Hamilton Thorne Ltd.

Welcome to the Hamilton Thorne Limited Third Quarter 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 relating 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, performances, 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 law applicable to the company. Additional information identifying risks and uncertainties is contained in filings by the company with the Canadian security regulators, including, without limitation, the company's management discussion and analysis for the quarter ended September 30, 2022, which filings are available under the company's profile at www.cdar.com. During this call, the company may reference adjusted EBITDA constant currency, and organic growth 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 reconciliation of adjusted EBITDA to net income. Now, let me turn the call over to Hamilton Thorne's CEO, David Wolfe.

Thank you very much. Good morning, all, and welcome to the Hamilton Thorne Limited Third Quarter 2022 Earnings Conference Call. I would like to introduce myself. I'm David Wolfe, President and CEO of Hamilton Thorne. I would also like to introduce Francesco Fragasso, who is on the call with me today. Francesco joined Hamilton Thorne as our Chief Financial Officer on September 1. Before Hamilton Thorne, Francesco served as CEO at several public and private organizations focused on manufacturing high-technology products. Francesco started his career with Deloitte, where he spent about 10 years in auditing and corporate finance advisory services. I believe that Francesco's global manufacturing and business operations experience at both an entrepreneurial division of a very large public company, as well as most recently CFO of a somewhat larger than Hamilton Thorne standalone public company, with complex worldwide operations will serve Hamilton Thorne well as we continue to grow. I would also like to take a moment to recognize and thank Michael Bruns, our retiring CFO, for his years of dedicated service to the company, during which our company grew from mid-single digits to where we are today, netting just about $60 million in sales. This morning's call will have the following format. First, I'll provide a summary of operational and financial results for the quarter and the nine months ended September 30, 2022. the focus on sales, markets, and operational performance. Francesco will follow with more detailed discussion of financial results for the periods, as well as a review of our financial position and liquidity, and I will return for a few minutes to provide some information on our outlook for the balance of 2022. We will then open the line up for questions. I would like to remind all 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 third quarter of 2022 was an extremely strong quarter for Hamilton Thorne. We continue to see strength in the fundamentals of our business with well above market organic growth of 17% for the quarter and 12% here today. I am also happy to report that supply chain issues eased somewhat in the quarter, leading to fewer delays in production and shipping. Reported sales results continue to be negatively impacted by exchange rate fluctuations in our European and UK operations. Our sales of $13.5 million were up 6% versus the prior year on a U.S. dollar basis, but up 17% on a constant currency basis, meaning that foreign exchange translation reduced reported revenues to the quarter by approximately $1.3 million. Let me give you some of the highlights from our performance. Sales, as I mentioned, increased 6%. year-over-year to $13.5 million for the quarter, and increased 14% to $41.7 million for the nine-month period. Sales and cost and currency eliminates FX fluctuation I mentioned earlier, increased 17% for the quarter and 22% for the nine-month period. Organic growth was 17% for the quarter and 12% for the nine-month. Gross profit as a percentage of sales increased 100 basis points to 48.5% for the quarter versus 47.5% in the prior year period and was 49% for the nine months ended September 30. Adjusted EBITDA increased 3% to $2.1 million for the quarter and increased 4% to $7 million for the nine-month period. Sales into the human clinical market grew significantly faster than our overall growth and continue to be the largest target market, coming in at about 90% of our revenues. Sales into the animal market, ART market, were also up for the three- and nine-month period, while sales into the research and cell biology markets were somewhat down for both periods. Sales into the Americas and the EMEA, your Middle East and African regions, grew for both periods, while sales into Asia-Pac were somewhat down, partially as a result of renewed COVID-19-related lockdowns in China. From a product perspective, our equipment business continued to have the largest growth in both periods, largely due to the addition of the IVF Tech product line, as well as growth of equipment sales in the EMEA region. Gross profit margins, as I mentioned, were up 100 basis points versus the prior year due to product mix, as well as the full impact of price increases that we instituted at the beginning of this year are being recognized. EBITDA margins were down somewhat somewhat down this quarter at 15.6%, in part due to the impact of currency fluctuations and 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 travel and trade show expenses returning to historical levels and increased costs associated with maintaining investments in R&D and investments in sales and other personnel to support our growth. I will now turn the call over to Francesco to provide a more detailed discussion on the numbers.

Thank you, David. Good morning, everyone. I'm Francesco Fragasso, CFO at Hamilton Thorne. I'm very excited to join Hamilton Thorne team. I will briefly highlight the third quarter and September year-to-date financial results. David 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. Operating expenses increased 20% to $6.7 million for the quarter and 21% to $19.1 million for the nine-month period. Expense increases were primarily due to the inclusion of IVF stack expenses post-closing of the July 2021 acquisition, and increased costs associated to the investment in SAVES and other personnel to support growth. The return to pre-COVID level for SAVES and marketing activities is also a factor for expenses increase. Overall increases in operating expenses were in line with our expectations. Interest expense in the quarter decreased 11% to $103,000 due to repayment of outstanding principal on term loans and increased 15% to $322,000 for the nine-month period due to the additional term loan incurred in July 2021 to finance the IVF tech acquisition, partially offset by interest we earned on the company cash deposits. Income tax expense for the quarter decreased to $337,000 credit and decreased to 185,000 expense for the nine-month period. This was primarily due to the reduction in income before taxes. Income tax expense included deferred income tax recovery expense of 431,000 in the quarter and 367,000 in the first nine-month period. Those are non-cash increase of the company deferred tax assets. Net income for the quarter was $99,000, a decrease from net income of $249,000 in the prior year. Net income for the nine-month period decreased to $930,000 from $1.6 million in the prior year. This is primarily due to increased operating expenses. Adjusted EBITDA, which we consider an important metric for our financial performance, increased by 3% to 2.1 million for the quarter, and increased 4% to 7 million for the nine-month period. This was mainly due to revenue and gross profit growth, offset by the negative impact of foreign currency exchange headwinds, as well as planned increase in operating expenses. As a reminder, adjusted EBITDA is a non-IFRS measure. Please see our reconciliation of adjusted EBITDA to net income for the quarter and year-to-date in our management discussion and analysis report we filed today. Turning now to the company cash flow and balance sheet. The company cash balance at the end of September was $15.7 million compared to $17.9 million at the end of December 2021. The decrease of 2.2 million in cash balances was primarily due to reductions in U.S. dollar in cash accounts maintained in European currencies due to fluctuation in exchange rate of approximately 2.4 million, as well as working capital fluctuation, including continued investment in growing inventories to support expected growth and mitigate potential future supply chain issues. The company generated cash from operation of $908,000 in the quarter and $471,000 in the first nine months of 2022. The return to quarterly positive operating cash flow shows that the company has recovered from COVID-19 impacted quarters. Cash used in investing activities in the quarter was $1 million and $1.9 million for the nine months of 2022. Those were related to the ongoing investment in product development and capital expenditure for equipment and demo units. Priorial uses of cash included the total cash payment of $6.7 million in connection with the 2021 acquisitions. Cash used in financing activity in the quarter was $350,000 and $800,000 for the nine months of 2022. Those were mainly related to payment of scheduled term loan and lease obligations. Net of about 900,000 proceed from working capital line of credit. Note payables and term loans outstanding total 5.4 million at the end of September 2022. At the end of September 2022, the company continued to have a strong liquidity position of 27.4 million. including 15.7 million in available cash and 11.7 million in additional borrowing capacity. This liquidity availability makes us well positioned to support our acquisition program and financing the expected growth. I will now turn the call back over to David to comment on the company outlook. David.