The Evome Medical Technologies Q2 2024 financial results conference call. At this time, all lines are in listen-only mode. Following management's prepared remarks, we will conduct a question-and-answer session. In order to ask questions, please submit them via the questions/chat pane found in your control panel. As a reminder, you must be logged into the platform to access this feature. If at any time during this call you require assistance, please reach out via your questions/chat pane or email virtualmeeting@viewproxy.com. This call is being recorded today, Monday, August 19, 2024. I would now like to turn the conference over to Alyssa Barry, Investor Relations for Evome. Go ahead.
Thank you, operator. Good afternoon, everyone, and welcome to Evome's Q2 2024 conference call. This call is being recorded, and a replay will be made available on our website at evomemedical.com. I would like to remind everyone that today's discussion will include forward-looking information and forward-looking statements, future-oriented financial information, and non-GAAP measures regarding future events and Evome's future financial performance. These statements reflect management's views as of today only and should not be considered as representing views for any subsequent date. Except as required by law, Evome does not assume any obligation to update the forward-looking statements provided to reflect events that occur or circumstances that exist after today, many of which are beyond its control. These statements are also subject to material risks and uncertainties that could cause actual results to differ materially from expectations reflected in the forward-looking statements.
A discussion of these risk factors is fully discussed or referred to in the company's news releases or in Evome's disclosure documents filed on SEDAR+. During this call, reference will be made to certain non-GAAP financial measures. For information regarding these non-GAAP financials and a reconciliation to GAAP measures, please refer to the company's Q2 news release issued on August 12, and available at SEDAR+. Presenting on today's call is Mike Seckler, our CEO, and Gordon Bean, our CFO. I will now turn it over to Mike for his opening remarks.
Thank you, Alyssa, and good afternoon to everyone. It's a perfect time to update our shareholders on the state of Evome today. As a reminder, I joined the company as CEO at the start of the Q3 2023 . Last week, we posted our 2024 which marked my one-year anniversary. I assumed leadership of a business that was in a challenging situation. For five consecutive quarters, the business had no revenue growth, along with accelerated losses and dwindling cash. On top of that, there was a very large debt obligation that was short in duration, and there was concern regarding our ability to service it. Evome was certainly a turnaround situation that required immediate action with difficult decisions to be made.
I accepted the assignment because I believe the company has the core elements of success, meaning it had strong assets and brands, loyal and long-term customers who wanted our products, and creditors who were willing to work with us. Over the past year, my team and I have implemented a plan to reduce costs, increase revenue in the Biodex business unit, and establish new sales channels, restructure debt, reduce debt by selling non-core assets. That first phase of our plan is nearly complete. We've stabilized the business and have posted a positive EBITDA for three out of the last four quarters. At this point, I want to introduce our new Chief Financial Officer, Gordon Bean.
He's been a tremendous asset since joining our company, and I'll hand over the call to him to review the highlights of the Q2 before I get into our new growth plan. Gordon?
Thank you, Mike. It's been a pleasure to be speaking with our investors today, and I also see the potential for this business to grow, generate increasing cash flows, and of course, to thrive. As for the Q2 , ending June 30, 2024, here are some of the financial highlights. Evome generated $10.5 million in revenue. This is. Of this, $6.1 million came from the core business, which is Biodex Rehab. That was $2.3 million, or 59%, in revenue growth over the prior quarter, Q1 2024. Evome also generated $3.3 million in gross profit. Of that, $2.3 million came from the core business. That was also $1.2 million, or 104% growth, over the prior quarter, Q1 2024.
More importantly, as was promised last quarter, Evome generated positive adjusted EBITDA in Q2 2024, reaching $421,000. This was an improvement of $1.7 million over the prior quarter, Q1 2024. It was also a $1.4 million improvement year over year with Q2 of 2023. Now, some of the highlights from the balance sheets. Last year, we had issues with dwindling cash. We finished the quarter with slightly more than $1 million in cash on hand. As well, we reduced our debt in the quarter by $2.7 million. $2.6 million of that was from acquisition debt, and $200,000 came from debt related to the company's credit line.
