Covalon Technologies Ltd. (COV) Earnings Call Transcript & Summary

Welcome to the Annual General Meeting of Shareholders of Covalon Technologies Limited. Please note that the meeting is being recorded. I would like to introduce Mr. Amir Boloor, Executive Chair of Covalon. Mr. Boloor, the floor is yours.

Good afternoon, ladies and gentlemen, and welcome to the Annual General Meeting of Shareholders of Covalon Technologies. My name is Amir Boloor, I'm the Executive Chair of Covalon Technologies. Also in attendance are from Covalon are Brent Ashton, Covalon's Chief Executive Officer and Director; and Katie Martinovich, Covalon's Interim Chief Financial Officer; and Saleha Assadzada, Executive Assistant to the CEO. As this meeting is being held virtually via live webcast, it is necessary to set out a few rules for the orderly conduct of the meeting. Questions with regard to a motion can be submitted by a registered shareholder or duly appointed proxy holder using the questions feature of the TSX Trust meeting platform. Please note that there will be a slight delay in the publication of the communications received. [Operator Instructions]. Only questions regarding procedural matters are directly related to the motions before the meeting may be addressed during the meeting. Other unrelated questions will only be addressed during the question period at the end of the meeting. Voting on all matters today will be conducted by a single electronic poll. Registered shareholders and duly appointed proxy holders may vote on each business item at any point during the meeting if they have signed in with a control number. Only registered shareholders and duly appointed proxy holders of the corporation are permitted to participate in the voting. The question feature is accessible on the left side of the screen. The Annual General Meeting of the Shareholders of Covalon Technologies Ltd. will now come to order. With the consent of the meeting, Brent Ashton, Covalon's Chief Executive Officer and Director; will now address the legal formalities of the meeting. And Navin Kissoon of Stikeman Elliott will act as Secretary of the meeting. Saleha Assadzada will act as moderator to help with the virtual communication. Brent, the floor is yours.

Thank you, Amir, and thank you to our shareholders for attending this meeting today virtually. We will now proceed with the formal portion of today's meeting. And to expedite this formal part of the meeting, I will move the items of business and take such motion as seconded with no further action required. I would ask Amy Kam of TSX Trust Company to act as scrutineer for this meeting. The purpose of today's meeting was set out in the Notice of Annual Meeting of Shareholders and the Management Information Circular dated February 11, 2025. I do not propose to read the notice. However, copies of the meeting materials are available under the corporation's profile on the SEDAR+ website. I direct that a copy of the notice of the meeting be attached to the minutes of this meeting. I've been advised that the notice calling this meeting, together with the management proxy circular and the form of proxy were mailed on February 26, 2025, to shareholders of record as at January 29, 2025. And in accordance with applicable law. A copy was also mailed to each of the corporation's directors and to its auditor. TSX Trust Company has provided proof of service of such mailing, and I direct that a copy of such proof of service be attached to the minutes of this meeting. According to registrations, the scrutineer has advised me that there are a total of 50 shareholders present in person or by proxy, representing a total of 11,189,031 shares that are entitled to vote at this meeting. That is approximately 40.8% of outstanding shares. I therefore declare that a quorum is present, and accordingly, the meeting is constituted for the transaction of business. Registered shareholders and duly appointed proxy holders attending this meeting may address the meeting when there is a call to discuss a motion before the meeting. Should you like to address the Chair on a motion, please type your message into the question section. If there is any discussion or question, the question will be read aloud. Today, we'll be conducting the following orders of business: the presentation of Covalon Technologies Limited's annual financial statements for the year ended September 30, 2024, the election of Covalon Technologies directors and the appointment of Covalon Technologies auditors. As previously noted, we will conduct the votes on these matters by a single electronic poll. On a poll, every shareholder entitled to vote on the matter has 1 vote in respect of each share entitled to be voted on the matter and held by that shareholder. The poll will be open for all resolutions at the same time. This will allow you to choose to vote on each resolution immediately or wait until the conclusion of discussion on each resolution prior to casting your vote. If you have already submitted your vote by proxy, you should not vote during the meeting unless you wish to change your vote. I now declare the polls open. [Voting]

I also now declare that this meeting is regularly called and properly constituted for the transaction of business. The first formal item of business is the presentation of Covalon Technologies Limited as audited consolidated financial statements for the year ended September 30, 2024, together with the auditor's report thereon. As these financial statements and the report were previously provided, I would not propose to review them as part of the formal part of this meeting. After the formal part of this meeting has been completed and the various presentations made, we will be pleased to respond to any questions shareholders may have on these financial statements. We now move to the next point on today's agenda. The next matter to be dealt with is the election of directors. As indicated in the circular, management is nominating 7 directors for election by the shareholders. Management nominees are Amir Boloor, Brent Ashton, Joseph Cordiano, Martin Goldfarb, Dr. Samantha Nutt, Abe Schwartz and Ron Smith. Each of the persons nominated has confirmed that he or she is prepared to serve as a director. Each of them qualifies as a director under the provisions of the Business Corporations Act of Ontario. Are there any further nominations?

