Zomedica (NYSE American: ZOM), a veterinary health company, reported a modest revenue increase in the second quarter of 2024, with a 2% growth from the same period in 2023, reaching $6.1 million. The growth was primarily driven by the Diagnostics segment, which saw a 68% increase, attributed to new assay launches and strong demand for the VETGuardian product.
Despite this, the PulseVet line experienced subdued growth, and the company faced challenges with sales force performance and temporary headwinds. Zomedica is actively expanding its international reach, with expectations that these efforts will significantly bolster revenue in the latter half of the year. They also reported a net loss of $23.9 million for the quarter and announced the resignation of CFO Peter Donato.
Key Takeaways
- Zomedica's Q2 2024 revenue rose to $6.1 million, up 2% from Q2 2023.
- Diagnostics segment led the growth with a 68% increase, while PulseVet grew by only 1%.
- International expansion is underway with partnerships in the Middle East, Egypt, India, and Costa Rica.
- Two new assays for the TRUFORMA platform and an equine VetGuardian option were announced.
- Manufacturing and distribution capacity in Georgia expanded to support increased product demand.
- Gross profit margin stood at 71%, and the company ended the quarter with $83 million in cash and zero debt.
- Zomedica suspended its 2024 revenue guidance but expects growth and gross margins to approach or exceed 70% for the year.
Company Outlook
- Anticipation of significant international sales contributions in the second half of the year.
- Initiatives aimed at driving business growth to achieve positive cash flow at $50 million in annualized revenue.
- The company is working on mitigating sales force headwinds and exploring alternative device placement programs.
Bearish Highlights
- Net loss reported at $23.9 million for Q2 2024.
- Noncash charges of approximately $16 million affected the company's financials.
- Lower-than-expected sales force performance and temporary headwinds impacted growth.
Bullish Highlights
- Strong demand for VETGuardian and new assay launches driving Diagnostics segment.
- Expansion of manufacturing and distribution capabilities to meet product demand.
- Optimistic outlook on achieving cash flow and GAAP profitability in the future.
Misses
- Revenue missed company expectations for Q2 2024.
- PulseVet product line saw minimal growth, with a notable 15% decline in capital equipment sales.
- Sales force performance and temporary headwinds led to a challenging quarter.
Q&A Highlights
- Zomedica is confident in its financial performance and does not foresee significant misses.
- The company is focused on reducing expenses and increasing revenue for profitability.
- Compliance with the NYSE exchange is ongoing, with no specific deadline for stock price improvement.
- Various programs are in place to encourage small animal vets to purchase Zomedica's products.
Zomedica's expansion efforts, both in terms of product offerings and international market penetration, indicate a strategic approach to growth despite the current challenges. The company's focus on innovation and customer adoption through over-the-air updates and new product launches, such as the equine VetGuardian option, are set to enhance its market position. With a strong cash reserve and no debt, Zomedica is poised to continue its pursuit of profitability and market expansion in the veterinary health sector.
InvestingPro Insights
Zomedica's financial health and market performance present a mixed picture as of Q1 2024. The company's market capitalization stands at approximately $154.98 million, indicating a relatively small player in the industry but with potential for growth. One of the key metrics that stands out is the company’s gross profit margin, which at 67.78% for the last twelve months, suggests that Zomedica has been effective at controlling the costs of goods sold and maintaining a profitable pricing strategy for its products.
InvestingPro Tips reveal that Zomedica holds more cash than debt on its balance sheet, which is a positive sign of financial stability and aligns with the company's reported $83 million in cash at the end of Q2 2024. However, it is quickly burning through cash, which may raise concerns about long-term sustainability if not addressed. The company's liquid assets exceed short-term obligations, providing a cushion for near-term financial obligations and potential investments.
In terms of profitability, Zomedica has not been profitable over the last twelve months, as reflected in the negative Price-to-Earnings (P/E) ratios of -4.02 and adjusted -5.32. This is consistent with the reported net loss of $23.9 million for Q2 2024. Additionally, Zomedica does not pay a dividend to shareholders, which is not uncommon for companies focused on growth and reinvestment.
