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HTL.V: Q4 and Annual 2016 Earnings Preview

02/24/2017
By Anita Dushyanth, PhD

TSX:HTL.V

Hamilton Thorne (TSX:HTL.V) announced on February 22, 2017 preliminary unaudited financial results for the fourth quarter and year ending December 31, 2016.

The firm’s Q4 2016 sales are expected to show an increase of 37% to over $3.6 million, resulting in more than $10.5 million (unaudited) revenues for fiscal 2016, largely in line with our estimates.  This marks the first quarter since acquiring EmbryoTech Labs, which transformed the company into an integrated Assisted Reproductive Technologies (ART) systems, imaging applications as well as quality control services business.

Since 2015, the company completed two acquisitions, the Oosight product line from Perkin Elmer and Embryotech Labs.  These acquisitions have been accretive to earnings for fiscal 2015 and 2016.  Overall, the quarter showed record sales which was powered by strong growth in sales of LYKOS clinical laser systems and increased revenues from services.

Recall that we had forecasted the company’s Q4 2016 net income to be a little over $500,000 as per management’s guidance.  This guidance excluded the impact of any further acquisitions-related expenses.  For the year 2016, including the effect of approximately $275,000 of one-time acquisition expenses, the company anticipates reporting net income of roughly $650,000 and EBITDA of close to $1.2 million.  The audited financial statements for fiscal 2016 are expected to be released in the last week of April 2017.  We believe we may continue to see sustained momentum in revenue growth from Q4 2016.

Recently the firm signed an agreement with Blood Cell Storage, Inc. (BCSI) that enables HTL.V to distribute BCSI's SAFE Sens TrakStation® and TrakPod® technology.  Additionally, Hamilton Thorne has agreed to provide a service to retrofit benchtop incubators to monitor pH solutions.  Strategically, this initiative supports the company’s efforts to continue to diversify its offerings in the services segment by adding an incubator services offering.  Additionally it positions its service group to be able to offer a broader range of maintenance, service, calibration and QA services to the IVF lab.  Management expects to commence this service in the first quarter of 2017 by initially retrofitting one brand of incubators.  The adoption rate for a retrofit is mostly driven by the existing equipment’s age and the economy.  Although some labs may purchase newer equipment, smaller facilities may still choose to implement retrofit kits for cost advantages.

The company announced the addition of Dr. David Sable, is the portfolio manager for New York-based Special Situations Life Sciences Fund, to an already dedicated board of directors to support the company’s programs.  Dr. Sable is a reproductive endocrinologist by training and an expert in the field of human assisted reproduction.  The company will continue to benefit from Dr.Sable’s leadership abilities as he contributes his insights to the Board.  Dr. Sable also serves on the board of directors of RESOLVE: The National Infertility Society and on the advisory board of OvaScience.

With a diversified service offering, we continue to like the Hamilton Thorne story and believe that the company’s M&A strategy around the ART and developmental biology markets remains compelling.  Acquisition-led growth continues to remain the central theme.  Looking forward, we anticipate modest growth from the sale of consumables and services in 2017.  This growth should accelerate in 2018 and could become more significant, particularly if the company begins to provide retrofit services for other incubator brands.  We think the ART industry will continue to support favorable growth trends accompanied by strong demand dynamics.  As such, we believe management, as they have in the past, will remain judicious as they execute their M&A strategy.

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