Hamilton Thorne Ltd. (OTCPK:HTLZF) Q2 2022 Earnings Conference Call August 23, 2022 9:00 AM ET
Company Participants
David Wolf – President and Chief Executive Officer
Michael Bruns – Chief Financial Officer
Conference Call Participants
David Martin – Bloom Burton
Tania Armstrong – Canaccord Genuity
Kyle Bauser – Lake Street Capital Markets
Stefan Quenneville – Echelon
Paul Stewardson – iA Capital Markets
Julian Hung – Stifel GMP
Operator
Good day, everyone, and welcome to the Hamilton Thorne Limited’s Second Quarter and Six Months Year-to-Date 2022 Earnings Conference Call.
Before turning the call over to your host today, please be reminded of our non-standard public company policy on forward-looking information, and use of non-IFRS measures. Certain information presented or otherwise discussed on this call may contain forward-looking statements. These statements may involve, but are not limited to, comments related to strategies, expectations, planned operations, product announcements, scientific advances, or future actions. This information is based on current expectations that are subject to significant risks and uncertainties that are difficult to predict. Should one or more risks or uncertainties materialize, or should assumptions underlying the forward-looking statements prove incorrect, actual results, performance, or achievements, could vary materially from those expressed or implied by these forward-looking statements.
These factors should be considered carefully, and prospective investors and other parties should not place undue reliance on these forward-looking statements. The company assumes no obligation to update such forward-looking statements or to update the reasons why actual results could differ from those reflected in the forward-looking statements unless and until required by securities laws applicable to the company. Additional information identifying risks and uncertainties is contained in filings by the company with the Canadian Securities Regulators, including without limitation, the company’s management discussion and analysis for second the quarter and six months ended June 30, 2022, 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. Please see the sections entitled Use of Non-IFRS Measures and Results of Operations in the company’s management discussion and analysis for the periods covered or 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. Sir, you may begin.
David Wolf
Thank you. Well, good morning to all, and welcome to the Hamilton Thorne Ltd. second quarter 2022 earnings conference call. I’d like to introduce myself; I am David Wolf, President and CEO of Hamilton Throne. 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 summary of operational and financial results for the quarter and six-months ended June 30, with a focus on our sales, markets, and operational performance. Michael will follow with a more detailed discussion on our financial results for the periods, as well as a review of our financial position and liquidity. And then I’ll return for a few minutes to provide some information on our outlook for the balance of 2022.
We will then open up the line for questions. I’d like to remind all participates 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. The second quarter was in many ways a continuation of Q1. While we reported a solid quarter with over $14.2 million in sales, we continue to see supply chain issues leading to the delay in production of certain products. More significantly, continuing negative impacts from exchange rate fluctuations at our European and U.K. operations reduced reported revenue for the quarter by over $1 million, and reduced reported EBITDA by over $200,000, which is over 8% versus steady exchange rate in case of revenues, and slightly more on the case of the EBITDA.
Let me give you some of the highlights from our performance. Sales, as I mentioned, increased 14% year-over-year to $14.2 million for the quarter. Sales for the six-month period increased 18%, to $28.3 million. Sales in constant currency increased 22% for the quarter, and 23% for the six-month period as a result of the significant currency fluctuations which I mentioned earlier as the dollar strengthened throughout the first-half of the year. Gross profit increased 11%, to $7.1 million for the quarter, and increased 14% to $13.9 million for the six-month period. Net income was $275,000 for the quarter and $831,000 for the six-month period, versus net income of $482,000 and $1.34 million in the prior-year periods.
Adjusted EBITDA decreased 1% to $2.43 million for the quarter, and increased 4% to $4.95 million for the six-month period. Organic growth, which as you know is an important measure for us, was 8% for both the quarter and six-month period. Cash used in operations was $438,000 for the six-month period, leaving us with total cash on hand, at June 30, 2022, of $15.3 million. In his remarks Michael will [amplify] [Ph] on our cash use and cash position.
Sales into the human clinical market, which grew significantly faster than our overall growth in Q2, continues to be our largest target market, coming in at just over 90% of our revenues; sales into the animal ART market were also up for the three and six-month period, while sales into the research and cell biology markets were down for both periods; sales into the Americas and the EMEA, which is Europe, Middle East, and Africa regions, grew significantly for both periods. While sales into Asia were somewhat down partially as a result of renewed regional COVID-19-related lockdowns in China. From a product perspective, our equipment business had the largest growth in both periods, largely due to the addition of the IVFtech product lines, as well as significant growth in equipment sales in the EMEA region.