There was also an additional reduction of $900,000 to the credit line that was paid down in July of 2024, and we are targeting an additional $185,000 to be paid down this month. We plan to continue to use cash from operations as well as from the sale of Damar Plastics to reduce our total debt. Now, one of my main tasks when I joined as CFO was to shepherd the sale of Damar Plastics, with the proceeds earmarked to pay off our acquisition debt. We have acquisition debt of $15.1 million. I've looked at Damar from two angles. One, by preparing a discounted cash flow model, as well as through looking at market comparables for companies that are similarly situated.
We provided these analyses in the last press release and in our presentation, and under both, the total valuation we noted was north of $15 million. So we're all confident that we'll be able to eliminate our acquisition debt with the sale of Damar. That's our goal, and we're working towards that, starting at the end of the year. Our acquisition debt comes due in June of 2025, so this gives us ample time to make that preparation. As for our senior working capital debt, we're reducing that activity, and once we sell Damar, we're projecting about $2.7 million tied to our asset-based line, which is tied to our receivables and inventory. Which is interesting because our total inventory at the time should run around $8 million for AR and inventory.
So having that debt to the asset rate is a very healthy ratio that we're happy to present. On an annual run rate basis, our core Biodex industry is expected to generate annual revenues of $27.5 million, and a gross profit of $10.9 million, showing an Adjusted EBITDA of just over $2 million, $2.1 million. Now, the business is now stabilized, and it's serving as an excellent platform to drive and promulgate growth. So with that, I'll turn the call back to Mike to cover our future plans. Mike?
Thank you, Gordon. So demand for our Biodex products is very high around the world. Our Biodex System 4 line of products are simply the gold standard of isokinetic devices in the physical medicine market, and our technology is regarded as best-in-class globally. The Biodex brand is thirty years old and is very highly regarded and trusted. We also have over fifteen thousand customers in our database who we have delivered products to. This is the asset that is most attractive about Evome. It doesn't show on our balance sheet, but it has the potential to drive significant revenue growth with limited capital expenditures. It's at the center of our revenue growth plan. One challenge we have with our current Biodex product lineup is that it's capital intensive.
We can increase sales as we have demand, but with each order, we have to borrow cash to produce and carry receivables. The current product line is limited to five core products, all big products, all big dollars and capital intensive. But I've spent the last year getting to know our customers and understanding why they rely on us and what they need going forward. What I've learned was that they see Biodex as a quality, science-driven company, and that the Biodex name carries significant meaning to their end customers. This gives us a very unique opportunity to extend this brand to other products, and this is where the financial opportunity is so exciting. There are dozens of novel and innovative products in this market, and most of them are made and sold by small, undercapitalized business owners.
They have limited sales, and in most cases, no international or even domestic distribution. Additionally, they have no brand equity. As I started to reach out to these small businesses, they all understand the value of both our Biodex brand and our distribution capabilities. We've started to talk about white labeling their products with the Biodex brand and offering these products to our customers. And of course, we'd ensure we'd only in-license quality products that would build the Biodex brand, and we've started these discussions with several small companies. The model has great financial potential. We do not need capital to execute on this. The companies sell their products to us with the Biodex brand name. We sell it to our clients with a markup. Once we're paid, we pay the licensor. My goal is to identify several of these companies in bringing new products quarterly.
This will generate incremental revenue in 2025 with very little marginal cost, meaning most of the margin will fall to the bottom line, and we don't have to go further into debt to grow or raise any equity money either. Once we start selling these products, our revenues and profits should rise, and our share count should remain the same. This should be the recipe for creating shareholder value. Ultimately, that's the goal here. Namely, add revenue, grow profit without additional need for capital, using the Biodex name and selling to our 5000-15000 customers who know, trust, and count on us for science-based quality products for their patients.
Now, I understand we have to post a few more quarters of positive, Adjusted EBITDA and revenue growth to win over the critics, but I have tremendous amount of confidence we'll do just that.... and with those comments, I'll ask our operator to open up the call for questions.
As a reminder, in order to ask questions at this meeting, please submit them via the question/chat pane found in your control panel. You must be logged into the virtual classroom to access this feature.
Thank you, operator. We have a question. Mike, can you expand on the licensing strategy for these products?