Investors interested in Zomedica's performance and future outlook may find additional InvestingPro Tips by visiting https://www.investing.com/pro/ZOM, where they can uncover more insights into the company's operations and potential investment opportunities. With several more tips available, this resource serves as a valuable tool for those looking to make informed decisions about their investments in Zomedica.
Full transcript - Zomedica Pharmaceuticals Corp (NYSE:ZOM) Q2 2024:
Operator: Good afternoon, ladies and gentlemen, and welcome to the Zomedica Q2 2024 Financial Results Conference Call. [Operator Instructions] This call is being recorded on Wednesday, August 14, 2024. I would now like to turn the conference over to Mr. [Mike Valle ] from ICR. Please go ahead.
Unidentified Company Representative: 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. These forward-looking statements are based on assumptions, and there are risks that the results may differ materially from those statements. As such, Zomedica cannot guarantee that any forward-looking statements will materialize, and you are cautioned 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 SEDAR at www.sedarplus.ca and on EDGAR at sec.gov. Forward-looking statements made on this conference call represents Zomedica's expectations as of today, August 14. I will now pass the call over to Zomedica's Chief Executive Officer, Larry Heaton. Larry?
Larry Heaton: Thanks, Mike. I'd like to start by thanking our shareholders for your support, wishing and 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 to your questions. Earlier today, Zomedica released its financial results for the second quarter in 2024. Revenue for the quarter was $6.1 million, reflecting 2% growth over the second quarter of [2023] primarily driven by solid year-over-year growth of 68% within our Diagnostics segment as we are seeing the positive benefits of our recent assay launches with TRUFORMA as well as the continued demand for VETGuardian. 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 PulseVet 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. 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 now on medical leave, reaching at its peak 14% of the sales force. 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 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 note some macroeconomic factors, potentially impacted new system purchases such as the current interest rate environment, potentially causing customers to wait to see if interest rates would decline. 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. Highlighting the fact was 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. 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 GAAP 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. These are large geographies with significant animal health markets, and this partnership will allow for Zomedica products to enter new parks in 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. 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 the 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. And that's in 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. We started with an installed base of around 1,200 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, PulseVet was named the official Shock Wave Therapy of U.S. Equestrian, which competed in Paris. 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 showcasing the effectiveness of PulseVet therapy for treating exercise-induced pulmonary hemorrhage in quarter horses. But importantly, in addition, the paper highlights that PulseVet therapy offers a potential noninvasive 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 and tendon and ligament issues and bone healing. Its effectiveness 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. The white paper demonstrates the potential to extend PulseVet therapeutic use into new markets, including equine lung conditions in 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 to adopt the technology. Turning to an update on TRUVIEW. During the quarter, we continued our activity to add artificial intelligence, or AI, interpretations to the TRUVIEW system. When this is completed, each slide processed will be accompanied by an AI report. 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% to 6% of cats. Now TRUFORMA. 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 our push into new international markets, we're very excited that in June, we received CE Mark approval for TRUFORMA, which enables us to commercialize the platform across the European economic area. 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. The core benefit of our acquisition of Qorvo (NASDAQ:QRVO) 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. 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, 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 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 we'll also expand the market for the TRUFORMA system amongst equine best. 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 to further strengthen the TRUFORMA platforms 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, et cetera. 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 we'll be able to apply the update with the push of a button demonstrating our dedication to accelerating delivery of highly beneficial assays on the TRUFORMA diagnostic platform. These capabilities further reduced 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 VetGuardian. 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 VetGuardian. This certification allows the platform to be sold throughout the European Union and select other countries given 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 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 VetGuardian option will be very well received, helped drive accelerated adoption by equine veterinarians in 2025 and beyond, and set the stage for potential expansion of the market opportunity to include horsetrainers, breeders, potentially owners. 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 automate 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. 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 GAAP profitability. I'd now like to turn the call over to Peter to review our financial performance in more detail. Peter?