There are no further nominations.

As there are no further nominations, I declare the nominations closed. I move and take as seconded the motion with respect to the resolution that the following persons be and they are hereby elected directors of the corporation to hold office until the next Annual Meeting of the Shareholders of the corporation or until their respective successors are duly appointed. Brent Ashton, Amir Boloor, Joseph Cordiano, Martin Goldfarb, Dr. Samantha Nutt, Abe Schwartz and Ron Smith. Is there any discussion on the motion?

There is no discussion at this time.

As there is no discussion, the motion is now on the floor. The Business Corporations Act of Ontario requires that the Board of Directors be elected. Proxies have been solicited for each of the 7 proposed qualified persons listed in the management information circular. The form of proxy for voting on the election of directors sets out each proposed nominee separately and allows shareholders to vote for each director individually. As mentioned at the beginning of this meeting, voting today will be conducted by a single electronic poll. You may choose to vote on each resolution immediately or wait until the conclusion of discussion on each resolution prior to casting your vote. We will now continue with the next item of business. The next matter to be dealt with is the appointment of PricewaterhouseCoopers LLP, Chartered Accountants to serve as auditor of the corporation until the close of the next Annual Meeting of Shareholders or until its successor is duly appointed and to authorize the directors of the corporation to fix the remuneration of the auditor. I move and take a seconded the motion. Does anyone wish to discuss this motion?

There is no discussion at this time.

The motion is now on the floor. I now call for any registered shareholders or proxy holders who have not yet voted in the matters discussed in this meeting to please do so now. [Voting]

I now declare the polls closed. Based on the preliminary scrutineers' report, I declare all motions as carried. I direct that the results of the voting be included in the minutes of this meeting. This completes the matters of business to be conducted as set out in the notice. As there is no more formal business to which we must attend, I would request a motion to terminate the formal portion of this meeting. I move and take as seconded the motion. Does anyone wish to discuss the motion?

There is no discussion at this time.

