SAN DIEGO, May 16, 2023 (GLOBE NEWSWIRE) -- Salona Global Medical Device Corporation (“Salona Global”, “SGMD” or the “Company”) (TSXV:SGMD) today announced it closed its acquisition of Arrowhead Medical, LLC (“Arrowhead”), a recovery science medical device sales and distribution business expected to add $4.0 million in annual revenue to the Company, with an estimated 32% in gross profit. The Company also reported financial highlights for the first quarter of 2023, ending March 31, 2023, and provided details for its earnings call scheduled for 5pm EST today.
Acquisition of Arrowhead and Biodex Integration Update
The Company closed its acquisition of Arrowhead, a recovery science medical device sales and distribution business, on May 15, 2023. This addition to Salona Global is projected to add $4.0 million in revenue annually with an estimated 32% in gross profit. Based on its unaudited financial results, Arrowhead’s sales in calendar year 2022 were approximately $3.5 million, with gross profit of approximately 32%. The terms of this transaction are described in more detail below. Since the Company’s acquisition of its Mio-Guard business in March 2022, Mio-Guard has generated strong revenues and has grown its sales by more than 25% in calendar year 2022 compared to calendar year 2021.The Company intends to integrate Arrowhead with the Mio-Guard business unit in an effort to leverage the portions of the businesses that are differentiating and expand the portions that are complimentary. We expect to utilize customer lists for all products in the Salona Global family of companies, including Biodex Medical Systems, Inc. (“Biodex”), and leverage pricing from common suppliers.
The Company closed its acquisition of Biodex, consisting of its physical medicine (rehabilitation) business, on April 3, 2023. The integration plan of Biodex is on track and management has initiated a cross-selling strategy to offer Biodex products to the Mio-Guard database of customers and vice versa. The operational integration of the Biodex business remains on track as management focuses on back-office functions and begins to vertically integrate Salona Global manufacturing capabilities.
Q1 2023 Financial Highlights
The Company’s order book continues to be strong and has grown with the addition of the Biodex and the Arrowhead Medical businesses. The Company’s current order book backlog (defined below) is approximately $25 million.
“This quarter’s results reflect an improvement in profitability and gross margin from the previous quarters,” said Les Cross, Chairman. “We saw a slight increase in sequential revenues for the quarter as our focus was on closing the Biodex acquisition and preparing for the cross-selling initiatives between Biodex and Mio-Guard. In the current quarter ending June 30, 2023, we expect to see an increase in revenues as we add the Biodex products to our Salona family of products. I want to commend the team on a job well done with this transformative acquisition.”
“We are pleased to welcome the staff and customers of both Biodex and Arrowhead to the Salona Global family,” said Luke Faulstick, CEO. “We have ambitious plans to grow the Arrowhead Medical business in a similar fashion to how we have grown our Mio-Guard business. We plan to leverage the well-known global Biodex brand in the rehabilitation market and take advantage of the developed Biodex international and domestic sales and distribution channels to sell new Salona Global products in late stages of development, and to accelerate the sales of our broad existing product portfolio through a focus on cross-selling and improved customer service and sales approach. We look forward to finalizing our integration of these businesses and moving on to further acquisitions. We also continue to work to replace our current short-term debt with the goal of extending the maturity dates for such debt.”
Terms of Arrowhead Acquisition
Pursuant to the Stock Purchase Agreement entered into on May 15, 2023 (“SPA”), the purchase price for the ownership interests in Arrowhead Medical, LLC consisted of the issuance of 1 million shares of its Class A common stock to the seller, the assumption of approximately $250,000 in bank debt under Arrowhead’s existing asset based line of credit, and an agreement to pay the seller a contingent earn-out equal to one share of Class A common stock for each $1 of EBITDA generated by the Arrowhead business over the two year period following the closing date, not to exceed a maximum of 2 million Class A shares. The Class A shares are convertible into the Company’s Common Shares on a 1 for 1 basis, subject to a) an agreement by the seller not to convert Class A shares to Common Shares if at any time the seller owns more than 500,000 Common Shares, and b) a restriction in the terms of the Class A shares that restricts the seller from converting the Class A shares to Common Shares if at any time the seller owns more than 9.9% of the outstanding Common Shares.
Earnings Call
On Tuesday, May 16, 2023, at 5:00 p.m. (Eastern Time), Executive Chairman Les Cross, CEO Luke Faulstick, and CFO Dennis Nelson will hold an earnings call (see details below) to discuss the first quarter financial results and provide a business update.