Gross profit margins were up versus Q1, at 49.8%, despite our production delays which involve some of our higher-margin products as the price increases that we instituted at the beginning of the year began to show impact in Q2. EBITDA margins were somewhat down this quarter, at 17.1%, as expenses increased due to continued planned investments in growth as well as inflationary pressures leading to increase personnel costs and other expenses. Our operating expenses were generally in line with expectations, with increased costs, as I mentioned, associated with maintaining investments in R&D, sales and support personnel, variable costs of sales returning to historical levels, and acquisition-related expenses.
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. I’m Michael Bruns, the CFO of Hamilton Thorne. I will briefly highlight the second quarter and June year-to-date financial results. David has already provided an update on sales and gross profit. So, I’ll focus on the other elements of the income statement as well as the cash flow and liquidity of the company as of June 30.
Operating expenses increased 16% for the quarter and 22% for the six months ended June 30. Expense increases were primarily attributable to the inclusion of IVFtech expenses post-closing for the July 2021 acquisition as well as increased expenses due to volume-related increase and 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, up approximately $280,000 versus prior year during the COVID restrictions.
Interest expense increased $31,000 or 46% for the quarter and 38% for the six months year-to-date due to the increased term debt incurred in the July 2021 to finance the IVFtech acquisition, partially offset by reductions in other debt due to principal reductions plus interest earned on the company’s cash balances. Income taxes decreased slightly to $226,000 for the quarter and $522,000 for the six-month period due primarily to the reductions in income before taxes.
The deferred tax expense of course is non-cash offset credited to the deferred tax assets. Net income for the quarter was $275,000, a decrease from net income of $482,000 in the prior Q2. Net income for the six months year-to-date decreased to $831,000 from $1.3 million in the prior year. Adjusted EBITDA, which we consider an important metric for financial performance, increased by 1% to $2.43 million for the quarter and increased to 4% to $4.95 million for the six months year-to-date, primarily due to revenue and gross profit growth offset by the negative impacts of significant foreign currency exchange headwinds and continued supply chain issues as well as planned increases in operating expenses.
As David noted, the negative impact of foreign exchange rate fluctuations for the euro, British pound, and Danish krona was substantial for both Q2 and year-to-date. The euro as everyone knows is at a 10-year historic low versus the U.S. dollar and similar profile for the British pound. Consolidated sales were reduced by over $1 million or 8% in Q2. And the resulting EBITDA was reduced by over $200,000. In addition, continuing production delays due to supply chain issues deferred several hundred thousand dollars of sales and resulting contribution margin in Q2. 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 year-to-date in our MD&A report filed today on both SEDAR and our HTL Web site as well as our definitions of adjusted EBITDA, organic revenue, and constant currency.
Turning now to the company’s cash flow and financial position, the company’s cash balance in June 30, 2022 was $15.3 million compared to $17.9 million at December 31, decrease of $2.6 million. Decrease in cash balances was primarily due to scheduled debt service and lease payments, reductions in U.S. dollars to cash accounts maintained in European currencies due to significant fluctuations in exchange rates of approximately $750,000 as well as typical working capital fluctuations including continued investments in growing inventories where we invested over $500,000 to address supply chain issues. The company used cash in operations of $438 million in the first six months year-to-date versus a substantial generation of cash in the prior year 2021 where the company successfully emerged from the COVID 2020 COVID-19 impacted year.
The use of operational cash flow is attributable to increases in receivables and seasonal changes in inventories, prepaids, and accounts payable and accrued expenses. Inventory levels are being carefully addressed and increased over several months to address continuing supply chain issues and increased product offerings. Cash used in investing activities was $981,000 attributable to the normal expenditures for ongoing investments in capitalized intangible development costs by our R&D teams and CapEx for equipments and demo units for production and sales teams.
Prior year uses of cash included the total cash payment of $846,000 in connection with the IVFtech and Tek-Event acquisitions. Cash used in financing activities was $1.2 million for scheduled term loan and lease obligations. Total availability on lines of credit remains at $12.5 million consisting of the acquisition line of credit as well the full $4.5 million consisting of the 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 availability 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 over $15 million, makes us well-positioned to support our operations in the coming months, leading 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. Looking forward into the balance of 2022, we continue to feel that we are in a strong position. We expect solid sales performance based on the positive industry trends in our field and as demand and growth have returned to pre-pandemic levels in nearly every market that we serve. Q3, third quarter bookings are starting off very strong and, barring new supply chain issues, we expect to achieve solid double-digit organic growth. I also mentioned in last quarter’s call and briefly earlier, that we have implemented across-the-board price increases in early 2022. These had a modest effect on Q1 margins as there is a bit of delay in feeling the full effect of these increases as, for example, we continue to honor 2021 pricing for certain orders that were not logged at the end of the year.
