Mr. Brent Ashton reports

COVALON ANNOUNCES FIRST QUARTER FISCAL 2024 RESULTS

Covalon Technologies Ltd. has released its fiscal 2024 first quarter results for the period ended Dec. 31, 2023.

Brent Ashton, Covalon's newly appointed chief executive officer, stated: "Covalon's strong focus on our product business in the United States delivered a remarkable 36-per-cent growth in Q1. These advances were offset by revenue challenges primarily due to a decrease in our coatings business with a large customer and the timing of shipments for some international customers. Our team excelled in delivering strong gross margins despite the absence of the high-margin coating revenue we recognized in prior years.

"I am extremely proud of the progress that the Covalon team has made in the past few months with a solid focus on strengthening foundational elements for our business and setting the stage for substantial revenue growth in fiscal 2024. In parallel with our intense focus on growth, we are also highly focused on streamlining our operating expenses relative to revenue, with the goal of achieving EBITDA [earnings before interest, taxes, depreciation and amortization] profitability within fiscal 2024.

"The entire Covalon team is very energized to drive Covalon into its forthcoming growth phase. Covalon's strengths in our products, intellectual property, dedicated team and excellent industry partnerships gives us high confidence in our ability to generate significant value for our customers, team members and shareholders."

Q1 financial overview

U.S. product revenue for the quarter increased 36 per cent, offset by international product revenue declining by 77 per cent, largely due to the timing of shipments for a large international tender. Revenue for the three months ended Dec. 31, 2023, therefore decreased 25 per cent to $4.7-million compared with $6.2-million for the same period of the prior year.

Development and consulting services revenue for the three-month period ended Dec. 31, 2023, decreased to $60,000, compared with $800,000 for the same period of the prior year. This decrease is a result of a customer's decision to not proceed with a medical coatings project, and a strategic decision by Covalon to increase the focus and priority of its U.S. product segment.

Licensing and royalty fees for the three months ended Dec. 31, 2023, were $30,000, compared with $100,000 for the three months ended Dec. 31, 2022. The timing of this revenue will vary depending on length and timing of projects and discussions with customers.

Gross margin for the three-month period ended Dec. 31, 2023, increased to 61 per cent compared with 60 per cent in the same period for the prior year. During the three months ended Dec. 31, 2023, the company released inventory provisions of $200,000 as a result of changes in obsolescence estimates, as compared with nil inventory provisions being recorded during the three months ended Dec. 31, 2022. The gross margin is significantly influenced by source of revenue and by the relative mix of products sold in any given financial period.

Operating expenses for the three months ended Dec. 31, 2023, increased $300,000 to $4.3-million, compared with $4.1-million for the prior year's comparative period. Approximately $400,000 relates to increased operations activities primarily due to an increase in staffing levels and product development expenses, this is offset with approximately $600,000 decrease related to the finance lease receivable for the sublease of a portion of Covalon's Seattle location.

Net loss for the three months ended Dec. 31, 2023, was $900,000 or three cents per share, compared with a net loss of $400,000 or two cents per share for the three months ended Dec. 31, 2022.

Adjusted gross margin for the three-month period ended Dec. 31, 2023, was 58 per cent compared with 61 per cent for the same period of the prior year. Gross margin is highly influenced by the mix of collagen-based dressings, silicone-based dressings, medical coating services, passive dressings and related service revenues generated in the periods. Gross margin fluctuates as a result of the mix of products sold in any given quarter, or year, by product type and geography.

Adjusted EBITDA loss for the three months ended Dec. 31, 2023, was $1.3-million, compared with an adjusted EBITDA income of $50,000 for the three months ended Dec. 31, 2022.

Statement of operations

The attached audited table presents Covalon's consolidated statements of operations for the three-month periods ended Dec. 31, 2023, and 2022.

About Covalon Technologies Ltd.

Covalon Technologies is a patient-driven medical device company, built on the relentless pursuit to help the most vulnerable patients have a better chance at healing. Through a strong portfolio of patented technologies and solutions for advanced wound care, infection prevention and medical device coatings, Covalon offers innovative, gentler and more compassionate options for patients to heal with less infections, less pain and better outcomes. Its solutions are designed for patients and made for care providers. Covalon leverages its patented medical technology platforms and expertise in two ways: (i) by developing products that are sold under Covalon's name; and (ii) by developing and commercializing medical products for other medical companies under development and licence contracts. The company is listed on the TSX Venture Exchange, having the symbol COV, and trades on the OTCQX Market under the symbol CVALF.

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