As there is no discussion, this concludes the formal order of business for today. On behalf of the directors and management, I'd like to thank you for your support, and thank you for joining us today. I invite all of you to stay on for our business presentation. Please feel free to submit questions using the questions feature at any point during the presentation. You are able to ask questions regardless of whether you registered for this call as a registered shareholder, a duly appointed proxy holder or as a guest. Okay. Good afternoon. So I hope that each of you are doing well today. As you probably noticed by now, my voice is a little off. I caught kind of whatever is going around respiratory illness that seems to have gotten to most people by now. And while I'm feeling fantastic, and that's more of a last week problem. I know that my voice is a little tough to listen to. So full apologies in advance here and along the way, I will take the opportunity every now and then to pause and rehydrate. And they'll try to mute the phone if I have to cough. So bear with me, there may be some pauses, very much appreciate it. Before we begin the presentation, I would like to remind participants that this call and webcast are covered by Covalon's safe harbor statement. Please read the safe harbor statement in the slide. I'll pause here to allow you to read it as well as taking one of my aforementioned breaks with water. Thank you. With that out of the way, I'll now start in on the management presentation. Well, it's my sincere pleasure to be here today to provide you with the management presentation. Over the course of the next half hour or so, I'll be sharing with you, first, a little bit of a deeper look at why we do what we do at Covalon, why it matters and a bit of an outside perspective on that. Second, we'll cover the Covalon investment thesis in a little more depth on some of our key products, the challenges that our customers are faced with every day, how our products solve these challenges and also how we win in the marketplace. Third, we'll provide some perspective on some key highlights strategically, operationally and financially from the past 12 months and from fiscal year 2024. And last, we'll talk a little bit about the future and provide some more depth on one big opportunity that has the team and I really excited. And then I'll be happy to take any questions that you might have. I joined a little more than a year ago with a lot of excitement for the future, a lot of hard work by the team and I to deliver on 2024 and now sit here in 2025, even more excited about the multiyear growth opportunity that lies in front of us. We have an amazing family of products and technologies that save lives and improve patient quality of life and clinical outcomes. And as I reflect on the past year's activities, this is really one big area that jumps out at me, both professionally and personally. It's been so incredibly gratifying to speak with patients and clinicians who care for them and just hear the stories that they share in their own words on the amazing benefits that they see to using our unique differentiated technologies. And as I spent time engaging with our customers and hearing the challenges that they're faced with and then drawing upon my experiences prior to Covalon, it has totally reinforced a very core position for me and for Covalon. Listen, getting sick sucks, having to go to a hospital. Well, it's definitely not a terribly enjoyable experience. You only do it if you have to do it. And one of the reasons of getting sick sucks is that it often leads to complications. You go into a hospital, you end up in the ICU because of pneumonia and in the process of recovering, you get a bloodstream infection, and that adds an extra week or 2 in the ICU, a ton of antibiotics. And unfortunately, that's your best case. 15% to 20% of the time, you'll die due to sepsis from the bloodstream infection. Or maybe you have to have an IV inserted in your body. And in order to secure the IV catheter, they use the current standard of care, the traditional standard of care, IV securement dressing with acrylated adhesives. And then when they go to remove that IV dressing, it takes off a bunch of layers of your skin, leaves you with an extremely painful skin injury that requires additional treatments and also leaves you susceptible to infection and other challenges. Similar challenges like this relate to surgical site infections and chronic wounds. And all told, these complications affect millions of people each year. And some things that these complications have in common, pain and suffering. If you can go to the next slide, Saleha -- sorry, pain and suffering, sometimes intense and debilitating, a lower of quality life as you're not able to do the things that you would be normally able to do. And in turn, this can spiral into mental health issues, high anxiety and depression are common. These complications often lead to other challenges and serious complications. In the worst-case scenario, death. I alluded to that 15% or 20% of the time, that's the case in bloodstream infections. And beyond the human toll here, which make no mistake, is extremely significant. There's also the financial impact, tens of billions of dollars every year. And while this slide is generally depressing as a patient, I get it, I do have some great news to share. These are all largely preventable complications and even better news, Covalon's products play a significant role in helping to prevent these tough complications. This is exactly what fuels each and every member of the Covalon team every day. It's our job to accelerate the adoption of Covalon's amazing technologies to help reduce these largely preventable complications. But don't just take it for me. Next, I'd like you to listen to a key opinion leader named Dennis Wu. Dennis is a registered nurse and an expert interventional vascular access specialist and respected educator with international influence. Licensed to practice in 7 states, Dennis inserts all forms of vascular access devices and shares his knowledge broadly through professional societies and modern media platforms with the aim of advancing vascular access practice across all specialties and promoting patient safety. I'm going to play a video that Dennis recently recorded that I think is a good demonstration of the difference that Covalon is making to patients and the clinicians who treat them. [Presentation]

