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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day, everyone, and welcome to the Hamilton Thorne Ltd. Second Quarter and 6 Months Year-to-Date 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 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 second quarter and 6 months ended June 30, 2022, which filings are available under the company's profile at www.sedar.com.
During this call, the company may reference adjusted EBITDA, organic growth and constant currency as non-IFRS measures, which are used by management as measures of financial performance. Please see the sections entitled use of non-IFRS measures and Results of Operations in the company's management discussion and analysis for the periods covered for further information and a reconciliation of adjusted EBITDA to net income.
Now let me turn the call over to Hamilton Thorne's CEO, David Wolf. Sir, you may begin.
Thank you. Well, good morning to all, and welcome to the Hamilton Thorne Ltd. Second Quarter 2022 Earnings Conference Call. I'd like to introduce myself. I'm David Wolf, President and CEO of Hamilton Thorne. On the call with me today is Michael Bruns, our Chief Financial Officer.
This morning's call will have the following format. First, I'll provide a summary of operational and financial results for the quarter and 6 months ended June 30, with a focus on our sales, markets and operational performance. Michael will follow with a more detailed discussion on our financial results for the period as well as a review of our financial position and liquidity. And then I'll return for a few minutes to provide some information on our outlook for the balance of 2022. We will then open up the line for questions.
I'd like to remind all participants that we do not provide financial guidance, so I'd ask you to limit your questions to either historical periods or general trends in the business.
I'll begin with our sales results. The second quarter was, in many ways, a continuation of Q1. While we reported a solid quarter with over $14.2 million in sales, we continue to see supply chain issues leading to the delay in production of certain products. More significantly, continuing negative impact from exchange rate fluctuations and our European and U.K. operations reduced reported revenues for the quarter by over $1 million and reduced reported EBITDA by over $200,000, which is over 8% versus steady exchange rate in case of revenues and slightly more in the case of EBITDA.
I'll give you some of the highlights from our performance. Sales, as I mentioned, increased 14% year-over-year to $14.2 million for the quarter. Sales for the 6-month period increased 18% to $28.3 million. Sales in constant currency increased 22% for the quarter and 23% for the 6-month period as a result of the significant currency fluctuations, which I mentioned earlier, as the dollar strengthened throughout the first half of the year.
Gross profit increased 11% to $7.1 million for the quarter and increased 14% to $13.9 million for the 6-month period. Net income was $275,000 for the quarter and $831,000 for the 6-month period versus net income of $482,000 and $1.34 million in the prior year period.
Adjusted EBITDA decreased 1% to $2.43 million for the quarter and increased to 4% to $4.95 million for the 6-month period. Organic growth, which, as you know, is an important measure for us, was 8% for both the quarter and 6-month period. Cash used in operations was $438,000 for the 6-month period with --leaving us with total cash on hand at June 30, 2022, of $15.3 million.
In his remarks, Michael will identify on our cash use and cash position. Sales into the human clinical market, which grew significantly faster and our overall growth in Q2 continues to be our largest target market, coming in at just over 90% of our revenues. Sales into the animal ART market were also up for the 3- and 6-month period, while sales into the research and cell biology markets were down for both periods. Sales into the Americas and the EMEA, which are Europe, Middle East and Africa regions grew significantly for both periods, while sales into Asia were somewhat down, partially as a result of the renewed regional COVID-19-related lockdowns in China.
From a product perspective, our equipment business had the largest growth in both periods, largely due to the addition of the IVF tech product lines as well as significant growth in equipment sales in the EMEA region. Gross profit margins were up versus Q1 at 49.8% despite our production delays, which involve some of our higher-margin products as the price increases that we instituted at the beginning of the year began to show impact in Q2. EBITDA margins were somewhat down this quarter at 17.1% as expenses increased due to continued planned investments in growth as well as inflationary pressures leading to increased personnel costs and other expenses.
Our other -- our operating expenses were generally in line with expectations with increased costs, as I mentioned, associated with maintaining investments in R&D, sales and support personnel variable cost of sales returning to historical levels and acquisition-related expenses. I will now turn the call over to Michael to provide a more detailed discussion on the numbers.
Thank you, David. Good morning, everyone. I'm Michael Bruns, the CFO of Hamilton Thorne. I will briefly highlight the second quarter and June year-to-date financial results. David has already provided an update on sales and gross profit. So I'll focus on the other elements of the income statement as well as the cash flow and liquidity of the company as of June 30.
