Hamilton Thorne Ltd.’s (HTLZF) CEO David Wolf on Q3 2020 Results – Earnings Call Transcript


Hamilton Thorne Ltd. (OTC:HTLZF) Q3 2020 Results Earnings Conference Call November 19, 2020 11:00 AM ET

Company Participants

David Wolf – President and CEO

Michael Bruns – Chief Financial Officer

Conference Call Participants

Chelsea Stellick – IA Securities

David Martin – Bloom Burton

Patrick Sullivan – Eight Capital

Devin Schilling – PI Financial

Tania Gonsalves – Canaccord Genuity

Operator

Welcome to the Hamilton Thorne Limited Third Quarter 2020 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. 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 the 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 to the company’s Management Discussions and Analysis for the third quarter and nine months ended September 30, 2020, which filings are available under the company’s profile at www.sedar.com or http://www.sedar.com.

Now, let me turn the call over to Hamilton Thorne’s CEO, David Wolf.

David Wolf

Thank you very much and good morning. And welcome to all to the Hamilton Thorne Limited third quarter 2020 earnings conference call. I would like to introduce myself. I’m David Wolf, President and CEO of Hamilton Thorne. On the call with me today is Michael Bruns, our Chief Financial Officer.

This morning’s call will have the following format. First, I’ll provide a summary of operational and financial results for the quarter and nine months ended September 30, with a focus on our sales, markets and operational performance. Michael 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 for a few minutes to provide some information on our outlook for the remainder of 2020 and into next year, during which I will also address the COVID-19 virus’ impact on our business in more detail. We will then open up the line for questions. I’d like to remind all the participants that we do not provide financial guidance, so I would 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 pleased to report a substantial improvement in the company’s performance in the third quarter. Let me give you some of the highlights. Sales increased 10% year-over-year to $9.8 million for the quarter. Sales for the nine-month period increased 12% to $27.5 million. This is a constant currency increase of 8% for the quarter and 13% for the nine-month periods.

Gross profit increased 3% year-over-year to $4.9 million for the quarter and 8% to $12.9 million for the nine-month period.

Net income increased 41% to $459,000 for quarter. We had net income of $10,000 for the nine month-period versus a loss in the prior period.

Adjusted EBITDA decreased 8% to $1.7 million for the quarter and decreased 16% to $4.1 million for the nine-month period. Mike will give you a little more color on that in his comments.

As you know, we measure report on our organic growth. Sales declined 7% on an organic basis and were down 9% in constant currency during the quarter. Sales declined 6% on an organic basis and 5% in constant currency for the nine-month period.

Our cash generated from operations was substantial for the quarter was $2.8 million and $2.0 million for the nine-month period, leaving us the total cash on hand at September 30 of just under $20 million, actually $19.98 million.

Digging into little deeper, sales into the human clinical market were up for about three- and nine-month periods as despite the effects of the COVID-19 pandemic, ART activity assisted reproductive technology activity in our two largest markets, U.S. and Germany returned to near-normal levels. This was buttress by the expanded contribution from our Planer acquisition.

Sales into the human clinical market in the third quarter were also positively affected as the production delays in our incubator product line that we experienced in Q2 we mentioned on our last conference call were resolved.

Sales into the cell biology research markets grew substantially during the three- and nine-month periods, primarily due to from the comp — contribution from the Planer acquisition, augmented by the strong toxicology equipment sales, albeit still remains a relatively small percentage of overall sales. Sales into the animal breeding market was down for the quarter after a very strong performance in Q2 and down for the nine-month period as well.

Gross profit margins decrease to 50.1% for the quarter and to 50.6% for the nine-month period ended September 30 versus 53.6% and 52.6% for the comparable periods. Again, Michael will address this in more detail in his remarks.

Our operating expenses were generally in line with expectations with reduced travel and tradeshow expense offset by increased personnel costs associated with the increased investments that we made in sales and support personnel during the year.

Adjusted EBITDA decreased to $1.7 million for the quarter and decreased 16% to $4.1 million to nine-month period. The Q3 results are substantial improvement over the $1.1 million from adjusted EBITDA in the second quarter where we know posted $573,000.

I will now turn the call over to Michael to provide a more detailed discussion on the numbers.

Michael Bruns

Thank you, David. Good morning, everyone. Thank you for joining our call this morning. I am Michael Bruns, the CFO of Hamilton Thorne. I will review the third quarter and nine-month year-to-date 2020 financial results along with our balance sheet and liquidity.

Company’s total sales, as David mentioned, increased 10% to $9.8 million for the quarter, an increase of $924,000 over the previous year. Nine months year-t-date sales for 2020 increased 12% to $27.5 million.

Total equipment sales increased 3% to $4.4 million in the third quarter and comprised 45% of total sales attributable to the Planer acquisition — Planer operation acquired in August of 2019, which contributes primarily equipment sales to the overall HTL product mix. Nearly all geographic markets saw capital equipment orders continue to be deferred by customers as recoveries from COVID-19 continue.

