Q3 2024 Zomedica Corp Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the Zemedeka Q3 2024 Financial Results Conference Call.
At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session.
If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, November 7th of 2024. I would now like to turn the conference over to Mike Bali. Please go ahead.
Mike Bali: Thank you, operator, and good afternoon, ladies and gentlemen. Welcome to Zomedica's third quarter 2024 earnings results and business update call.
Mike Bali: Joining me on today's call are Zomedica's Chief Executive Officer Larry Heaton and its Vice President and Corporate Controller Mike Zelke. Before we begin we would like to remind everyone that on this call we will be making various remarks about future expectations, plans, and prospects that constitute forward looking statements.
Mike Bali: These forward-looking statements are based on assumptions and there are risks that results may differ materially from those statements. As such, Zometica cannot guarantee that any forward-looking statements will materialize and you are cautioned not to place undue reliance on them.
Mike Bali: We refer current and potential investors to the forward-looking information and risk factor sections of our public filings available on CDAR Plus at www.cdarplus.ca and on edgar.sec.gov.
Mike Bali: Forward-looking statements made on this conference call represent Zomedica's expectations as of today, November 7, 2024. I will now pass the call over to Zomedica's Chief Executive Officer, Larry Heaton. Larry? Thanks, Mike.
Larry Heaton: I'd like to start by thanking our shareholders for your support. Wishing prospective investors, analysts and others a good afternoon. And welcome all to the Somatica third quarter earnings results and business update call.
Larry Heaton: I'll start by providing an update on our recent operational performance, followed by a financial update from Mike Zelke, our Vice President of Finance and Corporate Controller, before opening the line for questions.
Speaker Change: Earlier today, Zymedica released its financial results for the third quarter of 2024.
Speaker Change: The third quarter was strong for Zomatica. We delivered double-digit top-line growth, executed on a variety of growth initiatives, posted solid gross margins, reduced our operating expenses, and stabilized our operating cash burn.
Speaker Change: Revenue set a new record for the third quarter at $7 million, reflecting over 10% growth over the third quarter of 2023, driven by year over year growth in both our therapeutic devices and diagnostics segments.
Speaker Change: This marks the 14th quarter in a row that revenue set new quarterly highs, a trend that we expect to continue.
Speaker Change: Total therapeutic device revenue increased 8.5% year-over-year due to solid PulseVet performance, which increased 24% over the prior year quarter as our capital sales team returned to normalcy.
Speaker Change: As we discussed on last quarter's call, we experienced some disruption in the U.S. in the second quarter as a result of short-term productivity headwinds associated with multiple of our sales representatives being out unexpectedly on medical leave.
Speaker Change: We also noted macroeconomic factors that potentially impacted new system purchases during the second quarter of this year, primarily related to interest rate concerns.
Speaker Change: Although we noted these concerns abating somewhat as rates declined a bit and stabilized, we still deployed additional placement and pricing models to provide greater access to veterinarians looking to better serve their pet patients.
Speaker Change: We believe there is a high likelihood that most of these placements will result in a capital purchase in the future, as these customers realize the value of offering shockwave therapy from Polstead within their practices.
Speaker Change: In short, we continue to be encouraged by the demand for the PulseFet system amongst both new and existing customers, and note that our current penetration of the small animal U.S. market is minimal at this point, leaving substantial upside for this product line in the U.S. and abroad.
Speaker Change: Our Diagnostics segment had another strong quarter, with our revenue growing 38% year-over-year.
Speaker Change: This was largely driven by 80% growth from the Truforma platform, as we are seeing solid utilization trends with our legacy assays, as well as encouraging adoption trends with our recently launched assays, including CPO and EQUINE EACTH.
Speaker Change: Outside of the strong revenue performance during the quarter, we also made noteworthy progress towards a number of our key initiatives to drive growth in 2024 and beyond to ultimately reach cash flow and gap profitability.
Let's begin with our focus on commercial expansion efforts.
Speaker Change: One of the significant commercial expansion opportunities is in international markets.
Speaker Change: Supporting the broader availability of our portfolio globally is the extensive work we've done this year to make our products available on a global scale. We now have CE marking on all Zemedica products, so we are able to freely sell into markets in the EU, as well as other countries that accept the CE mark.
Speaker Change: In July, we partnered with Leader Healthcare Group to be a distributor of our entire product portfolio to both small animal and equine, and actually also camel, veterinarians in the Middle East, Egypt, and India.
Speaker Change: In August, we partnered with Sire Veterinario to be the exclusive distributor to veterinarians in Costa Rica to expand our reach within Central America.
Speaker Change: During the current quarter, we announced the expansion of our partnership with GroVet, who has been effectively selling the Equine PulseVet system in many countries in Europe.
Speaker Change: In addition to expanding their coverage to all of the EU and the UK, totaling 30 countries in all.
Speaker Change: In addition, we are currently in the process of acquiring the necessary approvals to launch our Truforma, TruView, and BedGuardian diagnostic products in Japan in 2025.
Speaker Change: These will join the equine pulse vet systems already on the market in Japan and will be directed at the 12,600 companion animal veterinary practices in that country.
Speaker Change: With new distributor partnerships in place and broad global regulatory approvals, we have significantly expanded our reach outside of the U.S. which provides Somatica with increased opportunities for growth on a global basis.
Now I should know.
Speaker Change: But in each country that we introduce Zometica products, multiple steps are required to generate meaningful revenue.
Speaker Change: including execution of the distribution agreement, training of the sales and marketing staff, launching the product, engaging key opinion leaders, and developing the market, all leading to a rampant sales over time.
