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Welcome to the Hamilton Thorne Ltd. Second Quarter 2020 Earnings Conference Call. Before turning the call over to your host today, please be reminded of our standard public company policy on forward-looking information. Certain information presented or otherwise discussed on this call may contain forward-looking statements. These statements may involve, but are not limited to, comments relating to strategies, expectations, planned operations, product announcements, scientific advances or future actions. This information is based on current expectations that are subject to significant risks and uncertainties that are difficult to predict. Should one or more risks or uncertainties materialize or should assumptions underlying the forward-looking statements prove incorrect, actual results, performance or achievements could vary materially from those expressed or implied by 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, to -- the company's management discussions and analysis for the quarter and 6 months ended June 30, 2020, which filings are available under the company's profile at www.sedar.com. Now let me turn the call over to Hamilton Thorne's CEO, David Wolf.
Thank you very much, and good morning, and welcome to all to the Hamilton Thorne Ltd.'s Second Quarter 2020 Earnings Conference Call. I would like to introduce myself, I'm David Wolf, President and CEO of Hamilton Thorne. On the call with me today is Michael Bruns, our Chief Financial Officer. This morning's call will have the following format. First, I'll provide a summary of operational and financial results of the quarter and 6 months ended June 30, 2020 with a focus on our sales, markets and operational performance. Michael will follow with a more detailed discussion of our financial results for the period as well as a review of the financial position and liquidity. I will then return for a few minutes to provide some information on our outlook for the remainder of 2020, during which I will address the COVID-19 virus' impact on our business in more detail. We will then open up the line for questions. I'd like to remind all the participants that we do not provide financial guidance so I would ask you to limit your questions to either historical financial periods or general trends in the business. I'll begin with our sales results. As we discussed last quarter, the first quarter of 2020 started off very strong with sales results tapering off towards the end of Q1, and that of those -- that tapering continuing into Q2 as the effects of the COVID-19 pandemic impacted our core markets, which obviously had a meaningful impact on second quarter and year-to-date sales results. Let me give you some of the highlights of our performance. Our sales decreased year-over-year to $7.3 million for the quarter. Sales for the 6-month period, however, increased 13% to $17.7 million. On a constant currency basis, that's similar sales decline of 8% and an increase of 14% for the 6-month period. Gross profit also decreased and in this case, 9% year-over-year to $3.8 million for the quarter and increased 10% to $9 million for the 6-month period. We incurred a net loss in the quarter of $594,000 and for the 6-month period of 490 -- $449,000, largely due to sales and gross profit reductions due to the COVID-19 pandemic and noncash loss due to the change in [ fair ] market value of our derivatives. Adjusted EBITDA decreased 63% to $573,000 for the quarter, decreased 21% to $2.4 million for the 6-month period. On an organic basis, sales in U.S. dollars declined 20% for the quarter, down 19% in constant currency. And for the 6-month period, sales declined 5% in U.S. dollars, 4% in constant currency. Cash used in operations was $791,000 for the 6-month period, primarily to fund increased inventories. And we ended the quarter with total cash on hand of $18.5 million. A little bit deeper dive into our markets. Sales into the human clinical market were down for the 3-month period and slightly up for the 6-month period due to reduced demand for most of our products and services in most territories as many IVF clinics reduced their activities. Sales into the human market in the second quarter were also negatively impacted by production delays in our incubator product line that were exacerbated by COVID-19-related supply chain problems. Sales into the cell biology/research markets grew substantially during the 3- and 6-month period, primarily due to the contribution from the Planer acquisition, augmented by strong toxicology testing equipment sales. Sales into the animal breeding market were also up for both periods. Gross profit margins declined slightly to 51.7% for the quarter and 50.8% for the 6 months ended July 30 versus 52.2% and 52.1% for the comparable periods in 2019. Michael will address this in more detail in his remarks. The company reported that operating expenses were generally in line of expectations with reduced travel and trade shows, expense, offset by increased personnel costs associated with maintaining our committed pre COVID-19 investments in sales and support personnel as we opened a new territory in France and continued to add sales personnel in other markets. I will now turn the call over to Michael to provide a more detailed discussion on the numbers.
