Start Time: 10:00 January 1, 0000 10:45 AM ET
Hamilton Thorne Ltd. (OTCPK:HTLZF)
Q4 2021 Earnings Conference Call
April 07, 2022, 10:00 AM ET
Company Participants
David Wolf – CEO and President
Michael Bruns – CFO
Conference Call Participants
David Martin – Bloom Burton
Tania Armstrong-Whitworth – Canaccord Genuity
Justin Keywood – Stifel
Paul Stewardson – iA Capital Markets
Stefan Quenneville – Echelon Capital Markets
Operator
Welcome to the Hamilton Thorne Ltd. Fourth Quarter and Year End 2021 Earnings Conference Call.
Before turning the call over to your host today, please be reminded of our standard public company filing 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 and 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 the 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, 2021, which filings are available under the company’s profile at www.sedar.com.
During this call, the company may reference adjusted EBITDA, organic growth and constant currency as non-IFRS measures, which are used by management as measures of financial performance. See section entitled use of non-IFRS measures and results of operations in the company’s management discussion and analysis for the period 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.
David Wolf
Thank you and good morning to all. Welcome to the Hamilton Thorne fourth quarter and year end 2021 earnings conference call. As most of you know, my name is David Wolf. I’m the President and CEO of Hamilton Thorne. With me on the call today is Michael Bruns, our Chief Financial Officer. This morning’s call will have the following format. First, I will provide a summary of operational and financial results for the quarter and year ended with a focus on our sales, markets and operational performance.
Michael will follow with a more detailed discussion of financial results for the periods as well as the review our financial position and liquidity. And I’ll return for a few minutes to provide some information on our outlook for 2022. I’d like to remind all 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’m very pleased to report that we finished the quarter and the year with record revenues and record adjusted EBITDA in both periods, highlighting the continued strength of our business, as demand and growth of most of our markets has returned to normal levels following a more COVID impacted 2020.
Let me give you some of the highlights from our performance. Sales increased 32% over $52 million for the year and sales for the quarter increased 27% to $15.6 million. Sales in constant currency increased 28% year and the quarter, reflecting currency fluctuations as the dollar strengthened throughout the year.
Gross profit increased 29% to 26.2 million for the year and 22% to 7.9 million for the quarter. Net income increased 150% to 2.4 million for the year, but did decrease 15% to 836,000 for the quarter. Adjusted EBITDA increased 48% to 9.8 million for the year and up 17% to 3.0 million for the quarter.
Organic growth in U.S. dollars was 23% for the year, 22% in constant currency and organic growth was 12% for the quarter and also — in recorded U.S. dollars and also in constant currency. Cash generated from operations was 5.6 million for the year. And we ended with total cash of 17.9 million.
To give you a little more color on this, sales were up across all of our product categories. Consumable sales, which largely represent organic growth, leading the way with over 50% growth for the year, ahead of strong equipment sales growth, which was in the mid 30% range and services growth in the teens.
Looking at field of use, sales into the human clinical market were up substantially for the quarter and year, driven by strong demand for all products and services. Sales into the cell biology and research markets also grew substantially for both periods, albeit off a much smaller base, while sales into the animal breeding market were down for both periods.
Gross profit margins were down at 50.1% for the year versus 51.3% for the prior year primarily due to product mix, particularly the impact of additional direct sales of third party products and the addition of the somewhat lower margins of IVFtech products in the second half of the year.
We were also impacted by increased cost of materials and shipping due to supply chain issues, which was partially offset by increased sales of higher margin proprietary equipment, branded consumables and quality control testing services. Gross profit margins for the quarter were up versus the prior quarter, so up sequentially 50.7% but also down versus the prior year.
Our operating expenses were generally in line with our expectations with increased cost associated with maintaining investments in R&D and sales and support personnel, as well as variable cost of sales returning historical levels and acquisition expenses post transactions.
We also completed a significant expansion of our product line, geographic coverage and scale when we acquired Tek-Event in April of this year and IVFtech in July, which also as you know expanded our direct sales footprint into Australia and the Nordic countries.