Nine-month year-to-date 2020 equipment sales were 18% to $12.3 million, also primarily attributable to the addition of Planer equipment sales. Equipment sales were 45% of year-to-date sales.

Total consumables and services sales increased 17% to $5.4 million as ART activity in our two largest markets, the U.S. and Germany return to near-normal pre-pandemic levels. Nine-month 2020 consumables and services sales increased 8% to $15.2 million and comprise 55% of both Q2 and year-to-date total enterprise sales.

Gross profit dollars increased 3% to $4.9 million in the quarter ended September 30 compared to $4.8 million in the previous year, and increased 8% to $13 million for the comparable nine-month periods.

Gross profit as a percentage of sales decreased to 50.1% for the quarter and 50.6% for the nine months year-to-date versus 53.6% and 52.6% for the comparable periods in 2019, primarily due to product mix and the addition of somewhat lower margin sales of Planer products, partially offset by increases in direct sales of higher margin branded products. Margins were also negatively impacted primarily in the second quarter, due to certain relatively fixed costs of manufacturing spread over a reduced base of sales.

Operating expenses increased 2% for the quarter and 18% for the nine months ended September 30th to $4.2 million and $12.5 million for the three months and nine months versus $4.1 million and $10.6 million for the comparable periods in the previous year, which included acquisition expenses of $386,000 for the quarter and $700,000 for the nine months. The increase is primarily attributable to the addition of Planer operating expenses post-closing, as well as continued investments in sales and support resources, increased R&D, increase share-based compensation and increase general and administrative spending, while somewhat offset by travel and other cost savings.

Research and development expenses increased 13% to $721,000 for the quarter ended September 30th to $9 — $1.9 million for the nine-month period, primarily due to the addition of Planer’s R&D expenses and new product amortization expenses, as well as the reduction in expenses related to the development of products which the company capitalizes.

Sales and marketing expenses increased 2% to $1.9 million for the quarter and 11% to $5.9 million for the nine-month year-to-date, attributable primarily to the addition of Planer expenses, including amortization of acquisition-related intangibles, as well as the continued planned investments and direct sales and support resources in Europe and the U.S., all of which were partially offset by substantially reduced travel, tradeshows and commission expense, particularly in Q2 and somewhat in Q3.

General and administrative expenses actually decreased to $1.59 million for the quarter and increased to $4.8 million for the nine-month period. The third quarter reduction is due to the absence of the prior year acquisition expenses, and is offset by the addition of Planer’s general and administrative expenses.

Third quarter G&A, absent the effect of those two factors increased 4.9% and is attributable to compensate — compensation expense related to additional staffing, increased amortization and depreciation and increased spending on professional fees related to the company’s securities filings and compliance. The nine-month year-to-date G&A expenses increased 6.4% absent the effect of Planer.

Net interest expense decreased 47% to $108,000 for the quarter and decreased 36% to $586,000 for the nine-month period versus the prior year, primarily due to reductions in the outstanding convertible debentures after the April 2020 conversion to equity.

Reduction and other term debt due to principal reductions and partially offset by increased term debt incurred in August 2019 to partially offset the Planer acquisition, as well as precautionary utilization of the company’s revolving line of credit.

Income tax expense increased to $141,000 for the quarter and decreased to $209,000 for the nine-month period. Current income tax expense increased due to changes in the mix between foreign and U.S. state taxes and deferred income tax was a recovery in the quarter in the nine months, which increases the company’s deferred tax asset.

Net income for the third quarter increased to $459,000, primarily due to increased gross profit, relatively flat operating expenses and reduced interest expense. For the nine months year-to-date, the company returned to profitability to a net income of $10,000, which substantially reduced revenues and profitability in the second quarter due to the impact of the COVID-19 pandemic.

Other comprehensive income for the quarter and nine-month period was $1.2 million and $299,000, respectively, due to substantial foreign currency translation gains by the parent company from the foreign operations of the subsidiaries, primarily in Europe. Total comprehensive income for the quarter and nine months was $1.7 million and $309,000, respectively.

Adjusted EBITDA for the third quarter decreased 8% to $$1.7 million from $1.8 million in the prior year, $1.7 million achievement for Q3 represents a substantial threefold recovery from the $573,000 in Q2, which was attributable to the pandemic.

Nine months year-to-date, adjusted EBITDA decreased 16% to $4.1 million from $4.87 million in the prior year, attributable primarily to the substantial revenue and gross profit decreases in that second quarter, caused by the pandemic, along with planned increases in operating expenses in the periods. Full reconciliation of adjusted EBITDA to net income can be found in the company’s Management Discussion and Analysis, both on our website and on SEDAR.

Turning now to liquidity and the balance sheet, company’s cash balance at September 30th was $19.98 million, an increase of $1.5 million for the quarter and $7.2 million for the nine months year-to-date, compared to $12.8 million at December 31. Working capital increased to $21.2 million at September 30. The increases in cash balance and working capital are primarily due to the May 2020 equity private placement of $4.9 million, the drawdown of the company’s line of credit in the first quarter largely as a precaution against potential liquidity issues related to COVID-19 pandemic and additional COVID-19-related bank and government supported loans in the second quarter and third quarter, the generation of operating income in the first and third quarters, all partially offset by the company’s operating loss in the second quarter and increases in inventory.

