Hamilton Thorne Ltd. (OTCPK:HTLZF) Q3 2022 Earnings Conference Call November 22, 2022 9:00 AM ET
Company Participants
David Wolf – President and Chief Executive Officer
Francesco Fragasso – Chief Financial Officer
Conference Call Participants
Kyle McPhee – Cormark Securities
David Martin – Bloom Burton
Justin Keywood – Stifel
Christopher Pu – iA Capital
Tania Armstrong-Whitworth – Canaccord Genuity
Stefan Quenneville – Echelon Capital Markets
Operator
Welcome to the Hamilton Thorne Limited Third Quarter 2022 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, 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 provide — 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 the quarter ended September 30, 2022, which filings are available under the company’s profile at www.sedar.com.
During this call, the company may reference adjusted EBITDA, constant currency and organic growth 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 for further information and reconciliation of adjusted EBITDA to net income.
Now, let me turn the call over to Hamilton Thorne’s CEO, David Wolf.
David Wolf
Thank you very much. Good morning all and welcome to the Hamilton Thorne Limited third quarter 2022 earnings conference call. I would like to introduce myself. I’m David Wolf, President and CEO of Hamilton Thorne. I would also like to introduce Francesco Fragasso who is on the call with me today. Francesco joined Hamilton Thorne as our Chief Financial Officer on September 1.
Before Hamilton Thorne, Francesco served as CEO at several public and private organizations focused on manufacturing high technology products. Francesco started his career with Deloitte, where he spent about 10 years in auditing and corporate finance advisory services. I believe that Francesco has global manufacturing and business operations experience, and both an entrepreneurial division of very large public company as well as most recently CFO of a somewhat smaller or somewhat larger than Hamilton Thorn standalone public company, with complex worldwide operations will serve Hamilton Thorne well as we continue to grow.
I would also like to take a moment to recognize and thank Michael Bruns, our retiring CFO for his years of dedicated service to the company, during which our company grew from mid-single digits to where we are today nothing, just about $60 million in sales.
This morning’s call is in the following format. First, I’ll provide a summary of operational and financial results for the quarter and the nine months ended September 30 2022 with a focus on sales markets and operational performance. Francesco will follow with more detailed discussion of financial results for the periods as well as a review of our financial position and liquidity. And I will return for a few minutes to provide some information on our outlook for the balance of 2022. We will then open the line-up for questions. I would like to remind – audience that we did 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 third quarter of 2022 was an extremely strong quarter for Hamilton Thorne. We continue to see strength in the fundamentals of our business with well above market organic growth of 17% for the quarter, and 12% year-to-date. I’m also happy to report that supply chain issues is somewhat in the quarter leading to fewer delays in production and shipping.
Reported sales results continue to be negatively impacted by exchange rate fluctuations, our European and U.K. operations. Our sales of $13.5 million were up 6% and versus the price euro U.S. dollar basis, up 17% on constant currency basis, meaning that foreign exchange translation reduced reported revenues supported by approximately $1.3 million.
Let me give you some of the highlights from our performance. Sales as I mentioned increased 6% year-over-year to $13.5 million for the quarter and increased 14.7% — 14% or 41.7% for the nine month period. Sales, cost and currency which eliminates FX fluctuations I mentioned earlier, increased 17% for the quarter and 22% for the nine month period.
Organic growth was 17% for the quarter and 12% for the nine months. Gross profit as a percentage of sales increased 100 basis points to 48.5% for the quarter versus 47.5% in the prior year period, and was 49% for the nine months ended September 30. Adjusted EBITDA increased 3% to $2.1 million for the quarter and increased 4% to $7 million for the nine month period.
Sales into the human clinical market grew significantly faster than our overall growth and continue to be the largest target market coming in at about 90% of our revenues. Sales into the animal mark ART market were also up for the three-and-nine month period while sales into the research and cell biology markets were somewhat down for both periods.
Sales into the Americas and the EMEA, Middle East African regions grew for both periods while sales into AsiaPac were somewhat down partially as a result of renewed COVID-19 related lockdowns in China. From a product perspective, our equipment business continued to have the largest growth in both periods, largely due to the addition of the IVFtech product line, as well as growth of equipment sales in the EMEA region.
Gross profit margins, as I mentioned roughly 100 basis points versus the prior year due to product mix, as well as the full impact of price increases that we instituted at the beginning of this year, are being recognized. EBITDA margins were down somewhat got somewhat down this quarter at 15.6%, in part due to the impact of currency fluctuations, and those expenses increased due to continue to play an aggressive investments in growth, as well as inflationary pressures leading to increased personnel costs and other expenses.