I’ll now turn the call over to Michael to provide a more detailed discussion on the numbers.
Michael Bruns
Thank you, David. Good morning, everyone. I am Michael Bruns, the CFO of Hamilton Thorne. I’ll briefly highlight the fourth quarter and December year-to-date performance. David has already provided an update on sales and gross profit, so I will focus on other elements of the income statement as well as the cash flow and liquidity of the company as of the year end December 31.
Operating expenses increased 52% for the quarter and 28% for the 12 months ended December 31, which included $80,000 of acquisition-related expenses in Q4 and 688,000 for the year versus no direct spending during the COVID impact in 2020. Excluding those acquisition costs, comparable expenses increased 31% for the quarter and 24% year-to-date.
Expense increases are also attributable to the inclusion of IVFtech and Tek-Event expenses post closing acquisition, as well as increased non-cash share-based compensation. Expenses also increased into volume-related increases in variable costs of sales as well as continued investments in R&D, sales and support resources. The continued return to normalization included increased spending for sales and support teams travel to customers and increased trade show activities.
The gain on debt extinguishment of $775,000 was the result of the forgiveness of the U.S. Paycheck Protection Program, or PPP, loan obtained in May of 2020 by our U.S. subsidiary. The prior year 12-month change in the fair value of derivative was attributable to debentures which were fully converted to equity in April of 2020.
Income tax expense increased to $400,000 for the quarter ended December 31 and 1.8 million for the full year, due primarily to substantial increases in non-cash deferred tax expense. The 2021 deferred tax expense increased to 435,000 for the quarter and 1.2 million for the year.
The significant non-cash expense is attributable to changes in the valuation estimates of deferred tax assets and related foreign tax credits, which required reductions in those previously recognized deferred tax assets.
Net income for the quarter was 836,000, a decrease of 124,000 from a very strong Q4 of 2020. Net income for the 12 months of 2021 increased 151% to 2.4 million, an increase of 1.5 million over the prior year, primarily due to increased sales and related gross profit, debt forgiveness, and the elimination of changes in fair value of derivatives, all partially offset by increased operating expenses and increased income taxes.
Adjusted EBITDA, which we consider an important metric of our financial performance, increased 17% to 3.0 million in Q4 and increased 48% to 9.8 million for the full year 2021 versus the prior year Q4 of 2.5 million and 6.6 million for the year 2020. This was primarily due to more normalized operations in the 12 months of 2021 versus substantial revenue and gross profit decreases in the second quarter of the previous year, again attributable to the COVID-19 pandemic.
These 2021 gains were somewhat offset by the impact of mix and supply chain issues on gross profit margins and planned increases in operating expenses in the period. 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 full year in our MD&A report filed today on SEDAR and also on our HTL Web site, as well as the definitions of adjusted EBITDA, organic revenue and constant currency.
Turning now to the company’s cash flow and balance sheet. The company generated cash from operations of 1.8 million in the fourth quarter and 5.6 million for the 12 months year-to-date, down 6% from the prior year. This operating cash flow is attributable to the substantial revenue and gross profit improvements, offset by increased inventory levels, expanded over several months to address the increased product offerings and supply chain issues.
Cash flow was also impacted by reduced accounts payables and accrued expenses, primarily attributable to the timing of that gradual increase in inventory. Cash used in investing activities was 9.0 million, increased due to the total cash payments of 6.9 million made in connection with the IVFtech and Tek-Event acquisitions in July and April, in addition to the normal expenditures for ongoing investments and capitalized intangible development costs by our R&D teams and CapEx for equipment and demo units for production and sales teams.
Cash utilized by financing activities was a net of 423,000, including the new term debt of 5 million obtained as partial financing for the IVFtech acquisition, all offset by scheduled term loan and lease obligations, and the final 2 million of payments in 2021, reducing the company’s line of credit to zero as of December 31.
The company’s resulting cash balance at December 31, 2021 decreased to 7.9 million for the 12-month period. That decrease of 3.9 entirely attributable to acquisition activity in 2021. Working capital for the period actually increased 980,000 to 23.1 million.