Operating expenses increased 16% for the quarter and 22% for the 6 months ended June 30. Expense increases were primarily attributable to the inclusion of IBM tech expenses post-closing for the July 2021 acquisition as well as increased expenses due to volume-related increase in variable cost of sales as well as continued investments in R&D, sales and support resources. The continued return to normalization included increased spending for sales and support teams travel to customers and increased trade show activities of approximately $280,000 versus prior year during the covid restrictions.
Interest expense increased $31,000 or 46% for the quarter and 38% was 6 months year-to-date due to the increased term debt included -- incurred rather in the July 2021 to finance the IVFtech acquisition, partially offset by reductions in other debt due to principal reductions plus interest earned on the company's cash balances. Income taxes decreased slightly to $226,000 for the quarter and $522,000 for the 6-month period due primarily to the reductions in income before taxes. The deferred tax expense, of course, is a noncash offset credited to deferred tax assets. Net income for the quarter was $275,000, a decrease from net income of $482,000 in the prior year Q2. Net income for the 6 months year-to-date decreased to $831,000 from $1.3 million in the prior year.
Adjusted EBITDA, which we consider an important metric of our financial performance, decreased by 1% to $2.43 million for the quarter and increased 4% to $4.95 million for the 6 months year-to-date, primarily due to revenue and gross profit growth, offset by the negative impacts of significant foreign currency exchange headwinds and the continued supply chain issues as well as planned increases in operating expenses. As David noted, the negative impact of foreign exchange rate fluctuations for the Euro, British pound and Danish krona was substantial for both Q2 and year-to-date. -- or as everyone knows, has had a 10-year historic grow versus the U.S. dollar and a similar profile for the British pound. Consolidated sales were reduced by over $1 million or 8% in Q2, and the resulting EBITDA was reduced by over $200,000. In addition, continuing production delays due to supply chain issues deferred several hundred thousand dollars of sales and resulting contribution margin in Q2. As a reminder, adjusted EBITDA is a non-IFRS measure. Please see the reconciliation of adjusted EBITDA to net income for the quarter and the year-to-date in our MD&A report filed today on both SEDAR and our HTL website as well as our definitions of adjusted EBITDA, organic revenue and constant currency.
Turning now to the company's cash flow and financial position. The company's cash balance at June 30, 2022, was $15.3 million compared to $17.9 million at December 31, a decrease of $2.6 million. Decrease in cash balances was primarily due to scheduled debt service and lease payments, reductions in U.S. dollars to cash accounts maintained in European currencies due to significant fluctuations in exchange rates of approximately $750,000 as well as typical working capital fluctuations, including continued investments in growing inventories, where we invested over $500,000 to address supply chain issues. The company used cash in operations of 438 in the first 6 months year-to-date versus a substantial generation of cash in the prior year 2021, where the company successfully emerged from the COVID 2020 '19 impacted year. The use of operational cash flow is attributable to increases in receivables and seasonal changes in inventories, prepaids and accounts payable and accrued expenses. Inventory levels are being carefully addressed and increased over several months to address continuing supply chain issues and increased product offerings. Cash used in investing activities was $981,000 attributable to the normal expenditures for ongoing investments in capitalized intangible development cost by our R&D teams and Capex for equipment and demo units for production and sales teams.
Prior year uses of cash included the total cash payment of $846,000 in connection with the IVFtech and Tek-Event acquisitions. Cash used in financing activities was $1.2 million for scheduled term loan and lease obligations. Total availability on our lines of credit remains at $12.5 million, consisting of the acquisition line of credit as well as the full $4.5 million of availability in our revolving line of credit. This combined $12.5 million of bank lending availability is an important additional resource in our ability to complete acquisitions with a relatively low cost of capital. This availability, combined with our cash on hand of over $15 billion, makes us well positioned to support our operations in the coming months, including the continuation of our acquisition program and financing further growth as the business climate continues to improve. Now let me turn the call back over to David to comment on the HTL outlook.