First Quarter 2023 Earnings Call
Toll Free Dial In: +1 (800) 245-3047
Direct Dial/International: +1 (203) 518-9765
Conference ID: SALONA
Full Financial Statements
Unaudited Interim Condensed Consolidated Statements of Operations and Comprehensive Loss and Unaudited Interim Condensed Consolidated Balance Sheets are included below. The full financial statements for the three months ended March 31, 2023 and related management discussion and analysis (in the form of Quarterly Report on Form 10-Q) was filed on May 15, 2023 with the United States Securities and Exchange Commission and is available at www.sec.gov, and with the securities regulatory authorities in certain provinces of Canada and available at www.sedar.com.
For more information please contact:
Luke Faulstick
Chief Executive Officer
Tel: 1 (800) 760-6826
Email: This email address is being protected from spambots. You need JavaScript enabled to view it.
Currency
Unless otherwise specified, all dollar amounts in this press release are expressed in Canadian dollars.
Non-GAAP Measures
This press release refers to “order book backlog” and “Adjusted EBITDA” which are non-GAAP and non-IFRS financial measures that do not have standardized meanings prescribed by GAAP or IFRS. The Company’s presentation of these financial measures may not be comparable to similarly titled measures used by other companies. These non-GAAP financial measures assist the Company’s management in comparing its operating performance over time because certain items may obscure underlying business trends and make comparisons of long-term performance difficult, as they are of a nature and/or size that occur with inconsistent frequency or relate to discrete acquisition plans that are fundamentally different from the ongoing operating plans of the Company. The Company’s management also believes that presenting these measures allows investors to view the Company’s performance using the same measures that the Company uses in evaluating its financial and business performance and trends.
“Order book backlog” as used in this press release is calculated as committed customer orders to deliver products and services at a future date.
“Adjusted EBITDA” is defined as net loss excluding interest expense, provision for income taxes, depreciation of property and equipment, amortization of right-of-use asset, amortization of intangible asset, foreign exchange (loss) gain, other income, provision for impairment, change in fair value of contingent consideration, transaction costs, and stock-based compensation.
The following table provides reconciliation between net income (loss) and Adjusted EBITDA:
| 3 months ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Net Loss | $ | (1,662,744 | ) | $ | (593,634 | ) | ||
| Interest Expense | 278,086 | 120,454 | ||||||
| Provision for income taxes | 36,250 | (114,110 | ) | |||||
| Depreciation of property and equipment | 184,264 | 69,123 | ||||||
| Amortization of right-of-use asset | 381,833 | 86,425 | ||||||
| Amortization of intangible asset | 350,546 | 214,981 | ||||||
| Foreign exchange gain (loss) | (1,528 | ) | 4,173 | |||||
| Other income | (133 | ) | (45 | ) | ||||
| Provision for impairment | - | 5,520,522 | ||||||
| Change in fair value of contingent consideration | 195,300 | (5,853,701 | ) | |||||
| Transaction costs | 458,771 | 1,199,120 | ||||||
| Severance Expense | 106,100 | - | ||||||
| Stock based compensation | 315,524 | 438,569 | ||||||
| Adjusted EBITDA | $ | 642,269 | $ | 1,091,877 | ||||
Additional Information
Neither the TSXV nor its Regulation Services Provider (as that term is defined in the policies of the TSXV) accepts responsibility for the adequacy or accuracy of this release.
Readers are cautioned that the financial information regarding Arrowhead disclosed herein is unaudited and derived as a result of unaudited financial information as well as the Company’s due diligence.
There can be no assurance that any further acquisitions by the Company will be completed as proposed or at all and no definitive agreements have been executed. Completion of any transaction will be subject to applicable director, shareholder, and regulatory approvals.
Certain statements contained in this press release constitute “forward-looking information” within the meaning of the Private Securities Litigation Reform Act of 1995 and applicable Canadian securities laws. These statements can be identified by the use of forward-looking terminology such as “expects” “believes”, “estimates”, “may”, “would”, “could”, “should”, “potential”, “will”, “seek”, “intend”, “plan”, and “anticipate”, and similar expressions as they relate to the Company, including: the expected revenue and gross margins of the Arrowhead business post-closing; the expected success of the Company’s cross-selling initiatives involving the Arrowhead, Biodex, Mio-Guard and other Company products; the success of the integration of the Biodex and Arrowhead businesses into the Company’s other businesses and operational processes; the expected addition of customers from the Arrowhead and Biodex businesses; the Company expecting an increase in revenues in the quarter ending June 30, 2023; the Company completing additional acquisitions; and the Company successfully replacing its current short-term debt with an extended maturity date.
