Covalon Sees Strong Start to Fiscal 2023: Improved Q1 Results Reported

Covalon Technologies Ltd. (the “Company” or “Covalon”), an advanced medical technologies company, is pleased to announce its first quarter fiscal 2023 results, ending December 31, 2022. With the new year in full swing, Covalon is thrilled to report positive financial results and is looking forward to the rest of the year with optimism.

Covalon is in a much stronger position than it was a year ago, and the investments the company made in 2022 are already paying off. Its revenue for the first quarter of 2023 increased by 25% to a total of $6.2 million, and the company ended the quarter with $14.1 million in cash and no debt. With its comprehensive product and technology portfolio, Covalon has set its sights on becoming a leader in compassionate care solutions that help patients heal faster and live better. Already, the company is making progress towards its growth plan for the year, and President and CEO Brian Pedlar is confident that its goals will be met.

This year, we are doubling down on our investments in sales and marketing to expand our customer base in the United States and strengthen our brand globally. Our dedicated sales and marketing teams have hit the ground running in fiscal 2023, leveraging the investments we made in 2022 to create an effective strategy. We’ve seen great success so far, with increased product sales to hospitals and through distributors in the United States, more orders from our international channels, and a noticeable boost in revenue from our medical coating projects. We expect the upward trend in revenue to continue as we move through the year.

The first quarter of 2023 saw a significant improvement in gross margins for Covalon, thanks to our customer focus initiatives. We made investments in our business systems, infrastructure, and in-house manufacturing and medical coating services capabilities. This allowed us to be better equipped to serve our customers and drive growth in key markets. The positive impact on our margins is expected to be further enhanced over time, providing us with a great opportunity to continue meeting our customers’ needs.

In 2022, Covalon continued to align our operating costs with growth prospects and saw the positive effects of our improved sales and marketing approach and supply chain transformation. Our team strategized and executed to re-position Covalon and unlock the value of our lifesaving, patented products and technology. To do this, we invested in our people, our commercial capabilities and infrastructure – changes that will surely ensure we consistently meet our objectives.

This quarter, Covalon has made huge strides in transforming into a patient-driven medical device company, where our mission is to provide the most vulnerable patients with a better chance of healing. Our investments in areas such as sales and marketing, operations and IT infrastructure have given us the momentum and certainty of purpose we need to succeed. We are thrilled with the progress we have made and remain committed to our goal of helping those who need it most.

This release includes a range of non-IFRS measures, and we’ve provided a reconciliation of these measures to the most comparable IFRS measures, so you can get an even clearer understanding of our performance.

Q1 Fiscal 2023 Financial Results

For the three months ended December 31, 2022, we saw a substantial jump in revenue of 25%, amounting to $6.2 million – an impressive $1.3 million more than the same period of the prior year, which had closed out at $4.9 million.

The Company recorded an impressive 17% increase in product revenue in the three-month period ended December 31, 2022, with an impressive $5.2 million compared to $4.5 million the same period of the prior year. This surge was mainly driven by the growing demand for the Company’s CovaWound and IV Clear product lines in international markets, with revenue up $0.9 million.

During the three-month period ended December 31, 2022, our development and consulting services revenue increased by an impressive 111% to $0.8 million, up from $0.4 million the year prior. This tremendous growth was fueled by our engagement in 9 customer development projects with 4 medical product companies. Of these projects, the most significant was our major contract with one of the world’s largest medical device companies to license our proprietary medical coating technologies.

During the three months ended December 31, 2022, licensing and royalty fees increased to $0.1 million, a notable increase of 100% from the $0.05 million recorded in the same period the prior year.

For the three-month period ended December 31, 2022, the gross margin increased to a remarkable 60%, representing a 14% jump from the 46% mark achieved in the same period the previous year. This impressive growth can be attributed to the varied sources of revenue, as well as the balanced mix of products sold during this financial period.

For the three months ending December 31, 2022, our operating expenses increased by $0.7 million to $4.0 million, compared to $3.4 million in the prior year. We allocated $0.9 million to sales and marketing, while our operations expenses decreased by $0.2 million due to personnel and facilities being reallocated to production activities. This meant that operations personnel and facilities were not used in the same capacity as the previous year.

For the three months ended December 31, 2022, we experienced a net loss for continuing operations of $0.4 million or $0.02 per share, a significant improvement over the $1.1 million or $0.04 per share net loss from the same period in 2021.

For the three months ended December 31, 2022, there was no net loss from discontinued operations, a stark contrast to the three months ended December 31, 2021 when a net loss of $0.4 million, or $0.02 per share, was recorded.

For the three months ended December 31, 2022, we experienced a net loss of $0.4 million, or $0.02 per share, a marked improvement from the prior year’s $1.5 million net loss, or $0.06 per share.

The Adjusted Gross Margin for the three-month period ending December 31, 2022 showed a slight dip to 61%, compared to 62% for the same period of the prior year. This is due to the varied mix of products sold in the quarter, including collagen-based dressings, silicone-based dressings, medical coating services, passive dressings, and related service revenues. To gain further insight into Adjusted Gross Margin, please refer to the “Definitions and Reconciliations of Non-IFRS Financial Measures” section below.

For the three months ended December 31, 2022, Adjusted EBITDA showed a marked improvement from the prior year, with an income of $0.05 million compared to a loss of $0.2 million for the same period in 2021. This positive shift demonstrates the company’s commitment to financial stability and success. For a more detailed understanding of Adjusted EBITDA, please refer to the “Definitions and Reconciliations of Non-IFRS Financial Measures” section below.

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