Looking forward to the balance of 2022. We continue to feel that we are in a strong position. We expect solid sales performance based on the positive industry trends in our fields and as demand and growth has returned to pre-pandemic levels nearly every market that we serve. Q3 third quarter bookings are starting up very strong and barring new supply chain issues, we expect to achieve solid double-digit organic growth. I also mentioned in last quarter's call briefly earlier, that we have implemented across the board price increases in early 2022. These had a modest effect on Q1 margins, and there's a bit of delay in feeling the full effect of these increases. As for example, we continue to honor 2021 pricing for certain orders that were in backlog at the end of the year. These increases had a more positive effect on margins in Q2 and will continue as they layer in folio the first over the rest of the year. That being said, we do see the possibility of quarter-to-quarter variability in sales and margins during the year as we continue to work to manage supply chain issues and reflationary pressures from the type that we believe are affecting nearly all market participants and as we scale and manufacturing logistics capabilities to meet demand.
Finally, I should mention again that while we expect our constant currency growth to be strong throughout the year, the U.S. polos continued to gain strength against the Euro, Big Pound, Danish krona, even in the first month of Q3, and we expect this will continue to affect our reported results. Regarding our M&A activities, we have an extensive pipeline of actively working on multiple acquisition opportunities. And as Michael mentioned, with over $15 million in cash and $12.5 million in committed lines of credit availability and further debt capacity should we need it, we feel we are well positioned to continue to execute on our acquisition program. In summary, despite the various issues that we face on a day-to-day basis, we feel good about our market position and our confidence in our team's ability to execute on our strategy of driving long-term growth and EBITDA expansion by investing in our organic growth, while building scale, enhancing our product offerings, expanding our geographic and direct sales footprint through acquisitions. We'll now open the line-up for questions. Operator, please present the first call, thank you.
[Operator Instructions] Our first question today comes from David Martin from Bloom Burton.
The supply chain issues that you've talked about, are you seeing any easing of those? Or are they continuing as bad as they've been throughout the crisis?
Yes. So I would say supply chain is continuing to be a serious and significant issue for us in a couple of respects. One, as we've talked about in the past, we often find that sometimes with very little notice that an individual component may no longer be available even because it's - real time are extended or it's been discontinued as vendors try to rationalize their SKUs. So we have to spend significant time and effort reengineering a low lead missing component or finding substitutions, generally, which leads to greater expense. Secondly, and probably more impactful and that obviously affects margins. Secondly, and more impactful on the revenue number is when -- due to that unavailable, we see sales slip from quarter-to-quarter and that continues to be an issue. We tamped down on these problems and solve them and then seemingly every month, every quarter, not quite every day, fortunately, yet another problem arises. So I hesitate to make a prediction because I think it's a global supply chain issue. But as to when we will be out of this, what often seems like firefighting mode on the supply chain side. But certainly, we expect it's clearly going to continue to some degree through Q3, but somewhat unpredictable as to what it will have impact on results and probably at least through the end of the year, not early into next year.
Okay. Second question, the investments that you're making in inventory and sales force, do you see your sales force growing further than Q2? You see your inventories continuing to climb to address the supply chain issues?
Yes. So I'll comment on the sales team, and I'll let Michael comment on the balance sheet items. So in terms of the sales team, I think we're pretty stable. We did add people in the first half of the year and as you know, it takes a little time for them to become fully productive. And then we expect as it gets greater productivity, then we look again at challenging people and adding people. We may opportunistically look at a small increase, but we certainly have nothing significant planned for the second half of the year and now to Michael to comment on the inventory side.
David, just quickly before you go. The travel and the conferences and things like that, was that fully normalized in Q2? Or was it only partial Q2 normal?
Again, I'll let Michael amplify what my understanding is fully normalized in Q2 and in fact, probably maybe in some ways, rated to normalize because we increased some of our trade show presence to really make a statement in part because we're now just a much regular company and in part because it's been so long, and I think we're seeing a very much a return to normalized travel, but as we all know, travel costs have significantly increased.
And David, thanks for the questions. I'll take the last one first, which is yes, still normalize in Q2, but we had rather large European and actually international trade in Q3. So that normalization will continue and actually increase a bit in Q3 in our industry, showing up and being at trade shows, illustrating new products, talking with customers and distributors is a key component of growing our sales and market share. So we're continuing to invest in that. Relative to inventories, we are continuing to -- a statement said, there's often little molds or no notice when a supplier says no, we can't fulfil these POs. So we are -- each one of the operations is continuing to look at key components, which are significant in a fully assembled a piece of scientific instrumentation that we specialize in. So we are investing in those key components, increasing those, and I fully expect a good smart use of our cash investment is to continue to try to grow those inventories and try to attack some of these supply chain challenges or specialty can.