Thank you, David, and good morning, everyone. I am Michael Bruns, the CFO of Hamilton Thorne. Thank you all for joining us this morning. I will review the second quarter and first half of 2020 financial results, along with our balance sheet and liquidity. Second quarter total sales of $7.3 million, as David indicated, were significantly impacted by the COVID-19 pandemic and decreased 8% or $677,000 from the $8.0 million in the previous quarter, and sequentially fell $2 million from the $10.3 million achieved in Q1. 6 months year-to-date sales for 2020 were $17.7 million, an increase of 13% over the $15.7 million in the prior year first 6 months. Total equipment sales decreased 4% to $4.9 million in the second quarter, comprising 41% of our total enterprise sales. Planer operation contributes primarily equipment sales to the HTL product mix, but nearly all markets saw capital equipment orders deferred by customers due to COVID-19 shutdowns. 6 months 2020 equipment sales were up 29% to $7.8 million. Equipment sales were 44% of our 6-month sales, up from 39% in the prior year, also primarily attributable to the addition of Planer equipment. Consumables and services decreased 12% to $4.3 million in the quarter, impacted directly by clinic shutdowns due to the pandemic worldwide. 6 months 2020 sales increased 4% to $9.9 million. Consumables and services comprised 59% of Q2 enterprise sales and 56% of 2020 sales in the first half. Gross profit of $3.8 million decreased 9% in the second quarter ending June 30, down from $4.2 million in the previous year's quarter and increased 10% to $9.0 million for the comparable 6 month periods. Gross profit as a percentage of sales decreased slightly to 51.7% for the quarter, and 50.8% for the 6 months due primarily to product mix. In addition, this year of somewhat lower project -- lower-margin sales of Planer products and partially offset by increases in direct sales of higher-margin branded products. Margins were also negatively impacted, primarily in the second quarter due to certain relatively fixed costs of manufacturing that are spread over a reduced pace of sales in Q2. This volume-related burden added approximately 2.5% or 250 basis points of cost to the Q2 gross profit of 51.7%. Operating expenses increased 14% for the quarter and 27% for the 6 months ended June 30 to $4.1 million and $8.3 million for the 3-month and 6-month periods, primarily attributable to the addition of Planer expenses acquired in August 2019, acquisition-related intangibles and new product amortization expenses, our continued investments in sales and support resources put in place prior to the onset of the COVID-19 pandemic, increased R&D spending and increased general and administrative spending. Excluding Planer additions and prior year acquisition costs, operating expenses increased 5.2% in Q2. Pandemic-related cost savings included substantial trade shows, spending cancellations, travel eliminations and some reduced staffing costs. Research and development expenses increased 37% to $561,000 for the quarter and increased 43% to $1.2 million for the 6-month period, primarily due to the addition of Planer's R&D expenses post acquisition, and substantial new product amortization expenses as well as a reduction in expenses relating to the development of products, which the company capitalizes. Sales and marketing expenses increased 3% to $1.8 million for the quarter and increased 16% to $3.9 million for the 6 months year-to-date, attributable, again, to the addition of Planer expenses, including amortization of new intangibles and the continued investment in direct sales and support resources in Europe and the U.S., offset by major savings in reduced travel, trade show cancellations and volume-related commission expense, particularly in the second quarter. General and administrative expenses increased to $1.7 million for the quarter and increased to $3.2 million for the 6-month period, due primarily to the addition of Planer's general and administrative expenses, increased compensation expense related to additional staff and increased second quarter spending on professional fees related to the company's security filings and compliance, as during the quarter, we prepared and filed our annual information perspective. And for the first time, have upgraded our quarterly financial report to provide for auditors formal review. Net interest expense decreased $75,000 to $225,000 for the quarter and $153,000 to $478,000 for the year-to-date, attributable to reductions in the outstanding convertible debentures due to conversion and reduction in other long-term debt due to principal reductions, plus interest earned on the company's cash balances, all partially offset by increased term debt incurred in August 2019 to partially finance the Planer acquisition and the planned increase in the company's revolving line of credit. Income tax expense decreased to a recovery of $140,000 for the quarter, an expense of $67,000 for the 6 months period. Current income tax expense was $20,000 for the quarter and $155,000 for the 6 months due to changes in the mix between foreign and U.S. state taxes. Deferred income tax expense was a recovery of $161,000 for the quarter and $88,000 for