Speaker Change: As we're actively engaged in this process in several new countries, we continue to expect the international business to be an incremental contributor to performance during the balance of the year and be a material growth driver for Somatica in 2025 in PR.
Speaker Change: In addition, these commercial opportunities provide leverage to our existing operating expenses. Because we sell into international markets primarily through distributors, which cover their overhead expenses for sales and marketing, we're able to enjoy increased revenue without significantly increasing our operating expenses.
Speaker Change: We also achieved a number of significant milestones within our product portfolio. Turning to the PulseVet line, PulseVet continues to be our leading product, and we have made significant progress in growing its adoption across our customer base, including both equine and small animal veterinarians.
Speaker Change: As we announced during the quarter, we continue to be the official shockwave therapy of a number of equine associations, including the American Quarter Horse Association, the National Cutting Horse Association, the U.S. Eventing Association, and U.S. Equestrian, which fielded the USA team at the Olympics this past summer.
Congratulations, Dr. Nichols.
To support PulseNet's adoption beyond its existing historic installed base,
Speaker Change: We continue to focus on developing clinical data across a variety of indications for use, including its potential to treat respiratory conditions in horses and perhaps dogs.
Speaker Change: improving equine hoof health and forestall osteoarthritis in small animals, paving the way for new sales opportunities beyond the technology's historic applications and customer base.
Speaker Change: With respect to our Assisi platform, our Assisi Loop products received a renewal of its fear-free status during the quarter, a designation important to pet parents concerned about their pet's anxiety levels, especially following an injury or surgery, which is when the Assisi Loop is most beneficial.
Speaker Change: RCC sales were relatively constant quarter over quarter in line with historic seasonality, but lower than the third quarter a year ago due to a substantial one time initial stocking order from a new online distributor that we received in the third quarter of last year.
Speaker Change: The loop business gets busy around the holidays in the fourth quarter so we expect a strong finish for the year in this product line.
Speaker Change: Turning now to an update on the TrueView digital microscope and pathology platform.
Speaker Change: During the quarter, we continued our activity to add artificial intelligence, or AI, interpretations to the TrueView system.
Speaker Change: When this is complete, each hematology slide processed will be accompanied by an AI-generated diagnostic report. We're currently field testing the AI functionality and getting ready to deploy the system later this year with a full launch in the new year.
Speaker Change: Beyond the development of our AI capabilities, we continue to expand the functionality of the TrueView system. During the quarter, as part of internal R&D efforts, we introduced hardware enhancements, resulting in dramatic improvements in the speed of imaging, which will further bolster the value we're able to deliver to customers moving forward.
Speaker Change: We also finalized and rolled out a new protocol specifically for ear cytology.
Speaker Change: This innovative feature streamlines the slide preparation and scanning of irocytology cases, allowing veterinary professionals to diagnose and treat companion animals faster and more efficiently.
Speaker Change: We believe this will be a highly impactful protocol because ear cytology is performed daily at vet clinics. As otitis, a common ear condition affects between 10-20% of dogs and 2-6% of cats.
Speaker Change: The effect of the various enhancements to both hardware and software of the TrueView system is to allow it to lay claim to being the fastest digital microscope available.
Speaker Change: The digital microscope with the highest quality image, and the only digital microscope that automatically prepares the slides, and soon also able to offer AI-generated diagnostic reports.
Speaker Change: Turning to the Trueforma platform, we continue to be encouraged by the growing adoption of Trueforma platform as we are seeing continuous increases in our installed base.
Speaker Change: Importantly, we're seeing expansion into equine veterinary practices as we launched equine assays over the past year to benefit from our growing portfolio penetration across both small animal and equine practices.
Speaker Change: We continue to focus on accelerating the development and commercialization of new assays, both for small animals and horses.
Speaker Change: In addition to the assays launched earlier this year, we're preparing to launch several new assays during the fourth quarter, including.
Speaker Change: equine insulin, which is needed as a standalone assay for diagnosing insulin dysregulation, and is frequently used in conjunction with our EACTH assay with diagnosing PPID, which affects more than 21% of horses over 15 years old.
Speaker Change: The second is equine progesterone, which is used to monitor progesterone levels in equine breeding, for which there are over 25,000 attempts annually in the U.S., and this assay will be a complement to our recently launched equine cortisol assay for foals.
Speaker Change: Third is the canine progesterone assay, which is used to identify optimal breeding times for dogs.
Speaker Change: which currently produces over four million puppies per year in the U. S. And finally, canine pro B and P, which is a screen for heart disease used by breeders concerned due to the fact that around 10% of dogs will develop heart disease in their lifetime.
Speaker Change: We have a robust effort to launch these assays and develop new high-volume assays in 2025 as we look forward to the continued ramp of this fast-growing product line.
Unknown Speaker
Speaker Change: Turning now to an update on the VET Guardian platform. The sale of new VET Guardian systems continue to highlight the value of the technology and the benefits our customers are seeing.
Speaker Change: Empowering veterinarians with unparalleled insights into animal health through monitoring data.
Speaker Change: These sophisticated tools build on the existing features of EdGuardian and further enable veterinarians to detect subtle nuances in animal behavior and health, facilitating enhanced monitoring and giving veterinarians peace of mind when pet patients are at their most vulnerable.
Speaker Change: in post-surgery, in the ICU, and alone in the clinic overnight.
Speaker Change: During the quarter, we also expanded the capability of our Myzomedica portal to be able to accommodate more than the previous eight that Guardian monitors at one time on one screen.