Our operating expenses were generally in line with expectations with travel and tradeshow expenses returning to historical levels, and increased costs associated with maintaining investments in R&D, investments in sales and other personnel to support our growth.
I will now turn the call over to Francesco to provide a more detailed discussion on the numbers.
Francesco Fragasso
Thank you David. Good morning, everyone. I’m Francesco Fragasso CFO at Hamilton Thorne. I’m very excited to have joined Hamilton Thorne team. I will briefly highlight the third quarter, September year-to-date financial results. David already provided an update on the sales and gross profit. So I will focus on other elements of the income statement, as well as the cash flow and liquidity of the company.
Operating expenses increased 20% to $6.7 million for the quarter, and 21% to $19.1 million for the nine month period. Expense increases were primarily due to the inclusion of IVFtech expenses post-closing of the July 2021 acquisition and increased costs associated to the investment in sales and other personnel to support growth. The return to pre COVID level for sales and marketing activities is also a factor for expenses increase.
Overall increases in operating expenses were in line with our expectations. Interest expense in the quarter decreased 11% to $103,000 due to the payment of outstanding principal on term loans and increased 15% to $322,000 for the nine month period, due to the additional term loan incurred in July 2021 to finance the IVFtech acquisition partially offset by interest we earned on the company cash deposit.
Income tax expense for the quarter decreased to $337,000 credit and decreased to $185,000 expense for the nine month period. This was primarily due to the reduction in income before taxes.
Income tax expense included the federal income tax recovery expense of $431,000 in the quarter, and $367,000 in the first nine month period. Those are non-cash increase of the company deferred tax assets. Net income for the quarter was $99,000, a decrease from net income of $249,000 in the prior year. Net income for the nine month period decreased to $930,000 from $1.6 million in the prior year. This is primarily due to increase operating expenses.
Adjusted EBITDA, which we consider an important metric for our financial performance increased by 3% to $2.1 million for the quarter, and increased 4% to $7 million for the nine month period. This was mainly due to revenue and gross profit growth offset by the negative impact of foreign currency exchange headwinds, as well as planned increase in operating expenses.
As a reminder, adjusted EBITDA is a non-IFRS measure. Please see our reconciliation of adjusted EBITDA to net income for the quarter and year-to-date in our management discussion and analysis report we filed today.
Turning now to the company cash flow and balance sheet. The company cash balance at the end of September was $15.7 million compared to $17.9 million at the end of December 2021. The decrease of $2.2 million in cash balances was primarily due to reductions in U.S. dollar in cash accounts, maintaining European currencies, due to fluctuation in exchange rate of approximately $2.4 million as well as working capital fluctuation, including continued investment in growing inventories to support expected growth and mitigate potential future supply chain issues.
The company generated cash from operations of $908,000 in the quarter and $471,000 in the first nine months of 2022. The return to quarterly positive operating cash flow shows that the company has recovered from COVID-19 impacted quarter.
Cash used in investing activities in the quarter was $1 million and $1.9 million for the nine months of 2022. Those were related to the on-going investment in product development, and capital expenditure for equipment and Demo units. Prior year uses of cash included the total cash payment of $6.7 million in connection with the 2021 acquisitions.
Cash used in financing activity in the quarter was $350,000 and $800,000 for the nine months of 2022. Those were mainly related to payment of scheduled term loan and lease obligations. Net of about $900,000 proceed from working capital line of credit. Notes payables and term loans outstanding totaled $5.4 million at the end of September 2022.
At the end of September 2022, the company continued to have a strong liquidity position of $27.4 million, including $15.7 million in available cash and $11.7 million in additional borrowing capacity. This liquidity availability makes us well positioned to support our acquisition program and financing expected growth.
I will now turn the call back over to David to comment on the company outlook. David?
David Wolf
Thank you very much. Looking forward into the balance of 2022, we continue to see or feel that we are in a strong position. We expect solid sales performance based on positive industry trends in our field that we’ve discussed many times in past calls, and as demand and growth in general have returned to pre-pandemic levels in nearly every market that we serve.
Fourth quarter bookings continue to be strong and barring new supply chain issues, we expect to continue to achieve well above market organic growth. We feel that we are well positioned to continue to execute on our strategy of driving long-term growth and EBITDA expansion by investing in our organic growth or building scale, enhancing our product offerings and expanding our geographic and direct sales footprint through acquisitions.