Our next question comes from Tania Armstrong from Canaccord.
Just continuing on the line of questions on supply chain issue. I know you mentioned in your commentary that it had a several hundred thousand dollar impact in Q2. I'm wondering if you can be a little bit more specific in quantifying the impact on revenue.
Yes, I think that's really part because you're now getting into all sorts of what is well if we had -- if this had happened, we would have shipped this, and I think we don't want to over beer explicit about something that's hard to measure. We know that we have significant backlog in one major product line, and we certainly can measure and quantify a couple of orders that we know at the end of the quarter just didn't get out the door because the components don't arrive till a few days later. But on the other hand, there's always that slippage from quarter-to-quarter. So I think it's certainly bigger than it is now, and you can attribute it to supply chain, but I'm a little reluctant to try to quantify too much of that.
Okay. That's fair. And then I think you also mentioned that there was significant growth in equipment sales in the EMEA region. I'm wondering if you can give us a little bit more color on why that happened and what products that pertained to?
So it's a little bit hard to know why as always because it's significant for us on a kind of build-by-demand basis, is it really meaningful. But I think it's an indication in part that some of the supply chain issues that we saw in Q1 were solved. So some of that backlog has shipped and also just emblematic of continued demand and investments for the equipment. It's not a function of -- just to be clear, it wasn't a function of, let's say, significant new lab builds or something of that sort, we did have one of those in the U.S. So it's -- I think it's more business, maybe a call business as usual or maybe business returning back to business as usual.
Our next question comes from Kyle Bauser from Lake Street Capital Markets.
Maybe a couple of questions on the organic growth outlook. So just kind of curious, given that Hamilton can outfit a full lab and offers a complete suite of offerings, which is pretty unique, but I understand compared to a lot of your competitors has this become more of a competitive edge in the current environment where a lot of health care organizations are significantly slowing their contracting process for new products, vendors. So I guess, in other words, as your full suite of just offering been kind of a big asset is helping to drive new and existing business?
So I think I can say strategically, yes, it's actually a competitive advantage, and that's one of the reasons we with intention, continue to add to our product offering so that we can be one of the very few providers in the individual countries that we serve that can really outfit significantly part of the lab or even everything that's required in the lab, and you can really count it on less than one hand, maybe less than a couple of fingers, the number of companies that can do that on a true worldwide basis.
We think the trends in consolidation at the clinic level will help make that even more of a competitive edge going forward as you say, vendors and whether they're in the hospital environment or in the privately owned clinic environment look to -- or customers, I should say, look to some degree consolidate their vendors and have fewer relationships that they have to manage. So we think that's an important element. And again, as more of those, particularly the for-profit consolidated chains become internationalized, the ability to at least have some offering, if not [ meet ] full capability in all the markets where they might be located is -- will continue to be important.
And I guess, regarding the expected strong organic growth rate going forward, I mean, how should we think about internally developed products? So I think historically, growth has been about 2/3 M&A and 1/3 organic. I guess, how will some of these next-gen versions of internally developed products drive this? Or is it more just a function of strong relationships, pricing, white-glove service, et cetera.
So I think it's all of the above. So thank you for asking that. We are continuing to be rolling out new -- whether it's new products that we develop ourselves or next generation of the existing products. So I don't think you should expect to see any significant catalytic events in last half of this year or the first half of next year relating to some major new products. It's really -- on a quarterly basis, we're always rolling out new products.
We could probably do maybe a -- I don't want to say a better job, but maybe be a little more -- provide more visibility on those product releases on a quarterly basis. That's maybe something we should think about, so you have a sense of that activity.
But I think really what's driving our stronger organic growth is, I think, the 2 key points are the continued strong demand on [indiscernible] worldwide basis for IVF-related products and ART-related products and our ability and our improving competitive position that we through, again, having a complete product suite, having more direct sales and support personnel and how we are positioned as I think you've used it perfectly as a white-glove service provider as opposed to maybe a pick and pack provider.
Our next question comes from Stefan Quenneville from Echelon.
My first question, and I'm sorry if you mentioned already, could you please tell me the constant currency service and consumables growth during the quarter? And the second question is your days payable are down during the quarter, is something changing with -- terms with your suppliers? Or are you guys having to sort of pay to get access to products from them? Is there something changing in dynamics with your suppliers?
