Hamilton Thorne Ltd.

Welcome to the Hamilton Thorne LDT Fourth Quarter and Year-End 2021 Earnings Conference Call. Before turning the call over to your host today, please be reminded of our standard public company filing on forward-looking information and use of non-EFRA measures. Certain information presented or otherwise discussed on this call may contain forward-looking statements. These statements may involve but are not limited to comments related to strategies, expectations, planned operations, product announcements, scientific advances, or future actions. This information is based on current expectations that are subject to significant risk and uncertainties that are difficult to predict. Should one or more risk or uncertainties materialize or should assumptions underlining the forward-looking statements prove incorrect, actual results, performance, and achievements could vary materially from those expressed or implied by these forward-looking statements. These factors should be considered carefully and prospective investors and other parties should not place undilute undue reliance on these forward-looking statements. The company assumes no obligation to update such forward-looking statements or to update the reasons why the actual results could differ from those reflected in the forward-looking statements unless and until required by security laws applicable to the company. Additional information identifying risk and uncertainties is contained in filing by the company with the Canadian securities regulators, including without limitation the company's management discussion and analysts for the quarter and 12 months ended December 31, 2021, which filings are available under the company's profile at www.cedr.com. During this call, the company may reference adjusted EBITDA, organic growth, and constant currency as non-EFRA measures, which are used by management as measures of financial performance. The section entitled Use of Non-EFRA Measures and results of operations in the company's management discussion and analysts for the period covered for further information and a reconciliation of adjusted EBITDA to net income. Now, let me turn the call over to Hamilton Thorne's CEO, David Wolf.

Thank you, and good morning to all, and welcome to the Hamilton Thorne fourth quarter and year-end 2021 earnings conference call. As most of you know, my name is David Wolf. I'm the president and CEO of Hamilton Thorne. With me on the call today is Michael Bruns, our Chief Financial Officer. This morning's call will have the following format. First, I will provide a summary of operational and financial results for the quarter and year ended with a focus on our sales, markets, and operational performance. Michael will follow with a more detailed discussion of financial results for the periods, as well as a review of our financial position and liquidity. And I'll return for a few minutes to provide some information on our outlook for 2022. I'd like to remind all participants that we do not provide financial guidance, so I'd ask you to limit your questions to either historical periods or general trends in the business. I'll begin with our sales results. I'm very pleased to report that we finished the quarter and the year with record revenues and record adjusted EBITDA in both periods, highlighting the continued strength of our business as demand and growth of most of our markets has returned to normal levels following a more COVID-impacted 2020. Let me give you some of the highlights from our performance. Sales increased 32% over $52 million for the year and sales for the quarter increased 27% to $15.6 million. Sales in constant currency increased 28% the year and the quarter, reflecting currency fluctuations as the dollar strengthened throughout the year. Gross profit increased 29% to 26.2 million for the year and 22% to 7.9 for the quarter. Net income increased 150% to 2.4 million for the year, but did decrease 15% to 836,000 for the quarter. Adjusted EBITDA increased 48% to 9.8 million for the year and up 17% to 3.0 million for the quarter. Organic growth in U.S. dollars was 23% for the year, 22% constant currency, And organic growth was 12% for the quarter and also in recorded U.S. dollars and also in constant currency. And cash generated from operations was $5.6 million for the year, and we ended with total cash of $17.9 million. To give you a little more color on this, sales were up across all of our product categories, consumable sales, which largely represent organic growth, leading the way with over 50% growth for the year, ahead of strong equipment sales growth, which was in the mid-30% range, and services growth in the teens. Looking at field of use, sales into the human clinical market were up substantially for the quarter and year, driven by strong demand for all products and services. Sales into the cell biology research markets also grew substantially for both periods, albeit off a much smaller base, while sales into the animal breeding market went down for both periods. Gross profit margins were down at 50.1% for the year versus 51.3% for the prior year, primarily due to product mix, particularly the impact of additional direct sales of third-party products and the addition of the somewhat lower margins, say, IVF tech products in the second half of the year. We were also impacted by increased cost of materials and shipping due to supply chain issues. which was partially offset by increased sales of higher margin proprietary equipment, branded consumables, and quality control testing services. Gross profit margins for the quarter were up versus the prior quarter, so up sequentially at 50.7%, but also down versus the prior year. Our operating expenses were generally in line with our expectations with increased costs associated with maintaining investments in R&D and sales and support personnel, as well as variable costs of sales returning to historical levels and acquisition expenses post-transactions. We also completed a significant expansion of our product line, graphic coverage, and scale when we acquired Tech Event in April of this year and IVF Tech in July, which also, as you know, expanded our direct sales footprint into Australia and the Nordic countries. I'll now turn the call over to Michael to provide a more detailed discussion on the numbers.