Company intentionally increased some inventory levels as precaution against COVID-19 supply chain challenges. In Q2 as substantial planned payment was made for accrued interest as the 2017 convertible debentures mature and were converted to equity under those debenture agreements.

As a September 30th, the company generated $2.9 million in cash from operations in the third quarter, improving the nine-month year-to-date cash from operations $2.0 million and that’s compares to $2.7 million of cash from operations in the prior year nine-month period. This is all primarily due to the increased inventories attributable to COVID-19 precautions together with the continued strategy of broadening our product offerings, as well as increases from seasoning low inventory levels at the calendar year end.

Cash was also used for the payment of the three-year accrued coupon interest of $388,000. Current year cash generation was also diminished by reduced profitability attributable to COVID-19 sales slow downs, particularly in the second quarter.

Cash used in investing activities was $1.1 million, primarily investments in intangible development costs and equipment for the nine-month period ended September 30th versus $7.3 million in the prior period, which included last year $6.3 million investment in connection with the Planer acquisition.

Cash generated by financing activities for the nine months ended September 30th was $6.3 million attributable to the completion of the equity private placement of $4.9 million, cautionary drawdown on the company’s line of credit in the first quarter and the company obtaining covered-related loans are partially offset by scheduled term loan debt and lease obligations and reductions in the company’s line of credit. This compares to $1.2 million of cash generated and financing activities in the prior year period. Company has generated cash from operations since 2013.

As I stated in the earnings release, we currently expect to continue to generate cash in the fourth quarter. However, given the ongoing uncertainty surrounding the COVID-19 outbreak, it is impossible to predict whether the company will generate meaningful cash from operations in 2021. We currently maintain a very strong balance sheet with cash on hand at September 30th of just under $20 million and net bank debt of only $9.1 million following our accelerated pay down of our revolving line of credit in Q3.

I’m also pleased to report that we increased our acquisition line of credit with our bank from $3 million to $5 million of availability, further increasing our resources to execute on new acquisitions.

We continue to actively manage our acquisition program with a goal of completing one or more meaningful acquisitions every 12 months to 18 months. However, the effects of the COVID-19 outbreak have already affected this goal.

In summary, we are well-positioned to support our operations in the coming months. Capitalize on improving sales opportunities with our investments in inventory and work to continue our acquisition program.

Now let me turn the call back over to David to comment on the HTL outlook.

David Wolf

Thank you, Michael. What I’m going to do today is talk a little bit about COVID, which is obviously still on everybody’s mind and give some idea of some of the initiatives that we have planned for next year as we are now, obviously, thinking of, again, about moving our business forward.

So the COVID-19 outbreak continues to add substantial uncertainty to the short- and mid-term outlook for our business. While as reported about we saw a degree of normalization of our business in our major markets. COVID-19 cases, as we all know, are increasing sharply in parts of these countries, as well as other parts of the world.

To give you a little more detail. Overall, we saw growth in our consumables business. We — while we continue to have meaningful variability in the sales of capital equipment, with significant differences from country to country. Our services business also had some slowdown due to travel restrictions and reductions in activity, but we expect this to be less impacted going forward.

As discussed in prior calls, in March 2020, the main scientific bodies that provide guidance to IVF clinics in Europe, the Americas, as well as regulators in certain countries were recommended or mandated in some cases, that clinics suspend new procedures, commencing in late April guidance and regulations in most of Europe and the Americas have encouraged IVF clinics to resume operations with enhanced safety measures and despite the recent resurgence of the COVID-19 with some exceptions, this continues to be the overall guidance. So today again with some exceptions, clinics in most of our major markets are open but not always running at full capacity.

I’d like to turn it now to some of the number — the initiatives that we’re working on and we expect to contribute positively to our growth in 2021. First, we will be launching a broad array of Gynemed cell culture media for sale in the U.S. As I’ve mentioned many times, I would caution, overall, everybody to not expect an immediate dramatic increase in sales from this. But clearly over time, we expect Gynemed to provide a meaningful addition to U.S. sales and profitability.

Second, we will be aggressively launching our direct sales and field service initiatives in the U.K. to support the Planer, Gynemed, Embryotech brands on augmented by a selection — select the range of third-party capital equipment and consumables allow us to support an entire lab.

Third, our product development teams are hard at work on developing and testing next-generation some of our existing products, as well as new products to expand our offerings.

Finally, I would like to repeat despite the uncertainties around the COVID-19 outbreak we continue to work on our acquisition program. Clearly, we have some slowdown in the first half of the year, and as Michael mentioned, given the nature of the COVID-19 outbreak, we — there’s certainly uncertainty about the future whether we can maintain the momentum we’ve had in the past, but it’s continues to be a priority for us.

In addition, as everybody knows, there have been some recent positive developments on the — on a preliminary success with a number of accidents under development. Due to preliminary nature these reports, as well as significant logistical hurdles relating to scaling up production and distributing the vaccines.