As I mentioned in my opening remarks, supply chain issues, we didn’t use somewhat in the third quarter, or perhaps more accurately, we built our inventories and processes to be better equipped to handle them. That being said, I don’t think we are out of supply chain issues going forward. And we continue to see the possibility for continued quarter-to-quarter variability in sales and margins as we continue to work managed supply chain issues, as well as inflationary pressures, all of which though I would mention are the type that we believe are affecting all the market participants and in our field.
Finally, I should mention that while European currencies have strengthened recently against the dollar, they are still down significantly versus Q4 in 2021, and this weakness will continue to affect our reported results for the quarter. Regarding M&A activities, we have an extensive pipeline are actively working on multiple acquisition opportunities. As Francesco mentioned, we have $27.4 million of liquidity, and additional debt capacity, we feel we’re well positioned to be able to complete the types of transactions we have in our pipelines.
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 and our team’s ability to execute on our strategy of driving long-term growth in EBITDA expansion. And while building scale and expanding our geographic product offerings.
We’ll now open the line-up for questions. Thank you.
Question-And-Answer Session
Operator
We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Kyle McPhee from Cormark Securities. Please go ahead.
Kyle McPhee
Hi, guys, thanks for taking my question. Just on the on the topic of margins, you had to move down for EBITDA margin percentage versus what we’re used to seeing from you. Can you kind of give us color on quantifying that split between kind of the labor inflation and it sounds like growth and investments that are triggering this this lower margin and also do you plan on taking more pricing to offset this kind of higher OpEx level costs?
David Wolf
Yes, well, I’ll comment briefly. In terms of gross profit margins again, they were actually higher versus last year. So we have seen the effect of our pricing actions take place. I will say that our goal in increasing pricing as we did in the first quarter, and then I’ll address what our plan is for next year was to maintain margin. So we did not see this as an opportunity for margin expansion. And that’s a strategy position that we make.
We do intend to have price increases again in first taking effect in the first quarter of this year. Similarly, our strategy will be the same, which is we are doing our best to address both past price increases, and what we perceive to be future increases. It’s a little bit of a you can imagine a crystal ball. So, I think in hindsight, even though Mark can throw up a little bit from the quarter versus last year, there probably was more price increase we should have could have or should have done in order to maintain margins.
So I think that had overall had an effect on margins as certain things such as labor costs, inflationary cost shipping and the like, continue to increase. It is also beneath the surface of your level of impact a mix on both margins and EBITDA margins. And finally, as we mentioned, our expenses reflected both a return to more normal expense levels, particularly around trade show and spending. So that was certainly an increase versus last year, as well as some investments that we’ve made in, I would say, and again, each of these is relatively small but important in improving our business, expanding our capacity. For example, bringing on Francesco while keeping our former CFO online as for a period of time, so some double payments in there. So in many events is a number of small things.
Kyle McPhee
Kind of okay, that’s helpful color. That’s it for me. Thanks.
Operator
The next question comes from David Martin from Bloom Burton. Please go ahead.
David Martin
Good morning. You mentioned that the consumable while the equipment growth was the strongest so I’m assuming consumables lagged a bit? Is that a leading indicator that maybe IVF procedures are slowing down a bit? Could we be seeing an impact of economic downturn?
David Wolf
So we don’t believe that’s the case, I shouldn’t have probably been put a little more color on this, in that most of our consumables, as you, as you may know, are sold into are sold into European markets. We have been and we’ve been talking about trying to increase substantially our consumables in the U.S. And while we have increased them, it’s still a relatively small number. So consumables on a constant currency basis, actually growth was fairly strong. Consumables on a reported basis were significantly impacted by particularly the euro versus dollar changes.
David Martin
Okay. As far as trying to increase sales in North America, of the consumables, what are there things that you’re doing, special programs to get that done in DC and inflection for that category of products at any time soon.
David Wolf
So we have has had pretty good success with increasing our some categories of our consumable products, particularly the our pipe, our glass micro tools, the pipettes that we sell, which are under the guidance, that name, and we’ve increased sales of those fairly significantly on a percentage basis. And it’s now becoming, I wouldn’t say it’s a huge number, but it’s now becoming a meaningful number. As we have discussed on a number of occasions, one of the larger opportunities for us, is to increase our media sales in the U.S. again, the cell culture media, which is the liquid that supports the cells while they’re outside of the body. We have seen progress on that, particularly in the last two quarters.
And I’m therefore a little more hopeful that we’re going to see some meaningful sales net, but I would say the numbers are still very small. For 2023, we tend to put significantly more effort into all consumables in the U.S. and including both external programs to promote sales, which are sales, marketing and promotional and internal programs to promote those sales which would include incentive schemes.
