Hamilton Thorne Ltd.

Welcome to the Hamilton Thorne LDT first quarter 2022 earnings conference call. Before turning the call over to your host today, please be reminded of our non-standard public company policy 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 relating to strategies, expectations, planned operations, product announcements, scientific advances, and future actions. This information is based on current expectations that are subject to significant risks and uncertainties that are difficult to predict. Should one or more risks 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 undue reliance on these forward-looking statements. The company assumes no obligation to update such forward-looking statements or to update the reasons why 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 underlining 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 ended March 31, 2022. 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. Please see the sections entitled Use of Non-EFRA Measures and Results of Operations in the Company's Management Discussion and Analyst for the periods provided for further information and 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 Limited first quarter 2022 earnings conference call. I'd like to introduce myself. I'm David Wolf, President and CEO of Hamilton Thorne. On the call with me 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 ended March 31, 2022. with a focus on our sales, markets, and operational performance. Michael will follow with a more detailed discussion of our financial results for the periods, as well as a review of our financial position and liquidity. I will then return for a few minutes to provide some information on our outlook for the balance of 2022, and we'll open the lineup for questions. I'd like to remind all participants that we do not provide financial guidance, so I would ask you to limit your questions to either historical periods or general trends in the business. I'll begin with our sales results. The first quarter of 2022 was a solid quarter for Hamilton Thorne as we achieved $14.1 million in sales, a 22% year-over-year growth. We did face some supply chain issues leading to the delay in producing over $500,000 worth of orders in the first quarter. Let me give you some highlights from our performance. Sales, as I mentioned, increased 22% year-over-year to $14.1 million. Sales in constant currency increased 26%. reflecting significant currency fluctuations as European currencies weakened throughout the quarter, particularly following the Russian invasion of Ukraine. Gross profit increased 17% year-over-year to $6.9 million. Debt income decreased 36% to $556,000, while adjusted EBITDA increased 9% year-over-year to $2.5 million. Organic growth was 8% for the quarter in constant currency, 4% as reported, or to put it another way, foreign exchange headwinds had approximately 4% negative impact on reported results. Cash flow from operations was $243,000 for the quarter on total cash in the quarter end was $17.1 million. Sales were up across all product categories with equipment sales showing the most growth for the quarter, largely due to the addition of IVF tech workstation and incubator sales. Looking at field of use, Sales into the human clinical market were up substantially for the quarter, driven by strong demand for all products and services, as well as the addition of the IVF tech business. Sales into the cell biology research and animal breeding markets also grew, albeit on a much smaller basis. Gross profit and EBITDA margins were somewhat down at 48.7% and 17.9%, respectively, in part as the production delay that I mentioned involved some of our highest margin products. We also continue to see increased cost of materials and shipping due to supply chain issues. We did institute an across-the-border price increase in January that should help address supply chain costs as well as general inflationary pressures, which I'll discuss a little bit more in Outlook. I'm happy to say that we resolved supply chain issues that I mentioned, which also will have a positive impact on margins versus this quarter. And again, I'll comment on that when we discuss Outlook going forward. Our operating costs were generally in line with expectations with increased costs associated with maintaining investments in our R&D sales and sales and support personnel, variable costs of sales, particularly trade shows and travel returning to historical levels and acquisition expenses post-transaction. I'll now turn the call over to Michael to provide a more detailed discussion on the numbers.

Good morning, everyone. I'm Michael Bruns, the CFO of Hamilton Thorne. I will briefly highlight the first quarter of March 2022 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 March 31. Operating expenses increased 28% to $5.9 million for the quarter ended March 31. Expense increases were attributable to the inclusion of IVF tech expenses post-closing from the 2021 acquisition. as well as increased non-cash share-based compensation, increased regulatory expenses, volume-related increases in variable costs of sales, and continued investments in R&D, sales, and sales support resources. The continued return to normalization also included increased spending for sales and support teams as they traveled to customers and increased trade show activities. Interest expense increased $25,000, or 28%, to $115,000 for the quarter. versus the prior year's quarter due to the increased term debt incurred in the July 2021 finance of the Ivy Tech acquisition and partially offset by reductions in other debt due to principal reductions plus interest earned on the company's cash balances. Income tax expense decreased 2% to $296,000 for the quarter due primarily to reduced taxable income. Net income for the quarter was $556,000 an increase of 300 – a decrease, rather, of $310,000 versus the prior year first quarter, primarily due to increased operating expenses and somewhat lower gross profit margins. Adjusted EBITDA, which we consider a very important metric to our financial performance, increased 9% to $2.5 million in Q1 versus the prior year Q1 of $2.3 million, primarily due to revenue and gross profit growth. These 2022 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 to net income for the quarter and the full year in our MD&A report filed today on CDAR and on our website. as well as our 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 $243,000 in the first quarter of 2022, down $1.3 million from the prior year. This operating cash flow change is attributable to somewhat decreased net income, Higher inventory levels increased over several months to address increased product offerings and supply chain issues, together with increased receivables and prepaid expenses. The negative effect of foreign exchange were significant in the quarter, as the euro, British pound, and Danish krona were all negatively impacted by the war in Ukraine. Absent those effects impacts, the Q1 cash flow from operations would have exceeded $1 million. Cash used in investing activities was $492,000 for ongoing investments in capitalized intangible development costs by our R&D teams and CapEx for equipment and demo units for production and sales teams. Cash utilized by financing activities was $621,000, attributable to scheduled term loan and lease obligations, and reduced substantially from the $1.2 million used in Q1 of the prior year as the revolving line of credit is fully paid down. The company's resulting cash balance at March 31, 2022 decreased to $17.1 million for the three months of 2022, a reduction of $870,000, primarily attributable to lower cash from operations. Working capital increased somewhat to $23.3 billion as of March 31. Total availability in our lines of credit remained at $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 availability is an important additional resource in our ability to complete acquisitions timely and with a relatively lower cost of capital. This lending availability, combined with our cash on hand of 17 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 and assisted reproductive technologies continues to improve. Now, let me turn the call back over to David to comment on the HDL outlook.