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 year second quarter, primarily driven by growth within our Diagnostics 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. And as Larry said previously, this is primarily the result of 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. 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 PulseVet 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. Second quarter Diagnostics 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. Within the Diagnostics 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%. 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%. In the quarter, accounting rules required us to take noncash 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 noncash 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 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. When adjusting for these noncash 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, TRUFORMA and VETGuardian 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. 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. Net loss for our second quarter was $23.9 million. That's $0.024 per share, and it compares to a net loss of $5.2 million, or about $0.005 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 our adjusted non-GAAP EBITDA loss was approximately $5.2 million. Turning to the balance sheet, Zomedica ended the second quarter with $83 million in cash, cash equivalents and available for sales 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 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 moved 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 VP and Corporate Controller. In addition, we've implemented a variety of strategic initiatives aimed at driving growth and putting us in 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 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, 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. 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 efficiencies. Turning to cash burn, we continue to expect our adjusted cash burn to be within our previously stated range, guidance range of $12 million 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?
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.
Peter Donato: Thank you.
Larry Heaton: 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 of 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 GAAP 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. 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.
Operator: [Operator Instructions] Our first question will be coming from Andrew Rem from Odinson Partners.
Andrew Rem: Sorry. Can you guys just, Larry, could you talk about the sales force headwinds in the quarter in a little bit more detail. And then, how you guys will mitigate that going forward?
Larry Heaton: Yes, and hi, Andrew. So, during the quarter, 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. 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. 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 - we are seeing the uptick in sales that comes from that. So, there's nothing left for us to do. We just have to sort of accept it, when they're out on sick leave. On the other side, I think we did see, I think all of us saw a little bit of reluctance in the second quarter from some customers to go ahead, and commit to financing a $32,000 piece of equipment. We saw fewer sales in the 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 bit later. It could be that clinic owners, as has 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. I'll give you an example. We currently sell the system for $30,000 and the handpiece we call a trode for $2,000, actually $2,100. With a placement program, we may - place the device without requiring them to commit to the capital upfront. And instead of selling them 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. 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 $2,100. So we think we're well prepared as we move forward. A lot of the sort of 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, are sold. As we saw reluctance or delay. In fact, we believe that many of these will turn into customers - in a subsequent quarter. Just didn't happen in the second quarter. And caught us a little by surprise.
Andrew Rem: Okay. Just maybe a couple things on the PulseVet. So 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, 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?
Larry Heaton: 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, we don't have any need to put in a minimum reorder quantity of trodes, or whatnot because realistically, when you use the PulseVet device on a pet in your clinic. There's 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 actually works in the animal is the sound-wave activates the body's own regenerative processes. 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 PulseVet system, they're going to 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. So there's economic motor, there's clinical motor, a driver for them to continue to use it.
Andrew Rem: Yes, I mean, it sounds like they basically could fund a third of a future system purchase with the first trode if they roughly generate $15,000 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 - for the salespeople that were out, was there duration to that? I mean, were people out for a week or two?
Larry Heaton: 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 a 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 all healthy and they all came back. So, the issues that presented weren't sort of things that you would expect to happen again and again.
Andrew Rem: All right. And then, Peter, on the $16 million in, I guess, charge-off, you guys did a similar expensing in the fourth quarter. I guess that was specifically related to a CC. 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: Yes. 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 a CC. But Revo has been eliminated. And there's, I believe, $2 million left for a CC. And VetGuardian is eliminated as well. So most of it is gone.
Andrew Rem: 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, leaves you just over $5 million in cash burn. But that's quite a bit higher than what you've demonstrated in prior quarters, which has been kind of $3 million-ish or below. And so should we be, I mean, I know you said cash burn towards the high end of the $12 million to $18 million. But can we infer that cash burn is actually going to be running a little bit higher than, well, below $5 million, but above $3 million?