Okay. So I'll comment on the first one, again, maybe one small [indiscernible] and the second, I'll move it to Michael for -- amplify where we are on our days to pay. So in terms of constant currency growth in consumables, we don't break out that number on a published basis. I can tell you, as I've said in our remarks, that our equipment business grew much more significantly than any other part of our business in part, again, because of the addition of the IVFtech products and in part due to the strong demand. Constant currency consumables were certainly very, very strong and – again, we don't break out those numbers.
Okay. And then nothing going on in that business, just most of the currency impact to that. Okay.
Yes. I don't think there was anything [indiscernible] this quarter in terms of our consumables business. So Michael, if you want to respond on the vendor management, supplier management payment.
Sure. Payables are down a bit, which is, obviously, an investment in cash. Some of that is seasonal, whereas Q2, we typically have more paydowns and more purchases in April, May and June. Some of our suppliers in Europe do summer shutdowns of their facilities. So we tend to buy in advance. So some of our prepays have gone up, and we also have to buy enough in advance. We literally buy in May, would be a 30-day payable and pay in June. So some of that is seasonal, you do have a good estimation that some of our debtors are actually requiring prepayments that weren't before in order to move to the top of their queue in terms of [ shipments ]. Some of our key suppliers actually have advantage of deciding which customer they're going to in a partial or a full-time basis. So in the cases we've actually invested cash in prepaid to assure that we get to be on top of the list in some of those instances. So in -- to somebody initiation some of our challenge in trying to address those steps. Yes. I add, obviously, if we're in a position where we're trying to replacing components that we normally buy from our steady trusted supplier and we need to go buy it in a spot market. We're often paying for that with either cash advance credit cards or those sorts of things because we just need that product -- and as Michael said, we won't jump to that ahead of the queue, especially if it's a vendor we don't work with all the time.
And maybe one question. With the -- I guess, the weakening euro and pound versus the U.S. dollar, is that changing any way your calculus in terms of where you're looking for M&A opportunities.
So I guess the quick answer is no to repeat, I think I commented that I've made in the past in a different context, while we have kind of the top of the funnel over 200 companies that we look at a little less than half of those or 70 or 80 of them are targets that we think would really make sense for us and only a small portion of those are truly actionable at any given time because it takes 2 to want to complete a transaction. So while we have a big enough kind of if you think of the funnel, 200 down to maybe 7 already down to somewhere in the range of less or more than a dozen that, that are action given time or to just having active discussions with. It's a big enough front of the 2 can feel confidence that we can complete a deal, but it's not so big that we can say, hey, we're only focused on either a particular geography or a particular product set or something of that sort.
That being said, obviously, today, we unassuming we don't believe that the hero's going to stay down forever or potentially go further down over the long term, it's less expensive for us to buy a business in Europe, we buy business, convert our dollars into euros and by less expensively and then as it continues to perform, we take those earnings in higher value currencies. I would point out that we do keep a fair amount of our cash in those currencies, and that's been in order to run those businesses and the operating cash flows and those sorts of things. And obviously, this tax when we repatriate cash. So we do manage that. And that had a -- to be clear, that's also had an impact on the cash balances from a balance sheet perspective. And I think Michael will, in fact, quantify that in his remarks.
Our next question comes from David Martin from Bloom Burton.
Yes. I'm wondering if you can give us some color on the uptake of the dynamics of culture media products in the U.S. Are you gaining business? I think you've characterized it as a slow grind before. Are you seeing an inflation point ahead where the rate of uptake will increase? Are you getting sales only when new labs are built? Or are you going into existing labs and displacing products? Is everything back to would you say pre-coded levels, and this is a full launch at this point? And then finally, are any of the supply chain issues impacting the Gynemed products? Or is that more just on the equipment side?
So that was a -- I think a 3- or 4-part question. So the last one, on supply chain that we're not seeing any supply chain issues on the Gynemed media. So that's the good news and in general, we're not seeing classic supply chain issues on most of our consumables except for some plastic wear, which again, as we've discussed in the past, is not our key product line. It's mostly the supply chain issues that we see are on the capital equipment side and sort of add lumpiness of capital equipment. In terms of progress on the media side. I'm actually very happy to say we're starting to see some significant acceleration on that and not so I would be a little hesitant to call it an inflection fund. I think we'd like to see a couple more quarters of continued growth, and I want to also be clear, it's still not in any way a material amount of revenues so again the long, slow growth, but the nice part about it is that it's kind of a cumulative growth -- you capture a customer, you continue to sell them. And then as you get a new customer, you ideally if you do well, you to sell more and grows over time.