Speaker Change: This was launched as we had a customer request to buy 10 additional BitGuardian monitors to add to the one that they initially purchased.
Speaker Change: While still early in the launch cycle for our VetGuardian system, we're pleased with its adoption in the small animal market and expect a strong finish for the year and significant growth in 2025 and beyond.
Speaker Change: We also remain excited about bringing Vanguard into the equine market.
Speaker Change: We delayed development just a bit this year so we can incorporate the various enhancements we've made into the small animal system before customizing it for equine use.
Speaker Change: We're now planning to develop and launch the equine version in 2025, which we believe will be very well received by the equine veterinary community and set the stage for potential expansion of the market opportunity to horse trainers, breeders, and owners.
Now turning to an operational update.
Speaker Change: As noted on our last earnings call, we installed a new automated robotic manufacturing line in our Minnesota manufacturing facility that automates steps that previously required high levels of manual labor.
Speaker Change: After validation, this new production line is now live and manufacturing most of our Truforma assays.
Speaker Change: We expect to move the remaining assays onto this line during the current quarter and continue to believe that this new line will drive efficiencies, which allow us to realize cost benefits to further improve our gross margins in the future.
Speaker Change: Leveraging our expense structure by growing revenue faster than expenses is also critical.
Speaker Change: Over the last three years, we've invested in infrastructure, and we're now beginning to see the impact of our ability to increase operating leverage through scale.
Speaker Change: As we continue to generate high margins and reduce operating expenses as a percentage of revenue, we're moving closer to our goal of profitability.
Speaker Change: Before turning to a financial overview, I want to provide an update on our CFO search. The process to identify a new CFO is currently ongoing, and we're pleased to see the quality of candidates we're engaging with, and we'll let you know when we've completed the search.
Speaker Change: In the meantime, Mike has been doing a very nice job on the financial side of things here at Somatica. So with that, I'd like to turn the call over to our Vice President of Finance and Corporate Controller, Mike Zelleke. Mike.
Thanks, Larry.
Mike Zelleke: Unless otherwise noted, all financial results highlighted will be for the third quarter of 2024 and compared to the third quarter of 2023.
Mike Zelleke: Total revenue for the quarter was $7 million, an increase of 10.2%.
Mike Zelleke: Driven by growth in both our diagnostics and therapeutic device segments.
Capital revenues were $2.2 million, an increase of over 21%.
Mike Zelleke: primarily due to continued execution of our Pulse Vet commercial strategy.
Mike Zelleke: In the third quarter, consumable revenue was $4.8 million, an increase of approximately 6%, despite a significant distributor initial stocking order for a CC consumables that took place during the third quarter of last year, which did not reoccur in the third quarter of 2024.
Mike Zelleke: Excluding Assisi products, consumable revenue grew 27% over the prior year quarter.
Consumable revenue represented 68% of total revenue in this quarter.
Unknown Speaker
Mike Zelleke: Therapeutic devices segment revenues from PulseFet and Assisi products were 6.5 million dollars, up eight and a half percent, primarily driven by the strength of PulseFet, which was up 24 and a half percent, or 1.1 million dollars.
Mike Zelleke: The strong performance of PulseFET within therapeutic devices was offset by the aforementioned larger CC distributor order that occurred during the third quarter of 2023, which again did not reoccur in 2024.
Mike Zelleke: Third quarter diagnostics segment revenues were approximately $500,000 or an increase of 38%.
Mike Zelleke: This was driven primarily by growth within the Trueforma product platform, resulting from our expanded catalog of assays.
Mike Zelleke: We have launched four assays since the second quarter of 2023, including three that have been launched subsequent to our acquisition of corroboreal biotechnologies in the early fourth quarter of 2023.
Mike Zelleke: This is worth noting as an increased ability to develop and launch additional assets was a key driver of our acquisition.
Mike Zelleke: Within the diagnostic segment, capital revenue was slightly down by 6%, while consumable revenue, primarily driven by the previously mentioned assay related revenue, grew 79%.
In the quarter, growth margin was a strong 72.3%.
Mike Zelleke: which is slightly better than the high end of our previously stated target range of 65 to 70% and higher than last year's 69%.
Mike Zelleke: In the quarter, total operating expenses were $12.5 million, an increase of 21% over the prior year.
Mike Zelleke: Importantly, as Larry also noted in his remarks, when compared to the second quarter of 2024, operating expenses were $900,000 or 7% lower, primarily as a result of reduced non-recurring professional fees.
In the quarter, research and development expenses were $1.8 million.
Mike Zelleke: driven by labor and supplies consumptions as we advance new assay development.
Mike Zelleke: Sales and marketing spend was $3.9 million compared to $3.3 million during the same period of 2023, primarily due to people and salary-related expenses as we reached full staffing within our sales force.
Mike Zelleke: General and administrative expenses were $6.8 million compared to $6.1 million during the prior year, with most of that increase resulting from non-recurring professional fees.
Mike Zelleke: Net loss for the quarter was 6.7 million dollars or 0.007 cents per share.
Mike Zelleke: compared to a net loss of $491,000 or 0.0005 cents per share in the prior year.
Mike Zelleke: which included a one-time gain of approximately 2.2 million dollars related to our acquisition of Structured Monitoring Products or SMB.
Mike Zelleke: non-GAAP EBITDA loss, which includes adjustments for stock compensation for the three months ended September 30, 2024.
Mike Zelleke: was $4.8 million compared to a loss of 0.3 million for the three months ended September 30th 2023, which again included the previously referenced one time game.
Turning to the balance sheet.