Total availability in our lines of credit has increased to 12.5 million consisting of the 8.0 million acquisition line of credit, as well as the full 4.5 million of availability in our revolving line of credit. This combined 12.5 million of bank lending is an important additional resource in our ability to complete acquisitions with a relatively low cost of capital.
This availability, combined with our cash on hand of approximately 18 million, makes us well positioned to support our operations in the coming months, including the continuation of our acquisition program and financing further growth as the business climate continues to improve.
Now, let me turn the call back over to David to comment on the HTL outlook.
David Wolf
Thank you, Michael. So looking forward into 2022, we continue to be extremely optimistic on our revenue performance, as demand and growth have returned to pre-pandemic levels in nearly every market that we serve. As I mentioned earlier, our Q4 gross profit margin was up sequentially, and we have implemented across the board price increases in early 2022 that should help address supply chain costs as well as general inflationary pressures.
That being said, we do see the possibility for quarter-to-quarter variability and sales and margins during the year as we continue to work to manage the supply chain issues that admittedly are the type we believe are affecting all market participants, and also as the scale of our manufacturing and logistics capabilities scale up to meet demand.
In addition to working on strong organic growth, I’d like to spend a few minutes discussing some of the initiatives that we’re working on that we expect will contribute positively to our growth and profitability over the longer term. First, as I mentioned, we continue to work on strengthening our supply chain and expanding our manufacturing and logistics capabilities in both of our major locations in the U.S. and our UK location.
Second, we have significant efforts across the board to manage the transition to the new medical device and in vitro device regulations in the European Union. Third, we continue to invest in expanding our direct sales and field service initiatives in Europe and the U.S. to support the growth in the sales of full range of Hamilton Thorne brands, augmented by select third party products that will allow us to support an entire lab.
Finally, we continue to make progress on accelerating our acquisition program. We have an active pipeline right now that’s interactively working on multiple opportunities. As we have seen over the last couple of years, the world is full of uncertainty. Even as we face the possibility of the resurgence of COVID-19 cases due to new variants affecting demand, supply chain issues and lockdowns affecting supply and the war in Ukraine roiling markets, we feel good about our market position and our confidence in our team’s ability to address these challenges.
In summary, we feel that we are well positioned to continue to execute on our strategy of driving long-term growth and EBITDA expansion by investing in an organic growth while building scale, enhancing our product offerings and expanding our geographic and direct sales footprints through acquisitions.
We’ll now open the line up for questions.
Question-and-Answer Session
Operator
[Operator Instructions]. Your first question comes from the line of David Martin with Bloom Burton.
David Martin
Hi, David and Michael. Can you hear me?
David Wolf
Yes.
Michael Bruns
Yes, we can.
David Martin
Okay, great. You mentioned the return to pre-pandemic levels. Does that apply to early this year as well, January, February? Certainly, a lot of other companies were mentioning that was difficult times because of Omicron.
David Wolf
Yes. So again, I’ll remind people that our conference — it’s a funny thing, because our conference call is designed to talk about 2021. But here we are in April of ’22. So I understand the natural inclination to want to talk about ’22. I would say in general, in most markets, we did not see significant differences in demand due to problems from COVID. We certainly saw — as everybody knows, we’ve seen more cases and that did affect some of our manufacturing capabilities if we had more people and other capabilities in the company as we have had more people out sick. But I would say we haven’t really seen a significant change in demand. I would — again, now we’re in normal speculation, but as everybody knows, this COVID situation in China with their zero tolerance policy, now the Shanghai shutdown, which may, in fact, affect some demand in China. And of course, if that spreads, that could be a more important issue. We do feel these are transitory. And again, our history and the history from 2020 first half into second half of ’20 and early ’21 is that the demand, for whatever reason, either clinics reduce activity or customers and patients are nervous, the demand doesn’t go away. It really just is deferred and you end up with this greater demand in the following quarters.
David Martin
Okay. Just to be clear, when you say no change in demand, is that versus pre — no change versus pre-pandemic levels or no change versus say last year when pandemic was still impacting volumes?