Wow, so inspiring to me to be able to work with Dennis and colleagues like him, key opinion leaders like him to improve the care that they provide to patients every day. I really wish that all of our current or future shareholders could be present in meetings that my team and I are able to attend with our customers. It's so incredibly motivating to hear them talk about the difference that Covalon products have made in their patients' lives. And we'll continue to share vignettes like Dennis' and other clinician and patient stories in future meetings. And it isn't just the clinician and patient side of things that recognize the importance of preventing complications and delivering treatment free of pain and suffering. We are seeing it show up on the provider radars as well. In fact, as you can see here in one example, 2 weeks ago, the Hospital Corporation of America, or HCA, which is one of the largest integrated delivery networks in the U.S. with over 180 hospitals, they recently made their executive bonus program public. And you can see with the quality metrics component that makes up 20% of their executive bonus program, about 1/3 of that piece of the bonus is on quality metrics related to infection and sepsis. 30% is around broader complications and mortality. And then almost half of that at 40% is on the overall care experience. And we know for a fact that the process of inserting, maintaining and removing an IV catheter can have a huge impact on the patient satisfaction scores for a hospital. All 3 of these areas of focus are clearly ones where Covalon offers a significant benefit. It's absolutely fantastic to have this kind of alignment where executive compensation of our customers is aligned with improved patient outcomes and experiences and even more exciting for us here at Covalon when those areas are smack dab in the middle of what we're focused on. And now moving into the next part of the presentation. I want to highlight 5 really important elements that I think form the basis of the investment thesis for Covalon. First, our customers and the patients they serve. The clinical problems facing these groups are significant, and we help solve them via our differentiated and protected products. I've highlighted some of these challenges already today, and you'll learn more in a couple of slides as well. Second, there are some key trends taking place in the spaces we play in today that have favorable impact to Covalon. One big one around an increase in preventing complications on peripheral IV catheters. Well, I'll speak to that in a little more detail towards the end of today's presentation. And on the competitive front, a number of our larger competitors are distracted, whether it's reorganizations coming out of spin-off, activist investors, gearing up for IPOs, quality issues. It's a long list of distraction factors. Third, we've turned the company around financially in the past 12 months from losing money for 9 straight quarters and burning through cash to 3 -- sorry, 4 straight profitable quarters, including our Q1 of 2025 and double the cash we had more than a year ago. We're a much stronger company today than we were a year or 2 ago, and we'll cover this in more detail later. Fourth, we're a small fish in a big pond. Now in my career, I've been all sorts of fishes and all sorts of ponds, and I am thoroughly convinced that the small fish big pond is a really enviable position to be in. There's just so much room for growth product-wise and geographically. And as a smaller fish, we can be super agile and responsive to our customers and drive growth well above the underlying markets that we participate in. And fifth, we have a strong experienced team that is focused on accelerating our growth, and I'll close this presentation with a little more on this front. I'd like to now go a little deeper into 2 of our biggest areas of focus as a company, our Advanced Wound Care consumables business and then our Vascular Access and Surgical consumables business. So going deeper into Advanced Wound Care, huge, huge challenges here. And I apologize for the tough to look at picture, but this is the reality that our clinical customers are facing. And even more important, this is what patients have to live with. I've been in dozens of wound clinics all over the world in my career. And I can tell you, while this is on the tougher side of things as wound goes, wounds go, I've also seen a lot of chronic wounds that were way worse than this one. The challenges here are many, but they do include a growing prevalence as the population ages longer and longer, high infection rates and without proper treatment, really tough outcomes, amputation, social sigma and sadly sometimes death. Our Covalon solution. We have a great product offering here on our collagen dressing that helps to accelerate wound healing and allow patients to get back to a high quality of life. We have 2 different products, one product family that has silver as an active for antimicrobial benefit and then a second product family without the silver. The broader advanced wound care market, it's a big one, several billions of dollars per year in revenue, and it's been growing at a pretty decent rate in the high single digits the past few years. We take this business -- we take this product to market in the U.S. through a handful of strategic partners who actively market and sell our product in partnership with us to their clinical customers. And this is a business for Covalon that has more than quadrupled between 2020 and 2024, clearly winning in the market. And we win via a couple of different ways. First, our product is highly differentiated. It has a patented and unique formulation, which helps to jump-start stalled wounds and jump-start that healing process. We've had proven success with millions of patients around the world, and that has given our customers a lot of reassurance as to the efficacy and dependability of the product. And we also feel like our product slots in really well in the price versus performance ratio, a great product at a fair price. And then shifting to the Vascular Access space, again, some really tough clinical challenges, different than wound care, but equally tough, if not more so. Bloodstream infections are a really big challenge, largely preventable, as I talked about earlier, but still way too common, more than 0.5 million Americans each year. We'll go a little deeper on this at the end of the presentation. Surgical site infections as well. You go in for a surgery, it's supposed to fix you up, not cause further issues, but all too often that isn't the case. And our clinical customers are also desperately trying to achieve the job they have to do while preventing skin damage and trauma, pain and suffering. So another really big challenge that they're faced with. Our portfolio of products