These increases had a more positive effect on margins in Q2, and will continue as they layer in fully over the rest of the year. That being said, we do see the possibility of quarter-to-quarter variability in sales and margins during the year as we continue to work demand and supply chain issues and inflationary pressures of the type that we believe are affecting nearly all market participants, and as we scale our manufacturing and logistics capabilities to meet demand. Finally, I should mention again that while we expect our constant currency growth to be strong throughout the year, the U.S. dollar has continued to gain strength against the euro, British pound, and Danish krone even in the first month of Q3, and that we expect this will continue to affect our reported results.
Regarding our M&A activities, we have an extensive pipeline and we’re actively working on multiple acquisition opportunities. And as Michael mentioned, with over $15 million in cash and $12.5 million in committed lines of credit availability and further debt capacity, should we need it, we are well-positioned to continue to execute on our acquisition program. In summary, despite the various issues that we face on a day-to-day basis, we feel good about our market position and our confidence in our team’s ability to execute on our strategy of driving long-term growth and EBITDA expansion by investing in our organic growth while building scale, enhancing our product offerings, and expanding our geographic and direct sales footprint through acquisitions.
We’ll now open the line up for questions. Operator, please present the first call from the queue.
Question-and-Answer Session
Operator
Ladies and gentlemen, at this time we’ll begin the question-and-answer session. [Operator Instructions] And our first question today comes from David Martin from Bloom Burton. Please go ahead with your question.
David Martin
Yes, thanks for taking the questions. The supply chain issues that you’ve talked about are you seeing any easing of those or are they continuing as bad as they’ve been throughout the crisis?
David Wolf
Yes, so I would say supply chain is continuing to be a serious and significant issue for us in a couple of respects. One, as we have talked about in the past, we often find that with — and sometimes with very little notice, that a individual component may no longer be available either because its lead times are extended or it’s been discontinued as vendors try to rationalize their SKUs. So, we have to spend significant time and effort reengineering around that missing component or finding substitutions, generally, which leads to greater expense.
Secondly and probably more impactful and – and that obviously affects margins. Secondly and more impactful on the revenue number is when, due to that unavailability, we see sales slip from quarter to quarter. And that continues to be an issue. We tamped down on these problems and solve them, and then seemingly every month, every quarter, and not quite every day fortunately, yet another problem arises. So, I hesitate to make a prediction because I think it’s a global supply chain issue, but as to when we will be out of this, what often seems like, firefighting mode on the supply chain side. But certainly we expect that it’s clearly going to continue to some degree through Q3, though somewhat unpredictable as to whether it will have impact on results, and probably at least through the end of the year, if not early into next year.
David Martin
Okay, thanks. Second question, the investments that you’re making in inventory and sales force, do you see your sales force growing further than Q2? Do you see your inventories continuing to climb to address the supply chain issues?
David Wolf
Yes, so, I’ll comment on the sales team, and I’ll let Michael comment on the balance sheet items. So, in terms of the sales team, I think we’re pretty stable. We did people in the first-half of the year. And as you know, it takes a little time for them to become fully productive. And then we expect, as it gets a greater productivity, then we look again at challenging people and adding people. We may opportunistically look at a small increase, but we certainly have nothing significant planned for the second-half of the year.
And Michael, I’ll let you comment on the inventory side.
David Martin
David, just quickly, before you go.
David Wolf
Sure.
David Martin
The travel and the conferences and things like that, was that fully normalized in Q2 or was it only partial Q2 normal?
David Wolf
Again, I’ll let Michael amplify. My understanding is it was fully normalized in Q2. And, in fact, probably maybe in some ways greater than normalized because we increased some of our trade show presence to really make a statement, in part because we’re now just a much bigger company, and in part because it’s been so long and I think that we’re seeing very much a return to normalized travel. But as we all know, travel costs have significantly increased.