At some point, it could become more at least geometric. I don't know that it'll ever become exponential, but we're not there yet. I don't want to get too ahead of ourselves. So we -- I am feeling better about it than we try to body language perspective than I might have been this time last year. In terms of product, we're having good success. -- with our products that have, I would say, are more on the, more highly differentiated products, which makes sense. We can think about it that we have certain cell culture media that is really a high level of differentiation and people have been more willing to, okay, I'll try that out because I can understand how that might, in fact, have a significant improvement in results.
And we're seeing get orders and reorders of that. And I think to your last question, it's clearly a combination of both some new labs, but more into existing labs where we already sell other products. And as we're in there talking to them about those products, we also bring up the media line and again, over time through reposition persuasion and prove by doing things like trials and allowing them to see that it can, in fact, have a positive impact on results. We're seeing those sales grow. Again, trying to measure my enthusiasm, but at least we're seeing some positive signs, which is good...
Are any of the customers taking your full suite of products? Or is it the vast majority just taking the occasional differentiated product.
I think most of them are -- and I think that's consistent across nearly all media, even in Germany, where we have the Gynemed Media is very well accepted. Almost no clinics will standardize on an entire media line. they just view again, the lab directors view -- one part of their role is to select best-of-breed products that match their particular methods in their lab, and they tend to be selective and they like a certain product for this particular purpose and like a different product for a different purpose. But the idea, at least being in there with starting to open the door again, the more differentiated products gives us the opportunity to add more and more over time.
Our next question comes from Paul Stewardson from iA Capital Markets.
Just calling in on behalf of Chelsea. Just wondering, can you give us -- now that you've been through this a few times, it sounds like in terms of a supplier rationalizing a niche component, what does the time line look like for being able to reengineer or find a new supplier for a given niche component in one of your products?
Yes. So I hate to answer the question with maybe a question but it's almost like which product and it really can vary pretty significantly. So I'll give you a couple of real-life examples just so you can think about this. So we have had some issues with our steady, trusted AMR supplier was unable to provide us significant quantity of cameras. We had to find a different supplier, and it requires a few software tweaks to make sure that, that camera operates as you want because our software essentially will control the camera. So you need to touch some combination of software and firmware and make sure you have those controls that you activate those controls. So the actual work in that case is not all that significant. But then the work really begins because now that we've changed out a misses a camera, we have to go through as part of our -- as part of our -- under our quality management system, we have to sort of document that change properly in accordance with the quality management system, completely test it to make sure that it works properly, so effectively revalidate that system and then put together all the rest of the documentation that's customer-facing, so they can see what this -- because we sell those as a system, not as general camera, a stand-alone product.
So change instructions for you on the manual change certain service nodes. So there's a lot of overhead that goes with that. So the word can be a couple of days and then it takes as much as a month or 2 before you really can get it out the door. Other cases, we might now, let's say, an actual true electrical component that's not available resistor, diode, maybe a chip. And then it's more complicated because you need -- you can't just drop in your [indiscernible] is essentially finished goods. You have to go out and find a replacement product with exactly the same technical specifications and then potentially rein or if you can't reengineer some of the other products in that circuit to allow it to work. So that can take maybe a little bit longer on the engineering side, but then you end up still -- in that case, it's a little bit less from a documentation in respective customer facing because customer doesn't be different manual to the resistors change, but we need to be sure that we've really thoroughly documented that change tested and the like.
So again, I think it be certainly weeks or a minimum and even up there to an ideal situation, but possibly is we tried an alternative supplier of exactly the same components that just for whatever reason has available where our primary supplier Belton, if it's a discontinued product. As you can imagine, there are all sorts of serve providers who have -- that's how they make their living, selling these kind of niche products. That will differently cut down on the engineering side, but that usually comes at a pretty meaningful cost.
That's very helpful. And just in terms of the different supply chain issues as they come up in terms of how much you can mitigate that with inventory management, do you have a sense? Is it realistic to be able to sort of get a short list of which components are more likely to have issues and really concentrate on those for inventory management? Or is this pretty much heading across the board and you really just have to increase everything?