David Martin
Okay, great. And then to the supply chain issues. How many basis points would you say the supply chain issues took away from the gross and EBITDA margins and when do you think you’ll get those back once supply chains have normalized?
David Wolf
Yes. So that would be a unfortunately, a fair amount of speculation. For me, I don’t know, maybe I’ll turn it over to Francesco after I babble on for a bit. But I believe, there are some areas where it’s easy to quantify. For example, freight in absolutely, is can be as much as 100 basis points. And freight out gets paid for, as you can imagine, for the most part by the customers, there are some costs that we, from a personnel perspective, we absolutely increased some labor costs, some of our labor costs increase, because we feel it’s incredibly important to maintain our loyal, dedicated and skilled workforce versus employee turnover. In fact, our employee turnover is extremely low. Others are much, much harder to calculate. So my estimate, which I’m not sure I’d want to stand behind, is probably 200 basis points. But it’s, again, a little bit of an estimate, not as mathematically derived as I would like.
David Martin
And it sounds like some of those things like the increased labor cost to keep the personality that may not reverse, even once things get back to normal, I guess.
David Wolf
So I would say that’s not going to reverse. But on the other hand, we don’t see that happening again, if that makes sense to you.
David Martin
Yes. Got it. Would you say then that like 15% to 16% is the new normal for EBITDA margin?
David Wolf
No, that’s, that’s still, I would say, on the lower side for what we would expect to see on an on a normalized basis, now you’re asking a little bit about predictions about what next year is going to do from a — we have approval on the things that we can can’t control, which are some of the supply chain issues and, and cost inflation. So I would say next year is still going to have likely to have some EBITDA that’s going to be lower than our historical levels and lower than our longer term goals. But no, I wouldn’t say that structurally permanent. So again, I think there’s going to be a 2020 path [Indiscernible] 22, first half of 23 phenomenon more so than anything else.
David Martin
Okay. And then, much — much like your revenues, where you see some seasonality as seasonal uptick in Q4, you also tend to see that in margins as well, I assume that’s because you’re selling more on the same sized overhead and is that correct? Like a what I see in the EBITDA margins rising in Q4. Is that correct?
David Wolf
Yes, because in the short term, again, we have essentially the same fixed costs in Q4 tends to be much bigger number. So I would say that’s accurate.
David Martin
Okay. Okay. Thank you.
David Wolf
Thank you.
Operator
[Operator Instructions] Our next question comes from Justin Keywood from Stifel. Please go ahead.
Justin Keywood
Hi, good morning, thanks for taking my call. Just on the foreign exchange headwind, quite substantial in the quarter. And I think I heard in the opening remarks that this is expected to persist. Are you able to give any context to that comment? And also if there’s anything that Hamilton can do as far as hedging to try to negate that headwind?
David Wolf
Yes, so let me respond briefly. And then I would like to turn it over to Francesco to maybe amplify. So in terms of headwind, just to give you my way of example. We for purposes of our P&L, we use the average exchange rate for the quarter. For the balance sheet, we do it a little bit differently. And so just to give you a sense, in euros, the average exchange rate in Q3 of last year was almost $1.18. This Q3 of this year was about $1. So a huge, huge swing. The average exchange rate in Q4 of last year was about $1.14. This is all USD Euro. And right. So far, this month, it’s slightly under $1. It’s shown some strength, so it may be coming back so that that’s compressed a little bit, but it’s still pretty significant difference. So when from 17% difference, but they’re 14% difference.
So those are, those are still meaningful numbers. But as you start to laugh that, Q1 of this year, had a much lower exchange rate in Q2 and Q3, so eventually those become less significant. Francesco, do you want to add anything to that? I’d – talk to them.
Francesco Fragasso
Yes, yes, and to clarify those are not actual realized losses, those are difference that are by translating our business in Europe or functional currencies, namely the euro, to U.S. dollar. So you will see in our quarterly report, there is a substantial unrealized difference on exchange rate, both on the cash flow and on other comprehensive income, which is exactly by translating to a lower exchange rate, revenue that pulled that thing translated to different rates last year. Of course, looking at the future, we can’t make any prediction where the exchange rate is going, although we are seeing is likely improvement of the foreign currency versus U.S. dollar.
Justin Keywood
Understood. Thank you for the context. And then my other question, we saw in the quarter Walmart to start offering IVF services as a benefit to its U.S. employees. And I imagine, they’ll likely be other corporations that that followed suit for I think, historically, services that haven’t that have been paid out of your pocket. I’m just wondering if you’re seeing this type of announcement translate into any increased activity in the States. And how do you see that trend playing out if that’s anticipated to perhaps lead to even more robust organic growth going forward?