Michael Bruns
Right, and David, thanks for the questions. I’ll take the last one first, which is, yes, fully normalized in Q2, but we have a — had, rather, a large European and actually international trade show in Q3, so that normalization will continue and actually increase a bit in Q3. And in our industry, showing up and being at trade shows illustrating new products, talking with customers and distributors is a key component of growing our sales and market share. So, we’re continuing to invest in that. Relative to inventories, we are continuing to, as David said, there’s often little notice or no notice when a supplier says, “No, we can’t fulfill this PO.” So, we are — each one of the operations is continuing to look at key components which are significant in a fully assembled piece of scientific instrumentation that we specialize in. So, we are investing in those key components, increasing those, and I fully expect the — a good, smart use of our cash investment is to continue to try to grow those inventories and try to attack some of these supply chain challenges as best we can.
David Martin
Okay, thanks.
Operator
And our next question comes from Tania Armstrong from Canaccord. Please go ahead with your question.
Tania Armstrong
Good morning. Well, just continuing on the line of questionings on supply chain issue, I know you mentioned in your commentary that it had a several hundred-thousand dollars’ impact in Q2. I’m wondering if you can be a little bit more specific in quantifying the impact on revenue.
David Wolf
Yes. And I think that’s really in part because you’re now getting into all sorts of what ifs, well, if we add — if this had happened we would have shipped this. And I think we don’t want to over — be over-explicit about something that’s hard to measure. We know that we had significant backlog in — one is a major product line and we certainly can measure and quantify a couple of orders that we know at the end of the quarter just didn’t get out the door because the components didn’t arrive till a few days later. On the other hand, there’s always that slippage from quarter to quarter. So, I think it’s certainly bigger than it is now. And you can attribute it to supply chain. But I’m a little reluctant to try to quantify too much of that.
Tania Armstrong
Okay, thanks for that. And then I think you also mentioned that there was significant growth in equipment sales in the EMEA region. I’m wondering if you can give us a little bit more color on why that happened and what products that pertained to?
David Wolf
So, it’s a little bit hard to know the why, as always, because even though it’s significant for us on a kind of worldwide demand basis isn’t really meaningful. But I think it’s an indication, in part, that some of the supply chain issues that we saw in Q1 were solved. So, some of that backlog that shipped, and also just emblematic of continued demand and investment for the equipment. We’d — it’s not a function of — just to be clear, it wasn’t a function of, let’s say, significant new lab builds or something of that sort. But we did have one of those in the U.S. So, it’s a — I think it’s more of business, it’s maybe — call it, business as usual or maybe business returning back to business as usual.
Tania Armstrong
Okay, excellent. Thank you so much. I’ll get back in the queue.
David Wolf
Thank you.
Operator
Our next question comes from Kyle Bauser from Lake Street Capital Markets. Please go ahead with your question.
Kyle Bauser
Great, thanks. Hi, David and Michael, thanks for all the updates here. Maybe a couple questions on the organic growth outlook. So, just kind of curious given that Hamilton can outfit a full lab and offers a complete suit of offerings, which is pretty unique from what I understand, compared to a lot of your competitors. Has this become more of a competitive edge in the current environment where a lot of healthcare organizations are significantly slowing their contracting process for your products and vendors, so, I guess, in other words, has your full suit of offerings been kind of a big asset in helping to drive new and existing business?
David Wolf
So, I think I can say, strategically, yes, it’s absolutely a competitive advantage, and that’s one of the reasons we have, with intention, continued to add to our product offering so that we can be one of the very few providers in the individuals countries that we serve that can really outfit significantly part of the lab or even everything that’s required in the lab. And you can really count them on less than one hand, maybe less than a couple of fingers the number of companies that can do that on a true worldwide basis. We think the trends in consolidations at the clinic level will help make that even more of a competitive edge going forward.
As you say, vendors, and whether they’re in a hospital environment or in a privately-owned clinic environment look to — or our customers, I should say, look to, some degree, consolidate their vendors and have fewer relationships that they have to manage. So, we think that’s an important element. And again, as more of those, particularly the for-profit consolidated chains become internationalized, the ability to at least have some offering, if not really full capability in all the markets where they might be located is — will continue to be important.
Kyle Bauser
Sure, thank you. And I guess regarding the expected strong organic growth rate going forward, I mean how should we think about internally developed products? So, I think, historically, growth has been about two-third M&A and a third organic. I guess, how will some of these next-gen versions of internally developed products drive this or is it more just a function of strong relationships, pricing in white-glove service, et cetera?
