Hamilton Thorne Ltd.

Welcome to the Hamilton Thorne First Quarter 2024 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 and 12 months ended December 31, 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 section 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 Chief Executive Officer, Dr. Kate Torchland.

Thank you. Good morning, everyone, and welcome to the Hamilton Thorne Limited First Quarter 2024 Earnings Conference Call. I also would like to introduce Francesco Fragasso, our Chief Financial Officer, who is on the call with me. This morning's call will have the following format. First, I will provide a summary of results for the quarter ended March 31, 2024, with a focus on our sales, markets, and operational performance. Francesco will follow with a more detailed discussion of our financial results for the period, as well as a review of our financial position and liquidity. I will then return to provide a few comments on our outlook for the remainder of the year. Before I go into quarter results, I would like to briefly reflect on my first almost full quarter as Hamilton Thorne's CEO. Since joining the company in January, I continue to be very impressed by the dedication of our talented colleagues to supporting our customers with best-in-class products and services, and our team's commitment to improving the field of infertility treatment and playing our part in helping millions of families globally fulfill their dream of having a baby. I have focused intensely on further strengthening our performance and execution and on ensuring that we continue to leverage our strengths as a premier innovator, manufacturer, and marketer of important products for IVF art laboratories and adjacent markets while accelerating operating efficiencies and driving profitable growth. Our leadership team has also been driving important work to update five-year strategic growth plan. Our vision is to continue to build Hamilton Thorne into a premier company serving IVF art markets. And in the coming months, we will further fine-tune our strategy and priorities in products, regions, and investments. We look forward to socializing this plan with our investors during an investor day that we're planning for September 12, 2024, with more details to be announced shortly. Now, moving to our sales results for the quarter. I am delighted to report that first quarter of 2024 was another record quarter for Hamilton Thorne Limited. Sales were $19.4 million for the quarter on the high end of the guidance that we have previously shared, and EBITDA was 18% of sales in line with guidance. Q1 continued the positive growth momentum with sales up 16% overall and 15% on a constant currency basis. Organic sales growth was approximately 9% for the quarter. Sales increased primarily due to the addition of genetics to our business, a return to more normalized operations as compared to supply chain issues affecting results in the previous year, and the continued growth in most of our regions. Gross profit for the quarter increased 20% or $1.3 million to the total of $9.2 million due to sales growth and product mix. Gross profit as a percentage of sales was 52.4% compared to 50.6% in the prior year period due to the addition of consumable sales of genetics and additional direct sales partially offset by increased sales of low-margin third-party products. EBITDA margin improved to 18% of sales compared to the same quarter of 2023, representing growth of 24% and outpacing our top-line sales growth. EBITDA growth was driven by increased sales and operating leverage from a combination of expense control and scale, and despite continued investment in our business. Overall, in Q1 2024, we made a good step towards delivering on our strategy of increasing contribution of consumables, software, and services to our revenue mix. Sales from this category were higher as percent of sales as compared to the same period of 2024. That category were up 19% for Q1 compared to last year quarter and outpacing the company's overall growth. Sales of equipment was 13% higher than last year quarter as well. On a geographic basis, Asia-Pacific region outside of China was our strongest growth region in the first quarter, followed by America. While sales in China have stabilized, the company continues to face the challenge of selling equipment due to several factors, including macroeconomic environment, enforcement of buy China policies, combined with emergence of local competition and delay in regulatory clearance. on several of our products. Europe remains our largest sales region and continues to contribute strongly to our overall growth. I will now turn the call over to the panel discussion on the numbers.

Thank you, Kate. Good morning, everyone. I'm Francesco Fragasso, CFO at Hamilton Thorne. I will briefly highlight the first quarter 2024 financial results. Kate has already provided an update on sales and gross profit, so I will focus on other elements of the income statement, as well as cash flow and liquidity of the company. During the first three months of 2024, operating expenses, excluding expenses related to acquisition and M&A activities, were 9.5 million, an increase of 2 million, or 27%, over the same period of 2023. Of this increase, $0.3 million was due to the addition of genetics expenses and the FX effect on our cost. $0.8 million was due to increased depreciation and amortization associated to the assets acquired with the acquisitions and investment we made in expanding capacity. while the remaining 0.9 million or 11% increase of the operating expenses was related to the investment in SAFE and other personnel to support growth. The global inflationary situation that impacted our cost of goods sold and personnel costs during 2023 continued to a somewhat lesser extent in 2024, contributing to the increase of operating expenses. Increase in operating expense were in line with our expectations, with expenses growing to a lower rate than the growth of sales. Net interest expense in Q1 2024 increased by $250,000 to $525,000 due to the additional term loan incurred to finance genetic acquisition in October 2023. and the higher use of a bank line of credit to fund working capital, partially offset by the repayment of outstanding principal on term loans. Income tax expense increased to 373,000 tax expense for the first quarter of 2024, compared to 104,000 tax expense in the same quarter of last year. primarily due to the mix of income and tax rate between foreign and U.S. states in the first quarter of this year versus the same period of 2023, net of the increase in deferred income tax recovery of $212,000 in Q1 of 2024 compared to a deferred income tax recovery of $123,000 in the same period of 2023. The change in deferred taxes relate to the temporary differences between income tax value and the carrying value of assets and liabilities. Net loss for the first quarter of 2024 was $936,000 compared to a net income of $77,000 in the prior year quarter. This is primarily due to increased operating expenses, including M&A and other non-recurring expenses, and increased interest and income tax expense, partially offset by increased sales and gross profit. Adjusted EBITDA, which we consider an important metric of our financial performance, increased by 24% to 3.5 million for the first quarter of 2024 versus 2.8 million in the prior year quarter, reflecting growth, improved gross profit margin, and increased operating leverage. As a reminder, adjusted EBITDA is a non-IFRS measure, so please see the reconciliation of adjusted EBITDA to net income for the quarter in our MD&A report filed today on both SEDAR and our website. Turning now to the company cash flow and balance sheet. The company cash balance at the end of March 2024 was $7.5 million, compared to $9.7 million at the end of 2023, a decrease of $2.2 million. The decrease in cash balance was primarily due to the loss of the period, scheduled debt repayments, and cash use for capital expenditure and product development costs. The company generated cash from operation of 648,000 in the first three months of 2024 compared to 525,000 cash used in operation in the same period of 2023. The increase of 1.2 million is primarily due to improved working capital management, partially offset by the net loss of the first quarter of 2024 versus the net profit in the prior year quarter. In Q1 2024, cash used in investing activity was $1.9 million. Of this, $1.7 million is related to the expenditure in PP&E and for ongoing investment in capitalizing tangible of product development activities. Cash used in financing activities was $767,000 for the first three months of 2024. Those were mainly related to payment of scheduled term loans and lease obligations and increased use of the company working capital line of credit. Note payables and term loans outstanding total 21 million at the end of March 2024 equal to 1.6x the 12 trailing months adjusted EBITDA or 1x if we consider the available cash deposit at the end of March 2024. At the end of Q1 2024, the company has a strong liquidity position of $12 million, including $7.5 million in available cash and $4.5 million in unused borrowing capacity. With cash on hand and unused line of credit and further debt capacity, we are well positioned to continue to execute our M&A program while funding our expected growth. I will now turn the call back over to Kate to comment on the 2024 outlook.