Covalon Q3 FY’25 slides: Sequential growth amid year-over-year revenue decline

Introduction & Market Context

Covalon Technologies Ltd. (TSXV:COV) (OTCQX:CVALF) presented its third-quarter fiscal 2025 earnings on August 21, 2025, highlighting sequential revenue growth despite year-over-year challenges. The medical technology company, which specializes in infection prevention products and advanced wound care solutions, reported mixed financial results while emphasizing its strong market position in US healthcare facilities and strategic expansion initiatives.

The company’s stock closed at $2.88 on August 20, 2025, up 3.23% ahead of the earnings presentation. Over the past year, Covalon’s shares have shown significant appreciation, with the stock trading well above its 52-week low of $2.06, though still below its 52-week high of $4.30.

Quarterly Performance Highlights

Covalon reported Q3 FY’25 revenue of $8.4 million, representing a 10.4% sequential increase from the previous quarter’s $7.6 million. However, this figure marks a 9.2% decline compared to the $9.2 million reported in the same quarter last year.

The company’s gross profit for Q3 was $3.9 million (46.5% margin), down from $5.4 million (58.9% margin) in Q3 FY’24, representing a 28.3% year-over-year decrease. Management noted that Q3 gross profit was impacted by $830,000 of expenses related to "the destruction and provisioning for slow moving, obsolete or non-conforming inventory."

When adjusted for these inventory-related expenses, the company’s adjusted gross profit increased from $4.2 million (55.2% margin) in Q2 to $4.7 million (55.6% margin) in Q3, showing an 11.5% sequential improvement.

Adjusted EBITDA for the quarter was $0.9 million (10.6% margin), showing a 52.4% sequential increase from Q2’s $0.6 million, but still down from $2.4 million (25.8% margin) in Q3 FY’24. Earnings per share came in at $0.00, compared to $0.06 in the same quarter last year.

Despite these challenges, Covalon maintained a strong cash position of $18.1 million as of June 30, 2025, representing an $8.7 million increase compared to the same period last year.

Strategic Initiatives

A key highlight of Covalon’s presentation was its strong performance in the US Vascular Access and Surgical Consumables market. The company proudly noted that "8 of the 10 best US Children’s Hospitals trust Covalon" products, underscoring its credibility in the pediatric healthcare space.

Covalon reported 100% retention of its top 50 hospital customers from FY’24, with these existing customers generating 25% year-to-date revenue growth in FY’25. Additionally, the company acquired 65 new hospital customers in the past nine months, demonstrating strong market penetration.

The presentation highlighted recent achievements in clinical evidence generation, including a finalized publication of a VALGuard® Line Guard study focused on Central Line-Associated Bloodstream Infection reduction. This study, conducted by The Children’s Hospital at Montefiore, will appear in the Fall 2025 edition of the Journal of the Association for Vascular Access.

Covalon also unveiled a new use case and indication for its CovaClear® IV dressing, expanding beyond its standard application as a primary IV securement dressing to include use as a "mudflap" or cover dressing. This innovation opens a new market opportunity while providing significant savings on supplies costs and nursing time for healthcare facilities.

Detailed Financial Analysis

Looking at Covalon’s year-to-date and trailing twelve months (TTM) performance provides a more comprehensive view of the company’s financial trajectory. Year-to-date revenue reached $24.1 million, representing an 8.2% increase compared to the same period in FY’24.

On a trailing twelve-month basis (FY’24 Q4 – FY’25 Q3), Covalon generated revenue of $33.0 million, a 13.0% increase compared to the previous TTM period. The company’s worldwide product revenue has shown a three-year compound annual growth rate (CAGR) of 27%, indicating strong long-term growth despite quarterly fluctuations.

Operating expenses for Q3 FY’25 were $4.0 million (47.4% of revenue), essentially flat compared to the same quarter last year. Year-to-date operating expenses decreased by 4.9% to $11.5 million (47.7% of revenue), demonstrating the company’s focus on operational efficiency.

Forward-Looking Statements

Covalon outlined its focus areas for the remainder of 2025, including growth-focused commercial advancement, market development acceleration, innovation and business development, and operational optimization.

The company has tripled its innovation pipeline across three stages (prioritized and advancing, early-stage work, and ideas and concepts) and shifted from a sustaining-focused approach to a growth-focused strategy. Management also indicated significant external engagement looking at inorganic growth opportunities.

International expansion remains a priority, with new products registered and new distribution partnerships established across Canada, Brazil, Panama, Israel, and India. The company also highlighted its recent achievement of DTC (Direct-to-Consumer) eligibility for its stock, which makes buying and selling Covalon shares easier for US retail investors.

During the previous quarter’s earnings call, CEO Brent Ashton expressed confidence in the company’s trajectory, stating, "Covalon has never been in a stronger position than where we sit today." The Q3 results show a continuation of the sequential growth trend anticipated by management, though year-over-year comparisons remain challenging.

With its strong cash position, expanding customer base, and focus on innovation, Covalon appears positioned to pursue its multi-year growth strategy despite the near-term margin pressures and revenue fluctuations evident in the Q3 FY’25 results.

Full presentation:

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