David Wolf
So, I think it’s all of the above. So, thank you for asking. I’ve had — we are continuing to be rolling out new — whether it’s new products that we develop ourselves or new next-generation of existing products. So, I don’t think you should expect to see any significant, a catalytic event in half of this year or the first-half of next year relating to some major new product. It’s really on a quarterly basis; we’re always rolling out new products. We could probably do maybe a — I don’t know if I want to say a better job, but maybe be a little more — provide more visibility on those product releases on a quarterly basis. That’s maybe something we should think about so you have a sense of that activity. But I think really what’s driving, well, our stronger organic growth is, I think the two key points are the continued strong demand on a — apparently a worldwide basis for IVF-related products and ART-related products, and our ability and our proving competitive position that we through again having a complete product suite, having more direct sales and support personnel. And how we’re positioned is I think you’ve used it perfectly as a white glove service provider as opposed to a maybe like a pick and pack provider.
Kyle Bauser
Okay, great. Thank you. That’s helpful. I’ll jump back in queue.
David Wolf
Thank you.
Operator
Our next question comes from Stefan Quenneville from Echelon. Please go ahead with your questions.
Stefan Quenneville
Hi, guys. Thanks for taking the question. My first question, and I’m sorry, if you mentioned already, can you please tell me the constant currency servicing consumables growth during the quarter and the second question is your days payable are down during the quarter, is something changing with in terms with your suppliers? Are you guys having to sort of pay to get access to products for them? Is there something changing the dynamics with your suppliers? Thank you.
David Wolf
So I’ll comment on the first one, again, maybe one small comment on the second and move it to Michael for to amplify, where we are on our days to pay. So, in terms of constant currency growth in consumables, we don’t break out that number on a published basis. I can tell you, as I said in our remarks that our equipment business grew much more significantly than any other part of our business, in part, again because of the addition of the IVFtech products and in part because of strong demand. Constant currency consumables were certainly very, very strong. And again, we don’t break out those numbers.
Stefan Quenneville
Okay, and there’s nothing going on in that business. Just it’s the most of the currency impact. So, that’s fine. Okay.
David Wolf
Yes, I don’t think there was anything on this quarter in terms of our consumables business. And Michael, if you want to respond on the vendor — I guess our vendor management or supplier management payment.
Michael Bruns
Sure, payables are down a bit, which is obviously an investment in cash. So, some of that is seasonal, whereas Q2 we typically have more pay downs and our purchases in April, May and June, some of our suppliers be in Europe, do summer shutdowns of their facilities. So, we tend to have to buy in advance, so some of our prepaids have gone up. And we also have to buy enough in advance, we literally buy with a 30 day payable and pay in June. So, some of that is seasonal, you do have a good observation that some of our vendors are actually requiring pre-payments that weren’t before in order to move to the top of their queue in terms of shipments, some of our key suppliers actually [technical difficulty] deciding which customer, they’re going to actually put on a partial or full time basis. So, in cases we’ve actually invested cash and in prepaid to assure that we get to the top of the list in some of those instances, so large payments to some of the supply issues, some of our challenge and trying to address those, yes.
David Wolf
Yes, I will add. Obviously, if we’re in a position where we’re trying to replace a component that we normally buy from our study, trusted supplier, and we need to go buy it in a spot market. We’re often paying for that with either cash advance credit cards or other sorts of things, because we just need that product and as Michael said, we want to jump to the head of the queue especially if it’s a vendor, we don’t work with all the time.
Stefan Quenneville
Great. And maybe one last question, with the — I guess the weakening euro and pound versus the U.S. dollar, is that changing anyway your calculus in terms of where you’re looking for M&A opportunities?
David Wolf
So, I guess the quick answer is no, to repeat I think a comment that I’ve made in the past in different contexts, while we have no kind of at the top of the funnel over 200 companies that we look at little less than half of those, 70 or 80 of them are targets that we think would really make sense for us and only a small portion of those are truly actionable in any given time because it takes too long to complete a transaction. So, while we have a big enough, kind of if you think of the funnel 200 down to maybe 70, or 80, down to somewhere in the range of less or more than 1000, that are absent on a given time or at least having an active discussions with, it’s a big enough funnel that you can feel confident that we can complete a deal. But it’s not so big that we can say, “Hey, we’re only focused on either a particular geography or a particular product set, or something of that sort.”
