Dr. Kate Torchilin reports

HAMILTON THORNE REPORTS RECORD REVENUE AND EBITDA FOR THE QUARTER AND YEAR ENDED DECEMBER 31, 2023

Hamilton Thorne Ltd. has released audited financial results for the fourth quarter and year-ended Dec. 31, 2023.

Financial highlights:

• Sales for the year increased 16 per cent to $67.2-million; sales for the quarter increased 12 per cent to $18.4-million; sales increased 14 per cent for the year and 8 per cent for the quarter on a constant currency basis.
• Organic sales growth was approximately 9 per cent for the year and 7 per cent for the quarter.
• Gross profit margin was approximately 50.4 per cent for the year and 50 per cent for the quarter.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) increased 14 per cent to $11.5-million for the year and 22 per cent to $3.7-million for the quarter.
• Net income was $540,000 for the quarter and net loss was $607,000 for the 12-month period.
• Cash generated from operations improved to $4-million for the year versus $2.3-million in the prior year; total cash on hand at Dec. 31, 2023, was $9.7-million.
• Guidance for 2024 is for a sales range between $78-million and $82-million representing 10-to-15-per-cent organic growth; first quarter guidance is for a sales range of $19-million to $19.4-million.

Dr. Kate Torchilin, chief executive officer of Hamilton Thorne, commented: "Two thousand twenty-three was a record year for Hamilton Thorne. Sales were up 16 per cent for the year, gross profit margin improved and EBITDA margin remained stable at approximately 17 per cent despite continued investment in our business. Q4 continued this positive momentum with sales up 12 per cent and, despite slightly lower gross profit margins, EBITDA margins improved to 20 per cent of sales. Our equipment sales growth was 8 per cent for the year. Consumables, software and services grew 22 per cent for the year, reflecting continued strong demand for these largely high-margin, recurring revenue categories.

"Gross profit as a percentage of sales increased to 50.4 per cent for the 12 months ended Dec. 31, 2023, versus 50 per cent for 2022 primarily due to increased sales of higher-margin proprietary equipment and software, services and branded consumables combined with increased direct sales of our products. Gross profit percentage for the quarter was down versus the prior year, primarily due to product mix, and an increase in distributor sales of our own branded products. Constant currency sales as reported were up 14 per cent for the year and 8 per cent for the quarter. Organic growth was 9 per cent for the year and 7 per cent for the quarter, reflecting continued strong demand for our products globally."

The company generated approximately $4-million of cash from operations for the year despite significant investments in inventory to address supply chain issues, a substantial increase versus $2.3-million in the prior year. The company ended the year with cash on hand of $9.7-million, and $4-million available under existing lines of credit.

Results of operations for the year ended Dec. 31, 2023

Hamilton Thorne sales increased 16 per cent to $67,225,476 for the year ended Dec. 31, 2023, an increase of $9,047,409 from $58,178,067 during the previous year. Sales increased primarily due to the addition of Microptic sales, a return to more normalized operations as compared with supply chain and logistics issues affecting results in the prior year, along with continued growth, despite a slowdown in China. Constant currency sales were up 14 per cent. Organic growth was 9 per cent for the year.

Service, software and consumable sales were up 22 per cent for the year compared with last year. Consumable sales in 2023 outpaced the company's overall growth despite being affected by the recall of certain products by one of the company's contract manufacturers.

Sales of equipment were 8 per cent higher than last year. During the year the company faced a significant reduction in equipment sales to China due to several factors, including the economic slowdown in China, the enforcement of "buy China" policies, combined with the emergence of local competition, and delays in regulatory clearance, although the company has seen growth in China stabilizing in Q4.

Gross profit for the year increased 16 per cent or $4,770,435 to $33,850,565 in the year ended Dec. 31, 2023, compared with $29,080,130 in the previous year, primarily as a function of sales growth, and product mix. Gross profit as a percentage of sales was 50.4 per cent compared with 50 per cent in prior year, due to increased sales of higher-margin proprietary equipment, branded consumables and additional direct sales of products, partially offset by the higher material costs caused by the global inflationary environment.

Operating expenses, excluding expenses related to acquisition and merger and acquisition activities, increased 21 per cent to $31,284,964 for the year ended Dec. 31, 2023, up from $25,810,860 for the previous year, primarily due to the addition of Microptic expenses for the full year, continued investments in sales and customer support resources, increased depreciation and amortization due to investment in capacity expansion, and increased travel and trade show expense as activity continued to return to prepandemic levels. The global inflationary situation that impacted the company's cost of goods sold and personnel costs during 2022, continued to a somewhat lesser extent in 2023, contributing to the increase in operating expenses.