Mike Zelleke: So, Medica ended the third quarter with $77.8 million in cash, cash equivalents, and available for sale securities.
Mike Zelleke: Cash used in the quarter was approximately $5.1 million and included $1.1 million of non-recurring items, with the remaining $4 million used for operating expenses.
Mike Zelleke: Quickly, I'd like to highlight our declining use of cash in 2024 to date.
Mike Zelleke: Our total use of cash by quarter so far this year has been $9.6 million, $7.9 million, and $5.1 million.
Mike Zelleke: While our adjusted operating cash burn by quarter has been $6.9 million, $5.2 million, and $4 million, respectively, reflecting positive trends in operating efficiency and revenue growth.
As a reminder, we carry zero debt.
Mike Zelleke: We have nearly $78 million in liquidity and feel we are well-funded to capitalize on our opportunities for both organic growth and growth through potential acquisition.
Speaker Change: With that, I'd like to hand the call back to Larry for closing remarks. Larry?
Larry Heaton: Thanks Mike. As you've heard, we have a lot going on.
Larry Heaton: Five highly differentiated, unique, continuously improving product lines and active commercialization by a fully staffed, professionally led sales force.
Larry Heaton: Growing product adoption in the United States fueled by tremendous marketing activities.
Larry Heaton: Substantial opportunities to grow our international revenues with newly authorized products.
Larry Heaton: very strong gross margins generated by efficiently manufacturing our own products and substantial opportunities to leverage the infrastructure we have invested in to bring expenses down as a percentage of revenue.
Larry Heaton: In summary, we're incredibly excited about the future of your company. Supported by the strength of our balance sheet and driven by the wide variety of growth initiatives we're executing, we're positioned to deliver a strong revenue trajectory while setting ourselves up to achieve positive cash flow and gap profitability.
Larry Heaton: Before opening the line for Q&A, I wanted to thank our employees for their dedication and thank our customers who support our mission to help veterinarians provide the best care possible to our pets.
Larry Heaton: and yours around the world. With that I'd be happy to open the line for questions operator.
Unknown Speaker
Speaker Change: Our first question comes from the line of Robert Laboyer from Noble Capital Markets. Your line is open.
Speaker Change: Good afternoon and congratulations on a nice quarter. You had mentioned that some of the products had
had recovered due to the
Speaker Change: Salesforce coming back to full strength and I was wondering how the remaining quarter of the year looks and what the outlook for growth in 2025 is as best you can tell at this point.
So, thank you for the question, Robert.
Speaker Change: So the products that were primarily affected in the second quarter, we had five salespeople that really unexpectedly went out on medical leave.
A couple different conditions, won't go into the details.
Speaker Change: But that really put us at a, you know, kind of, kind of behind the eight ball.
Speaker Change: When it came to selling new capital products, right? So PulseFed new system installations.
Speaker Change: Ben Gardian, new system installations, new Trueforma installations. Of course, our consumable business was remained strong during the second quarter while PulseFed Capital was
you know, down actually our, our
Speaker Change: consumable post-hut business was up in that quarter by 11%. But it's where in those conditions or in those situations where the reps need to be actively pursuing the capital sale, we were at a disadvantage in the second quarter.
Speaker Change: Those folks came back and actually by the time we had the call last quarter. They were pretty much back in place
Unknown Speaker
Speaker Change: During the course of the quarter, a couple of them, unfortunately, had to return to medical leave and won't be going back to work anywhere, sadly.
But having said that.
Speaker Change: We had plans in place that we implemented to make sure that we had a backup.
Speaker Change: And so in the third quarter, we saw really a nice rebound in capital sales, post fed sales, as I mentioned earlier, we're up, you know, capital sales were up like 24%. So we're really pleased with that. And we expect that to continue in the fourth quarter and beyond.
Speaker Change: Now, as we look into 2025, we do have some plans to increase our sales presence. We have
Speaker Change: and so we're in the process during the fourth quarter of backfilling the people who are being promoted and and filling a couple of slots. Having said that then we expect growth to accelerate in 2025 beyond what we saw in 2024.
Speaker Change: And we expect once we get the new CFO on board that we'll re-initiate providing guidance and we expect to do that in the new year.
Speaker Change: Okay, so is there any ballpark figures that you can give for revenue growth or any expectations pending the arrival of the new CFO?
Speaker Change: So I would tell you that we're highly confident on being able to increase revenues across all of our product segments, both diagnostics and therapeutics.
Speaker Change: As I mentioned earlier, this is the 14th quarter in a row where each quarter we set a new record revenue level. And so you can expect that that would be the case as we move into 2025. And then in addition, as I mentioned, we have the ability to further accelerate revenue growth in our international markets.
Hello.
Speaker Change: Beyond that, I prefer to wait until we are able to provide you with credible guidance, which we'll do in the new year.
Speaker Change: Okay, yeah, that's fine. And if I could just ask a question about the expenses.
Speaker Change: Cost of Goods Sold was relatively low as a percentage of sales.
and some of your other numbers.
for GNA and
Speaker Change: SG&A were also proportionately lower. Are those trends that one can expect going forward or were these one-time gains? Any guidance on that side?
Speaker Change: So with respect to, with respect to gross margins and cost of goods sold.
We expect that we'll continue to have to generate margins.
Speaker Change: I think we had previously provided, you know, a range of 65 to 70 percent.
Speaker Change: Earlier in the year we were we were toward the lower end of that range, of course the last two quarters have been above that range. We continue to expect as we think about our business going forward, we continue to expect revenue or margins to be around 70%.