the 6 months, while increases in the companies -- which increases actually the company's deferred tax assets. Net income for the quarter ended June 30 decreased to an actual net loss of $594,000, attributable to substantially reduced revenues and profitability due to the COVID-19 pandemic as well as a $277,000 noncash loss on the final derivative valuation. The net loss of $449,000 for the first half of 2020 is attributable to the second quarter impact of the COVID-19 pandemic and the $594,000 total 6 month noncash loss on the fair value of the final derivative valuation. The derivative is now fully converted to equity with no future exposure to noncash valuation losses. Adjusted EBITDA for the quarter was $573,000, a decrease of 63% from the $1.55 million in the prior year Q2 and the $1.8 million achieved in Q1 of 2020, due primarily to substantial revenue and gross profit decreases in the second quarter attributable to the COVID-19 pandemic, along with the planned increases in operating expenses for the periods. 6-month year-to-date adjusted EBITDA decreased 21% to $2.4 million, impacted by the Q2 performance after the Q1 adjusted EBITDA of $1.8 million achieved. We refer you to the MD&A table, which reconciles adjusted EBITDA to net income. Turning now to liquidity and the balance sheet. Company's cash balance at June 30 was $18.45 million, an increase of $5.7 million from the $12.8 million at December 31. Working capital increased to $22 million, an increase of $10 million. The increase in cash balances and in working capital is primarily attributable to the completion of our equity private placement of a net $4.9 million and the drawdown of the company's line of credit in the first quarter, which was largely a precaution against potential liquidity issues related to the COVID-19 pandemic as well as an additional COVID-19-related bank loan in the second quarter. These increases were offset by the company's reduced operating results in the second quarter as well as substantial increases in inventory attributable to reduced sales levels and intentional increases in some inventory levels as precautions against COVID-19 supply chain challenges. Payables and accrued expenses also decreased as early Q2 purchases were paid and a substantial planned payment was made for accrued interest in the convertible debentures, which matured and were converted to equity under those debenture agreements. Cash used in operations was $1.5 million for the quarter, and $791,000 for the first 6 months of 2020 after generating $709,000 in cash from operations in Q1. The use of $791,000 for the 6 months compared to $2.0 million of cash generated for the comparable period in the prior year, primarily due to substantially increased inventories attributable to the COVID-19 timing issues and precautions, together with the continued strategy of broadening our product offerings as well as increases from seasonally low inventory levels at calendar year-end. Cash was also used to reduce accounts payable and accrued liabilities, including the payment of 3-year accrued coupon interest of approximately $388,000 under the convertible debentures. Current year cash generation results was also diminished by reduced profitability attributable to the COVID-19 sales slowdowns. Cash used in investing activities was $703,000, primarily for continuing investments in equipment and intangible development costs for the 6 months ended June 30 versus $761,000 in the prior year. Cash generated by financing activities for the 6 months ended June 30 was $7.2 million, attributable to the completion of our equity private placement with net proceeds of $4.9 million, precautionary drawdown of the company's line of credit in the first quarter and the company obtaining a COVID-related bank loan, all partially offset by scheduled term loan debt and lease obligations versus $922,000 of cash used in financing in the prior year period. In April 2020, we further improved our balance sheet upon the conversion of the remaining 2017 convertible debentures, exchanging approximately $2.2 million of the outstanding accreted amount of convertible debentures plus fair value of the derivative liability on April 28, for 4,159,000 common shares in accordance with the terms of those debentures. The company has generated cash from operations since 2013 and, in normal circumstances, expected to generate cash from operations in 2020. Given the continuing uncertainties surrounding the COVID-19 outbreak, it is impossible to predict whether the company will generate cash from operations in 2020. However, the company has built a strong balance sheet, and we believe that its current cash position of $18.45 million should be sufficient to support operations for the next 12 months. In addition, we have $3 million of availability in our separate acquisition line of credit, which is an important resource in our ability to complete acquisitions at a relatively lower cost of capital. In summary, we are well positioned to support our operations in the coming months, capitalize on improving sales opportunities with our investment in inventory and work to continue our acquisition program. Now let me turn the call back over to David to comment on the HTL outlook.