Peter Donato: So $3 million was never the guidance, right? That was last year's guidance. And it was prior to the Qorvo acquisition, right? So I've said very publicly that the headwind associated with the Qorvo acquisition is at least $1 million and probably close to, and I think you and I talked even in Minnesota, it's about $1.25 million per quarter. So roughly $5 million. So we're absorbing, we had to absorb that. 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, 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, if you do the math on that, the 18 divided by 4, that's probably a burn rate that will, that looks right to me going forward. 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, if you recall. We gave a low watermark of cash of $65 million. So, if the revenue starts to bounce back before profitability, 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.
Andrew Rem: And maybe just lastly, on your original guidance for revenue of $31 million to $35 million, how much of that was international sales related? Or what was the expectation for international sales?
Peter Donato: Yes, so we didn't give an expectation on that. What we've said historically, 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, 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, could be growing faster. We could be hitting it out of the park internationally and that number could be 10%, right? Because of how domestic is growing, on a percentage basis. This quarter, 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.
Andrew Rem: All right, maybe 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 on your sales force, is there a way that you can mitigate that type of, or those types of situations in the future?
Larry Heaton: So, well first of all, if any reps go out on maternity or paternity leave, we respect the heck out of that and - 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 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 were using that person in their capacity. So, the other thing is that we have now, a full complement of professional services, veterinarians that are also able to step into territories when there is a vacancy. So, we have thought about that, and we have taken some steps to make sure that we won't be adversely affected should we have reps go out on medical leave going forward.
Andrew Rem: All right. Well, thanks.
Larry Heaton: You're welcome.
Operator: [Operator Instructions] There are no further questions over the phone. Mr. Heaton, please proceed with web-based questions.
Larry Heaton: 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 VetGuardian 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 and the Middle East and Africa this year, 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, 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 this quarter, 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, 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 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, and that includes a lot of businesses around the continent. So, we expect to see some - uptake in new distributor arrangements as we get out of this month and into September. 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 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 the CE mark. We have it for TRUFORMA. We have it for VetGuardian. We expect to have it shortly for TRUVIEW as well. But for the first two products, a PulseVet 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. 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. 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 PulseVet, in particular in PulseVet Capital. We're super pleased with PulseVet 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%. It's a small base, but it's significant growth. But we're happy with the VetGuardian uptake. There are a lot of things we're happy about, but 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. And they're super excited to get their hands on TRUFORMA for equine application in the near term. And in the longer term when we have it ready for VetGuardian 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? Prudently, and maybe miserly, right. 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 GAAP 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. And TRUVIEW is completely novel in terms of slide prep, has competition in the marketplace with respect to AI reports. Adding AI to TRUVIEW then makes customers not have to choose between AI reports, and automatic slide prep. They get both in the TRUVIEW. 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. And 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. So 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 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. 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 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. Oh, okay. Never mind. All right. Are there any updates on the second half earnings? Peter, you want to take that one?
Peter Donato: Yes. I'm not sure what the question is.
Larry Heaton: What do we expect to, I guess what do we expect to see in the second half?
Peter Donato: Yes. 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 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 assumption, that trend holds true. 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 gross rate, it gets you a number 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. Sales force back at full strength and a variety of other initiatives. Forget about being at full strength, right? 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 will continue to multiply the multiple unit sales on VetGuardian 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 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: Thanks, Peter. 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. The exchange continues to monitor our stock price and has, without giving us any date certain that we have to increase it to $0.20, has allowed us to stay listed. And we expect that to continue as we move forward. Let's see. Is there a program available to entice the small animal vet to consider purchasing? I think that - it's and first of all, there's two programs, right? So in particular with PulseVet, with our TRUFORMA 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. The barrier to entry for TRUVIEW 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. Which brings us to PulseVet. So with PulseVet, 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. 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 trodes 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. 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.
Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and ask that you please disconnect your line.
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