David Wolf
Sure. So that’s a great question. I would say, particularly, we’re focused on the U.S. here, and then you could we could talk about other markets, and it may be worthwhile talking about Japan as well. But in the U.S., as you know, IVF is largely an out of pocket cost as private pay. There are a handful of states relatively small number that do require a insurers our employers to offer IVF benefits. But that’s a that’s, that’s the minority. So there’s been a little bit of a hodgepodge of response to that.
So one example, is private insurers that have they prefer to be called benefits managers, I think, insurers that offer employers who want to offer an IVF benefit for either because they’re self-insured, or because they are in a state that doesn’t have a mandate, do they want to offer to their employees, and that’s been a trend that has increased pretty substantially. Mostly, it’s been taken up by larger corporations, often those who are in the higher end of the revenue, or maybe pay scheme from an employee perspective. So knowledge worker companies like banks, insurance companies, Facebook’s the Googles of the world have begun to offer these kinds of things. And just to give you some, some numbers, those there are I believe, the most recent numbers are somewhere between five and 6 million covered lives on that which has probably doubled over the past couple of years.
So you can see that trend, continuing. What the Walmart situation I think is interesting in two respects. One is Walmart is the largest private employer in the U.S. So just from you know, it’s going to have a significant impact. And their employee census tends to be a little bit different than the kinds of people who’ve been getting these private company benefits in the past. So it may augur well for continued, I guess democratization of these benefits, which again, clearly, just to put in context, clearly, the more public pay there is, or private insurance or public insurance however it’s sponsored. The other way, the less the less, it’s out of pocket is much proven greater correlation to IVF usage.
So clearly, more subsidization however, it’s not of IVF increases the overall usage of IVF and will have a positive impact on our on our business. In terms of seeing that, certainly the Walmart announcements a little bit too early to tell and just given the geographic scope of their operations, I’m not sure whatever we would ever get to see it in particular, in such a clear way. That being said, just to give you an example, New York, state of New York in 2020, mandated that employers offer IVF coverage large employers lawyers [ph] with over 100 employees offer IVF coverage to their employees, so that a significant number of new lives were covered by IVF coverage. And in that case hard to quantify but to be fair, but we absolutely saw a — into 20 getting 2020 was, was never a year in some ways, but as 2020 develop into 2021 continue a greater than expected growth in that market, both in terms of sales, but particularly in terms of lab expansions, new lab activities, as the labs are much greater usage than they had previously seen. So I hope that was, I know, somewhat of a long winded answer, but I hope that that covered, covered the waterfront and your question.
Justin Keywood
Yes, no, I really appreciate it. Sorry, you mentioned something about Japan.
David Wolf
Oh, yes. So that’s a good point. So we tend to be focused on the U.S. in some ways, but remember that our business is truly an international business was over 70% outside the U.S. So in the spring of this year, Japan, which has, as most people know, a very significant demographic, demographic challenge with low birth rates, and not having not been able to replace the population, and unlike certainly, Canada, and to an extent the U.S. is not as not very welcoming for immigrants. Japan instituted better basically subsidies for IVF, and mandated insurance for IVF. So almost 100 million or more Japanese now are covered, covered by IVF. Obviously, population getting IVF smaller number than that.
So that’s an example of a very large country, expanding IVF overnight to address in this case, a very specific demographic problem. We’re also seeing, as long as we’re on the topic of geographic, greater geographic expansion. We’ve also heard about transparencies not as good as it is in Japan, that there are some regions in China that are beginning to experiment with our pilings, probably more accurate, doing pilot projects to pay for IVF. Again, because it causes differences in Japan, China sort of fall back and fall into the one child policy. But also, we have a country facing a huge demographic shift.
Justin Keywood
Thank you. Very helpful.
David Wolf
Thank you.
Operator
The next question comes from Christopher Pu from iA Capital. Please go ahead.
Christopher Pu
Good morning, David and Francesco. Thanks for taking my questions. I’m calling for Chelsea. Just got a question on the M&A side. So regarding the kind of the current pipeline that you have, like, do you see perhaps taking advantage of U.S. dollar strength? And going after maybe geographies, specific geographies? And just kind of wondering like in the pipeline, the things in the pipeline? Are they kind of similar with the size of acquisitions in the past? Or how does it compare with your — what do you looked at in the past?
David Wolf
Thank you. So just to kind of put it in context, the way our field is, in terms of the companies that supply the kinds of products that we supply to IVF clinics, the way it’s broken out, as there are a — relatively small number of large players, which were one of the larger players, sort of less cell — less than 10. And then a long list of no run round numbers 150 Plus, of companies that are 20 million or less in revenues, most of which are under $10 million or $15 million, less revenues.