That being said, obviously today, we’re going to be assuming we don’t believe that the hero is going to stay down forever, potentially no further down on long-term, it’s less expensive for us to buy a business in Europe, we buy a business, convert our dollars into euros, and buy less expensively. And then, as it continues to perform, we take those earnings in higher value currencies. I would point out though we do keep a fair amount of our cash in those currencies. And that’s been in order to from those businesses, they’re updated, their operating cash flows and those sorts of things. And obviously, this tax when we read repatriated cash, so we do manage that. And that’s how they said to be clear, that’s also had an impact on the cash balances from a balance sheet perspective. And I think Michael in fact had quantified that in his remarks.
Stefan Quenneville
Great, that’s it from me, guys. Thanks.
Operator
Our next question comes from David Martin from Bloom Burton. Please go ahead with your question.
David Martin
Yes, thanks for taking the follow-up. I’m wondering if you can give us some color on the uptick of a Gynemed cell culture media products in the U.S., are you gaining business, I think you’ve characterized it as a slow grind before are you seeing an inflection point ahead, where the rate of uptick will increase? Are you getting sales only when new labs are built, or are you going into existing labs and displacing products? Is everything back to would you say, pre-COVID levels, and this is a full launch at this point? And then finally, are any of the supply chain issues impacting the Gynemed products or is that more just on the equipment side?
David Wolf
That was I think three or four part question. So, I’ll try to remember all the parts, I didn’t scribble them down as quickly as I could have. So, in the last one on supply chain, though, we’re not seeing any supply chain issues on the Gynemed media. So, that’s the good news. And in general, we’re not seeing classic supply chain issues on most of our consumables except versus some plastic ware, which again as we’ve discussed in the past, it’s not our key product lines, it’s most of the supply chain issues that we see are on the capital equipment side, and then sort of adds to the lumpiness of capital equipment.
In terms of progress on the media side, I’m actually very happy to say we’re starting to see some significant acceleration on that. Not so I would be a little hesitant to call it an inflection point, I think we’d like to see a couple more quarters of continued growth. And I want to also be clear; it’s still not in any way a material amount of revenues. And so, it’s again a slog, the long slow growth, but the nice part about it, is that kind of a cumulative growth, you capture a customer, you continue, you sell them, and then as you get a new customer, you ideally if you do well, you sell more and it grows over time. At some point, it could become more at least geometric, I don’t know that it’ll ever become exponential. But we’re not there yet. I don’t want to get too ahead of ourselves. So, I am feeling better about it than maybe at least from body language perspective than I might have been this time last year.
In terms of product, we’re having good success with our products that have, I would say are more on the more highly differentiated products, which makes sense if you think about it, that we have certainly cell culture media that has really a high level of differentiation, and people have been more willing to okay, I’ll try that out because I can understand how that might, in fact, have a significant improvement of results and we’re seeing again orders and reorders of that. And I think to your last question, it’s clearly a combination of both some new labs but more into existing labs where we already sell other products. And as we’re in there talking to them about those products, we also bring up the media line and again over time through repetition, persuasion and prove by doing things like trials and allowing them to see that it can, in fact, have a positive impact on results. We’re seeing those sales, those sales grow, again try to measure my enthusiasm, but at least we’re seeing some positive signs, which is good.
David Martin
Are any of the customers taking your full suite of products? Or is it the vast majority, just taking the occasional differentiated products?
David Wolf
I think most of them are. And I think that’s consistent across nearly all media even in Germany, where we have the Gynemed Media is very well accepted, almost no clinics will standardize on an entire media line. They just view again the Lab Directors views. One part of their role is to select best-of-breed products that match their particular methods in their lab. And they tend to be selective, and they like a certain product for this particular purpose, and like a different product for a different purpose. But the idea of at least being in there with starting to open the door with again, the more differentiated products gives us the opportunity to add more and more over time.
David Martin
Okay, thanks.
Operator
And our next question comes from Paul Stewardson from iA Capital Markets. Please go ahead with your question.
Paul Stewardson
Good morning, David and Michael. Thanks, just calling in on behalf of Chelsey. Just wondering, can you give us a — now that you’ve been through this a few times, it sounds like in terms of a supplier rationalizing a niche component, what does the timeline look like for being able to re-engineer or find a new supplier for a given niche component in one of your products?
David Wolf
So, I hate to answer the question with maybe a question that but it’s almost like which product, and it really can vary pretty significantly. So, I’ll give you a couple of real life examples, just so you can think about this. So, we have had some issues with our steady trusted camera supplier was unable to provide us with a significant quantity of cameras, we had to find a different supplier. And it requires a few software tweaks to make sure that that that camera operates as you want, because our software essentially will control the camera.
