Hamilton Thorne Ltd.

Good day, everyone, and welcome to the Hamilton Thorne Limited second quarter and six-month year-to-date 2022 earnings conference call. Before turning the call over to your host today, please be reminded of our standard public company policy on forward-looking information and use of non-IFRS 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 risks and uncertainties that are difficult to predict. Should one or more risks or uncertainties materialize, or should assumptions underlying the forward-looking statements prove incorrect, actual results Performance or 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 securities laws applicable to the company. Additional information identifying risks and uncertainties is contained in filings by the company with the Canadian securities regulators, including without limitation the company's management discussion and analysis for the second quarter and six months ended June 30, 2022, which filings are available under the company's profile at www.stater.com. During this call, the company may reference adjusted EBITDA, organic growth, and constant currency as non-IFRS measures, which are used by management as measures of financial performance. Please see the sections entitled Use of Non-IFRS Measures and Results of Operations in the company's management discussion and analysis for the periods covered for further information and a reconciliation of adjusted EBITDA to net income. Now let me turn the call over to Hamilton Thorne CEO, David Wolf. Sir, you may begin.

Thank you. Well, good morning to all and welcome to the Hamilton Thorne Limited second 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'll provide a summary of operational and financial results for the quarter and six months into June 30th. with a focus on our sales, markets, and operational performance. Michael will follow with a more detailed discussion on our financial results for the periods, as well as a review of our financial position and liquidity. Then I'll return for a few minutes to provide some information on our outlook for the balance of 2022. We will then open up the line for questions. 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. The second quarter was in many ways a continuation of Q1. While we reported a solid quarter with over $14.2 million in sales, we continue to see supply chain issues leading to the delay in production of certain products. More significantly, continuing negative impacts from exchange rate fluctuations at our European and UK operations reduced reported revenues for the quarter by over $1 million and reduced reported EBITDA by over $200,000. which is over 8% versus steady exchange rate in case of revenues and slightly more in the case of EBITDA. I want to give you some of the highlights from our performance. Sales, as I mentioned, increased 14% year-over-year to $14.2 million per quarter. Sales from the six-month period increased 18% to $28.3 million. Sales in constant currency increased 22% for the quarter and 23% for the six-month period, as a result of the significant currency fluctuations, which I mentioned earlier, as the dollar strengthened throughout the first half of the year. Gross profit increased 11% to $7.1 million for the quarter and increased 14% to $13.9 million for the six-month period. Debt income was $275,000 for the quarter and $831,000 for the six-month period versus debt income of $482,000 and $1.34 million in the prior year periods. Adjusted EBITDA decreased 1% to $2.43 million for the quarter and increased to 4% to $4.95 million for the six-month period. Organic growth, which as you know is an important measure for us, was 8% for both the quarter and six-month period. Cash used in operations was $438,000 for the six-month period, leaving us with total cash on hand at June 30, 2022 of $15.3 million. In his remarks, Michael will amplify on our cash use and cash position. Sales into the human clinical market, which grew significantly faster than our overall growth in Q2, continues to be our largest target market, coming in at just over 90% of our revenues. Sales into the animal ART market were also up for the three and six month period, while sales into the research and cell biology markets were down for both periods. Sales into the Americas and the EMEA, which is Europe, Middle East, and Africa regions, grew significantly for both periods, while sales into Asia were somewhat down, partially as a result of renewed regional COVID-19-related lockdowns in China. From a product perspective, our equipment business had the largest growth in both periods, largely due to the addition of the IDF Tech product lines, as well as significant growth in equipment sales in the EMEA region. Gross profit margins were up versus Q1 at 49.8% despite our production delays, which involves some of our higher margin products as the price increases that we instituted at the beginning of the year began to show impact in Q2. EBITDA margins were somewhat down this quarter at 17.1% as expenses increased due to continued planned investments and growth, as well as inflationary pressures leading to increased personnel costs and other expenses. Our operating expenses were generally in line with expectations, with increased costs, as I mentioned, associated with maintaining investments in R&D, sales and support personnel, variable costs of sales returning to historical levels, and acquisition-related expenses. I will now turn the call over to Michael to provide a more detailed discussion on the numbers.

Thank you, David. Good morning, everyone. I'm Michael Bruns, the CFO of Hamilton Thorne. I will briefly highlight the second quarter and June year-to-date financial results. David has already provided an update on sales and gross profit, so I'll focus on the other elements of the income statement as well as the cash flow and liquidity of the company as of June 30th. Operating expenses increased 16% for the quarter and 22% for the six months into June 30th. Expense increases were primarily attributable to the inclusion of IVF tech expenses post-closing for the July 2021 acquisition. As well as increased expenses due to volume related increase 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 of approximately $208,000 versus prior year during the COVID restrictions. Interest expense increased $31,000, or 46%, for the quarter and 38% for the six months here to date due to the increased term debt incurred in the July 2021 to finance the IDF tech acquisition, partially offset by reductions in other debt due to principal reductions plus interest earned on the company's cash balances. Income taxes decreased slightly to $226,000 for the quarter and $522,000 for the six-month period. due primarily to the reductions in income before taxes. The deferred tax expense, of course, is a non-cash offset credited to deferred tax assets. Net income for the quarter was $275,000, a decrease from net income of $482,000 in the prior year Q2. Net income for the six months here today decreased to $831,000 from $1.3 million in the prior year. Adjusted EBITDA, which we consider an important metric of our financial performance, decreased by 1% to 2.43 million for the quarter, and increased 4% to 4.95 million for the six months here today, primarily due to revenue and gross profit growth, offset by the negative impacts of significant foreign currency exchange headwinds and the continued supply chain issues, as well as planned increases in operating expenses. As David noted, the negative impact of foreign exchange rate fluctuations for the euro British Pound and Danish Krona was substantial for both Q2 and year-to-date. The Euro, as everyone knows, is at a 10-year historic low versus the U.S. dollar and a similar profile for the British Pound. Consolidated sales were reduced by over 1 million, or 8%, in Q2, and the resulting EBITDA was reduced by over $200,000. In addition, continuing production delays due to supply chain issues deferred several hundred thousand dollars of sales and resulting contribution margin in Q2. 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 year to date in our MD&A report filed today on both CDAR and our HTL website, as well as our definitions of adjusted EBITDA, organic revenue, and constant currency. Turning now to the company's cash flow and financial position, the company's cash balance on June 30, 2022 was $15.3 million compared to $17.9 at December 31, a decrease of $2.6 million. Decrease in cash balances was primarily due to scheduled debt service and lease payments, reductions in U.S. dollars to cash accounts maintained in European currencies due to significant fluctuations in exchange rates of approximately $750,000, as well as typical working capital fluctuations, including continued investments in growing inventories, where we invested over $500,000 to address supply chain issues. The company used cash in operations of 438 in the first six months here to date, versus a substantial generation of cash in the prior year 2021, where the company successfully emerged from the 2020 COVID-19 impacted year. The use of operational cash flow is attributable to increases in receivables, and seasonal changes in inventories, prepaids, and accounts payable and accrued expenses. Inventory levels are being carefully addressed and increased over several months to address continuing supply chain issues and increased product offerings. Cash used in investing activities was $981,000 attributable to the normal expenditures 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. Prior year uses of cash included the total cash payment of $846,000 in connection with the IVF tech and tech event acquisitions. Cash use in financing activities was $1.2 million for scheduled term loan and lease obligations. Total availability in our lines of credit remains at $12.5 million, consisting of the 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 with a relatively low cost of capital. This availability, combined with our cash on hand of over $15 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.