Thank you, Michael. So as I'm sure all of you know, the COVID-19 outbreak continues to add substantial uncertainty to the short and long-term outlook for virtually any business, including our own. Certainly, despite the strong start to the year, we experienced reduced demand for some -- probably most of our products and services in most of the world as the first quarter developed, which expands in the second quarter as many IVF clinics reduced their activities. Just to give you some background, I think we discussed this on the last call. In March of this year, the main scientific bodies that provide guidance to IVF clinics in Europe and the Americas as well as regulators in certain countries, recommended, or mandated in some cases, that clinics suspend new procedures. Commencing in late April, guidance and regulations in most of Europe and the Americas have encouraged IVF clinics to resume operations with enhanced safety measures. Today, with some notable exceptions, such as India, our clinics in most of our major markets are open, though not always running at full capacity. Generally, our business has behaved as we expected. The return to operations, particularly in our key markets such as the U.S. and Germany, has led to a relatively quick V-shaped recovery in our consumables business, which is more or less linearly tied to clinic activity, which we continue to expect in future quarters. To add a little more color to this, as many of you know, most countries have official registries that publish annual data on IVF activity. In Germany, the IVF registry has put out monthly data during this year, which showed a significant decline in clinical procedures in March and April, about a rebound in May and June to just over 20% above prior year's activity. This -- we would be -- this should be expected as there was pent-up demand to be worked through, but we certainly expect this to be worked through at some point. In the U.S., we have less definitive information, but both anecdotal information picked up by our sales team and data published by a major provider of IVF benefits suggest that activity declined significantly, actually more steeply than in Germany, in the April time frame but is now back to, at least by the end of June, roughly 90% of utilization. Other countries, again, have -- were relatively unaffected by this, particularly in parts of East Asia other than China. And -- which we have now understand to be back to 100% open, but not quite at full capacity. While other countries, including some in Southern Eastern Europe and India, as I previously mentioned, appear to have lower clinic activity. Declines to our equipment business were less pronounced in the quarter, as we discussed, but are expected to take longer to fully recover as in a more U-shaped curve as customers continue to remain cautious about significant capital expenditures versus the must-haves of consumables. And we have more exposure to some of the slower markets in our equipment business versus our consumables business. Our service business also had some slowdowns due to travel restrictions and reductions in activity, but we expect -- and clearly, this area was less impacted during the quarter. That being said, I would like to emphasize we're reporting today on the current state of our business. There is still significant uncertainties about how quickly all IVF operations will return to pre-pandemic levels, the continued progression of the COVID-19 virus and the possibility of further lockdowns, regulation or economic conditions that may lead to further reductions in demand on a regional or perhaps even worldwide basis. Certainly, these fluctuations in demand for products and services could last for a period of time difficult to determine and could have an adverse effect on our financial results in one or more future quarters. I'd also like to add a few comments and reiterate Michael's points on how we improved our balance sheet in the quarter. As noted, during the quarter, we did a $5.2 million financing gross, $4.9 million net, completed an additional $775,000 term loan and completed the conversion of approximately $2 million of convertible debt. Accordingly, we maintain a strong balance sheet with cash on hand of $18.5 million and net bank debt of under $10 million to support our continued investments in growing our business and acquisition programs. I'd like to add that despite the uncertainties around COVID-19, we continue to work on the acquisition program with a goal of completing one or more meaningful acquisitions every 12 to 18 months. However, certainly, the effects of the COVID-19 could impact this as well. In closing, I would like to thank all of our employees who have shown remarkable resiliency and dedication to our business and to our customers, and to shareholders and the support you have shown our company. We'll now open the line up for questions.
[Operator Instructions] Our first question comes from the line of David Martin with Bloom Burton.
First question, your organic decline in sales of 20% look pretty good versus your competitor Vitrolife, which declined 45% in the second quarter. I'm wondering if you have ideas as to why your business was more insulated.
Yes. So I think it's hard for us to answer that because, in part, we certainly don't have detailed information about Vitrolife's business and the dynamic of their business. We'll note that overall, we've grown faster than -- on an organic basis than Vitrolife. And we've also had more consistent organic growth, where other participants in our field have had organic growth, it's been up and down, up and down. So this may, frankly, have just been a -- an incident of timing. I think we also benefited, in part, as mentioned in my earlier remarks, from the fact that we have -- certainly in our consumables business, exposure to most of our consumables business is in markets that rebounded as -- fairly quickly. And we don't have a lot of exposure in the consumables business to some of the slower markets. That, of course, on the flip side, has affected our equipment business to a certain extent. But again, we didn't see the lows that we saw in the consumables business. And again, that might take us a little longer to get to the highs.
Okay. Next question, and I was dropped off the call partway through, so I may have missed this before I got back on. But your launch of cell culture media in the U.S., what's the status of that?
Thank you for asking that. We did not address that in the prepared remarks. So we have decided to do a soft launch of cell culture media in the U.S. We are actively sampling right now with selected customers. I think as we mentioned in our last call, we concluded that at a time of significant uncertainty when clinics are, in fact, closed and reopening and with all the things going on, it's really not always the best time for them to be thinking about changing certain parts of their key procedures, they are focused on other things. But we feel, again, that things are relatively normalized from an operational perspective in the clinics. And that now is a good time for us to begin putting an effort onto the cell culture media. Again, as I cautioned in the past, while cell culture media is the single largest area of spending in the IVF lab, there are multiple products within the various product families within cell culture media. And it's, again, a difficult area to break into because people get very committed to the kinds of media and systems that they have. That being said, I think we're still -- we're very optimistic about the business. But we just want to be cautious that it's going to take time to build that business. But once you build that business, it should have very strong kind of recurring and annuity value.
Okay. Great. Last question. Is there a delay in your equipment sales business between an order and when you ship and book revenues? In other words, if like sales activity for equipment was the lowest in Q2, were you still getting -- were you still shipping orders from Q1 and booking those revenues? And will Q3 actually be -- should we expect it to be weaker in equipment sales than Q2?