Also, given the historical nature of IVF where it began in Europe, and has much higher per capita usage of Europe, in Europe, a lot of the companies that we would even look at as targets tend to be based in Europe. So I would say that, in terms of size, the size of transactions we’re most likely to do would be consistent with what we’ve done in the past. But that’s not necessarily because that’s all that we target. It’s because that’s what’s most likely to happen, because there were just so many of them, more of them available in terms of geographic location. And I think, by the way, this would apply to maybe specialty of product as well, while there are a large number 150 Plus and about half of which we qualify in as, solid targets that we could be interested in doing something. It’s a big enough number of fields that you can have confidence that you can complete a transaction. But it’s not such a big number that you could say.
Well, this year we’re going to focus only on this geography or this year, we’re going to focus only on this product or service category and maybe they’ll get the intersection of those, you might end up with only one company that’s in a particular country and a particular order particular product. So we tend to cast a wide net, we’ve got a very structured and formalized program to stay in contact with all the potential targets. And we’re then therefore is those targets work through the pipeline, we can be fairly systematic and thoughtful about which, which particular company, we may want to engage in or go, accelerate, which ones we may want to slow down for whatever reason. So I think the overall point is, is probably accurate, which is because of the law of averages, we’re more likely to do transactions with, in countries where our currency is favorable. But it’s not all that we’re, we’re working on.
Christopher Pu
Okay, great. Just a quick follow up question to that. Does your company have maybe like a long-term target, like leverage ratio or debt ratios at all?
David Wolf
So we’ve been pretty conservative on a leveraged basis. We’ve been generally two to two and a half times in total debt-to-EBITDA, and feel that that’s a comfortable ratio. We certainly would extend that in certain circumstances. For example, if we were to look at an acquisition that because of the size and the nature of our balance sheet, required more debt that we would look at, extending that. But generally speaking, given our relative conservatism, it would need to be an asset that had very, very strong cash flow, and therefore was going to bring us within ratios that we’re more comfortable with relatively quickly. Or I suppose that we thought we could bridge to an equity offering relatively quickly, but that some more speculative thing.
That being said, and maybe I’ll defer, again, to Francesco to talk about this as well. I think in today’s market, and today’s interest rate environment, we’re probably we’re still comfortable with debt, because we think that’s obviously lower cost of capital in many ways. But today it doesn’t feel like the time we should be getting too far over our skis and leveraging ourselves up. Okay, Francesco, do you have anything you’d like to add?
Francesco Fragasso
No, in you described very well, we continue to have a strong cash flow. So that will support potentially to leverage more, but we are taking a relatively conservative approach. We are also in an environment where our spending term loan at an average interest rate is about 4%. Going forward, that cost is expected to increase. So that will be also a factor in the decision of financing M&A going forward.
But as we said in our opening, we have a strong liquidity position today between available cash, unused line of credit and additional capacity we can tap into to find the right opportunity.
Christopher Pu
Okay, great. Thanks for answering my questions. I’ll jump back in the queue.
Operator
[Operator Instructions] Our next question comes from Tania Armstrong-Whitworth from Canaccord Genuity. Please go ahead.
Tania Armstrong-Whitworth
Hi, good morning. First off, just a follow on your past line of questioning on the private coverage. I guess on the alternate front, if we do see any kind of mass layoffs, especially in those larger companies that you were talking about in the tech industry, particularly, I guess, what is the impact to cycle volumes? Can you talk to what you saw in past economic downturns, whether that comes from out of pocket pairs or privately covered lives? How we thought the sake of volumes trend?
David Wolf
Yes, so there’s sort of two different questions embedded in there. One is sort of the more general, which I’ll answer, and then I can maybe give some indications on specific about, how maybe the tech layoff might affect the other coverages that they get. But in general, what we’ve seen in the most recent, measurable COVID had obviously, it’s very different. So we – I’m leaving the last couple of years out of this. So we look at data from 2008 to 2010, which was the most recent, very significant economic downturn. I’ll leave it to the macro crowd to determine if there is a recession coming, which I guess some people even still question how deep it will be. But I would say other than the most pessimistic bears among us, most people aren’t viewing that. Well, we’ll see what happens with crypto, I suppose. But most people aren’t viewing that there’s going to be the kind of potential for global meltdown that we saw in the 2008 timeframe so I would say what happened in 2008 to 10 might be indicative. But I don’t think anybody’s expecting the same kind of results on a macro basis, as it affect our sector, we have good data from U.S.