David Wolf
Yes, I would say, again, we’re broadly generalizing no significant change with some exceptions country-by-country versus pre-pandemic levels.
David Martin
Okay. Second question, you mentioned the IVFtech impact negative on gross margin. Is that something that you can work towards improving as you go forward? I know with some of your other acquisitions as you layer direct sales in the place of distributor sales, you can improve the margins. Is that something you can do here too?
David Wolf
Absolutely. So that’s clearly — part of our business plan is to, again, when we buy a business, we generally buy what I would say our strong businesses. So the IVFtech is a strong business, great products, great brand. But the reality is based on the kinds of products that they have, and particularly, as there’s a lot of frankly steel and aluminum in them which were impacted in the second half of the year by inflationary pressures, we saw some meaningful margin pressure. We have done price increases on those products, fairly significant price increases on those products as well as looking to and have gotten first signs of success in converting what had previously been distribution sales to direct sales. So that is I guess our MO. And so far we’re on track. I will say given the inflationary issues, it’s hard to know exactly when everything will work through the system, but we still feel that that’s a solid play.
David Martin
Okay. That’s it for me. Thanks.
David Wolf
Thank you.
Operator
Your next question comes from the line of Tania Armstrong-Whitworth with Canaccord.
Tania Armstrong-Whitworth
Good morning, and thanks for taking my questions. So first one here I guess is more on the macro side. Could you speak to how the acquisition of Cook Medical by Cooper could impact you guys and the competitive landscape globally?
David Wolf
Sure. So I will call everybody’s attention to, without getting too deeply into it, that Cooper has made a bid to buy or I guess has an agreement to buy at least in [indiscernible] Cook Medical, which is a fairly large player, about two thirds of their business is in IVF and a third is in general gynecological products, which is an area we don’t participate in, as you know. And as far as I know, at least as of yesterday, the deal hadn’t closed. And we’ll wait and see how that turns out. In general, I would say that the — we don’t see this having really significant effect on the competitive situation. Cook is a fairly large player and it will obviously increase Cooper size. But it doesn’t — one of the things we’ve often said as well, they would be a large player, they’re certainly not a dominant force in the market. And I think there’s, from their perspective, a lot more product overlap in that Cook is much stronger in products like catheters and needles, which are products that we do sell some of but are not by any stretch a significant part of our business. So I would say in the short term, we certainly wouldn’t expect to see any meaningful impact. Over the longer term, particularly as we expand our product line into areas, again, similar to what Cook sells, we could see it being a more competitive situation.
Tania Armstrong-Whitworth
Okay. Perfect. Thanks so much, David. And then secondly, I think you touched on one of your growth initiatives being strengthening the supply chain and your manufacturing capabilities. The latter is something I think we’ve talked about, like months, maybe years ago about moving some of that consumables manufacturing in-house. Can you provide any more color on where that’s been?
David Wolf
Sure. So we’ve always had — for the most part, our consumables manufacturing has been done through contract manufacturers, which I don’t think is frankly all that unusual in our field given the scale. We have brought some of that in house and/or moved contract manufacturers to have a little more control over things. But in general, the areas where we’re doing the investments are on the manufacturing side. In our equipment manufacturing, again, we’re building capacity to meet demand and also building capacity to meet the logistics needs doing more third party products and particularly consumables distribution, which the consumables tend to — they’re relatively individually low value, but collectively high value and high margin and take up a lot of space. So we end up needing to dig in a little more space for us.
Tania Armstrong-Whitworth
Okay. Excellent. Thank you. I’ll get back in the queue.
Operator
Your next question comes from the line of Justin Keywood with Stifel.
Justin Keywood
Hi. Good morning. Thanks for taking my call. Just on the outlook and the comments around the expectation for continued good growth, by geography is that pretty consistent around where Hamilton Thorne operates, or are there any rising geopolitical risk or other factors that may affect demand in any particular region?