All statements other than statements of historical fact may be forward-looking information. Such statements reflect the Company’s current views and intentions with respect to future events, and current information available to the Company, and are subject to certain risks, uncertainties and assumptions, including: the Arrowhead business achieving results at least as good as historical performances; the financial information regarding the Arrowhead business being verified when included in the Company’s consolidated financial statements prepared in accordance with generally accepted accounting principles in Canada; and the Company successfully identifying, negotiating and completing additional acquisitions. Salona cautions that the forward-looking statements contained herein are qualified by important factors that could cause actual results to differ materially from those reflected by such statements. Such factors include but are not limited to the general business and economic conditions in the regions in which Salona operates; the ability of Salona to execute on key priorities, including the successful completion of acquisitions, business retention, and strategic plans and to attract, develop and retain key executives; difficulty integrating newly acquired businesses; ongoing or new disruptions in the supply chain, the extent and scope of such supply chain disruptions, and the timing or extent of the resolution or improvement of such disruptions; the ability to implement business strategies and pursue business opportunities; disruptions in or attacks (including cyber-attacks) on Salona’s information technology, internet, network access or other voice or data communications systems or services; the evolution of various types of fraud or other criminal behavior to which Salona is exposed; the failure of third parties to comply with their obligations to Salona or its affiliates; the impact of new and changes to, or application of, current laws and regulations; granting of permits and licenses in a highly regulated business; the overall difficult litigation environment, including in the United States; increased competition; changes in foreign currency rates; increased funding costs and market volatility due to market illiquidity and competition for funding; the availability of funds and resources to pursue operations; critical accounting estimates and changes to accounting standards, policies, and methods used by Salona; the occurrence of natural and unnatural catastrophic events and claims resulting from such events; www.sec.gov, and with the securities regulatory authorities in certain provinces of Canada and available at www.sedar.com. Should any factor affect Salona in an unexpected manner, or should assumptions underlying the forward-looking information prove incorrect, the actual results or events may differ materially from the results or events predicted. Any such forward-looking information is expressly qualified in its entirety by this cautionary statement. Moreover, Salona does not assume responsibility for the accuracy or completeness of such forward-looking information. The forward-looking information included in this press release is made as of the date of this press release and the Company undertakes no obligation to publicly update or revise any forward-looking information, other than as required by applicable law.
| SALONA GLOBAL MEDICAL DEVICE CORPORATION | ||||||||
| Unaudited Interim Condensed Consolidated Statements of Operations and Comprehensive Loss | ||||||||
| 3 months ended | 3 months ended | |||||||
| March 31 | March 31 | |||||||
| 2023 | 2022 | |||||||
| Revenue | $ | 10,683,229 | $ | 8,668,415 | ||||
| Cost of revenue: | ||||||||
| Direct service personnel | 1,825,755 | 1,430,939 | ||||||
| Direct material costs | 4,426,091 | 3,715,608 | ||||||
| Other direct costs | 335,524 | 295,008 | ||||||
| Total cost of revenue | 6,587,370 | 5,441,555 | ||||||
| Gross profit | 4,095,859 | 3,226,860 | ||||||
| Operating expenses | ||||||||
| Selling, general and administrative | 3,875,214 | 2,573,552 | ||||||