here is very compelling. VALGuard, a very unique product that we're seeing a significant level of growing interest in. VALGuard protects IV line connection points from gross contamination. Here, think about this as you've got these IV lines that come into contact with different substances such as the patient's species or drill from their respirator or different types of tubes are hooked up to. Those substances often have harmful bacteria that can make its way into the line and then into the patient's bloodstream where it can lead to a bloodstream infection, but not if the patient is protected by VALGuard, which serves as a barrier to that gross contamination. And then below this on the slide, 3 products that all feature a similar gentle-to-skin silicone adhesive, IV Clear, CovaClear and SurgiClear, allowing clinicians to do the job of either securing and protecting the IV catheter or providing a covering for the patient's incision site following surgery. But then one of the big differentiators here is that the gentle-to-skin silicone adhesive allows the dressings to be removed while not causing skin drama or damage upon removal as is common with more traditional products like Dennis alluded to with the Acrylate adhesive. Both IV Clear and SurgiClear also feature our dual-action synergistic antimicrobials, Chlorhexidine and Silver built right into the silicone adhesive. And here, another big market that we play in, billions and billions of dollars spent today. And the overall space is growing roughly in line with med tech in general at mid-single digits. But over the past 3 years, we've been consistently growing our business at a compounded annual growth rate that's 7 to 10x higher than the market growth rate, clear validation that our solutions are winning in the market and giving us strong conviction that there's a lot of future growth here because we just barely scratched the surface with these products. We win via the strength of our products, our differentiation and value propositions are really resonating with customers. We also have a strong focus on our higher return on investment call points like pediatrics and oncology and a very simple but effective sales strategy that I'll cover in depth on the next couple of slides. Here, I want to provide a little more visibility to our U.S. Vascular Access and Surgical consumables business, which is a smaller portion of our revenues today, but an important area of focus for Covalon. And as I shared just a minute ago, growing very rapidly, about 7 to 10x faster than the underlying market growth rate. In 2024, the U.S. Vascular Access and Surgical consumables team had a high focus on maintaining continuity with our largest and most important hospital customers as we are just emerging from some changes to our selling team. And the team did a stellar job here. We maintained all but 1 of our top 50 hospital accounts from 2023, and the one loss was more of a portfolio discontinuation decision. So some really solid execution on the retain. And our #2 priority was to grow revenue at our existing accounts, increase the usage of products we already had adoption of, cross-sell to new products into play at the account. And in many cases, this meant introducing a new Covalon employee to the account, rebuilding some relationships or whatnot. And here, also a ton of success. We were able to grow our revenue in our top 50 hospital accounts from 2023 by 55%. And then our third selling priority of 2024 was to add new customers to the mix. And here, we had a solid outcome of adding 66 new hospitals to the Covalon family, which was a big increase from a year ago. So a lot of success here even in a year with a lot of change. We're actually going to skip this slide, Saleha, and we're going to cover that in a future meeting. And so a little bit of more color on some of our products and how we go about growing our business in the rearview mirror over the next couple of slides, I'd like to speak to the outcomes, results and highlights of fiscal 2024 and during the past 12 months. So starting with some of the highlights. Very exciting news. We talked about this a tiny bit in our earnings call about a month ago, but our VALGuard product being approved for system-wide usage at one of the largest Integrated Delivery Networks or IDNs for short in the U.S. This health system has more than 50 individual hospitals under its wings. And the approval is key to enable quicker and deeper penetration of the system. And we don't view this as a one and done. We also have VALGuard, IV Clear and SurgiClear products under trials for similar approvals at 2 other large IDNs. These system-wide approvals don't guarantee the business at the individual hospitals that form the IDN, but it is a key enabler to success, opens doors and accelerates the sales process. And then a bit of a broader highlight. Over the past 12 months, we've been driving a much greater focus around market development. We'll talk about this in a couple more slides as well, but this is an area where we've made a ton of headway in the past year. We've collaborated with key hospitals to advance 2 separate clinical evidence studies with customers that are eager to share the results of their research with the broader medical community. We're working closely with the study sponsors who are pursuing publication in peer-reviewed journals targeting later this year. And we're also actively engaging with clinical researchers on new and exciting opportunities for collaborative evidence generation. We've got a robust hopper of [ Evgen ] activities, and the team is very energized on this front. And then shifting to the execution focus, a bit of a kind of deeper dive from the last slide. But if you look at the 30 largest children's hospitals in the United States, these are a huge area of focus for us. We're in the majority of these accounts, but not all, not yet at least, that is. So we're in about 2/3 of these accounts. And in fiscal year 2024, at 15 of these accounts, we grew our revenue by 50% or more. Think about that. In a market that's growing roughly 5% with our strong focus and execution, we were able to grow our revenues at more than 10x the market growth rate at more than half of the 30 largest children's hospitals. There isn't another company out there in the spaces we play in that are delivering results like this. It's super exciting. And then just in the past 2 weeks, we're very excited to share that we signed a new strategic distribution agreement with Paul Hartmann USA for our collagen products in the U.S. market. We've partnered with Paul Hartmann USA for a number of years. And so it's very exciting to be able to continue this strong collaboration to continue to bring our amazing collagen products to the U.S. market, where collectively between Paul Hartmann USA and Covalon, we can help more