David Wolf
Yes, so that’s a good question. Allow me to talk a little bit about the geopolitical issues. So in general, if you followed in our investor deck and our AI app, which I believe will be filed today, we show the progression of our business and we had more growth last year in the Americas and in the Asia Pac than in Europe. I think that’s consistent with what we’ve told people we expect. The Asia Pac region is going to be a continued high growth region for a long time, which we’re putting a lot of effort into and we would continue to see that happening. So I would say that trend will continue. These longer term macro trends sometime get — have some convolution I guess, because when we do an acquisition there, the mix of the acquired business may be a little bit different. So it tends to fuzzy things up. But certainly that longer term trend we would expect to continue. In terms of geopolitical risk, I will say, obviously, the biggest geopolitical risk today is around the Russia and Ukraine war. We do have exposure — have had exposure to Russia and the Ukraine in terms of sales through distribution. We do not have either facilities or personnel in either location. We expect we’ll see how things develop, because my [indiscernible] keeps coming back to normal, but we certainly would not expect to see significant business from the Ukraine this year, but one never knows. And certainly, in Russia, we’ve made the decision to suspend sales to Russia for the time being, given the status of the behavior there. So we — collectively, these amounts to maybe 1%, 1.5% of our business, so not zero but still not immaterial. And it’s going to get a little small headwind. Again, if you look at our risk factors, you can also ask what happens if these conflicts expand, and then you end up in a slightly different situation. But certainly, we’re not expecting the geopolitical risks to have a big impact on us. I will say one of the fallouts of the geopolitical situation has been, which is a trend that started last year has been currency. The euro and the pound, both of which we trade in a fair amount and both weakened against the dollar. So that will give us a little headwind on reporting. But as you know, we report in constant currency numbers and you’ll have a good sense of how the businesses are truly doing beneath the surface.
Justin Keywood
Thank you. That’s helpful. And then on the price increases, has this already been initiated and completed or is it in progress? And also, what has been the response to the price increases? Has it been relatively easily passed through or any resistance?
David Wolf
So they were announced in Q4, implemented in Q1. We saw, as you would imagine, not a huge amount, but at least some level of forward buying, people wanting to buy and to lock in old prices. And we did on our quotes that we had outstanding that would be more on the capital equipment side. But sometimes we had some big quotes for our consumables. So we’ll see the impact of these scale in throughout Q1 and — probably mostly through Q1 and then we should be largely impactful in Q2 and beyond. In terms of resistance, I think whenever you raise prices you always get some level of resistance. But there’s certainly a recognition that all prices or costs are going up across the board. And I think our price increases — we’ve seen getting anecdotal reports of price increases from competitors in our field I would say we’re in line generally with what’s going on, a little higher than some, a little lower than others. So across the board, I’d say they’re being implemented again with exceptions where we have either contractual commitments or our quotes outstanding.
Justin Keywood
And do you have any insight into the consumer receptiveness to the price increases? Like has that been just largely I guess accepted, or has there been any change in demand at the end level of the consumer?
David Wolf
It’s an interesting situation that we’re in, because particularly on the consumable side where price increases can conceivably be passed on directly and pretty quickly, our price increases were pretty modest. They were in the low single digits in general. And as you know, average amount of consumables used in each IVF cycle can be, depending on the procedure, $300 to $500. So add a few percentage points to that. And it really doesn’t have a meaningful impact on rounding broadly a $15,000 cycle. So I don’t believe our costs are going to flow through directly to the consumer and/or have any impact on the consumer. That being said, I would imagine everything else at the clinic level from pharmaceuticals, the other products that are used, the labor which is the biggest spend, rent and all the other infrastructure are also having inflationary pressures. So we might see some price increases, and then we’ll find out I guess if that affects demand.
Justin Keywood
Okay. Thank you for taking my questions.
David Wolf
Thank you.
Operator
[Operator Instructions]. Your next question comes from the line of Paul Stewardson with iA Capital Markets.
Paul Stewardson
Good morning, David and Michael. It’s Paul calling in for Chelsea. That’s iA Capital Markets. Must have been a typo there. Just wondering about your margins, given all of the color you’ve given for 2022 with the revenue growth rebounding even more and being at pre-pandemic levels, but the cost obviously going up quite a bit. How does that shake out in terms of the EBITDA margins? Any directional guidance there?