As one of the things we like about this field is virtually every country has natural national registries, where most of the clinics, in some cases, all the clinics, registered their results. So you know what actually happened? It’s not guesswork about the cycle, cycle counts and usage. So with the 2008, 2010 timeframe, we saw a flattening of demand in the our finding of cycles. So in the U.S., obviously, we related to demand. And I think there was a couple of one year what was down 1%, but not the kind of trough you might see in things like which are similar costs, in some ways from a household perspective, like, say, housing or automotive where the demand curve dropped off completely.
So we think, the field is somewhat written up, nothing’s recession proof, but fairly recession resistance. And given that, and then, coming out of that we saw a much higher than average growth rate. So again, pent up demand and a return to return to some, some normality. In Europe, where there’s much more social coverage, whether it’s insurance or subsidies or state run clinics and hospitals. We didn’t see we saw a slight a contraction in in growth. We saw still saw growth during that that period. I won’t say the U.S. is, I guess it’s more similar to Europe than it was — that now, we’re talking almost quite, you know, 13, 14 years ago, in the sense that there was more coverage, but it’s not as insulated as Europe is.
So I would say, if we see a really significant recession, you will see some contraction in demand is no, I think it would be hard to believe that we would be completely recession proof. But on the other hand, this is a field that, that the clock is ticking for, for users, and they have forces people, frankly, to make some I guess, I guess, difficult choices. I will say on in this as anecdotal, I guess on your first question about how things like layoffs could affect this. The one of the major companies that does do this benefits management, again, for the Facebook’s and Googles of the world, who at the same time, are you as you said, notice, laying off people who just goes went through just announced their results. And their perspective is from the employer side, they are not seeing people retreating from offering this as a benefit or reduce reducing their, reducing coverages. They’re seeing the — their uptake to be as, as stronger, stronger. They also measure actually utilization and utilization has been pretty similar to what it’s been in prior periods. So again, we’re mindful potentials around recessionary issues, but we certainly haven’t seen it today.
Tania Armstrong-Whitworth
Okay, that’s very good. Thank you, David. And then secondly, I don’t think I saw it anywhere in the written remarks. But have you added any new direct sales people in any of the geographies that you entered? I guess, last year would have been to Australia and then Nordic countries, are you selling more of your kind of legacy U.S. products into these nations direct?
David Wolf
So we don’t normally comment on like individual hires, Director, happy to answer the question. We try to keep them to more kind of bigger picture, we entered a new territory or enter the new thing. So just to let you know, in the last year, and I want to make sure I’ve got my dates, right. But certainly over the last year, we have hired another person in and again, this is either sales or, or our field support in some of our new territories in Nordics and in France. We just extended an offer. I don’t think she started yet to a new person in Australia from a sales perspective. So we are kind of expanding but again, our, as a — our general approach is to be more incremental, then an evolutionary than revolutionary so he’s not going to see us say, Hey, we’re going to make a huge commitment to this market and go hire 20 reps and try to some other market where we’re much more of a add judiciously here and there. So yes, we continue to add people, I think we added somebody in the U.S. as well just to give you a sense in the first half of this in the first half of this year so we’re still, still adding on as needed.
Tania Armstrong-Whitworth
Thank you. And then just lastly, for me. I think you disclosed this last quarter, which is why I’m asking again for this quarter, you were able to provide the FX impact on revenue for Q3, are you able to break out the FX impact on EBITDA?
David Wolf
Yes, so Francesco and I were having an office earlier, trying to quantify that. But my sense is, maybe there are too many moving parts to do it as effectively, but also we let Francesco comment on that.
Francesco Fragasso
Yes, I can address that question. On the revenue, just to start with the top line, the effect of the exchange rate has been $1.3 million in Q3, and $3 million for the nine months of 2022. So by translating revenue in foreign currency to the prior year exchange rate, those will be revenue would have been higher by $1.3 million in Q3, and $3 million for nine months. When it comes to the EBITDA, that is the same effect on the rest of the cost. So we estimated on the EBITDA the FX and net effect is [Indiscernible] I’m talking the adjusted EBITDA. And probably we are at less than $100,000 on the quarter, and less than 200, or about $200,000 for the nine months of 2022.
Tania Armstrong-Whitworth
Okay, that’s helpful. Helpful, thank you so much, Francesco. That’s all for me.
Operator
The next question comes from Stefan Quenneville from Echelon Capital Markets. Please go ahead.
Stefan Quenneville
Hi, guys, thanks for taking the question. Just a quick modeling question. I see that CapEx is sort of ticked up a bit to about a $3 million run rate for the year. It’s a bit higher than it’s been in the past. And obviously, you guys are investing in growth? Is it reasonable to keep it at that level kind of going forward?