So, you need to do some combination of software and firmware, make sure you have those controls, you do that, you activate those controls. So, the actual work in that case is not all that significant. But then the work really begins because now that we’ve changed out in this case, let’s say a camera, we have to go through as part of our quality — as part of our under our quality management system, we have to sort of document that change properly in accordance with the Quality Management System, completely test it to be sure that they’re — that it works properly. So, effectively revalidate that system, and then put it together all the rest of the documentation that’s customer facing. So, they can see, what this because we sell those as a system not as generally as cameras, a standalone product, so, changed the instructions for you. So, the manual change, and certain service notes. So, there’s a lot of overhead that goes with that. So, the work can be a couple of days, and then it takes as much as a month or two, before you really can get it out the door.
Other cases, you might have, let’s say, an actual true electrical component that’s not available, resistor, a diode, maybe a chip. And then it’s a little more complicated because you need, you can’t just drop in a camera, which is essentially the finished goods, you have to go out and find a replacement product with exactly the same technical specifications, and then potentially re-engineer or if you can’t re-engineer some of the other products in that circuit to allow it to work. So, that can take maybe a little bit longer on the engineering side. But then you end up still, in that case, it’s a little bit less from a documentation perspective, customer facing because customer doesn’t need manual to resistors changed, but we need to be sure that we’ve really thoroughly documented that change and tested it in the light. So, again, I think it can be certainly weeks minimum and even a month or two, an ideal situation that works more possibly is we find an alternative supplier of exactly the same components, which is for whatever reasons — you know, as it is available where our primary supplier doesn’t or discontinued product, as you can imagine, there were all sorts of surplus providers who have — that probably make their living selling these kind of niche products. And that will significantly cut down on the engineering side. But, that usually comes at a pretty meaningful cost.
Paul Stewardson
That’s very helpful. Thank you, David. And just in terms of these different supply chain issues as they come up, in terms of how much you can mitigate that with inventory management, do you have a sense? Is it realistic to be able to sort of get short list of which components are more likely to have issues and really concentrate of those for inventory management? Or, is it pretty much heading across the board and you really just have to increase everything?
David Wolf
So, great question, and the problem is — yes, for certain of course. And in this part again back to our quality management system. As part of quality management system, we are required to both rank our suppliers and rank our various products in terms of sensitivity to — for example, some products might have just a primary supplier or even it’s even self-sourced, obviously, that’s a critical component that we have a much greater inventory.
In other cases — and this is what makes it so challenging is the supply chain issues are just seemingly extremely random. A classic finished good like laptop computers suddenly goes from lead time of two weeks to eight weeks. Now again you can probably find them somewhere in the supply chain at a higher cost, or, we can go and just — you know, specify a different laptop computer for working with kind of — sale of our laser systems or as the control system for our incubators or whatever it is, you just need to go through a significant amount of testing to feel confident of your medical device that there is no change. So, I don’t think there is — we do our best, and I think we have actually done a pretty good job on it, because we are talking about I guess meaningful for us, but still a single digit variations on a quarter-to-quarter basis in terms of our when have these supply chain issues, but it’s — I don’t know if there is nothing in the world to be able to solve every problem.
Paul Stewardson
Fair enough. Thanks for the color. Really appreciate it. And thank you for taking my question.
Operator
And our next question comes from Julian Hung from Stifel GMP. Please go ahead with your question.
Julian Hung
Hi, this is Julian speaking for Justin today. My first question is following the Supreme Court ruling on the Roe versus Wade case, have you seen any changes in consumer behavior? And moving forward, there could be any impact on the business?
David Wolf
Yes, so that’s a great question. I appreciate somebody bringing that up. So, I think again without moving into a complete const control analysis and the [FS transfusion] [Ph], just to remind that the recent decision, the God decision which essentially overturned Roe versus Wade did not in and of itself say that at least on a federal basis that abortion is illegal or that there is going to be more regulation of reproductive rights. What it did is it said this is say state situation.
So, it goes back to the states to figure out what they want to do about it. As we have seen — so, I should say by the way, we have seen no impact of this on our business. And have incurred of any specific change in consumer behavior thus far our patient behavior thus far. The reasons we are concerned about it is as is everybody is twofold. One is a number of states put in the so-called “Trigger Laws,” that said if Roe versus Wade overturned, their laws would come into effect that would impact and create restrictions on abortion. Some of those were from an IVF perspective very carefully written and were clear that as they thought about it that the definition of an abortion would be specifically relating fetuses at certain ages or embryos that were implanted, and others were not so carefully written and it’s unclear, in theory, that they, as we say, could be applied to embryos in the laboratory.
