Hamilton Thorne Ltd.

Good morning, everyone, and welcome to the Hamilton Thorne Limited fourth quarter and year-end 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, 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 of the quarter ended September 30, 2022, which filings are available under the company's profile at www.feeder.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 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.

Thank you very much. Good morning. Excuse me. Good morning, all, and welcome to the Hamilton Thorne Limited Fourth Quarter and Year-End 2022 Earnings Conference Call. In addition to my participation, I'd like to introduce my colleague, Francesco Fragasso, our CFO, who is also on the call with me. This call will have the following format. First, I'll provide a summary of operational and financial results for the quarter and year ended December 31 with a focus on our sales, markets, and operational performance. Francesco 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'll then return for a few minutes to provide some information on our outlook for 2023. We'll then open the line for questions. I would again 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. 2022 was another successful year for Hamilton Thorne. With well above market average organic growth of 11% for the year and the quarter, we continued to gain market shares. Reported sales of 58.2 million for the year and 16.4 for the quarter continue to be negatively impacted by exchange rate fluctuations at our European and U.K. operations. As we have discussed in prior calls, these currency fluctuations in translating financial statements into the presentation currency of U.S. dollars has a substantial impact for the year, reducing reported revenues by approximately 9% for the quarter and 7% for the year. Fortunately, these headwinds are easing somewhat. I'm also happy to report that supply chain issues continue to improve leading to fewer delays in production and shipping. Let me give some of the highlights of our performance. 2022 sales increased 11% to a record 58.2 million and 19% on a constant currency basis. Fourth quarter sales increased 5% to 16.4 million up 14% on constant currency basis. 2022 adjusted EBITDA increased 3% to a record 10.1 million and approximately 12% on a constant currency basis. Fourth quarter adjusted EBITDA increased 2% to 3 million. That would be approximately 11% on a constant currency basis. Organic growth, as I mentioned, was 11% for both the quarter and the 12-month period. Gross profit margins were 52.5% for the quarter and approximately 50% for the year. Net income decreased somewhat to $1.9 million for the year, but increased to just under $1 million for the quarter. Sales dropped across all of our product categories, with equipment sales leading the way with strong organic growth, augmented by the addition of IVF tech sales for the full year. We also completed a significant expansion of our product line geographic coverage and scale when we acquired Microptic at the end of November, expanding our product lines and establishing a direct sales footprint in Spain. I was particularly pleased to see our gross profit margins improving to 52.5% I mentioned for the quarter. This was primarily due to economies of scale, product mix, and increased direct sales of our own products, augmented by the addition of higher margin Microptic sales for the one month that we owned them. We also grew adjusted EBITDA to record levels even as we navigated supply chain and inflation issues and continued to invest in sales and support resources, R&D, and enhancing our operations. Our operating expenses were generally in line with expectations, with travel and trade shows increasing substantially as they returned to historical levels, as well as increased costs associated with maintaining investments in R&D and investments in sales and other personnel to support growth. We expect these numbers to level off in the future. I will now turn the call over to Francesco to provide more detailed discussion on the numbers.

Thank you, David. Good morning, everyone. This is Francesco Fragassos here for Atomic Contour. I will briefly highlight the fourth quarter and the 22 financial results. David already provided an update on sales and gross profit. So I will focus on the other elements of the income statement as well as the cash flow and liquidity of the company. Operating expenses increased 16% to $7.7 million for the quarter and 20% to $26.8 million for the full year. Expenses increase was mainly due to the addition of IVF tech expenses for the full year. and increase of costs associated with investment in sales and other personnel to support growth. The return to pre-COVID level for sales and marketing activities is also a factor for expenses increase. Overall increases in operating expenses were in line with our expectations. Net interest expense in 2022 increased by 20% to $433,000, due to additional term debt incurred to finance IVF tech acquisition in July 2021 and macro optic acquisition in November 2022 and higher use of a bank line of credit to fund working capital. This is partially offset by the repayment of outstanding principle on term loans. Income tax expense decreased to 89,000 from a million point eight in 2021. This is due primarily to the reduction in income before taxes and to deferred income tax recovery of $640,000 in the year compared to a deferred income tax expense of $1.2 million in 2021. The change relates to the temporary differences between income tax value and the carrying value of assets and liabilities. The company consolidated effective tax rate in 2022 was approximately 4.4%. Net income for the year was 1.9 million, compared to 2.4 million in the prior year. This is primarily due to increased operating expenses, partially offset by a decrease in income taxes. Adjusted EBITDA, which we consider an important metric of our financial performance, increased by 2% to $3 million for the quarter, and increased 3% to $10.1 million for a year. This was primarily due to revenue and gross profit growth, offset by the negative impact of foreign currency exchange headwinds, as well as planned increases in operating expenses. As a reminder, adjusted EBITDA is a non-IFRS measure, So please see the reconciliation of adjusted EBITDA to net income for the quarter and for the year in our management discussion and analysis report filed today on both CEDAR and on our website. Turning now to the company cash flow and balance sheet. The company's cash balance at the end of the year was $16.7 million compared to $17.9 million at the end of 2021. a decrease of 1.3 million. The decrease in cash balances was primarily due to about 1.9 million reduction in US dollar of cash account maintained in European currencies due to significant fluctuation in exchange rate, investment in working capital to support expected growth and mitigate potential supply chain issue, and investment in product development and expanding our manufacturing capacity. The company generated cash from operation of $1.8 million in the year after having invested in inventory about $2 million. Cash used in investing activities was $10.3 million, including $7.5 million related to assets acquired with MicropTec. The remaining $2.8 million is related to the normal expenditures for ongoing investments in capitalized intangible of product development activities, and these are the improvements related to the expansion of manufacturing capacity in some of our operating business units. Cash generated in financing activity was $7.2 million in 2022. This is the result of $9.6 million proceeds relate to $8 million for term loan to fund micropic acquisition and the use of $1.6 million of the working capital line of credit. Net of payment to term loan and lease obligation. Note payables and term loans outstanding at the end of the year, total $12.6 million, equal to 1.3x our adjusted EBITDA. At the end of 2022, the company continues to have a strong liquidity position of $28.2 million, including $16.7 million in available cash and $11.5 million in unused borrowing capacity, which includes $8 million line of credit for M&A under renewal. This liquidity availability makes us well-positioned to support our acquisition program and finance the expected growth. I will now turn the call back to David to comment on Hamilton's own outlook.