David Wolf
Yes, so I’ll jump in, and then it’ll just keep going directionally. So we’ve got a number of projects that we’ve been working on, particularly this year, that are more infrastructure projects, including systems enhancements. And in the like, we’ve also, CapEx includes investments in aren’t, the capitalized portion of R&D? So I would say that, on a on a, that that number, and is probably as you note has increased, increased substantially this year. But on a percentage basis, that’s probably not a whole lot different than when it’s been historically, so I would think that’s likely to be where we are — I don’t know, Francesco, again, you’d like to expand on that.
Francesco Fragasso
Yes, the main investment, of course, there is the usual update upgrade of equipment, some demo unit but it’s really the capitalization of some product development expenses. And those are not, they might vary according to the stage of the development that are stage of development that are equipment intensive, or that are more type of labor in engineering work. So I don’t think is a trend. It really depends on the on-going activity. And what is the on-going project in terms of product development. And the IFRS are pretty straight in dictating the requirement for capitalizing those types of activities. So we have always a conservative approach.
Stefan Quenneville
Okay, great. Thanks, guys.
Operator
Our next question is a follow up from David Martin from Bloom Burton. Please go ahead.
David Martin
Yes, thanks for taking the follow up. I wanted to go back to Tanya’s first question that you mentioned in economic downturns cycles didn’t, the number of cycles annually didn’t get affected that much. What about your business equipment sales? Did they stay relatively stable as well? And I guess that would extend to lab build outs as well.
David Wolf
Yes, good question. So I would say I’m happy to answer the question because I can answer it naturally, but I’m not sure how relevant it was, in a sense that if you cast your mind back to the 2008, 2010 timeframe, Hamilton Thorne was a very, very different company. We were single digits, revenues 95% capital equipment, nearly a third to half of our business was focused on General Laboratories, and you may remember flows have been around, and there’s a lot of emphasis on — it was an interesting idea, but never really panned out as well. And then we stopped doing it on a stem cell market.
So it’s, it’s, it was a different business, so I’m not sure I would generalize it too much. But that being said, it was a challenging time for CapEx. That point, we saw that, certainly the lab or the general lab customers, and some of the more, some of the start-ups were having trouble financing products. We didn’t see it as much, I believe in the at the IVF clinics, but that’s a little harder for these, frankly, certainly remember, we can might be able to find the data. And at that point, we weren’t at all involved in full lab build out. So we have I would say, I can’t give you any comments on that.
David Martin
Okay, I guess the U.K. right now is having more economic difficulties and a lot of regions and you bought planer, a couple of years ago, what are you seeing in the U.K. as far as your business?
David Wolf
So again, there’s some confounding factors there. But I’ll answer very optimistically, but then put the button there are very, very positively. So our U.K. centric business has grown dramatically over the past couple of years. And this year continues to grow. It’s primarily a segment or call it legacy business, the long established planar business that has been around for years and years and years, where we continue to support those customers and the addition of primarily consumables products over the past, really, since the beginning of 2021. That has been by far our largest our largest growth area of those consumable products. That includes both HTL branded consumable federal and Guinevere [ph] products, as well as third, third party consumables.
So again, I think that’s a confounding factor, because when you enter a market, you’re bound to see significant, I would say significant growth. That being said, as we’ve reached a level of, I wouldn’t say maturity, because it’s still, we’ve been doing this for a couple of years, though, that we’re not seeing anything that indicates a slowdown in cycle usage from a that’s recessionary recession based. We did see just and by the way, contrary to maybe what you’re you might expect, the U.K. is largely a private pay market, the NHS has, slowly but surely over the past several years, increased funding and the local councils which actually administer the funding have decreased funding. So it’s becoming a market that looks more like the U.S. in terms of both demand and pay factors than let’s say it was even five or 10 years ago.
David Martin
Okay. Thank you for that color. That’s it for me.
Operator
This concludes our question-and-answer session. I would like to turn the conference back over to David Wolf for any closing remarks.
David Wolf
All right, well, thank you very much. I would like to reiterate my thanks to all of you on the call, and most importantly, to our, our, that our company, our employees who continue to show remarkable resiliency and dedication to our business, as well as to our customers who ultimately support and the patients who are the backbone and other drivers the demands in our fields. The Americans on the call. I like to wish everybody a Happy Thanksgiving and look forward to again are seeing you all on our next conference call. Thank you very much.
Operator
The conference has now concluded. Thanks for attending today’s presentation. You may now disconnect.
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