patients achieve the outcomes that they're looking for. And then looking at the whole of our fiscal 2024 year, an amazing job by our operations team. With a big surge in demand from our collagen partners, we challenged our teams to a huge scale up in production in 2024, and they delivered. We more than quadrupled our internal production output in '24 compared to '23, and this great work directly drove a significant improvement in margins. And last but not least, we saw great recognition for our overall performance as a company on the 2 exchanges that Covalon stock trades on. A month or so ago, we were very fortunate to be named both the TSX Ventures Exchange top 50 company as well as an OTCQX Best 50 company, celebrating our outstanding performance in 2024. Great recognition for Covalon and the work we've done and really a huge thank you to all of our investors on the call today for your strong support as we turn around Covalon here in the past year and a bit. Turning to financial metrics and highlights. On the revenue side, really strong growth in '24 allowed us to crack over $30 million in revenue. And really, when you look at our primary area of focus around the U.S. medical consumables business, that includes both our wound care our collagen products as well as the Vascular Access and Surgical piece. We grew that focus area by more than 60% last year to more than $25 million, driven by strong growth on both sides of the business there. On margins, we've seen a steady expansion up since 2022 and landed the year north of 60%, which is above most of the other players in medical consumables. This was largely driven by benefits from the in-sourcing and strong cost-out efforts there as well as product and geographic mix benefit. Operating expenses were down quite a bit, a decrease of more than $2 million from 2023 on a much bigger revenue number. So on a percent of sales basis, more than 1,600 basis points reduction from '23, truly a case of doing a lot more with a lot less. And then pivoting to the income line, we reversed 9 straight quarters of losses by posting 3 quarters of positive income in '24 and then adding to that here in Q1. So 4 straight quarters of positive income. In FY '24, this was more than a $7 million turnaround from the prior year. And then in terms of cash, we stopped the cash bleed from the prior several years in the middle of FY '24 and then started generating positive cash flow from our business. In September, our cash position was helped out by a $5.5 million increase in September as we saw a nearly 100% redemption from our warrant exercise. We ended the fiscal year with almost $17 million in cash, which is what you see here on the chart. And as we reported a few weeks ago, we ended December with $17.5 million in cash. We're very fortunate to be in the financial position that we find ourselves in. It took a lot of hard work over the last couple of years, and it's important because it gives us a lot of flexibility for the future. We've already started to sorry -- we've already started to deploy some of this cash into CapEx to drive cost out of our operations. We've also initiated work on the M&A front and want to make sure that we have the financial flexibility to be opportunistic if the right opportunity emerges to do a 1 plus 1 equals 6 type of transaction. And for sure, constantly assessing with Board members on other potential uses for our cash. And shifting to the future, so much more we can accomplish in the next year and beyond. So what are some of the key actions that are a big part of our 2025 focus? The elements that you see on this slide don't represent our plan nor the entirety of focus for the future, but they're super critical actions that I know will enable the bright Covalon future that we all believe is achievable. The first area is around our growth-focused commercial advancement. We went a little deeper in this last quarter, but really how can we transform our commercial approach, accelerate our growth to get to greater scale, delivering impactful tools and content in new ways, leveraging new technologies to accelerate demand generation, put our team members in the best possible position to succeed with customers. Also included in this commercial advancement work is action that we've been taking to accelerate our Canadian business. There really is no good reason why Canadian patients shouldn't benefit from the same amazing technologies that patients in the U.S. and other countries benefit from. And we do feel that the current Canadian pride movement has benefits for one of the few Canadian-based med tech companies. So we've been accelerating our Canadian plans as we've gone along here. Second is around accelerating our market development activities. This is a cornerstone of every successful large and small medical device company that I've seen in my past. And when you boil the market development in medical device context down to its basics, it's really about educating clinical customers about the problem. This could be about medical adhesive-related skin injury, bloodstream infections, wounds that won't heal properly, whatever, and then demonstrating that Covalon technology helps to solve the problem. It's also about building relationships and generating clinical evidence and engaging with key opinion leaders. This is really important work. And beyond what I've shared on this front a few slides ago and right now, I do look forward to going a little deeper in this area during our Q2 earnings call in May. And third, innovation and business development. While we're very focused and excited about the products and technologies we have today, we also have a large hopper of opportunities to advance around new products, new uses for existing products and inorganic actions such as partners, mergers and acquisitions and those types of activities. In 2025, we've been accelerating our activities in this area. We feel it's very critical for our future. And then in order to enable this growth to be fulfilled, we'll be optimizing and evolving our operations. We made a lot of headway in 2024, a big area of focus here in 2025 and investing in automation and other manufacturing enhancements to drive waste and cost out of our production process. We're also working to simplify and streamline our supply chain and all of these activities and many more will be supported by the improved quality systems and processes that we made happen in 2024. And I'm going to close with a slide that I hope provides you with as much excitement for the future as it does me. In the Covalon investment thesis, one element was around favorable trends in competitive environment. And this is an example of one of those favorable trends. This is all about an evolving and expanding market to help prevent complications associated with peripheral IV lines. To fully grasp this, it