Thank you, David. Good morning, everyone. I am Michael Bruns, the CFO of Hamilton Thorne. I will briefly highlight the fourth quarter in December year-to-date performance. David has already provided an update on sales and gross profit, so I will focus on other elements of the income statement, as well as the cash flow and liquidity of the company as of the year-end December 31st. Operating expenses increased 32% for the quarter and 28% for the 12 months ended December 31, which included $80,000 of acquisition-related expenses in Q4 and $688,000 for the year versus no direct spending during the COVID impact in 2020. Excluding those acquisition costs, comparable expenses increased 31% for the quarter and 24% year-to-date. Expense increases are also attributable to the inclusion of IVF tech and tech event expenses post-closing acquisition, as well as increased non-cash share-based compensation. Expenses also increased due to volume-related increases in variable costs of sales, as well as continued investments in R&D, sales, and support resources. The continued return to normalization included increased spending for sales and support teams' travel to customers and increased trade show activities. The gain on debt extinguishment of $775,000 was the result of the forgiveness of the U.S. Paycheck Protection Program, or PPP, loan obtained in May of 2020 by our U.S. subsidiary. The prior year 12-month change in the fair value of derivative was attributable to debentures which were fully converted to equity in April of 2020. Income tax expense increased to $400,000 for the quarter ended December 31 and $1.8 million for the full year. primarily to substantial increases in non-cash deferred tax expense. The 2021 deferred tax expense increased to $435,000 for the quarter and $1.2 million for the year. The significant non-cash expense is attributable to changes in the valuation estimates of deferred tax assets and related foreign tax credits, which required reductions in those previously recognized deferred tax assets. Net income for the quarter was $836,000, a decrease of $124,000 from a very strong Q4 of 2020. Net income for the 12 months of 2021 increased 151% to $2.4 million, an increase of $1.5 million over the prior year, primarily due to increased sales and related gross profit, debt forgiveness, and the elimination of changes in fair value derivatives, all partially offset by increased operating expenses and increased income tax. Adjusted EBITDA, which we consider an important metric of our financial performance, increased 17% to 3.0 million in Q4 and increased 48% to 9.8 million for the full year 2021 versus the prior year Q4 of 2.5 million and 6.6 million for the year 2020. This is primarily due to more normalized operations in the 12 months of 2021 versus the substantial revenue and gross profit decreases in the second quarter of the previous year, again attributable to the COVID-19 pandemic. These 2021 gains were somewhat offset by the impact of mix and supply chain issues on gross profit margins and planned increases in operating expenses in the period. As a reminder, adjusted EBITDA is a non-IFRS measure. Please see the reconciliation of adjusted EBITDA and net income for the quarter and the full year in our FD&A report filed today on CDAR and also on our HGL website, as well as the definitions of adjusted EBITDA, organic revenue, and constant currency. Turning now to the company's cash flow and balance sheet, the company generated cash from operations of $1.8 million in the fourth quarter and $5.6 million for the 12-month year to date, down 6% from the prior year. This operating cash flow is attributable to the substantial revenue and gross profit improvements offset by increased inventory levels expanded over several months to address increased product offerings and supply chain issues. Cash flow was also impacted by reduced accounts payables and accrued expenses, primarily attributable to the timing of that gradual increase in inventories. Cash used in investing activities was $9.0 million. increased due to the total cash payments of $6.9 million made in connection with the IVF tech and tech event acquisitions in July and April. In addition to the normal expenditures for ongoing investments and capitalized intangible development costs by our R&D teams and cap extra equipment and demo units for production and sales teams. Cash utilized by financing activities was a net of $423,000, including the new term debt of $5 million obtained as partial financing for the IDF tech acquisition, all offset by scheduled term loan and lease obligations, and the final $2 million of payments in 2021, reducing the company's line of credit to zero as of December 31. Companies' resulting cash balance of December 31, 2021 decreased to $7.9 million for the 12-month period, that decrease of $3.9 entirely attributable to acquisition activity in 2021. Working capital for the period actually increased 980,000 to 23.1 million. Total availability in our lines of credit has increased to 12.5 million, consisting of the 8.0 million acquisition line of credit, as well as the full 4.5 million of availability in our revolving line of credit. This combined 12.5 million of bank lending is an important additional resource in our ability to complete acquisitions with a relatively low cost of capital. This availability, combined with our cash on hand of approximately $18 million, makes us well-positioned to support our operations in the coming months, including the continuation of our acquisition program and financing further growth as the business climate continues to improve. Now let me turn the call back over to David to comment on the HTL outlook.