Net interest expense increased $939,021 from $433,834 to $1,372,855 for the year ended Dec. 31, 2023, versus the prior year, primarily due to increased term debt to finance the Microptic (November, 2022) and Gynetics acquisitions (October, 2023), and the higher use of bank line of credit to finance working capital, partially offset by reduction in other term debts due to principal repayment, and interest earned on the company's cash balances.

Net loss for 2023 was $607,022 versus a net income of $1,910,594 for the prior year, primarily due to increased operating expense, including M&A and other non-recurring expenses, higher depreciation and amortization, and interest expenses, partially offset by increased sales and gross profit.

Adjusted EBITDA for the year ended Dec. 31, 2023, increased 14 per cent to $11,518,504 (or 17.1 per cent of sales) versus $10,085,600 in the prior year, primarily due to increased sales and gross profit offset by planned increases in operating expenses.

Results of operations for the fourth quarter ended Dec. 31, 2023

For the three months ended Dec. 31, 2023, sales were up 12 per cent from $16,427,918 to $18,443,651, or up 8 per cent on constant currency, organic sales were up 7 per cent. Gross profit was up 7 per cent to $9,191,922 versus $8,618,316 for the prior year. Gross profit percentage decreased from 52.5 per cent to 49.8 per cent for the quarter, primarily due to product mix and increased distributor sales of the company's own branded products. Operating expenses, excluding expenses related to acquisition and M&A activities, increased 13 per cent to $7,597,887 for the quarter, up from $6,723,220 from the previous-year quarter, primarily due to the addition of Microptic and Gynetics expenses for the full quarter, increased staffing, and sales and marketing expense.

In the fourth quarter of 2023 the company's net income was $540,237 while adjusted EBITDA increased 21 per cent to $3,697,432 (or 20 per cent of sales) versus net income of $980,391 and adjusted EBITDA of $3,039,477 for the prior-year fourth quarter. These changes were due primarily to increased sales and gross profits offset by increased operating expenses, interest and non-recurring non-operating expenses.

See the company's management discussion and analysis for the periods covered for further information and a reconciliation of adjusted EBITDA to net income.

Outlook

Dr. Torchilin continued: "Since joining the company in January, I have been deeply impressed by the dedication of our talented colleagues across the globe to supporting our customers with best-in-class products and services, and by the commitment of our team to continued improvements in the field of infertility treatments and playing our part in helping millions of families to fulfill their dreams of having a baby. We continue to feel that our company is in a strong position as demand for our products and services remains solid based on the positive trends in our field. We believe that somewhat softer organic growth in the last couple of quarters is temporary and the company should return to double-digit organic growth in the first half of 2024, continuing through the longer term. We are expecting first quarter 2024 reported revenues of between $19[-million] to $19.4-million, with organic growth for the quarter of approximately 8 per cent. For the full 12 months of 2024, we anticipate delivering between $78--million to $82-million revenue, equivalent to 10-to-15-per-cent organic growth for the full year."

Francesco Fragasso, the company's chief financial officer, added: "In 2023, we made significant investments in our operations to facilitate long-term growth. Management is committed to EBITDA margin expansion and we anticipate tighter operating expense control in 2024, while continue to leverage our larger scale. We anticipate Q1 of 2024 to be our lowest EBITDA margin quarter in 2024 at approximately 18 per cent, but in the range of 19.5 per cent to 20.5 per cent for the full year. Cash flow is expected to improve as the investment in expanding capacity has been completed and inventory will decrease in the following months."

Commenting on the company's M&A activities, Dr. Torchilin stated: "We continue to focus on building Hamilton Thorne Ltd. into the premier company serving IVF/ART laboratories globally. We have an extensive pipeline and are actively working on multiple acquisition opportunities. With significant cash on hand and our unused line of credit, and further debt capacity, we are well positioned to continue to execute on our acquisition program."

Conference call

The company has scheduled a conference call on Thursday, March 27, 2024, at 9 a.m. EDT to review highlights of the results. All interested parties are welcome to join the conference call by dialling toll-free 1-833-366-1126 in North America, or 1-412-317-0703 from other locations, and requesting the Hamilton Thorne call. The company's updated investor presentation and a recording of the call will be available on Hamilton Thorne's website shortly after the call.

Financial statements and accompanying management discussion and analysis for the periods are available on SEDAR+ and the Hamilton Thorne website.

About Hamilton Thorne Ltd.

Hamilton Thorne is a leading global provider of precision instruments, consumables, software and services that reduce cost, increase productivity, improve results and enable breakthroughs in assisted reproductive technologies (ART), research and cell biology markets. Hamilton Thorne markets its products and services under the Hamilton Thorne, Gynemed, Planer, Tek-Event, IVFtech, Microptic, Gynetics and Embryotech Laboratories brands, through its growing sales force and distributors worldwide. Hamilton Thorne's customer base consists of fertility clinics, university research centres, animal breeding facilities, pharmaceutical companies, biotechnology companies, and other commercial and academic research establishments.

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