helps to know the 2 major categories of IV lines, central lines, which you can see on the left side and peripheral lines on the right. Most people on this call have probably had a peripheral IV catheter inserted in them at some point in their life. It's one of the most common medical procedures done in the hospital, something like 90% of inpatients will have one. A central line catheter is more invasive and less frequent, typically used on pretty sick patients in the ICU, oncology patients in that type of scenario. But one thing that both of these IV line types have in common is that they're a big source of bloodstream infections for patients. Essentially, nasty microbial bugs find their way into the patient's bloodstream and cause an infection, which can lead to a patient going septic and in some cases, die. So what you'll see here from the blue, yellow and red dots on the charts are that there are a lot more peripheral lines used each year than central lines, 200 million versus about 10 million. And for a variety of reasons, the risk of developing a bloodstream infection from a central line is higher than it is from a peripheral line. But even though the risk of a bloodstream infection is much lower from a peripheral line because there's so many more peripheral lines inserted each year, about 20x as many, the total number of bloodstream infections from peripheral lines is believed to be even higher than from central lines. And the mortality rates are pretty similar. Your body really doesn't care if the bugs that come into your bloodstream came from a central line or a peripheral line. So now the next bit of information is super critical. For the past 15 years, there's been a huge focus on reducing central line associated bloodstream infections known as CLABSI. Each year, hundreds of millions of dollars are spent on consumables to prevent these CLABSI, things like antimicrobial IV dressings, line connector and port protectors, skin preps, things like that. And Covalon has definitely benefited from this investment. The U.S. government through Medicare and Medicaid has put in place significant financial penalties to hospitals for CLABSI that take place there. They view them as largely preventable, never events, so to speak. And with those financial levers and the hundreds of millions of dollars spent on prevention consumables, the number of CLABSI have reduced down a fair bit. Now on the other hand, bloodstream infections from peripheral lines or CLABSI, as they are known, have not had the same type of financial penalties. And it follows, they haven't had the same amount of focus. or investment by hospitals on reducing these infections. But the focus is definitely changing and it's accelerating. We're seeing this show up in clinical practice guidelines, in scientific meetings on the podium or in educational sessions. And we're also seeing a lot more clinical surveillance to understand the scope of the problem. And all of this is leading to more customers investing more and more to protect peripheral lines. But the biggest potential change has been laid out by CMS. This is the Center for Medicare and Medicaid Services, and that is completely changing how bloodstream infections are categorized. The potential future shift essentially says, "Hey, we don't really care where the bloodstream infection came in from a central line or a peripheral line. They're all really bad, and we're going to treat them the same. And this change in surveillance is known as a quality metric called Hospital-Onset Bacteremia and Fungemia or better known as HOB for short. This proposed HOB quality metric received a very positive recommendation from an external independent review in early 2023 and is currently being reviewed by CMS. So why is this a big deal? And why am I spending time on it? Why is it a big deal for Covalon? If this HOB metric becomes policy, bloodstream infections from central lines and peripheral lines would be treated equally from a financial penalties front. And there is widespread agreement that this would massively change the clinical practice around preventing peripheral line-associated bloodstream infections. We likely won't get to the same level of prevention spend per line. But even if we got just halfway there, it would represent an almost $2.5 billion market opportunity. And why does this matter for Covalon? Well, we believe Covalon is very strongly positioned to help customers prevent peripheral line complications with our VALGuard product, our IV Clear and our CovaClear products. And really, when you think about it, as a patient, I would certainly want to be protected here on a peripheral line. 46,000 deaths in a year for something that is largely preventable with existing technology is way too many. This could be one of our parents, one of our kids or even us. If you take the same data here and apply it to air travel, 46,000 deaths on 200 million PIV insertions, peripheral IV insertions would be the equivalent to 200,000 passengers dying every year from airplane crashes. Still a low probability given the high numbers. But do you think if every year, 200,000 people died in airplane crashes that the U.S. government might invest a few hundred million or a couple of billion dollars to present this? Of course, they would. Unfortunately, this is not a mass casualty type event. It's a one-by-one situation. It doesn't really make the news the way it probably should. Great that we're seeing this increased prevention of peripheral lines show up with our customers and in the broader ecosystem, and we remain hopeful that CMS will continue to advance this new HOV quality metric to help prevent unnecessary infections and death. Bottom line, huge opportunity for Covalon, one that we are aggressively developing, advancing and executing on and even better if CMS enacts the change that they've been signaling. So to sum up, I'll come back to our investment thesis and close down here. I shared this at the beginning of the presentation. I think I've touched on each of these elements to hopefully give you a feel for where things are at. I'm extremely proud of the work that we've done turning Covalon around here in the past year and could not be more excited for our future growth prospects and everything we're doing to achieve these. I think we're very uniquely positioned and focused to win in the current and future environments that we play in. Of course, our growth won't be linear given the size and spaces we play in. There will be ups and downs. But I know we've got a bright future ahead. That's why I came to Covalon for the multiyear growth opportunity that I know this company can achieve and to make a difference with the millions of patients like you, like me, like my family that we know Covalon can make a big difference for. So with that, we're going to transition into Q&A.