David Wolf
Yes. So maybe I’ll ask Michael to make a few comments on it, again, given context that we don’t give guidance on the numbers.
Michael Bruns
Sure. I think that in very general terms, I think we are seeing that the inflationary challenges and supply chain issues are still out there, still substantial and still being sort of calculated and impacted into our inventory purchases, and obviously flowing through to our cost of goods sold. So I would say that those are — as much as we are working on those, those are certainly impactful. So I think that from our outlook as for the long term, we will continue to improve. But that challenges of quarter-to-quarter in terms of mix, in terms of how that shakes out in terms of our different relative sales levels for the products within our mix, the amount of third party products, which we like to sell and part of our lab strategy for providing everything for the lab, but obviously an impact on margins, all those factors are going to contribute to variability, choppiness, lumpiness, the kinds of things that are going to be — as much as we would like to control them are going to be somewhat beyond our level of control. So I would say very short term, the quarter-to-quarter can be impactful; very much long term, we think we have the right things in place.
Paul Stewardson
Okay. And then just a follow up in terms of your R&D increasing, and I know we’ve talked in the past about some of the opportunities that you have there with new products. Can you talk a little bit about the cadence of that? Is that something that we saw some of the organic growth in 2021 coming from any new product launches? Is that something that we’ll see concentrated in any quarters coming up, or is this relatively smooth over the coming year?
David Wolf
Sure. So I would say in 2021, we certainly saw some impact from new product development. Certainly [indiscernible] with new features and new benefits for the customer increased sales of those in a pretty meaningful way. We also have come out with a new incubator system, a cleaner that is going to increase sales and we’re working on some new reserves that should be introduced in the middle of this year. I would say in general, our business is not tied to pharmaceutical business where you get your Phase 3 and FDA approvals and off you go and you just have this whole, this entirely new revenue line. I think in general, the kinds of R&D that we’ve been doing is more — has had more incremental effects, meaningful but more incremental effects. I will say that also, and I mentioned it briefly, that we’re spending a lot of effort this year on the MDD to MDR conversion, which by nature has pretty significant involvement from our R&D teams in terms of developing the documentation and risk analyses and the various specifications and things for the products. So you may see — you mentioned [indiscernible] less in the way of product development in 2022 as resources are tied up with other activities.
Paul Stewardson
Okay, that’s great color. Thanks so much, guys. I’ll jump back in the queue.
Operator
Your next question comes from the line of Stefan Quenneville with Echelon Capital.
Stefan Quenneville
Markets. Hi, guys. This is Stefan here. Thanks for taking my question. I just wanted you to talk maybe a little bit more about the M&A landscape. I know you guys are always sort of vague about what’s going on the pipeline, and I respect that. But obviously, there’s some M&A in the sector, a nice multiple page for Cook. But at the same time, in the overall markets, valuations have come off, at least in public markets. And as you mentioned, there’s a stronger U.S. dollar impact. And I’m just wondering if those different dynamics are — how they’re impacting the M&A landscape and what you’re seeing out there?
David Wolf
Sure. So in general, I would say, and this is a little bit repetitive to what we’ve said in the past, is we try not to answer this question too differently from time to time to advertently signaling anything, but I certainly can give you a little bit of color on attitudes and valuations to the extent we can. So continuing the trend we’ve talked about in the past, we generally are seeing very good receptivity at the target level to having discussions with us. If we go back two, three or four years ago, people were a lot less interested in having these discussions. Now that possibly means that there are others talking to them as well, and that creates a competitive dynamic. But nevertheless, I think it’s good to be able to have open discussions with targets. So in terms of the numbers of targets that we have in the stages of development and the potential for — well, I won’t say necessarily the potential for closing, but the pipeline is as strong as it’s ever been. So there’s lots of activity. In terms of valuations, even though we mentioned one particular deal and — there just aren’t enough transactions in the — there’s certainly reported transactions in our particular sector I think to be able to draw a huge amount of — doing a lot of trends analysis. In terms of — clearly, when we think about acquisitions, we’ve always tried to be a responsible buyer. And as we look at today, we’re clearly seeing all the issues you talked about. Rising interest rates is another one I would throw into the mix, because when we do an analysis, we certainly look have you done multiples, but ultimately we’re as focused on a DCF model. And as interest rates rise, then valuations — it’s just an inverse relationship to valuations. Sometimes that’s a little hard to explain to a target. But I think they basically can understand that at other levels, which is suddenly the cash that they get in this can go and earn them more. So they can see that relationship pretty clearly. So I would say that we have not yet — I can’t give you any — I guess I wouldn’t even if I could, can’t give you any concrete information that the valuation structure is changing, or the people’s attitudes are changing. But I know that we take those into account and we’re certainly — again, we try to be responsible and also reactive to the changing environment.
