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Zomedica (ZOM) - 2024 Q2 - Quarterly Report
ZOMZomedica (ZOM)2024-08-14 20:07

Financial Performance - Revenue for the three months ended June 30, 2024, was 6,131,anincreaseof6,131, an increase of 111, or 2%, compared to 6,020forthesameperiodin2023;revenueforthesixmonthsendedJune30,2024,was6,020 for the same period in 2023; revenue for the six months ended June 30, 2024, was 12,393, an increase of 891,or8891, or 8%[141]. - Gross profit margin for the three months ended June 30, 2024, was 71%, up from 67% in the same period of 2023; however, the gross profit margin for the six months ended June 30, 2024, decreased to 68% from 69%[144]. - Net loss for the three months ended June 30, 2024, was 23,931, an increase of 18,682,or35618,682, or 356%, compared to a net loss of 5,249 for the same period in 2023; for the six months, the net loss was 33,091,anincreaseof33,091, an increase of 21,457, or 184%[150]. - Cash used in operating activities for the six months ended June 30, 2024, was 14,309,anincreaseof14,309, an increase of 6,376, or 80%, compared to 7,933forthesameperiodin2023[152].GoodwillandImpairmentThecompanyreportedagoodwillimpairmentchargeof7,933 for the same period in 2023[152]. Goodwill and Impairment - The company reported a goodwill impairment charge of 16,024 for the three and six months ended June 30, 2024, due to slowed future sales growth projections and increased operating expenses[132]. - The carrying values of goodwill for the PulseVet and Assisi reporting units at June 30, 2024, were 43.4millionand43.4 million and 2.2 million, respectively[134]. - The company evaluates goodwill for impairment annually or when triggering events occur, using qualitative and quantitative analyses to assess fair value[128]. - As of June 30, 2024, the implied control premium for the company's reporting units was 52.0%, consistent with historical premiums in the Medical, Dental, and Hospital Equipment and Supplies industry[135]. Operating Expenses - The company’s operating expenses consist of general and administrative, research and development, and selling and marketing expenses, with significant costs related to public company compliance[113]. - Research and development expenses for the three months ended June 30, 2024, increased by 647,or75647, or 75%, totaling 1,506, while for the six months, it increased by 1,500,or841,500, or 84%, totaling 3,277[147]. - Selling and marketing expenses for the three months ended June 30, 2024, were 3,923,anincreaseof3,923, an increase of 842, or 27%, compared to 3,081forthesameperiodin2023;forthesixmonths,expensesincreasedby3,081 for the same period in 2023; for the six months, expenses increased by 1,533, or 24%, totaling 8,030[148].TaxandDeferredTaxAssetsThecompanyhasrecordedafullvaluationallowanceagainstitsCanadiandeferredtaxassetsduetouncertaintyinrealizingtaxbenefitsasofJune30,2024[119].AsofJune30,2024,thecompanyhaddeferredtaxassetsfornetoperatinglosscarryforwardsof8,030[148]. Tax and Deferred Tax Assets - The company has recorded a full valuation allowance against its Canadian deferred tax assets due to uncertainty in realizing tax benefits as of June 30, 2024[119]. - As of June 30, 2024, the company had deferred tax assets for net operating loss carryforwards of 14,069 million for U.S. federal income tax purposes and 9,581millionforCanada,withexpirationsbeginninginfiscalyear2035[157].Thecompanyhasevaluatedtherealizabilityofitsdeferredtaxassets,resultinginaderecognitionof9,581 million for Canada, with expirations beginning in fiscal year 2035[157]. - The company has evaluated the realizability of its deferred tax assets, resulting in a derecognition of 3,814 million, reducing the carryforward to 10,225million[157].InternalControlsandComplianceThecompanyhasremediatedamaterialweaknessininternalcontroloverfinancialreportingasofJune30,2024,whichwasrelatedtothetimelinessandprecisionofmanagementsreviewcontrolsaroundfinancialprojections[165][168].ThecompanysinternalcontroloverfinancialreportingwasassessedaseffectiveasofJune30,2024,followingremediationefforts[166].Thecompanysmanagementisresponsibleforestablishingeffectiveinternalcontroloverfinancialreportingtoensurereliabilityinfinancialstatements[165].Thecompanysdisclosurecontrolsandprocedureswereinitiallydeemedineffectivebuthavebeenimprovedfollowingremediationofidentifiedweaknesses[165].StrategicFocusandMarketConditionsThecompanyisfocusedonleveragingitsrecentacquisitionofQorvointonewassaydevelopmentfortheTRUFORMA®platform,expandingcapabilitieswithinexistingproducts,andexploringnewmarketopportunities[114].ThecompanycontinuestomonitorthepotentialimpactsoftheInflationReductionAct,whichincludesanew110,225 million[157]. Internal Controls and Compliance - The company has remediated a material weakness in internal control over financial reporting as of June 30, 2024, which was related to the timeliness and precision of management's review controls around financial projections[165][168]. - The company’s internal control over financial reporting was assessed as effective as of June 30, 2024, following remediation efforts[166]. - The company’s management is responsible for establishing effective internal control over financial reporting to ensure reliability in financial statements[165]. - The company’s disclosure controls and procedures were initially deemed ineffective but have been improved following remediation of identified weaknesses[165]. Strategic Focus and Market Conditions - The company is focused on leveraging its recent acquisition of Qorvo into new assay development for the TRUFORMA® platform, expanding capabilities within existing products, and exploring new market opportunities[114]. - The company continues to monitor the potential impacts of the Inflation Reduction Act, which includes a new 1% excise tax on stock repurchases and a 15% Corporate Alternative Minimum Tax for corporations with average book income over 1 billion[117][118]. - The company acknowledges the uncertain impact of climate change on operations and customer needs, which may lead to increased operating costs and risks[158][159]. - There were no material changes in risk factors from those previously disclosed in the annual report for the year ended December 31, 2023[171]. Customer Contracts and Liabilities - As of June 30, 2024, the estimated value of the Therapeutic Device customer contract liability was 553;a2553; a 2% increase in the expected return rate would have reduced sales and customer liability by approximately 61[140]. - The carrying value of the company's Diagnostic instruments was $10,330 as of June 30, 2024; a 25% reduction in estimated revenues would increase the payback period from 2.93 years to 3.81 years[137]. Stock-Based Compensation - Stock-based compensation expense is calculated using the fair value method and is recognized based on the expected vesting of stock-based payment awards[122]. - The company adopted the 2024 Stock Appreciation Rights Plan, allowing for the grant of stock appreciation rights up to 10% of the issued and outstanding shares of common stock[160]. Fair Value Assessment - As of June 30, 2024, the fair value of the PulseVet reporting unit exceeded its carrying amount, including goodwill, by 56%, while the Revo Squared, SMP, and Assisi reporting units had fair values below their carrying amounts by 64%, 80%, and 3%, respectively[132].