So that's a multifaceted question. I guess, I'll try to address it. If I don't quite hit it, please ask a follow-up. So clearly, in every quarter, from a -- so I think from a revenue recognition perspective, generally, we recognize -- and I'll ask Michael to augment this, we recognize revenues on capital equipment when they're shipped. Certainly, if it's sold to distributors, and we had no continuing obligations, we absolutely recognize when it's shipped. When it's sold to end-user customers, it's really a question of whether there are continuing ongoing obligations that need to be performed, in which case, we defer revenue recognition. So in every quarter, for reasons like that and also other things that might come up, there are always some level of capital equipment orders that are in backlog or that maybe could have shift in Q2 -- in a particular quarter get pushed into the next quarter. So the -- so that's sort of the overall dynamics of the business. And in terms of the last questions you asked, again, I prefaces, and I won't say it but every question that people start asking about what the future might hold. We don't know whether there will be a return or resurgence of the COVID situation that would affect business. But that being said, we certainly have no reason to expect that Q2 was an unusually, let's say, high equipment quarter and took business out of Q3. So I would expect Q3 to be at least similar and, frankly, probably better than Q2 from an equipment and a shipment perspective.
Our next question comes from Ammar Shah with Eight Capital.
David, congrats on the quarter. First question from me on the acquisition front, it sounds like not much has changed, but I was wondering if you could comment on how the sort of valuation paradigm has perhaps shifted or not shifted for that matter due to COVID-19? And kind of whether the outlook on the capital spending front has shifted or not from your standpoint?
Yes. So I'll comment in a couple of different ways. So first of all, we do not give out, obviously, a lot of forward-looking information on the status of our acquisitions. It's such an important and catalytic event, and there's obviously uncertainty about it. And until you have a deal, you don't have a deal. So we don't talk about -- too much about the status of acquisitions other than to repeat what I've repeated in the past that we have an active process, we have a number of conversations going on at any given time. We've tried to do that so that we have little optionality, and we can select which company or product line might look best for us. But I can't comment on the sort of the status of acquisitions. In terms of valuations, I think again, public company valuations are obviously different than private company valuations. But as you've seen, our valuation has -- at least our major sort of pure-play competitor have actually rebounded back to a higher point from our kind of post-COVID lows and even pre-COVID periods. So I think the markets continue -- public markets continue to understand that IVF's long-term growth and long-term growth potential, and it's a strong business that -- and I won't tell you the business, but the value -- the valuations have not really, really declined. In terms of the acquisition front, there aren't a lot of deals done. So as far as I know, there have been no reported deals from -- since the COVID situation. So we don't have any data on whether valuations are up or down. And clearly, if you look at it from a -- the feedback we've gotten is from the kinds of companies that we're -- and on products that we're most interested in, and which are high-quality products, solid businesses with revenues, profitability and all those kinds of things. When we talk to the sellers about valuations, their perspective is the COVID situation is a transitory event. I'm financially stable. I would never sacrifice my valuation and sell it at its time of weakness. If it made sense to do a deal, we'll do it now, but we're not going to compromise on valuation. We have seen some, what I would call, kind of weaker businesses, who maybe have a little more desperation, who've been much more fluid on their thinking about valuation, but those are less attractive to us.
Got it. No, I appreciate the color there. And you had given a little bit of an anecdote in your prepared remarks, but I always find those to be helpful. I'm wondering if you can maybe shed a little bit of light on what you're seeing from your customers at the sort of IVF clinic level in terms of actual business flow and what they're saying about sort of volumes if they're going to -- if they think that there's a sort of uptick coming up. Or is this sort of going to be a little bit of a standstill for a bit? Or -- what is the sort of the view at that level, if you can share that at all?
Yes. So I tried to give you kind of an overview from kind of country-by-country level. And then if you go to the clinic-by-clinic level, there's variation between clinics and variation, again, between countries. But certainly, we're -- and I guess it makes sense that we're -- the clinics that are doing very well and are at/above their prior capacities are the most vocal and the ones we spend -- probably spend more time with. They are the ones who need products and services or are looking for somebody to come in and do work, are talking about running out of capacity and thinking about other -- whether it's capital equipment, and others. And obviously, the slower clinics, to a certain extent, are probably hiding there, putting their head in the sand, at least as it reflects to us. So it's a mixed bag. I don't want to be over enthusiastic about it. But clearly, again, like in the one country, we have really good data, which is in Germany. Our clinic usage is above this time last year, above average usage over the last couple of years. And -- but the flip side is we think that's, again, pent-up demand. We don't think the overall demand for IVF has gone up over 20% during this period. And that, that will stabilize. But I think that's actually pretty good news in some respects.
