that we won't be adversely affected should we have reps go out on medical leave going forward.

Operator: All right. Well, thanks. You're welcome. Should you have a question, please press the star followed by the number one on your touch phone. You will hear a prompt that your hand has been raised. Again, if we have any questions, please press the star. Follow the number one on your touch phone. And you will hear a prompt that your hand has been raised.

Operator: Okay. There are no further questions over the following.

Larry Heaton: Mr. Ethan, please proceed with the web based questions. Okay. So, let's see, we have a question from the web that is, can you give a rough timeline for when you expect to see meaningful sales from the recent CEO in Europe. Robert Guardian and Truforma as well as the Middle Eastern and Costa Rica agreements. Do you expect that to start in 2025 or earlier. So, we expect to see sales in Costa Rica.

Larry Heaton: In the Middle East and Africa. This year, this, this quarter. Middle East and Africa is really a slow time for businesses and vets there in July and August, but it picks up quite a bit in September. So, we expect to see, you know, sort of the first sales to customers as we get closer to September in Costa Rica. We've completed the training for the staff and we expect to see sales begin to customers in Costa Rica.

Larry Heaton: This quarter. You know, put potentially even this month when we just did the training. The difference is, of course, sales to the distributors for inventory stocking orders and demo equipment and stuff, that precedes sales to customers. So, in any event, we expect to see sales from those distributors during the quarter. Now, in Europe, which the CE mark applies to, I should say this, the CE mark is essential to import products, export products into Europe.

Larry Heaton: It's also useful, however, in other countries that look to the CE market, say, well, if you have the CE market, then you're clear to come market in our country right away. In Europe, of course, they take the month of August off for vacation, and that includes a lot of businesses around the continent. So, we expect us to see some, you know, some uptake in new distributor arrangements as we get out of this month and in December, but there's a big world out there that's not all just Europe.

Larry Heaton: And so, we have a number of initiatives underway, not just with brand new distributors, but also with distributors that currently sell pulse vector equine, we have the opportunity to add pulse set for small animal, we have the opportunity to add all the additional products now that we've got the CE mark. So, from the beginning, the gating has been getting the CE mark, we have it for Tuforma, we have it for Beth Guardian, we expect to have it shortly for true view as well, but for the first two products in pulse set in the CC, you know, we expect that now that we have that CE mark, that's sort of the last thing that had to get done before we could start exporting the products.

Larry Heaton: So, international sales have run ahead of our expectations in the first half, and we expect international sales to contribute significantly in the second half and be substantially above where we did what we did last year in international.

Larry Heaton: Let's see, is your team content with the results of Q2? In a word, no, we're not. We expected to do a little bit better in pulse set in particular in pulse set capital. We're super pleased with pulse set consumable revenue. That was really good to see because that's a reflection of the fact that our user base is expanding those new systems we put out there being used, and our existing user base is using the product, and if they're using the product, they're gaining benefits for themselves, for their pet parent finance, and most of all, for the pests that they're treating.

Larry Heaton: Right? So, we're very happy about that. We're happy with diagnostics up 68 percent, a small base, but it's significant growth, but we're happy with the beguardian uptake. There are a lot of things we're happy about, but, you know, very straightforwardly, we were not happy with the level of pulse set system sales, and we intend to make it different in the second half of the year, already started.

Larry Heaton: How about getting access to European markets? I think we covered that. I should say that for equine, we're very well covered in Europe. We have a master distributor that has, basically, all of the EU, I think there might be one or two parvots where we had existing distributors there before, but it's pretty much all of Europe for them, and they're super excited to get their hands on true form for equine application in the near term, and in the longer term, when we have it ready for beguardian equine, but they're an equine-only distributor, and so in this case, we'll be adding either a single pan-European distributor or a multiple distributors, and you can expect that to happen here in the second half. Now that we have the CDM.

Larry Heaton: What are the plans to best utilize cash on hand, fruitedly and maybe miserably, right? So, while we have a very solid foundation on the balance sheet, we have plenty of capital, we are focused on reducing the amount of cash. We've seen operating expenses and eliminating in the extraneous expenses that might have popped up over the last two or three years, as we would be if we had very little cash on hand, because in order for us to get to cash flow profitability and beyond that gap profitability in order to get there, we need revenue to increase and we're working very hard to make that happen, remembering that most of our products are novel, even though pulse that's been established in the equine market, in the small animal market, it's a new product to small animal bets, that guardian, not only new product, but a new category, true form of each of the assays are new to the vet, be able to do in the clinic, and true view is completely novel in terms of slide prep, has competition in the marketplace with respect to AI reports, adding AI to true view, then makes customers not have to choose between AI reports and automatically slide prep, they get bold in the true view, but having said that, when you launch new products, it takes time, it takes time to get the word out, takes time to build your early adopter base, so you have testimonials, so you can put your opinion leaders on the podium and conferences and start and have that word spread, in the classic way of looking at a venture product or a brand new product, they refer to sort of a hockey stick of growth, where it starts out slow, it grows more honestly, and then at some point you reach an inflection point where it then takes off, and I'm not suggesting that we're all the sudden going to go from zero to 100 in a minute, it takes a little time.

