Hamilton Thorne Ltd.

Welcome to the Hamilton Thorne Limited first quarter 2023 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 to the company's management, discussion and analysis for the quarter ended March 31, 2023, which filings are available under the company's profile at www.cidair.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 introduce, excuse me, now let me turn the call over to Hamilton Thorne's CEO, David Wolf.

Thank you very much. Good morning and welcome to the Hamilton Thorne Limited First Quarter. 2023 earnings conference call. I'd like to introduce myself, David Wolfe, President and CEO of Hamilton Thorne. On the call with me today is our CFO, Francesco Fragasso. This morning's call will have the following format. First, I'll present a summary of operational and financial results for the quarter ended in March 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 will then return for a few minutes to provide some information on our outlook for the balance of 2023, and we will then open up the line for questions. Since we had our year-end conference call just 45 days ago, we'll keep our remarks relatively brief. I'd also like to remind 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 am delighted to report that our 2023 has gone off to an exceptionally strong start. We had a record first quarter posting sales of $16.7 million and adjusted EBITDA of $2.8 million versus $14.1 million and adjusted EBITDA of $2.5 million in the prior year. This represents 19% sales growth on a reported basis and 24% sales growth on a constant currency basis. Our organic growth, which eliminates the effects of both acquisitions and exchange rates, was up 15% for the quarter, reflecting continued market share gains. As we have discussed in our prior calls, currency fluctuations and translating financial statements into our presentation currency of U.S. dollars continues to have a substantial, though somewhat lessened, impact this quarter, reducing reported results by approximately 5%. Fortunately, these headwinds are easing, and I'll discuss this a little bit more in our outlook section. I'm also happy to report that while supply chain issues do continue from time to time, they are more normalized, leading to fewer delays in production and shipping. Let me again give you some of the highlights from our performance. First quarter sales increased 19% to 16.7%, 24% on a constant currency basis. EBITDA increased 13% to $2.8 million. 18% on a constant currency basis. Organic sales up 15% for the quarter. Gross profit margin was 15.6%, which is up 185 basis points versus the prior year. Net income did decrease to $77,000 for the quarter, which Francesco will address in his remarks. In Q1, we had strong demand across all of our product categories with equipment sales up 20% and consumable software and services up 18%. As I mentioned, I was particularly pleased to see our gross profit margins continue to improve up over 180 basis points versus the prior year. This improvement is largely due to economies of scale, product mix, increased direct sales of our own products, as well as the addition of the higher margin across the whole quarter. I'll 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 Amiton Corp. I will briefly highlight the first quarter 2023 financial results. David has 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 36% to $8 million for the quarter. Expenses increased were mainly due to the addition of micro-optic expenses for the full quarter, expenses related to M&A, increased costs associated with investment in sales and other personal support to support growth, and increased share-based compensation. The return to the pre-COVID level for sales and marketing activities is also a factor for expenses increasing Q1 2023 compared to the same period of last year. Overall increases in operating expenses were in line with our expectations. Net interest expenses in Q1 2023 increased by $140,000 to $258,000 due to additional term debt incurred to finance macro-optic acquisition in November 2022 and higher use of a bank line of credit to fund working capital. partially offset by the repayment of the outstanding principle on term loans. In the quarter, income tax expense decreased to 104,000 from 296,000 in Q1, 2022, due primarily to the reductions in income before taxes and to the deferred income tax recovery of 122,000 in Q1, 2023, compared to a deferred income tax expense of $44,000 in the same period of 2022. The change relates to the temporary differences between income tax value and the carrying value of assets and liabilities. Net income for the quarter was $77,000 compared to $556,000 in the prior year quarter. This is primarily due to the increased operating and interest expenses I previously mentioned about that. partially offset by a decrease in income taxes. Adjusted EBITDA increased by 13% to 2.8 million for the quarter, primarily due to revenue and gross profit growth, offset by a planned increase in operating expenses. In Q1, it has continued the negative impact of foreign currency exchange headwinds, although to a lesser degree than in prior quarters. As a reminder, Adjusted EBITDA is a non-IFRS measure. Please see the reconciliation of adjusted EBITDA to net income for the quarter in our MD&A report we filed today on both SEDAR and on our website. Turning now to company cash flow and balance sheet. The company's cash balance at the end of March 2023 was $15.9 million compared to $16.7 million at the end of 2022. a decrease of about $800,000. The decrease in cash balance was primarily due to investment in working capital to support expected growth, investment in product development, and large payments to third parties related to the micro-optic acquisition. Those payments were accrued at the time of the acquisition and reflected in the acquisition price. The company used approximately 140,000 cash from operation for the quarter, primarily related to timing of increased account receivable and reduced account payable at the quarter end. Inventories were slightly up as they began to unwind the significant investment we made during 2022, while continuing to support our growth. In the first three months of 2023, Cash used in investing activity was $800,000, which included the purchase of equipment and the normal expenditure of ongoing investment in capitalizing tangible or product development activities. Cash generated in financing activities in Q123 was $120,000. One million proceeds were related to the use of working capital line of credit, net of payment on term loans and lease obligations. Note tables and term loans outstanding total 14.6 million at the end of March 2023, equal to about 1.4x the 12 trailing months adjusted at the beginning. At the end of 2022, the company continues to have a strong liquidity position of 26.4 million, including $15.9 million in available cash and $10.5 million in unused borrowing capacity, which includes $8 million line of credit for M&A approved in May and disclosed in the subsequent event section of the financials. This liquidity availability makes us well-positioned to support our acquisition program and finance the expected growth. I will now turn the call back over to David to comment on the Hamilton Torn Outlook. David?