| Depreciation of property and equipment | 184,264 | 69,123 | ||||||
| Amortization of right-of-use assets | 381,833 | 86,425 | ||||||
| Amortization of intangible assets | 350,546 | 214,981 | ||||||
| Total operating expenses | 4,791,857 | 2,944,081 | ||||||
| Net operating (loss) gain | (695,998 | ) | 282,779 | |||||
| Interest expense | (278,086 | ) | (120,454 | ) | ||||
| Foreign currency exchange gain (loss) | 1,528 | (4,173 | ) | |||||
| Other income | 133 | 45 | ||||||
| Provision for impairment | - | (5,520,522 | ) | |||||
| Change in fair value of contingent consideration | (195,300 | ) | 5,853,701 | |||||
| Transaction costs | (458,771 | ) | (1,199,120 | ) | ||||
| Net loss before taxes | (1,626,494 | ) | (707,744 | ) | ||||
| Provision for income taxes | (36,250 | ) | 114,110 | |||||
| Net loss | $ | (1,662,744 | ) | $ | (593,634 | ) | ||
| Other comprehensive loss | ||||||||
| Foreign currency translation (loss) gain | (42,443 | ) | 696,969 | |||||
| Comprehensive (loss) gain | $ | (1,705,187 | ) | $ | 103,335 | |||
| Net loss per share | ||||||||
| Basic and diluted | $ | (0.03 | ) | $ | (0.01 | ) | ||
| Weighted average number of common stock and Class A shares outstanding | 62,384,871 | 50,020,087 | ||||||
| SALONA GLOBAL MEDICAL DEVICE CORPORATION | ||||||||
| Unaudited Interim Condensed Consolidated Balance Sheets | ||||||||
| March 31 | March 31, | |||||||
| 2023 | 2022 | |||||||
| Assets | ||||||||
| Cash and cash equivalents | $ | 2,343,417 | $ | 1,928,464 | ||||
| Restricted Cash | 1,353,300 | - | ||||||
| Accounts receivable, net | 7,435,154 | 6,353,275 | ||||||
| Inventories, net | 6,693,780 | 8,102,626 | ||||||
| Prepaid expenses and other receivables | 321,423 | 216,489 | ||||||
| Total current assets | 18,147,074 | 16,600,854 | ||||||
| Security deposit | 565,739 | 566,198 | ||||||
| Long-term accounts receivable | 171,869 | 189,616 | ||||||
| Long-term prepaid expenses and other receivables | 273,602 | 441,025 | ||||||
| Property and equipment, net | 3,306,006 | 3,399,898 | ||||||
| Right-of-use assets, net | 7,763,724 | 7,781,300 | ||||||
| Intangible assets, net | 9,025,616 | 9,376,162 | ||||||
| Goodwill | 13,695,194 | 13,695,194 | ||||||
| Total assets | $ | 52,948,824 | $ | 52,050,247 | ||||
| Liabilities and stockholders’ equity | ||||||||
| Liabilities | ||||||||
| Line of credit | $ | 8,081,745 | $ | 5,162,711 | ||||
| Accounts payable and accrued liabilities | 6,122,494 | 6,641,181 | ||||||
| Current portion of debt | 198,274 | 195,489 | ||||||
| Current portion of lease liability | 964,971 | 847,253 | ||||||
| Other liabilities | 1,335,175 | 1,807,702 | ||||||
| Obligation for payment of earn-out consideration | 15,701,831 | 15,506,531 | ||||||
| Total current liabilities | 32,404,490 | 30,160,867 | ||||||
| Debt, net of current portion | 531,621 | 574,515 | ||||||
| Lease liability, net of current portion | 6,006,942 | 5,983,333 | ||||||
| Total liabilities | $ | 38,943,053 | $ | 36,718,715 | ||||
| Stockholders’ equity | ||||||||
| Common stock; no par value, unlimited shares authorized; 54,151,709 shares issued and outstanding as of March 31, 2023 (December 31, 2022: 53,707,780) | 38,970,199 | 38,767,442 | ||||||
| Class A shares; no par value, unlimited shares authorized; 15,717,656 shares issued and outstanding as of March 31, 2023 (December 31, 2022: 3,403,925) | 11,097,512 | 1,800,064 | ||||||
| Common stock to be issued: 147,400 shares to be issued as of March 31, 2023 (December 31, 2022: nil) | 47,168 | - | ||||||
| Class A Shares to be issued: 6,261,340 shares to be issued as of March 31, 2023 (December 31, 2022: 19,019,000) | 4,696,005 | 14,264,250 | ||||||
| Additional paid-in-capital | 8,472,908 | 8,072,610 | ||||||
| Accumulated other comprehensive income | 1,646,009 | 1,688,452 | ||||||
| Deficit | (50,924,030 | ) | (49,261,286 | ) | ||||
| Total stockholders’ equity | $ | 14,005,771 | $ | 15,331,532 | ||||
| Total liabilities and stockholders’ equity | $ | 52,948,824 | $ | 52,050,247 | ||||
| Last Trade: | C$0.13 |
| Daily Volume: | 0 |
| Market Cap: | C$7.480M |
November 25, 2024 | |
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