But we would, you know, continue with that range.
Speaker Change: So yes, we expect that trend to continue. And then with respect to
Unknown Speaker Our overall operating expenses.
Speaker Change: As Mike mentioned, we were able to reduce, I think I mentioned it too, we were able to reduce OpEx from third quarter to second. There were some one-off things in that area. But basically, what you're seeing is
Speaker Change: is all, maybe not all, but the preponderance of those one-time items, those non-recurring items.
Speaker Change: They're pretty much behind us We've spent three years now building the company, building the infrastructure, putting a team in place so that we can really Improve efficiencies and so on and so we expect
Whether the absolute number goes down in a particular category.
Speaker Change: It depends on the category and the quarter and what's happening during that quarter, but I will tell you that we absolutely expect that operating expenses in each category as a percentage of revenue will continue to decline as we move forward.
Yes. Okay, great. Thank you very much. That's very helpful.
Thank you, Robert.
Operator, are there other questions from the phone line?
Speaker Change: I see one from on the phone line from William Carroll. Is that somebody we should call him?
Yes, William Carroll, your line is open.
Yeah, so a couple of questions.
Speaker Change: As you increase revenue, increase your, well, I can't say decrease your losses, but can you give us any time frame, 2027, 2028, where the bleeding stops and at least your cash flow break even?
So we expect, as we've indicated before...
God be out.
Speaker Change: Yeah, so I mean, I realize that you don't have a CFO to do these analytics. But what is our gut feel of what when the company is cash flow breakeven?
Speaker Change: Yeah, so we continue to expect that we will be cash flow positive once we hit 50 million in annualized revenue.
And we
VRFAM.
Speaker Change: Unknown Speaker Everything in our planning and in our execution is geared towards getting to that level. I will note that at $25 million in sales, which is what we produced last year,
Speaker Change: That's about 1% penetration of the total available market for our products in the U.S.
Speaker Change: And so, you know, I could say it's $50 million in annualized revenue.
Speaker Change: I could say it is 2% of our addressable market penetration.
Speaker Change: As to exactly when we'll get into to that level, I'll again defer to providing guidance, but I would, you know, what we had said before is that we would be there by by 2026.
Speaker Change: I think that that's an aggressive goal, but one that we're certainly shooting to achieve.
Speaker Change: Okay now with the stock at 12 cents a share, is there any consideration to doing some kind of a nominal buyback?
Speaker Change: At this point, we continue to believe that a stock buyback would not be in the best interest of all of our shareholders, rather using the capital that we have to be able to provide opportunities for fueling organic growth.
Speaker Change: on board. You know, we've we early on in the over the last three years early on in that period of time. And we focused our M&A activities on a variety of things, including acquiring the infrastructure that we needed to build a company. As we look forward to M&A.
Speaker Change: We're really limiting our view on those things that we would acquire to those things that would be accretive to earnings that have current revenue and have decent margins so that we can accelerate the attainment of cashflow break-even and gap profitability.
So to utilize the cash that we have for
for buyback, might benefit some shareholders.
Speaker Change: for a short period of time, but the data shows that it's not long lasting.
Speaker Change: As somebody mentioned, it's a short-term gain in share price trading off a permanent loss of the capital.
We would prefer not to go that route.
Okay.
Speaker Change: Now, what about the risk of being delisted at this price?
Speaker Change: There is a risk once we fell below 20 cents on the 30 day moving average.
We are subject to potential delisting.
Speaker Change: As we've said on previous calls, when we spoke to the exchange following the
Speaker Change: Following the failure of the reverse split, we spoke to the exchange and let them know that That we had not we had not accomplished the increase in the share price through that activity But let them know that we wanted to remain listing
Speaker Change: are listed. We shared with them our plan to continue to grow the company organically. We shared our large amount of liquidity or cash that we had. And I think they, you know, they viewed us as a real
Speaker Change: company, not to say that there are not real companies on our exchange. But, you know, they viewed us as a credible company. And they let us know that we would continue to stay listed.
Speaker Change: They did tell us that, you know, it's their call, right? If the stock fell to a precipitously low level, then they can step in. But...
Speaker Change: But we don't anticipate that happening, but it is a potential. It is a possibility.
Sure.
Speaker Change: What would be your sources of potential funding? Would you guys look at debt or issuing more stock or is my question just totally premature?
Well, first, I do think the question is, is
Speaker Change: is really hypothetical, right? Because we believe we've got with $78 million in in liquidity, meaning cash available to sell securities and things like that, that we don't have any need to to raise money to fund the company or to or to fuel operations.
Speaker Change: We believe, as you heard from Mike, not only our operating burn, but also our total use of cash has declined each quarter this year. We expect that
Speaker Change: by continuing to be very efficient in what we do and being mindful of our cash expenditures that we have.
Speaker Change: Substantially more capital than we need to be able to fund the company through cash flow break-even and profitability.
Speaker Change: not only to fund the company for that purpose, but also to provide cash.
Speaker Change: for any additional acquisitions that would be accretive to earnings. Having said that, we do not have debt.
Speaker Change: It's not unreasonable for a company to leverage its balance sheet with some debt, so that would be our preference, is it would not be dilutive to shareholders.
Speaker Change: But I'll go back to the way I answered at the beginning, you know, we're not contemplating any need, any requirement to raise cash to operate the company and to achieve our goals.
Speaker Change: Okay, no, very good. Thank you. Appreciate the honest answers. Thank you.
Alright, here you are. You're welcome.