For planning purposes, the company is taking the cautious approach that the effects of the COVID-19 pandemic on our markets, and consequently, the variability of our business performance will continue at least through the first half of 2021.

That being said, I want to emphasize that we are reporting today on current state of our business and there are still significant uncertainties around how quickly all IVF clinics and our other customers will return to pre-pandemic levels, progression of the COVID-19 virus, the possibility of lockdowns, regulation or economic conditions that may lead to further reductions in demand on a regional or worldwide basis.

This is — as additional cautionary notice, these fluctuations in demand for many of our products and services may last for a period of time that is difficult to determine and could have an adverse effect on our financial results in one or more quarters.

I’d like to add a few comments to reiterate Michael’s points on how we improved our balance sheet this year and during the quarter. So again, during the quarter, we generated over $2.8 million in cash, accordingly we maintain a strong balance sheet with cash on — over $9 million to support continuing investments, growing our business, as well as our acquisition program.

In closing, I would like again to thank all of our employees who’ve shown remarkable resiliency and dedication to our business and our customers and to our shareholders for the support you’ve shown our company.

We will now open the lineup for questions and I ask the Operator to please present the first call from the queue.

Question-and-Answer Session

Operator

[Operator Instructions] First question comes from Chelsea Stellick of IA Securities. Miss your line is open.

Chelsea Stellick

Hi. Good afternoon, gentlemen. Congrats on great quarter. Nice to see normalization activities. Just a couple questions. I see that the service sector, as you mentioned, obviously, experienced a bit of a lag or slowdown as travel restrictions still remain. And you did mention that you expect to see this sector rebound, or I guess, have a less of an impact going forward. Are we — like we’re likely to see or to face continued travel restrictions into 2021? What factor do you think will offset that and allow for this sector to rebound?

David Wolf

Yeah. So the services business had a little bit of a hit in the quarter for two reasons. One is travel related, which I think we expect to continue. Though we are developing, I guess, better strategies for navigating that and as we’ve expanded our service organizations in Europe and in the U.K. and Germany, and as well as in the U.S., we see perhaps in some ways, more local coverage and hopefully less need for travel.

We also have a piece of our business that is very much related to the activity — the overall activity in the market and that’s we saw a decline in that in — that’s our toxicology testing services business. And we saw a decline in that in Q3, that in hindsight we did — frankly, we didn’t predict and it probably should have was a little bit of a delayed reaction from Q2 as people’s activities slowed down in Q2, they built inventory levels. So the testing that they needed to do in Q3 somewhat declined.

I was a little bit offset by some of the increases as labs reopened and needed more testing to build work with both look at materials that they had on hand and other materials. But overall, we saw that had a meaningful decline and we — at least early in Q4 that’s come back completely.

Chelsea Stellick

Okay. Thank you. And then I guess my second question, would you be able to give us some additional color on some of the geographic variability that you experienced in equipment sales this quarter?

David Wolf

Yeah. So there’s — I would say, regionally and to — it’s — to some extent relates both to consumables and equipment sales, there’s a lot of moving pieces. So in Asia, except for India, we — the clinics and our customers are largely open, but clearly operating at lesser capacity, in some cases that has invaded many areas, not all areas, in some cases that has to do with continued restrictions, either on people and people’s maybe behavior and they’re not excited about going into hospitals at this time.

As well as in some parts of Asia, there’s a fairly significant reliance on medical tourism, which has been impacted by travel. So we saw — again, we’ve seen some ups and downs, clearly, India was the most negatively impacted of those markets. And again, country by country, we’ve — it — there’s some variability, but the general theme is the same that people clearly are deferring some level of plan to capital expense.

Again, in Europe, as we mentioned, Germany, which is our largest market today, hopefully, U.K. will give it a run for the money once we start getting — going on the direct sales in earnest. We’re operating at nearly 100% levels compared to prior year and we — that saw pretty meaningful increase in consumable sales and pretty decent equipment business. There’s still a little bit down.

Other countries in Europe are really mixed, some are fully open, again, maybe but operating at lower capacity, while we are seeing some of the lockdowns and restrictions having — for example, in France, having a more pronounced effect on laboratory activity.

And then in the Americas, we are operating at nearly full — nearly full capacity to peers, probably about 90%-ish. Again, some of the clinics that have been more focused on medical tourism, primarily from Asia, we saw a little bit of — saw some decline. But clearly our business in the Americas was up and equipment business was reasonably strong.

Chelsea Stellick

Okay. Thank you. I guess just based on the variability, what portion would you say, in general is sentiment related in terms of I don’t want to go to the hospital versus some of the, like, lockdowns that you mentioned, like…

David Wolf

Yeah. I think it’s mostly — I think it’s not a function in most cases of true lockdowns, except again in India, which is still in some trouble and I talked about France, a couple of other countries, in most cases it has to do with — again — some level of sentiment and some level of clinics to find necessity needing to slow down their activities as some of the safety precautions that we mentioned require them to reduce capacity by doing it, additional cleaning, fewer people in the clinics in any given time, don’t get waiting in the waiting rooms and those sorts of things. But we’re mindful…

Chelsea Stellick

Okay.