Sure. What's key here is that the product profile that we're going after are products that would be adjacent to the core therapeutic and clinical modalities that we sell today. So for example, we sell in orthopedics, neurology, and cardiopulmonary. So we wanna identify products that would be comparable to our products today or adjacent to those products. Also very important is we're going after companies that require the key attributes that we have, which is a very strong international and domestic distribution network. We have over 52 distributors covering 70 countries. So we're a very attractive company to distribute someone else's products. Then you add on that, you know, these are companies that typically don't have the resources to have that right now. Those are the companies that we're really going after here.
So it doesn't require, it's not gonna require us to have any capital expenditures here. And so we're gonna leverage our name and our distribution network.
That's great. Thank you, Mike. Question about timing and in extinguishing outstanding debt and working towards the Damar transaction. Can you just comment a little bit more on your timelines? I don't believe there's any concern as it relates to getting that debt extinguished, but I'll let you elaborate.
Sure. So we are exploring opportunities right now, and I can tell you that deals like this typically take between six and nine months. Now, we sold Simbex in three months. I'm not suggesting that we're gonna be able to sell Damar in three months, but if we do, if we can, we will certainly take that opportunity to sell it sooner, and strengthen our balance sheet. But we see that this is going to take at least six to nine months as a deal would normally take. But we already started the process in exploring the opportunities right now.
And, to add to Mike's point, right now, Damar is a very stable and a very profitable business. They are also adding in a new product line that is going to generate very positive margins and increase the bottom line over the course of the next year. So right now, what we're looking for, is we're looking for the right opportunity. We don't wanna be rushed, and we wanna make sure that we're making the best possible decision. So if we get a great offer that comes in today, we're absolutely going to consider it, but we will make sure that we're getting the best possible price for the business in order to do what's best for our company.
Thanks, Gordon.
Thank you both very much. I'm consolidating questions that are of the like. So, question around, just asking to expand on your philosophy around the white labeling strategy.
Yeah, you can liken it to brands like Gucci, who years ago, you couldn't afford the Gucci brand name, but nowadays, they've been able to bring in other products and put the Gucci name on it and many people can afford the Gucci shoe today. We wanna create access to the Biodex products. We wanna make sure they're of course high-quality products. We can find a number of products and leverage the Biodex brand and make sure it's affordable and accessible to the private physical therapy clinics. That's where our business is really going to grow. We've got other products, by the way, that can really address the issues of the larger target audience, the 50,000+ private physical therapy clinics in the U.S., at least.
And so, that's where we can really, really leverage the Biodex brand name.
Great. Thanks, Mike. Just a reminder, if anyone has a question, you could submit through the chat function on your or the question function on your screen. Question around, outside of Damar, are there any other dispositions that you would be exploring?
Yeah, we have another. So right now, the company is, we're comprised of Biodex, Dakota Plastic- excuse me, Damar Plastics, and South Dakota Partners. So South Dakota Partners is the other opportunity that we are in the middle right now of selling that company as well and reducing our debt on the balance sheet. Gordon, I don't know if you want to add anything to that story on SDP?
Right. Well, one of the things that SDP is, they're also a contract manufacturer and not as closely aligned with our core business. We had explored the option of selling SDP a few months back, but the total debt ratio was a little high. So we've made a very concerted effort to pay down both their asset-based line and their equipment loan. And right now, their debt is substantially reduced over the last quarter, and we've positioned it so it's much more palatable now as an organization. South Dakota Partners generates about $8 million a year in revenue, and for the most part, has had a positive EBITDA.
By reducing the debt of the organization as a whole, we'll make it palatable to sell, and we will be able to really get back to our core business, as Mike mentioned, which is Biodex Rehab, and then we could focus on ancillary products and product lines that are more in line with the company's mission.
Great. Thank you very much, Gordon. That appears to be all the questions that we had in the queue. Mike, I'll pass it back to you for your closing remarks.
Sure. Sure. Thanks, Alyssa, and thanks to everyone for joining us today and allowing us to update you on the progress and of the turnaround and our future plans for growth. We look forward to updating you next quarter on our financial results, and wish everyone a great afternoon.
Thanks, everyone. On behalf of Evome Medical, we thank you for your participation in today's call, and we look forward to speaking with you again in November with Q3 results. Have a wonderful rest of your week.