Speaker Change: And, you know, when we we talk about how we've addressed those issues, I mean, in the third quarter, we saw PulseFed capital sales go up 24%. Interestingly, we also saw Trode sales or the consumable sales go up 24% as well. We expect that to continue.
Unknown Speaker
Speaker Change: The only other thing I would mention is, well, we didn't factor it into our calculus.
The election may also have given pause to some customers.
Speaker Change: We got one of our sales reps who did not get...
Speaker Change: One of the sales he did not get in the third quarter, yeah, in the third quarter, told the sales manager that the...
Speaker Change: that the veterinarian wanted to wait till after the election. And you always take that with kind of a grain of salt, right? It's maybe that's exactly right. Or maybe they were just, you know,
Speaker Change: putting them off. But, uh, nine o'clock yesterday morning, that vet called with the order. So, uh, to the extent that had any impact, we should see a positive uplift from that as well.
All right, let's take another one from the web.
Speaker Change: Has the interest rate environment had an adverse impact on capital sales?
I think it probably has. We haven't seen it.
Speaker Change: If it had, it was minimal in the third quarter. Certainly, we saw, you know, really good traction in capital sales, not only there and for Pulsar, but also for Vanguardian. And as I mentioned, we put into place programs that would...
Speaker Change: give flexibility to the customer in the event that they were reluctant for whatever reason, election, interest rate, whatever, it was a way for them to acquire the PulseVet system without a capital commitment.
It did basically increase their consumable price from
Speaker Change: Just to give you the perspective from $40 per therapy session to $100. So, you know, maybe two and a half times, which is obviously good for our margins, but doesn't carry with it a capital sale. So.
Speaker Change: While we have that program in place, we think most of our customers will continue to want to buy them. We'll reserve that program for those that have an issue with committing capital for whatever reason.
Speaker Change: So we don't really see any issues with interest rate and whatnot. And we know that, I mean, just today they came down again. So if that was a factor, we expect that to diminish.
Speaker Change: All right, let's take another one here. How do you see international performance from the third quarter and what are your expectations for fourth quarter?
Speaker Change: That's a good one because it's an area of focus for us. International sales remain around 15 to 20 percent of our total revenue. I think in the third quarter they amounted to about 18 percent of it.
Speaker Change: It continues to be a growth area for the company. We were performing well this year sales outside of North America grew
Speaker Change: Just under 12% in the third quarter versus a year ago, versus overall sales for the company overall at 10%. So it's growing a little bit faster, at least in the third quarter. Year-to-date sales outside of North America.
Speaker Change: are up 21, almost 21.5% versus the first three quarters of last year. So we're pleased with the progress that we've made, and we really haven't seen the benefits of the new distributors yet. As I mentioned earlier, there's a process that you follow, but we expect that to be accelerating in 2025.
Speaker Change: We've got the regulatory approvals, we've got the distributor agreements, and so we'll continue to see, I think, this level of growth, maybe a little bit more in the fourth quarter, but in 2025, we expect to see substantial growth as we move forward.
Okay, let's see what we got here on the web.
Speaker Change: You have seven sales positions currently open. How many of these were turnover and how many are a new territory or role? So we have, let's see, 1, 2, 3, 4. No, let's see, 1, 2, 3.
Speaker Change: We have three, four, five territories that are open as people move into new roles, which I touched on earlier. We have a couple of people that unfortunately had to retire for medical reasons. And that pretty much accounts for
for all of those.
Unknown Speaker
Speaker Change: So that's the answer to the question. I think that the obviously the new positions that we're adding in sales, we expect to have a nice return on those investments as we move forward.
Speaker Change: Let's see. So next one, we're starting to get low on cash. What are the plans to turn this company profitable and slow down spending?
Speaker Change: I think we've talked a little bit about that. First of all, we're lower on cash than we were before. I would not characterize where we are as low on cash by any means. But having said that, you know, reducing...
Speaker Change: Reducing expenses is a function of, as a percentage of revenue, is a function of both increasing
Speaker Change: Revenue, which is straightforward, but also it's on not having as many of the one-time things that we have to spend money on.
Speaker Change: You know, we did a number of acquisitions over the last three years. That is why we have the product lines that we do.
In particular, the acquisition of Corvo Biotech.
Speaker Change: just a year ago, actually, October of last year, you know, that had an impact in terms of raising expense. And it's taken us during the course of the year to be able to bring some of those expenses down, but we expect that to be improving as we move forward. So
Speaker Change: We'll continue to invest in driving organic growth. You know, the idea here is not to be a profitable company at, you know, $50 million in revenue. It's to be a profitable company at an annual run rate of $50 million on our way to $100 million. And so.
Speaker Change: And so, you know, you need to, you need to have the infrastructure to do it. We have it now. We expect to provide operating leverage as we move forward.
Elif McDonald, Elif McDonald, Unknown Attendee
Will assays be available for humans in the future? Insulin?
Speaker Change: You know, when we acquired Corvo Biotech, they they also had a human side of the human health side of the business. We've preserved all of that technology, all of the clinical data, the FDA regulatory studies, and so on and so forth. And we expect to be able in the future.
Speaker Change: to see if that's monetizable by someone that wants to enter the human market with this revolutionary, really innovative technology for doing rapid diagnostics at the point of care.
Speaker Change: Having said that, you know, we do not intend to commercialize the product in the human market ourself. And our expectation is that first, we build a nice track record of this being used at Veterinary Health, and then we would try and capitalize on the opportunity in the human market.
Speaker Change: What are the margins headed toward with the new technology products?