David Wolf

… that we’re entering an unknown period. So, I — we are cautiously optimistic.

Chelsea Stellick

Fair enough. Okay. Thank you so much. I’ll jump back in the queue.

Operator

Our next question comes from David Martin of Bloom Burton. Your line is open.

David Martin

Good morning. Congratulations on the quarter. First question I have is how much of a boost in Q3 would you say you got from the return to production of the incubators and are you still filling back orders into Q4?

David Wolf

Yeah. So it’s a little hard to give you a pure quantification of that curve, a couple of — one — couple of reasons. So, clearly, we know how many incubators specifically that didn’t get shipped in Q2 got shipped in Q3. What’s a little bit harder is that there was — we — as we try to balance our production, we had — we typically work in a 30-day to 60-day, 45-day backlog in that facility. So that impacted some of the production slow downs on the incubators allowed us to accelerate production and other activities. So in a way, we pulled some business from Q4 — Q3 back into Q2, if that makes sense to you.

So we’ve estimated kind of round numbers, still meaningful number, maybe £300,000 to £400,000 of shift from Q2 to Q3. So kind of if you normalize it, Q2 was not a great quarter for us, but maybe it wasn’t quite as bad than Q3, obviously, much stronger quarter, but a little bit of that bump. Just to remind you, though, that almost that — none of that is counted in organic sales, some organic sales number would stay exactly the same and then we’ve completely filled the backorder.

David Martin

Okay. Okay. You talked about the initiatives, the three initiatives? I’m wondering whether two of them the launch the Gynemed in the U.S. and then bring other products into the U.K.? Are those ongoing or are those future initiatives?

David Wolf

So they’re ongoing. We started a soft launch of the products in Gynemed — specifically Gynemed media in the early part of the year, required us to build cold chain facilities and the like. We sort of as we talked about in the U.S. similarly, we slowed that down as the year developed, because as clinics are closing, reopening, dealing with all their that kind of concern — that kind of chaos has made me too strong, but that — all that change. It’s a hard time to go to them and suggest that now is the time to really be changing some of your core procedures.

Also, we had talked to earlier that we needed to hire a direct — more robust direct sales team. So we did in fact, hire our first additional hire, we have one person on Board, a first additional hire, who started early October. We’ve got another person who we made an offer to and he’s starting in February.

So I think it’s a function of both the ability of it’s kind of — the receptivity of the clinics for new products and our ability now that we’ve got the start of a complete sales team, we obviously may expand it over time based on capacity that’s started complete sales team, the ability to really sell those products.

David Martin

Okay. And how about in the U.K., the initiatives there, are they underway or future?

David Wolf

So I’m sorry, I was talking about the U.K. on that. So that…

David Martin

Oh! Okay.

David Wolf

That’s specifically in the U.K., where we now have, again, being conflating the person who started in February, we now have three people direct sales who are not fully trained, understand the products and able to hit the ground running.

David Martin

Okay.

David Wolf

Will be…

David Martin

And what about — have you rationalized any costs in the U.K. and have you taken any of the Planer products that were previously sold through distributors and you’re now selling them directly and in countries where you have your own sales force?

David Wolf

So we’ve been doing a little bit of the ladder. But some of the Planer products that are sold are sold into the cell biology and research markets, which is a separate distribution channel, where we don’t really have direct sales, people calling in — that our people calling the IVF clinics. And we do have one product line that we sell through — continue to sell through distribution. So we have been adding the Planer products.

I wouldn’t say that’s made a material different sale — I can telling you it has difference in sales thus far, but we certainly would be hopeful to see that be more meaningful into the future. I think the bigger opportunity is what I talked about earlier, which is the launch of the direct sales team in the U.K. and the selling of the Gynemed consumables lines, the Hamilton Thorne equipment lines, as well as the other Planer products that had previously been sold through distribution, as well as it’s not our core long-term strategy, but certainly it’s additive in the short-term, the ability to sell some of these third-party products which still bring in valuable revenues and gross profits to — and contribution margin.

David Martin

Okay. Sorry. And just to clarify, it seems like I mixed up some of the U.S. and U.K. stuff, with the Gynemed media in the U.S. You said, you slowed down because of COVID. But now that things are opening up again, is that back on full speed?

David Wolf

Yes. Yes. So I should be very clear on that. So in the U.S., we are planning — first quarter full launch of what we — it’s combination also of regulatory clearances as we actually just received and not final on that, we were looking at, I think is our final one, maybe this one more outstanding today.

So now that we have the regulatory sorted and the clinics, our view being more receptive, that’s going to be a big initiative for our Q — for starting in Q1 and for all of 2021 and on, though, again, I caution everybody do not expect a hockey stick in this, it’s a long slog to displace existing media supplier in mostly clinics as these — they already have a supplier typically for certain processes.

But we do have some unique products that I think will be just purely additive. But on the other hand, once you have that product and in the clinic, let’s say, it’s good one, you typically have a lot of stickiness.