Our next question comes from the line of Devin Schilling with PI Financial.
I was wondering if you guys could provide a bit of color on the sales pickup between April and June. I don't know if you guys can quantify this in any way. I'm assuming demand was significantly higher at the end of the quarter compared to the start of the quarter. But -- yes, any information here would be helpful?
Yes. So again, I would say it really varies, to a certain extent, depending upon the type of product line. So in terms -- we generally have, as most companies do, we generally see the third month in each quarter is a little bit better than some of the -- potentially some of the prior months. If you look at it from the consumables perspective, clearly, we saw sales grow pretty significantly from the April to the June time frame, very much consistent with -- they kind of make -- the V-shaped curves that I've talked about. Equipment business, it really gets back to one of the questions we -- was asked a little bit earlier, tends to have a slightly different kind of tempo to it because it's not a -- get an order, ship at the same day. It's not more -- it's not a fulfillment business where you're constantly fulfilling the orders to satisfy the needs that -- of the day. Capital equipment tends to have longer lead times, tends to have longer production cycles. Certainly, if we buy third-party capital equipment to, let's say, integrate with some of our systems and deliver an entire workstation, there can be double the problems with lead times, both lead times for our equipment and the lead times for other equipment. So the capital equipment tends to have a slightly different tempo. So I'm more reluctant to look just at monthly changes and assign too much significance to those.On the services side, as I think we've talked in the past, it's a little more of a stable business. We did have some impacts and some of it is, in fact, volume-related. And we had some travel impacts that were more problematic in the April, let's say, in the June time frame. But we -- I wouldn't say we saw a huge pickup in that from month-to-month.
Okay. No, that's helpful. I guess turning to my next question here. Did you guys receive any government wage subsidies during the quarter? And I guess, was this reported as a reduction in G&A?
Michael, do you want to take that on?
Sure. So as we've reported, we did successfully apply for and receive a Paycheck Protection Program loan from the U.S. government under the SBA and local banking regulations. That did help us to plan and stabilize our workforce in Q2 and contributed to stabilizing jobs there. We would have seriously had a look at layoffs otherwise. So it was definitely impactful and definitely a benefit. The current accounting is under two situations: number one, the regulations from the SBA and the government are not yet out relative to the forgiveness side of that program. We fully expect to be primarily forgivable, but we need to see final regulations in order to assure ourselves with that and obviously finish the application, which is not yet available from the government or any individual bank that's due out in late August. And finally, the accounting for that is still somewhat up in the air. But the current thinking is that it will be a gain on debt is how IFRS would look at that. And it would not be up in the operating expenses as a reduction of operating expenses. It would be shown as other income pickup items similar down in the same category on our P&L with the derivative gain or loss, interest income, interest expense, et cetera. So in other words, below the operating line is the current preliminary thinking on the accounting for PPP forgiveness. But nothing is cast in stone yet.
Okay. No, Michael, that was very helpful. I guess, lastly here, any update on a potential U.S. cross listing, I guess in regards to timing and have all the specific requirements been met?
Yes. So in terms of a U.S. listing, as we've talked about fairly openly, we think that is a very sensible thing for us to do at the right time. My long experience in business has convinced me that I shouldn't make -- set expectations that we can't keep. So we're -- since we don't have a particular need to do this, we're not going to put out time frames until we're really committed to it.
[Operator Instructions] Our next question comes from the line of David Martin with Bloom Burton.
A couple of follow-ups. That last question about the PPP loan, that will only go into other income in future quarters if you get forgiveness. It wasn't in other income this quarter. Is that correct?
That's absolutely correct. So it's recorded on the financials as a loan right now. That's our current status. It's -- no payments are required on that loan, and it is only a 1% loan, but all of that is still to be determined by government regulations. And again, our position is based on the regulations and guidance issued so far. It appears to be largely forgivable. We've maintained our labor force. And so we've complied with the forgiveness aspects as published. But until the application is: number one, available; number two, approved by both our issuing bank and the SBA; and number three, finally, officially forgiven, we obviously can't record anything further in the financial statements other than the fact that it's a loan at this point.
Okay. And another follow up...
If I could just add -- excuse me David, just add one sort of additional information for comparison purposes. So as most of you know, we have a significant portion of our workforce based in Europe. And there are a lot of European programs that were, more clearly wage subsidies and those kinds of things, based on the view that we -- at least in the consumables business, we have a relatively quick recovery and viewing that we have a very skilled workforce that we wanted to preserve, we did not avail ourselves of any of those programs, which are primarily support programs for people who wouldn't be working. So we kept our entire workforce intact in Europe. And so you may -- so -- but the point I think is very clear, we did not put any government benefits through our P&L in any period.