Most of the — as I said, most of those laws were carefully written, and certainly any laws that we’re aware of that have been proposed after the fact, so I think everybody, and again, not to get into the individual states too much, but Indiana just adopted a pretty significant restriction on abortion, and it explicitly defined the — an embryo as being — an implanted embryo, so explicitly carving IVF out of it. Our view is, over the long-term, as this settles out through combination of the courts interpreting those laws, the legislatures getting together and putting together laws that they actually intended to use instead of these sort of trigger laws that were just there in case, and sometimes, frankly, more political than actionable — are thought to be more political than actionable, that it’s highly, highly likely that in all states or at least virtually all states it will be very clear that IVF is not intended to be impacted by, again, the overturning of Roe v. Wade.
That being said, we have to be cognizant that there’s entirely some possibility, however remote, you can — I guess you’re as good a sociologist as I am in trying to figure out what that percentage is, that certain states could, in fact, try to restrict IVF for some reason. And in which case we would then, again, it would end up likely going through the courts, and either being upheld or not upheld. To me, that seems like a fairly unlikely — unlikely, and therefore unlikely to really have a meaningful effect on our business. I’ll add one more statement, and then I’ll move on in our — take a follow-up question, I guess, if needed, which is, to be fair, labs today are very unbelievably careful about embryos.
They’re very protective of embryos; they don’t dispose of them without careful thought and consent of the patient. So, in some ways they’re — there’s unlikely to be really significant change in some behavior — in clinic practice even if there were some — a more restrictive — more restrictive protections of embryos in place. And then, I guess, the last possibility is, okay, some state decides to put provisions in place that just make IVF more difficult there. And then there’s, clearly, the concept that people will travel, as they do for other medical procedures. And we certainly see that all over Europe, where there’s a pretty significant medical tourism business because of restrictions in certain countries.
So, that was a clearly long-winded answer, I hope was helpful.
Julian Hung
Yes, it was very helpful. I just had a follow-up question on price increases. With the price increases that’s been implemented so far, have you seen it similar to what your competitors have been doing, and do you expect any further price increases later in the year?
David Wolf
Yes, so, in terms of — maybe to answer three things. So, one is, we do a, generally speaking, annual price increases for our product lines, in most cases in consumables. This is on — just has been steady practice over the years. In most cases, those have been on the consumables and services side, where we go up single-digit percentages. And then on the capital improvement side, we tend to keep the price relatively stable. And then when a new generation of existing product is introduced, that’s when we think about prices increases and implementing price increases.
This year, again, specifically because of supply chain issues, including increased costs of commodities and all the other things that we’ve been talking about, we increased our consumables fairly consistently with what we’ve done in the past, maybe a little bit more but not wildly more, and did significant increases on our capital equipment. Good news is we didn’t — nobody likes prices going up, but we didn’t see huge pushback from that, and I think that really gets to your second point or maybe it was your third, but, there, which is our price increases were very consistent with what others are doing in our field and what other people are experiencing. So, I don’t think we were out of the ordinary at all. We, with some modest exceptions, we are not planning to do across-the-board price increase — a second across-the-board increase this year, but certainly will — to be applied during 2022, but certainly we’ll do one in late 2022 to apply for 2023.
Julian Hung
Okay. Thank you very much for taking my question today.
David Wolf
Thank you.
Operator
[Operator Instructions] And, ladies and gentlemen, in showing no additional questions, I’d like to conclude today’s question-and-answer session, and turn the floor back over to David for any closing remarks.
David Wolf
Well, okay, thank you very much. And I’d like to reiterate my thanks as I’ve done in the last few quarters to all of our stakeholders, our employees, for example, who’ve just shown remarkable resiliency and dedication to our business, to our customers and other business partners who’ve continued to work with us and grow our business, and to our shareholders and the analysts who are on this call for a couple of questions and the support you’ve shown to — and they have shown to our business. So, with that, I would like to encourage you to go to our Web site, which is www.hamiltonthorne.ltd for more information on our company, products, initiatives, and further investor information. And as I said, we will certainly — that’s the end of this call, and we’ll certainly see in the November timeframe with our Q3 results.
Operator
And, ladies and gentlemen, with that, we’ll conclude today’s conference call and presentation. We do thank you for joining. You may now disconnect your lines.
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