David Martin

Okay. Great. I’ll get back in queue. Thanks.

David Wolf

Thank you.

Operator

Our next question comes from Patrick Sullivan of Eight Capital.

Patrick Sullivan

Thank you. Good morning. Congrats on…

Operator

Your line is open.

Patrick Sullivan

Thank you. Good morning. Congrats on the quarter. My first question here is on the acquisition front. So I know that travel restrictions have added a new wrinkle in the due diligence process, likely increasing the overall time lead to putting deals together and vetting them. But isn’t that like that stopped the company from typical process? But can you talk about the prospect of actually integrating a potential acquisition in this environment without as much in person or face-to-face interaction? And I guess how much more does that emphasize the importance of finding like minded management teams that are interested in staying on?

David Wolf

Yeah. That’s a great question. So we — as you probably know, we’ve done five acquisitions over our — by last five years and two of those kind of relatively smaller acquisitions and more product line acquisitions that where production and sales and support facilities were in the country where we already had operations. We integrated those pretty significantly kind of a classic integration that you look at, when you think about acquisition, we looked at rationalizing facilities, rationalizing personnel, which obviously means reducing costs. So you can listen for that and doing whatever we can to move those completely within an existing infrastructure, both for cost savings and also for greater capability.

In — with some exceptions, I think those kinds of integrations could continue. So, say, by way of example, if we were looking at similar size, maybe even larger kind of acquisition in the U.S., we still can travel in the U.S., obviously, mid-quarantine and those kinds of things, but travel is not restricted. So, we can do that.

It gets a little bit harder when the travel is — all the acquisitions are outside the U.S., but there we have the benefit of having significant operational infrastructures in Europe, as an example, where the two acquisitions that we did there are essentially geographic headquarters of — and geographic full — kind of full service geographic locations, with kind of a minimal level of direct operational integration, we integrated finance, integrated sales and marketing and those kinds of things, which I think you can do remotely. But we didn’t, for example, look at closing warehouses, moving inventories and the kinds of things that we’ve done when things typically are in the same country where it’s a little more sense. As we a larger, we will see how that plays out, that might be a little higher — there might be some propensity to do that.

So, I guess, for the smaller acquisitions in countries where we operate, I don’t see any issues for some of the larger acquisitions. It’s a little more challenging, but since we don’t do, what I would say, these heavy integrations, I think we can still manage. That being said, it’s clearly as you know, kind of coming full circle, as you said, it’s added a level of complexity and delay to closing transactions.

Patrick Sullivan

Okay. Great. Thank you. It’s very helpful. And then I guess switching gears a bit, looking at the previous two Q4 results 2018, 2019, it seems like it’s usually a seasonally strong quarter. Is there any specific reason for that? And then, I guess, in light of how result 2020 has been overall, should things like seasonality just be thrown out the window, when we’re kind of looking at it estimates?

David Wolf

Yeah. So, again, I think, it depends on the nature of the business. So, clearly, the consumables business doesn’t have anywhere near as much seasonality as some of the other businesses, because you buy consumables to use them with a relatively short period of time, obviously, there can be some end of year kind of whether it’s close outs to reduce inventory or incentives to get people to buy, but people generally aren’t buying, in any meaningful way far ahead on consumables and particularly on consumables to manage short shelf lives, given the COVID environment and people worried that they have to slow down their activities, they certainly don’t want to have to throw these things away.

The equipment business, like a lot of capital equipment — capital expense businesses as a certain seasonality that tends to, again, varies a little bit country by country, but tends to have Q4 seasonality, some cases, certainly in U.S. and other places, there’s strong incentive to buy capital equipment in Q4, buy it anytime, let’s see how people kind of get more focused on in Q4 for tax savings reasons are, say, take their tax deductions, budgets often expire in Q4.

So people are looking at spending down their budgets or completing activities. So I think clearly the capital equivalent part of our business is the one that has historically had more of an uplift in Q4. I wouldn’t go quite good go so far as to say you should just throw it out the window for this year. But I think that uplift is clearly going to be dampened somewhat.

Patrick Sullivan

Okay. Great. Thank you. I will get back in the queue.

Operator

Our next question comes from Devin Schilling of PI Financial. Your line is open.

Devin Schilling

Hi, guy. Good quarter here. I believe you mentioned last quarter that IVF cycles in Germany were up 20% year-over-year in both May and June due to some pent-up demand. And where do we stand on this as of today? Has this backlog had been works through or should we anticipate further strength from consumables in Q4?

David Wolf

Yeah. So it looks like the backlog is has been worked through the — we don’t — the German IVF registry, like most registries their head does not provide typically month-to-month data. And there was an exception, I think, for them provide first quarter data, as it turns out, they had their annual meeting in October — end of October, October 31 and they did provide data for July and August, that was essentially flat versus last year, slightly down. But I think you could just go kind of attribute that to the typical small levels variability that might happen.

So it would appear that — and but, again, that was also in the summer months, July and August. So that has objective also a separate dynamic to it. That — it — I don’t know that they said, explicitly that they’re not going to continue to do monthly, but we don’t have any expectation they’re going to continue to provide us monthly data.