Larry Heaton: So with that said, in order for us to get to casual profitability and gap profitability, we have to increase revenue, which we're doing, but also we can affect that time frame for that by reducing expense. And while we made a lot of investments over the last two and a half years, just witness the facilities that we have to manufacture the products in Georgia and in Minnesota, we made acquisitions, and based on the impairment charge, maybe we paid a premium for them, but we've gotten novel products, we've got highly differentiated products, and so our cash, I think, is best used in making sure that we fund the appropriate initiatives to drive sales growth. And anything else, we take a really long hard look at and make sure that we're, you know, we're pressing two pennies together to see if we need to spend a bolt.

Operator: I see there's a call, a question from someone on the, or is there no, I thought I saw a hand raised. Oh, okay, never mind.

Peter Donato: All right, are there any updates on the second half earnings? Peter, you want to take that one? Now, I'm not sure what the question is. What do we expect to, I guess, what do we expect to see in the second half? Yeah, so I mean, what I said in the prepared remarks, right? So if you, the way I look at this and I'm the guy who's parting, right? If you, if you kind of look at what we did last year in the second half and historically have done, it's 55 or 56% of the revenue.

Peter Donato: So I think that assumption that trend holds true. And if you listen to my prepared remarks, we talked about oversize. So I think that you'll see a greater proportion of that. But even if you just take the historical 55 or 56% that takes you to a number approaching $28 million, right? And then you can handicap the Delta for the international sales, right? So I think that there's a tailwind internationally. And if you apply even a modest growth rate, it gets you a number approaching $30 million.

Peter Donato: So again, I'll let Larry and my successor come up with guidance. It might be to reiterate the guidance that we had out there, right? But at the end of the day, it's going to be higher, it should be higher, right? Then 25 to for the reasons I cited sales force back at full strength. And a variety of other initiatives, forget about being at full strength, right? If you think about vet guardian, the consumable stream, I'll be at small is starting to kick in.

Peter Donato: You get the first year free. So that's just starting to kick in and we'll continue to multiply the multiple unit sales on vet guardian or a nice growth driver going for forward. So there's a variety of kind of upside in addition to mitigating some of the headwinds that we had. I think there's a variety of things that could push this company, you know, closer to the guidance range as we exit the year and kind of reset the bar to how we were thinking about 2025. And in fact, there might be even upside to some of the thinking initially on 2025. But I'm certainly not going to commit my successor to those numbers. Thanks, Peter.

Larry Heaton: We have another one here is, where do we stand on compliance? I assume that's compliance with the NYSE exchange. And the answer would be that it is status quo. It's the same place we were a quarter ago and, and then a month or so before that. The exchange continues to monitor our stock price. And has without giving us any date certain that we have to increase it to 20 cents has allowed us to stay listed. And we expect that to continue as we move forward.

Larry Heaton: Let's see. Is there a program available to entice the small animal vet to consider purchasing? The, I think that it's, first of all, there's two programs, right? So in particular with pulse vet with our, with our true form of system, we provide the capital at no charge. They simply have to buy the cartridges. And if they didn't want to buy the cartridges, they wouldn't want the capital in the first place. So that's pretty straightforward.

Larry Heaton: The barrier to entry for true, for true view is not capital dependent. It's a $500 a month subscription. And then they pay on a per-use basis for the telepathy services. The veterinarian is $4,500 for the device. On the other hand, it provides a new revenue stream for the veterinarian. And so we haven't seen that be a significant barrier to getting into that product. So Wood brings us to a pulse set. So with pulse set, our standard program is a finance program that is provided by a third party arms length.

Larry Heaton: We don't we don't fund them or control them. So for $32,000 device and trod, they pay no money down and no money for six months. And then $100 a month for six months at which point they began to the note begins to amortize over five year period. Now, having said that, you would you would think and and and that trod will allow a small animal vet to do 30 to 35 procedures.

Larry Heaton: And if you're doing I'm sorry, 60 to 65 procedures. And if you're doing 60 procedures and you're charging $300 a piece, you're generating enough money. If you use the average number of trods in a year, which is two for small animal vets, you're generating enough income, enough, not only revenue, but in the first year to pay that whole note off. And there's no prepayment penalty. That's a great program. And we've used that to great effect for the last several years.

Larry Heaton: Having said that, it still requires a commitment on the part of that clinic owner to practice owner whoever's purchasing it to finance that product. And we saw a little bit of pull back from that in the second quarter. And that's why we have a new program, which will make available if that's if capital them into the capital. As I described earlier, where you simply buy a trod and it costs more it costs, you know, three times as much as if you bought the system, but you don't have that same barrier and you don't have to make the commitment. Which is what I suspect certain pet owners have been a burst to doing at this point.

Operator: That's it. Thank you for participating and ask that you see this connection. Thank you.