Stefan Quenneville
Great. Thanks for that.
Operator
Your next question comes from David Martin with Bloom Burton.
David Martin
Yes. I, thanks for taking the follow up, was just wondering, large lab build outs and workstations, those types of big contracts, are they trending the same way as the rest of your business, rebounding from a slower period during the heat of the pandemic?
David Wolf
So clearly in 2021, last half of 2021, we saw a pretty meaningful increase in lab builds outs and workstations in the U.S. They tended to be a little bit smaller in terms of size, and that’s hard to know, again, because you’re talking about a handful of these a year, whether that’s a trend or just that’s the way it flowed out. For 2022, again, we have a pipeline of these. As we gets bigger, though these can be — they’re always great, they just tend to be a little less impactful, maybe a couple hundred thousand dollars of sales is always great to pick up, but it’s just not going to have as much meaningful impact on the top of the bottom line at least in terms of aberrations as it once did. It’s almost now I would say that those have become our — made very much just part of our standard business.
David Martin
And how do you compete against the larger companies in that part of your business? Are you acknowledged as one of the leaders as far as the large lab build outs, or would you say you’re proportionally positioned to — where do you stand overall in the industry?
David Wolf
Yes. So I would say it varies a little bit market-by-market, which country-by-country. In some countries where we have a little less long experience and footprint in direct sales, I would say we’re not quite as well positioned as we are in countries where we’ve been there for some time. So in, let’s say, Germany and in the U.S., clearly, we are one of a very small number of go-to providers of lab build outs. And we tend to win I believe our fair share, maybe more than our fair share based generally on the other things that matter, which is sort of — a part of it is table stakes, which is breadth of product line capability to deliver and install on time. And then the other somewhat intangible attributes, which will include quality of our consultative sales force, quality of our installations, service and support teams, and therefore, we try to make a little more of a total cost of ownership pitch than a pure price pitch. We tend not to be the price leader. So that’s a game we try not to play. And we do see some others who compete much more on price, and we try to compete on product and service quality.
David Martin
Great. So one last related question. If you went back to before you made the ZANDAIR acquisition that you’ve made, including that four acquisitions since then, what would you say before that your percent of third party product was in these large lab built outs? And what would you say the percent of third party product is now?
David Wolf
Yes, so I can tell you what it is now, because we published that, as I said, in both our investor deck and in our AI app, so it’s right around 70%. I can tell you the last couple of years, it’s been right around 70% give or take, a percentage point or two or so. I’d have to really think back to [indiscernible] exactly when was that. It was probably in a similar number, maybe a little bit lower. As you know, the Gynemed business has a significant amount of its products are third party products. Again, I’ve mentioned catheters and needles earlier that we don’t make ourselves, so we sell those. So that was probably the one that moved the needle most, increasing third party products. Then we stabilized and now we’ve been again increasing it.
David Martin
Okay, great. Thanks.
Operator
There are no additional questions in queue at this time. And Mr. Wolf, your closing remarks please.
David Wolf
All right. Well, I would like to reiterate my thanks to all of our employees who’ve shown remarkable resiliency and dedication to our business, as well as our customers and our business partners, and obviously to our shareholders for the support they continue to show to our company. And I look forward to talking to you all again on our next conference call. Thank you very much.
Operator
This concludes today’s conference call. Thank you for participating. You may now disconnect.
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