Our operating assumption is that the because we need to be, I think, forecasting we want to be a little cautious is that the backlog, if you want to think of the pent-up demand has been worked through and that the balance of 2020 and maybe into 2021 will be relatively flat with last year, with some — maybe some small growth in 2021, but not — we’re certainly not expecting to see robust growth of the 26% that we saw a couple of months this year.

Devin Schilling

Okay. Yeah. No. That’s very helpful. I’ll jump back in the queue. Thank you.

David Wolf

Thank you.

Operator

The next question comes from Tania Gonsalves of Canaccord Genuity. Your line is open.

Tania Gonsalves

Good morning, gentlemen. Congrats on the quarter. Just one question for me. I think you talked about in Q2, some of those large lab installs that you end up having from quarter-to-quarter got deferred into the back half of this year. Could you talk to how many you did, as well as if you did any lumpy workstation installed?

David Wolf

Yeah. So we have to actually look, I think we’ve done two in the second half of the year and I’m kind of conflating third quarter and Q4. We’ll do at least two, what I would consider good size lab installs one in the U.S. and one in Germany. Couple of smaller, not quite really lumpy full labs, but we’re actually seeing a fair amount of workstation activity.

So people are continuing to — back to the capital equipment thing, people are continuing to invest and this is a function of, again, they had the budgets and they want to spend them before they lose them are responding to increased activity, replacing or replacing maybe not necessary outdated equipment, but the last generation equipment with current equipment, that’s a little bit harder to divide. But we…

Tania Gonsalves

Got it. And…

David Wolf

We’re not seeing a huge spike in full labs in Q2 — in Q4. That’s for sure.

Tania Gonsalves

Okay. Perfect. And sorry, you said those two meaningful ones. Those are going to happening — are expected to happen in Q4? Correct. They weren’t recorded in Q3.

David Wolf

I think one was mostly done in Q3 and one in Q4. But to be honest, I’m not sure I have that data. I mean, have — I am not.

Tania Gonsalves

Okay.

Michael Bruns

I think that’s, David, Q3 and one in Q4.

David Wolf

Yeah.

Tania Gonsalves

Perfect. That’s all for me. Thank you, gentlemen.

David Wolf

Thank you.

Operator

You have a follow up question from David Martin of Bloom Burton. Your line is open.

David Martin

Yeah. Going back to the question about seasonality, you said, don’t throw the trends completely out the window. But you did have the pull-through of the incubators from Q2 into Q3. In that light, are you still expecting Q4 to be the strongest quarter of the year?

David Wolf

So that’s an interesting question. So I think of it — I kind of ignored that for purposes of thinking about trending. So I was — I guess, to be honest, I was thinking less about kind of reported revenue, which I know is what we all live by and you’re trying to build your models around and more about what are the trends. And the trends are that there’s still a level of fourth quarter activity that just for all the reasons that we talked about continue to happen. Clearly, just the incubator business, for example, will not be as strong in Q4 as it was in Q3, that’s just arithmetic in some ways, as you point out. But other parts of our business, I think, on the equipment side will in fact be stronger.

David Martin

Okay. Thanks. And then last question, have you given thought to listing on a U.S. exchange and when do you think the time will be right?

David Wolf

So I guess we always have that in our thought process to — as you as you know, while we — I believe that we view ourselves as truly an international business, most — vast majority of our businesses in outside North America. And then, obviously, we have a significant U.S. business, but it’s not a U.S. business, but we are, in fact, headquartered in the U.S. and the capital market in the U.S. is significantly larger than the Canadian market.

So, we view that it is a U.S. listing is something that is will make a lot of sense for us. At some point, we have not made any definitive decision on whether and when, and I think that’s going to be, to certain extent, a function of, some things that, frankly I — they’re all perspective, so I don’t want to — I can’t talk about them too much. But to the extent that we need access to additional capital to complete acquisitions, particularly if we were to get involved in some substantially larger acquisition, where access to much more capital might be required, again, purely on kind of planning speculative basis, the performance of the capital markets in the various territories.

Our market cap — I think, this sort of market cap sizes where, at certain point, you’re too small, doesn’t make any sense to move to a U.S. listing because you’d be — you wouldn’t necessarily increase your desirability to other investors and sometimes it will make a lot of sense.

So I think we’re weighing those factors. And as we sit here today, as you know, we did a number of moves in the middle of last year to improve our readiness for listing should we decide to do it, including authorizing a reverse stock split and potentially authorizing a change of province of the incorporation which would help that, as well as we started doing reviewed financial statements and a variety of things. So we view that it’s important to be ready to do it, but then it’s not something that we’ve set a timeframe for it.

David Martin

Okay. That’s it for me. Thanks.

David Wolf

Thank you.

Operator

You have a follow up question from Tania Gonsalves of Canaccord Genuity. Your line is open.

Tania Gonsalves

Hi.

David Wolf

Tania.

Tania Gonsalves

You might not be able to answer this but just following up on David’s question. I know you got a share consolidation approved at the most recent annual meeting, do you have a timeline of when that consolidation might happen, if it does?