For our questions, we'll start with questions that are typed into the Q&A feature here online. We'll take about a 30-second pause to allow me to grab a drink of water, and then we'll just dig into the questions going down the list. Okay. It looks like -- and maybe I have to refresh this. We have one question from [ Ben Harrison ]. Are you expecting any immediate and long-term impact on growth as a consequence of the U.S. trade tariffs imposed on Canada, particularly with the [ Hartmann ] contract? For sure, I'd say this is a very fluid situation. I had a town hall with our team yesterday, and one of my key messages was that we control what we can control. And I think it's super relevant here. I don't personally have the year of President Trump, a little outside of my control, but we do have a lot of things that we can do to control our destiny here. The best example is that we've accelerated our focus and investments on reducing costs. So reducing your cost is always a good play no matter what's going on. But in a potential tariff-heavy world, it's even more important. We've deployed some capital, a small amount of capital to help with that. And just this last week, we hired on a new manufacturing leader with deep experience at Boston Scientific and in the pharma space. We've also taken some actions to mitigate about half of the potential Q3 tariff impact. If it was to come to be here in the coming weeks. More we can do as well. We have a playbook and some of the actions are dependent on how things play out here. So that's the story on tariffs. I think we've talked about it in the past as well. There certainly could be -- unmitigated could be a couple of hundred basis points of margin impact this year, but we feel we've mitigated a good chunk of that already and do have opportunities. So I don't see this as an impact on growth. If anything, we're working to minimize the margin impact. We have another question from Alex [indiscernible] . And his question is, what percentage of hospitals in the U.S. have you established commercial relationships with? Do you expect to expand your customer base in '25 and '26 compared to 2024? We've really scratched the surface. So when you look at the total number of hospitals in the U.S. that we've got established relationships with, I don't know the particular number off the top of my head, but it's definitely closer to 10% than 100%. And we tend to have a higher -- given our focus, we tend to have a higher kind of penetration percentage at children's hospitals, pediatric hospitals, still in good shape with acute care hospitals, but the pediatric side has been our highest return on investment. And so on the expand your customer base, absolutely, absolutely. The hospitals we acquired last year, we acquired 66 new hospital customers. We're off to a good start this year. I think the number was about 20. And so yes, we absolutely expect to expand our customer base. It's a big part of our sales playbook, and we're already seeing that in '25, did a good job of it in '24, and it's super critical. There's another question here around the revenue chart from David [ Plum ], and we've kind of advanced into the Q&A side. We will make -- we will make all these presentation slides available on our website. And so if there's a specific question you have on that, we'd be happy to follow up with you there. I'm going to refresh our list. And Alex asked the question. Are all of your product offerings experiencing year-on-year growth? Are some contracting while others show significant growth. And the answer there is, yes, the businesses that we're focused on are have absolutely been growing. And so when you look at our 2024, we talked about the growth of the U.S. Collagen business, right? That was a business that's quadrupled from 2020 to 2024. The '21 to '24, our CAGR is over 30%. And the Vascular Access side, so that includes IV Clear, CovaClear, SurgiClear and VALGuard, that's been growing at more than 50% the last 3 years CAGR. We do have other products that are not as big a part of our focus as they were in the past. So that might be products like CovaWound. But the products that we are focused on are absolutely driving really strong growth, and we've seen that here through 2024. And we have very strong growth expectations here for the next few years as well. I think that marks the end of questions. So thank you very much. At this point, I don't know, do we have the ability to open the lines? Are there any verbal questions? I will take that as a no. And so I guess we'll wrap up here. So on behalf of management, our Board of Directors and our employees, I'd like to take the opportunity to thank everyone for attending the meeting today. I'd particularly like to thank all of our shareholders for their commitment and continued support. I look forward to speaking with as many of you as possible over the coming months and reporting on our strong progress. And I'll close with the way I ended this presentation. I am super excited for the future. I hope I've conveyed that. We have an amazing opportunity in front of us here. And every day, myself and members of our team wake up super energized to go out and make a difference, expand the use of Covalon's amazing products and go from there. So we look forward to your attendance again next year. Thank you, and have a great day.

Thank you for attending today's meeting. You now disconnect.