Okay. Got it. Another follow-up. You mentioned that some of your clinics are back to where they were or even above. I'm wondering in the U.S., what percent of your clinics fall into that category? And what percent of your sales in the U.S. would they represent?
Yes. So again, I tried to make it clear that in Germany, where we have very specific published information, we're happy to share it. In the U.S., the information is kind of at a global level sourced from another player. And we have anecdotal information from the clinics that we work with that would support. Again, even today, we received an e-mail from one of our clinics, basically saying they're bursting at the seams to -- at least over their capacity, let's put it that way. But I don't have data to support to give you any -- and I'm not willing to give you any view of what percentage it is or what percentage of our sales it is. I think that's just -- that would be too much speculation.
Okay. Fair enough. Work at full lab or workstation installs, were those delayed because of COVID. I would think so because there's more in person required work there. So were there any installs that were done this quarter or some that were delayed and will be pushed into next quarter? And what about in Q2 last year? Are we comparing against a quarter that was strong on these big installs then?
Yes. So good question. So we did not do any full lab or large full lab installations in Q2. We did a reasonable number, a handful of either workstation installations in one case, and there's kind of a fine line with what's difference between one workstation and a small lab. Where the numbers -- because the labs are several hundreds, thousands of dollars where a single workstation can be $100,000, plus or minus. So if you get a workstation and add a few things and now, it's pushing $150,000. But where does that fit? But in our -- the way we view it, there were certainly no full labs. And -- but again, actually reasonable business in the workstation side. Most of that was in Europe, not in the U.S., interestingly. Last year, we had a pretty big quarter for full lab sales. In that case, it was primarily in the U.S. So that's -- if you're comparing apples-and-apples that, again, there's always a little bit of lumpiness in that kind of business. So it's probably a little bit higher than last year and a little bit lower than maybe normal. But again, you take a handful of workstations, and it adds up to a full lab. In terms of deferrals, clearly, there were deferrals, some based on -- that may or may not get done this year. That being said, today, from what we know, the pipeline for both workstation and full labs actually looks pretty strong for Q2 -- I'm sorry, for the second half. So significantly more in the first half. It will -- again -- will remained to be seen whether some of those get pushed out for reasons that are -- have to do with the COVID situation, reasons have to do with other financial constraints people have or logistics, particularly if it's a full lab. The equipment is generally the last thing that gets installed. Before that, you need to do the build-out, putting the systems, do all of the plumbing, gas fitting, air treatment. And we've clearly had situations where something was supposed to be done in a particular quarter, and it just got pushed out to the next quarter or beyond that because of just essentially construction issues.
Okay. And my last question -- okay. Great. Last question relates to the incubator business. It looks like in research labs, your incubators were strong, but in human clinical market, it was weak because of production delays exacerbated by supply chain problems. Like why is there a difference between the 2 levels of incubator business?
Yes. So the incubators that we make are -- so just to clarify that, the incubators that we make are primarily designed for the IVF clinic. They have special features in them in terms of both, well, gas handling, segregation of samples and monitoring that adds -- frankly, adds cost to them, which is worth paying for when you're dealing with this precious thing like your embryo. And people typically aren't willing to pay for that when they're dealing with large samples of whatever kind of cell culture they happen to be working on. The specifics on the research products, a lot of those -- and cell culture media products, a lot of that is our control rate freezer business, which is also based in the U.K. And it was actually fairly decent this quarter, in part because when we came clear we were going to have some production issues with the incubators, we put more production resources into producing the freezers and got more of those out the door than we might normally have done.
Okay. So the production delays with the incubators, supply chain problems, are those solved now? And...
Yes. So everything that was delayed has been shipped. And well, who knows if they're solved because my experience in business is nothing ever stays solved forever. But everything that was delayed is shipped. We have today of those parts, ample sources through -- ample supply through the end of the year and more significantly more scheduled. As Michael alluded to, we're actually going to overbuy on some of that because now we're a little nervous. So it's been -- that company has been a reliable supplier for a long period of time. So in some ways, maybe we shouldn't be. But we're once burnt, twice cautious. But that being said, they can all -- back to the same proviso, if there's another really significant COVID outbreak or some unknown -- unforeseen problem, that we could have a problem with that supplier or more likely a problem with some other supplier. We are and have expanded our inventories to give us a little more cushion, a little more leeway on that. There always will be -- sometimes even with the most smallest component that you didn't think was at risk, there always will be issues.
Our next question comes from the line of Tania Gonsalves with Canaccord.
First, to just follow along on David's question on the Planer business. I'm wondering if you can provide any color on the quantitative decline in revenue since you've acquired it.