David Wolf

So if that would happen, I don’t want to close the per se only. But it was done in order to allow us if and when we wanted to move to a U.S. — to another listing at senior, another exchange, presumably U.S. exchange, but conceivably another exchange to be able to meet the minimum listing requirements under that. So most likely, I see very little reason to affect our share consolidation unless, in fact, we’re doing that in connection with a — with an uplisting. So I view it as — we view it as something that we put in place, again, to be ready. So that if and when it made sense to move to another exchange, we would have everything in place as opposed to having to start all the process.

Tania Gonsalves

Okay.

David Wolf

We don’t plan to do independent of enough, but having…

Tania Gonsalves

Right.

David Wolf

Listing on other exchange.

Tania Gonsalves

Right. Right. That makes sense. Is there a certain time that you have to do it by in order for it, like, apart from having to revote on it?

David Wolf

So we didn’t get any specific restrictions on that. I think our operating premises that we’ll look at it again for this — again, think about, again, for this annual meeting, more is just better kind of hygiene. You don’t want to have us, it’s something significantly put in front of shareholders is — should we — should think about whether we should put it in front of shareholders again as opposed to rely on it, what might be at some point of one year or two-year old vote. But we haven’t again made a decision on that. That’s sort of up to the lawyers to advise us on.

Tania Gonsalves

Okay. Sounds good. That’s all. Thank you.

David Wolf

Thank you.

Operator

Our next question comes from Jose Aram [ph] of [Inaudible] Fund. Your line is open.

Unidentified Analyst

Hi. Congrats on the quarter and thanks for taking my call. A quick question for me. Can you give me a little color — a broad color about the insurance policy regarding for policy in the U.S. and Germany, your major market, how is the insurance companies doing with the fatality solution?

David Wolf

I assume by this, you’re talking about the payer side. So whether we get paid by…

Unidentified Analyst

Yeah. Yeah.

David Wolf

… either cut — by the patient or by the — by insurance or some other state subsidies?

Unidentified Analyst

Yeah. So the main picture that I’m going to have is about the secular trend, if you have a secular trend, how — so the demand — so how the demand can be boosted by help of the insurance, so going to be cheaper or more affordable. I want to have a more affordability picture here.

David Wolf

Yeah. So it’s kind of a longer question, maybe we have time for this. But I’ll certainly give you some color on that. And then, clearly, there’s a lot of public — publications on this and some of the analysts who had looked at this and can talk to you about it offline. But in general, there’s pretty good support for IVF in terms of funding in Germany, so not the majority of the expense for German IVF cycle is paid for by through some kind of public funding, whether to insurance or state’s subsidies, so sometimes a particular public hospital, state subsidy at hospital.

Conversely, in the U.S., there is the opposite case, where the vast majority is paid privately. There are a handful of states that do offer IVF benefits. And clearly to your point, you can see because there are IVF benefits in those states, there’s a higher usage per capita in those states and there’s been even this year on a trend basis to probably some, well, like, meaningful changes that, again, gotten a little bit confound — the data has been confounded this year because of COVID.

Early this year a couple of states, New York, which is obviously a pretty big population state, added the mandate for large employers with over 100 employees. New Hampshire, which is a small state but kind of a bellwether state some ways very fiscally conservative, socially kind of purple, added an IVF mandate. So again, we’re seeing more coverage. So the trend is not an overwhelming trend or tidal wave, but the trend is towards more coverage.

And in addition, there are private insurers in the — they don’t like to call them as insurance, private health benefits managers that are offering employers, particularly in those states where they don’t have a mandate optional IVF or egg banking or other kinds of ART coverage to increase the desirability of as a workplace and that’s become a pretty big trend. It’s gone up from about 1.5 covered lives last year to little — well over 2 million now and I think they’re projecting it 2.4, 2.8 by Q1, when they — as people — they bring people in line.

So that’s, again, these are all trends not going to — but each of these is additive and it’s not confined to — well, those not obviously one of our larger markets. It’s not confined to U.S. and Germany. If you look at Japan, which is a little bit of an outlier, because there’s a high usage of IVF per capita, but it’s all been private payer, largely private pay.

The — and I guess using longer completely new, but the incoming new Prime Minister has as part of his platform, the extension of insurance for IVF coverage, in order to, obviously, Japan has a population problem. So in order to provide a lot of incentive for people to continue to have children or have children grow their families. So — and that’s a big country, big population, already has some pretty decent usage per capita, but obviously — affordability is good. So I would say on a trend basis, we’re seeing more coverage and more support. And the data is very clear that when there’s more support, there’s more usage.

Unidentified Analyst

Perfect. Thank you.

David Wolf

So hopefully that was helpful.

Unidentified Analyst

Yeah. Thanks.

David Wolf

Perfect. But if — I guess there are no other questions. So I’d like to thank everybody for participating in the call. Obviously, we’re delighted to have more positive quarters than we did last quarter and look forward to speaking with you all early next year.

Operator

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect. Presenters please stay online for a post conference.

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