Hamilton Thorne Ltd.

Welcome to the Hamilton Thorne Limited second 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, the company's management discussion and analysis for the quarter in six months ended June 30, 2023, which filings are available under the company's profile at www.cedar.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 a 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, and welcome everybody to Hamilton Thorn's second quarter 2023 earnings conference call. I would like to introduce Francesco Fragasso, who our CFO, will also be with me on the call. Our call today will have the following format. First, I'll provide a summary of operational and financial results for the quarter and six months ended June 30, 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 the balance of 2023, and we'll open the lineup for questions. I would remind all participants that we do not provide financial guidance, so I'd ask you to limit questions to either historical periods or general trends in the business. I'll begin with our sales results. I am pleased to report that our strong start to 2023 continued when we posted sales of $16.4 million and adjusted EBITDA of $2.8 million versus sales of $14.2 million and adjusted EBITDA of $2.4 million in the prior year for this most recent quarter. This represents 15% sales growth for the quarter and 17% sales growth for the year date. Our organic growth, which eliminates the effect of both acquisitions and exchange rates, was up 5% for the quarter. This comes following an exceptionally strong 15% growth, organic growth in Q1. Therefore, we're about 10% for the year, which is essentially unplanned. As we have discussed in prior calls, due to stabilizing exchange rates, currency fluctuations and translating financial statements into our presentation currency of U.S. dollars had a minimal impact this quarter, but did have an impact for the year to date, reducing reported revenues by approximately 2% to 3%. 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 continue from time to time, as mentioned in our last call, they are far more normalized, leading to fewer delays in production and shipping, and even some cost reductions in some commodity products, which had increased prices significantly over the past year. Let me summarize the highlights from our performance. As I mentioned, sales increased 15% year-over-year to $16.4 million for the quarter. Sales for the six months increased 17% to $33.1 million. Sales increased 14% for the quarter and 19% for the six-month period on a constant currency basis. Gross profit increased 21% to $8.5 million for the quarter and 22% to $17 million. million for the six-month period. Essentially, gross profit growth is outpacing sales growth. Adjusted EBITDA increased 16% to 2.8 million for the quarter, increased 15% to 5.7 million for the six-month period. As mentioned, organic growth was 5% for the quarter and 10% non-plan, 10% for the six-month period. Cash generated for operations was 1.8 billion for the quarter, leaving us with total cash on hand at June 30 of just over $16 million. Looking a little more deeply into the sales performance, equipment sales growth was in the single digits for the quarter and year-to-date, reflecting some delays, which we mentioned on our last call, on orders until Q3, while consumable software and services grew over 20% in both periods. Sales dropped across all the geographic areas that we served, with our Asia Pacific region showing the strongest growth in the quarter. Sales in China returned to more normal levels following the relaxation of COVID restrictions early in the year, and our Australian business picked up significantly as well. Our strategy to increase sales of higher margin proprietary equipment and software services and branded consumables combined with increased direct sales of products yielded gross profit margin increases to 52% for the quarter and 51.3% for the six months. ending after six months, it ended in June versus 49.8, 49.3 in the prior periods. So approximately a 200 basis point improvement over those prior periods. I'll now turn the call over to Francesco to provide more detailed results on the numbers.

Thank you, David. Good morning, everyone. I'm Francesco Fragasso, CFO of Edmonton Thorne. I will briefly highlight the second 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 in 2023 were $8.9 million for the quarter and $16.9 million for the first six months, an increase of 36% for both periods versus the same periods of 2022. Expense increase was mainly due to the addition of macro-optic expenses for the full period of 2023, expenses related to M&A, increased costs associated with investment in sales and other personnel to support growth, and increased share-based compensation. The return to a pre-COVID level for the sales and marketing activities is also a factor for expenses increase in 2023 compared to the same period of last year. Overall increases in operating expenses were in line with our expectations. Net interest expense in Q2 2023 increased by $255,000 to $358,000 due to additional term debt incurred to finance micro-optic acquisition in November 2022 and higher use of a bank line of credit to fund working capital, partially offset by the repayment of outstanding principal on-term loans. In the second quarter, income tax expense decreased to a 271,000 tax credit from a 226,000 tax expense in Q2 2022. This was primarily due to the reductions in income before taxes and to deferred income tax recovery of 456,000 in Q2 2023 compared to a deferred income tax expense of 20,000 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 loss for the second quarter was $439,000 compared to a net income of $275,000 in the prior year quarter. Net loss for the six-month period was $362,000 versus a net income of $830,000 in the prior year period. This is primarily due to the increase of rating and interest expenses I previously mentioned, partially offset by decrease in income taxes. Adjusted EBITDA, which we consider an important metric of our financial performance, increased by 16% to $2.8 million for the quarter and increased 15% to $5.7 million for the six-month period. This was mainly due to revenue gross profit growth. offset by planned increase in operating expenses. 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 six months in our MD&A report filed today on both CEDAR and on our website. Turning now to the company's cash flow and balance sheet. The company's cash balance at the end of June 2023 was $16.4 million compared to $16.7 million at the end of 2022, a decrease of $320,000. The decrease in cash balances was primarily due to investment in working capital to support expected growth, investment in product development and in expanding our manufacturing capacity, and payment related to M&A activities. The company generated cash from operation of 1.7 million for the first six months of 2023 after having invested in inventories, increased account receivable, and reduced account payable. In the first six months of 2023, cash used in investing activity was 1.6 million. Of this, approximately 800,000 were related to the normal expenditure in PP&E and for ongoing investment in capitalizing tangible of product development activities. And approximately 800,000 were related to these old improvement equipment and furniture related in expansion of manufacturing capacity in some of our operating recessions. Cash used in financing activities was 386,000 for the six months of 2023. Those were mainly related to payment of scheduled term loan and lease obligations. Net of $1.6 million proceed from a working capital line of credit. Note payables and term loans outstanding total $14.4 million at the end of June 2023, equal to about 1.3x the last 12 months adjusted EBITDA. At the end of Q2 2023, the company continued to have a strong liquidity position of $26.4 million, including $16.4 million in available cash and $10 million in unused borrowing capacity, including $8 million line of credit for M&A, which was approved in May 2023. 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 company outlook. David.