Speaker Change: The consumables have, you know, very, very, very attractive margins, the capital, a little bit less so, but we think that overall will continue to be in that 65 to 70% range. And I think actually, I think.
Speaker Change: Pretty close to 70 on either side of it as you've seen as you've seen this year
Unknown Speaker At this time, please find your seat.
Speaker Change: No question, but a thank you to those of the executive staff purchasing shares of SoMedica. Well, first of all, you're welcome. You know, several of the company executives and members of the Board of Directors have acquired shares. I myself, I won't speak for anyone else as to why they did it. I myself, I think I shared this a while ago, I've got
Speaker Change: And that's that's really good because now is the seasonal time when horses get tested for PPI and Theres a big <unk>.
Speaker Change: Klein Tradeshow that we attend in early November.
Speaker Change: And so.
Speaker Change: That will come out post the other assays that I mentioned, we have the equine version of it that Guardian, which we expect to launch next year.
Speaker Change: Okay.
Speaker Change: The other I really can't answer the other question.
Speaker Change:
Speaker Change: But we will let you know that we will certainly answer it in terms of new products as we launch them, we make public announcements of those.
Speaker Change: We'll say that we have.
Speaker Change: We have products under consideration now but.
Speaker Change: But it wouldn't be right to kind of speculate on those at this point other than we're confident that we'll continue to expand the product line as we move forward.
Speaker Change: Let's see.
Speaker Change: There are questions multiple questions on potential delisting, I think I've I've covered that.
Speaker Change: Well, we have more locations in customer service and customer service in the United States.
Speaker Change: Location Wise I think we're good we have the manufacturing facility in Georgia, where we manufacture all of our electromechanical products.
Speaker Change: And that we recently expanded so.
Speaker Change: Mike Our Chief operating Officer, Tony Blair tells me that we can we can sell we can produce and distribute five times, our current level or at least our 2023 level of sales from that facility without any future expansion or any additional equipment needed.
Speaker Change: So pretty happy about that don't need more of their facility in Minnesota that we acquired with <unk> biotech with the robotic automated line. We can produce I think it's a million cartridges a year. So it will be a few years any way before.
Speaker Change: Yes, not literal but it won't be many years or several years before we need.
Speaker Change: So thats $1 1 million units on a single shift so it'll be a little bit before we have to manufacture more than $2 million.
Speaker Change: The headquarters here in <unk>.
Speaker Change: And Ann Arbor is modest, but it doesn't need to be bigger.
Speaker Change: So.
Speaker Change: So we actually have plans to actually reduce our Ann Arbor facility expenses, and we will we will provide that information in the future as that comes to pass.
Speaker Change: So.
Speaker Change: That would be the.
Speaker Change: The answer on that.
Speaker Change:
Speaker Change: We'll let me see what else we have here.
Speaker Change: How much money has been expended on tradeshows.
Speaker Change: I'd have to look that up.
Speaker Change: <unk>.
Speaker Change: In terms of what that is but I will tell you that we get a tremendous return on the investment from the Tradeshow expenses that we make.
Speaker Change: In the veterinary market veterinarians that 10, tradeshows as a way to get our required continuing education credits.
Speaker Change: They attend them with their checkbooks to basically shop at these areas into and to see new technology and to see new products.
Speaker Change: Our marketing team has put together a very nice program.
Speaker Change: Opinion leaders speaking at the podium and at these conferences, where they're introducing there's a medical products and how they are used for a particular disease states. After every one of these presentations people from that.
Speaker Change: Conference or from that presentation make their way to our booth with an interest in acquiring the technology.
Speaker Change: And so tradeshows, we see are a tremendous way we have a field sales force of 35 sales reps.
Speaker Change: That can see a number of veterinarians everyday but when we take two or three sales reps to a trade show we were able to see hundreds of veterinarians everyday and then the field reps can follow up on them. So.
Speaker Change:
Speaker Change: Yeah, I'm, not giving you an absolute number but I will tell you that the money is very very very well well spin.
Speaker Change: Yeah.
Speaker Change: Sure.
Speaker Change: Fully staffed sales force that's true why are there multiple sales jobs I think I mentioned that were.
Speaker Change: We're doing a little bit of expansion and we're promoting a few people there.
Speaker Change: See what else we got.
Speaker Change: Yeah.
Number of questions on delisting in compliance and I think I answered that.
Speaker Change: Sure.
Speaker Change: We've had no indication that as long as we stay at our current levels of stock price that there will be any.
Speaker Change: Any.
Speaker Change: Reason for us to expect to be delisted.
Speaker Change: The other hand.
Speaker Change: We serve.
Speaker Change: Listed at the pleasure of the exchange so I can I can.
Speaker Change: Can't speak for them I can only relate what our experience has been up until this point.
Speaker Change: What do you say to shareholders to ease their minds that are thinking of selling their shares and cutting their losses.
Speaker Change: I would say that the decision on whether to sell.
Speaker Change: Shares in our company are uniquely personal and depends on a number of factors that have to do with that particular individual.
Speaker Change: And so I really can't.
Speaker Change: Comment on if they need to sell it to acquire the cash or there's some huge benefit from taking a loss and then they wait 30 days and then they buy it back or whatever I mean that all has to do with their own individual situations and my situation I'm holding.
Speaker Change: These shares.
Speaker Change: And.
Speaker Change: And this is.
Speaker Change: I mean this in spite of the fact I also have a boatload of options right.
Speaker Change: Yeah.
Speaker Change: But I think that for.
For me staying along in this stock is a really good move because I have tremendous confidence as to members of our board of directors, our senior management team and all the employees that are here as America.