So -- yes. So again, our Q1 and -- our Q4 of last year and Q1 of this year were actually both very strong. I just I think we published it in -- certainly last year. I don't want to speak about but I'll get you the data in a second, but I believe they were both periods were up over the prior year and certainly up over kind of a normalized year. You may remember that the prior year had a few that we talked about, a few anomalies because when Brexit was first coming in, some of their customers would buy -- wanted to buy ahead. And so we had some quarters that were maybe stronger than a typical period and some that were a little bit weaker. So I admit it's a filibuster enough, my information here. So clearly -- so both quarters were actually pretty good. Q1 of this year was a little below Q1 of last year because that was the time when people were most worried about that Brexit situation.
And can you provide any color on Q2?
So Q2, to the extent it was below, was almost completely related to this deferral situation, the way we deferred the business. I'm a little reluctant to quantify it for a couple of reasons. One is you get into the kind of, what ifs, what if COVID hadn't happened, what would your revenue have been? So there's a little bit of that. And also, as I mentioned on the prior discussion that we managed to first change around some production, so that we kind of pulled some revenue in, pushed some revenue out. But that being said, since we do like to be transparent, I would estimate that it's probably [ GBP 200,000 to GBP 300,000 ] shift.
Okay. Perfect. That's helpful. And I'm basically just trying to get it because your organic growth or organic decline was so much less than Vitrolife. I'm wondering if including that Planer decline, it would have been a little bit more. Because you guys, you do seem you've outperformed quite well.
What we know -- maybe I didn't follow the question. So we don't include the Planer numbers in organic growth.
Correct. Exactly. So I'm wondering -- that's why I was -- if including the Planer numbers, I'm wondering if it's a little bit -- the decline is more than that negative 20%. But understood, this is very, very helpful.
Well, I think if we had thought of Planer as part of our organic growth, so if you did it on sort of a forward pro forma versus the way we do it.
Yes. Yes.
Yes. I guess, it would have been a lot -- yes, obviously, because it would have been -- well. I'd have to do the arithmetic, it would have been...
The color you provided is very helpful. And then you talked a little bit about the M&A landscape in terms of suppliers in the market. I don't know -- you might not have my insight on this, but what are you seeing in terms of the clinic side? Has there -- is there also a pause on clinic consolidation and how private equity is looking at investing or not investing more in the sector?
So I would say we don't -- first of all, I agree with you, we don't necessarily have any special knowledge on this because we don't participate in that. And we're not out there actively trying to either buy, sell or trade clinics. So this is -- I would say more based on what we pick up in the conversations we have than definitive. So the sentiment is, I continue to see and continue to hear from and hear about more and more private equity that is looking at investing in IVF in some way. So whether it's at the supplier side like us or the clinic side, there's just clearly more and more overall conversation about it. Whether those people will, in fact, pull the trigger and then actually do something. And if so, we'll -- when will that happen? I don't know. There have been -- so with that being said, I don't know, again, back to the point of announced transaction. I don't know of any announced transactions on the clinic side, but there clearly could be transactions that, for whatever reason, don't can announced.
Right. Okay. Perfect. And then lastly here, if you closed or haven't closed yet at the end of August, potentially are getting U.K. relief loan. Are there any provisions or forgiveness provisions on this loan? Or is this just a normal loan [indiscernible]?
[indiscernible] forgivable loan -- term loan with no security and low interest or no interest for some period of time. So for our view, it's -- again, one never knows what the future will hold. And it makes sense for us to buttress our cash position in that business unit. And hopefully, we'll be in a position to pay it back right on time and everything works out just fine.
Perfect. And the only criteria, then, I guess, for that, no interest period are, is it just tied to staffing?
Michael, you would know more about that and I [indiscernible].
I -- not directly tied to staffing to the best of my knowledge, we're still looking over and expecting the final loan paper work on that. However, it's far different from the PPP loans in the U.S. and then it's more of a basic business stabilization loan, no forgiveness, interest-free for a year and reduced payments in the first year, reduced or none, I think, 0 for the first 6 months, capital only is 6 months to a year. So it's strictly designed for pure capital infusion to be paid back and structured much differently than the U.S. But as David said, a, we'll take advantage of it and, b, no interest for the first year. I would expect to pay it back without incurring any significant interest as business picks back up, but one more cautionary and prudent thing for us to do to, make sure we're maximized for cash and ability to perform.
That's all the time we have for questions today. I will hand the call over to David Wolf for closing comments.
All right. Well, thank you very much. As always, we want to thank everybody for joining the conference call this morning. We encourage you to go to our website, www.hamiltonthorne.ltd for more information on our products initiatives and for further investor information. I look forward to having a fruitful and active call in about 3 months.
This concludes today's conference call. You may now disconnect.