Speaker Change: Who are going out every day and introducing this new technology to veterinarians to help veterinarians take better care of of your pass pass and everyone's pads. So I think.
Speaker Change: It.
Speaker Change: On the other hand, again, I can't I can't advise any individual person because I don't know their particular situation.
Speaker Change: Let's see.
Speaker Change: So a lot of people have to have some questions about the.
Speaker Change: About the delisting, so I mentioned that.
Speaker Change:
Speaker Change: Why is it taken so long to hire a new CFO.
Speaker Change: Not actually taking so long.
Have a number of candidates that we're talking to we're not in any particular hurry Mike's alky, who you heard from earlier has been doing a very nice job.
Speaker Change: Same job that he did when Peter was here I think that it's not so much the time it takes to bring a new CFO on board, but to make sure we get one that understands the.
Speaker Change: The the situation that is a Medicare is in.
Speaker Change: With respect to its share price with.
Speaker Change: With respect to.
Speaker Change: Two.
Speaker Change: Its shareholders.
Speaker Change: With respect to the opportunities so we'll take that we'll.
Speaker Change: We'll take the time that we need to get the right person for the position and we're not at all concerned or alarmed.
Speaker Change: If we were frankly is relatively common for company like ours to bring in an interim CFO.
Speaker Change: The CFO departs.
Speaker Change: Until you get your permanent full time CFO in our case.
Speaker Change: We didn't have any issues with our accounting of our finance team and so we're super confident in Mike.
Speaker Change: And the range until we bring in a new a new CFO.
Speaker Change: Yeah.
Speaker Change: You said before you would be profitable or late 2025, I have the recording why has it changed 2026.
Speaker Change: Well.
We previously said that we would we would see our first month or quarter of profitability, we would see the first month or quarter of about $50 million annualized run rate by the end of 'twenty five.
Speaker Change: And that has proven to be a bit aggressive as you know.
Speaker Change: For whatever reason the.
Speaker Change: The entire animal health market has slowed down in 2024.
Speaker Change: And those factors that affect all of the other animal health companies, including the largest ones.
Speaker Change: Certainly effect.
Speaker Change: As well in the second quarter, we did not.
Speaker Change: Have the kind of growth that we expected and so rather than.
Speaker Change: Continued to say well no we still have a shot at it in 2025, I'd rather be realistic transparent and provide you with incredible answer so it's nothing in particular.
Speaker Change: Was aggressive to get there by the end of <unk>.
Speaker Change: 2025.
Speaker Change: So it's just a matter of conservatism on our part to be able to give you the answer even if it's not the same exact answer that we gave you a year ago.
Speaker Change: <unk>.
Speaker Change: It's an honest answer.
Speaker Change: Let's see what else.
Speaker Change: Here's somebody that would like my E mail happy to give it to you and I will.
Speaker Change: In fact, I'll give it to all of you it's al Heaton.
Speaker Change: And so medica dot com and if you have a particular question that you'd like to to help me answer just wanted to set up a time to talk happy to do it we will not share any material nonpublic information with anyone.
Speaker Change: Whether it's via E mail or on phone, but will be happy to talk to you and hear your ideas and your input as well.
Speaker Change: His products overcapacity I'm not quite sure what that means but we have a lot of capacity to build our products.
Speaker Change: Our reps can certainly handle the products that are in their bag.
Speaker Change: And we're not even close to saturated in the market I mean, we're at 1% penetration of our overall total available market.
Speaker Change: Our.
Speaker Change: The thing that we have the highest penetration and as with equine pulse and EBIT there.
Speaker Change: It's only about half probably in the U S market and that's been kind of generous to us so plenty of upside opportunity for that as well.
Speaker Change: Are you going to ask the reverse split again number one investor question on all platforms.
Speaker Change: Thank you.
Speaker Change: Heard very clearly earlier this year that our investors would prefer not to execute a reverse split even if it meant to bring the share price above the potential delisting threshold. We heard that so you haven't heard us talk about requesting a reverse split again.
Speaker Change: Basically for that reason.
Speaker Change: And.
Speaker Change: I think it is.
Speaker Change: No more phone call ones, we'll take one more because we're coming up right on time.
Speaker Change: Okay.
Speaker Change: As.
Speaker Change: Well, here's one Mike should be the new CFO he did a great job.
Speaker Change: Hmm.
Speaker Change: He is smiling.
Speaker Change: Let's see.
Speaker Change: Is marketing in China in the horizon.
Speaker Change: So I will say that we have a distributor in Hong Kong.
Speaker Change: In Hong Kong, we have a distributor that sells the FCC products.
Speaker Change: This past year.
<unk> has also begun to take on the <unk>.
Speaker Change: Wholesale products and just recently indicated that they want to start selling the Guardian, that's Hong Kong.
Speaker Change: China itself is sort of a different.
Speaker Change: Our mainland China, I should say is a little different and there we would go through a more robust distributor and at this point we.
Speaker Change: We don't frankly, we don't have one actively engaged although we often get requests.
Speaker Change: So.
Speaker Change: I think with that I think we're right at time, So let me let me just conclude by.
Speaker Change: By saying that as you've heard.
Speaker Change: Your company has come a long way in the last three years, we expect to go a long way from here.
Speaker Change: And on behalf of our employees.
Veterinarians pet parents, and our pets and yours.
Speaker Change: Thank you again for your support of <unk> and for your time today I appreciate it operator, thank you.
Speaker Change: This concludes today's conference call you may now disconnect. Thank you everyone.
Speaker Change: Okay.