So great question and the problem is, yes, so certainly, of course, and its part again, back to our quality management system as part of our quality management system, we are required to both rank our suppliers and rank our various products in terms of sensitivity to, for example, some products might be just a primary supplier or even TV sole sourced. Obviously, that's a critical component that we would have a much greater inventory in other cases, and this is what makes it so challenging, is the supply chain issues are just seemingly extremely random classic finished good like laptop computers suddenly goes from lead time of 2 weeks to Aric. Now again, you can probably find them somewhere in the supply chain at a higher cost or we can go and just specify a different laptop computer for working with us in -- say, one of our laser systems or as the control system for our incubators or whatever it is, but you just need to do a significant amount of testing to feel confident when you're selling a medical device that there's no change there. So I don't think there's -- we do have and I think we've actually done a pretty good job on it. But we -- because we're talking about, I guess, meaningful for us, but we have to go with single-digit variations on a quarter-to-quarter basis in terms of our -- when we have these supply chain issues. -- it's -- I don't know that there's nothing curing in the world to be able to solve every problem.
Our next question comes from Julian Hung from Stifel GMP.
This is Julian speaking for Justin today. My first question is following the Supreme Court ruling on the road versus wait case. Have you seen any changes in consumer behavior? And moving forward, do you expect there to be any impact on the business?
Yes. So that's a great question. I appreciate somebody bring that up. So I think, again, without moving into a complete constitutional analysis in the U.S. Constitution. Just a reminder that the -- what the recent decision, the Doug decision, which essentially overturned Roe's decision, in and of itself, say that at least on a federal basis, the abortion is illegal or that there is going to be more regulation of reproductive rights. What it did is that this is a state situation. So it goes back to the states to figure out what they want to do about it. As we have seen, I should say, by the way, we've seen no impact on this on our business and having heard of any specific change in consumer behavior at Foxboro patient behavior as far. The reasons we are concerned about it as everybody is twofold. One is a number of states put in the so-called trigger laws that said that it could go way wherever returned, their laws would come into effect that would impact and create restrictions on abortion.
Some of those were from an IVF perspective, very carefully written and we're clear that as they thought about it, that the definition of abortion would be specifically related to fetuses at certain ages or embryos that were implanted and others were not so carefully written and it's unclear in theory that they we think could be applied to embryos new laboratory. Most of the -- as I said, most of those laws were carefully written. And certainly, any laws that we're aware of that have been proposed after the fact. So I think everybody -- again, not to get into individual states too much, but in the end, it just adopted a pretty significant restriction on abortion, and it's explicitly defined the embryo as being an implanted embryo, so explicitly carving IVF out of it. Our view is over the long term, as this settles out through a combination of the courts interpreting those laws, the legislature is getting together and putting together laws that they actually intended to use instead of the sort of trigger was that were just there in case and sometimes frankly, more political than actionable, I thought to be more political and actionable. That is highly high likely that in all states or at least virtually all states, it will be very clear that IVF is not intended to be impacted by again the overturning evolve.
That being said, we have to be cognizant that there's entirely some possibility, however remote, you can -- I guess, here goodies I am trying to figure out what that percentage is that certain states could, in fact, try to restrict IVF for some reason. And in which case, we would then again able to end up likely going through the courts and either being appealed or not upheld. Can be that seems like a fairly unlikely, and therefore, unlikely to really have a meaningful effect on our business. I'll add one more statement, and then I'll move on and take a follow-up question, I guess, is needed, which is, to be fair, labs today are very unbelievably careful about embryos. They're very protective of embryos. They don't dispose of them without careful thought and consent of the patients. So in some ways, we're – there's unlikely to be really significant change in some behavior in clinic practice, even if there were some more restrictive protections of embryos in place. And then I guess the last possibility is, okay, some state decides to put provisions in place and this make IVF more difficult there. And then there's clearly the concept that people will travel as they do for other medical procedures and we certainly see that all over Europe, where there's a pretty significant medical tourism business because of restrictions in certain countries. So that was a very long-winded answer. I hope it was helpful.
Yes. It was very helpful. I just had a follow-up question on price increases. With the price increases that's been implemented so far, have you seen it similar to what your competitors have been doing? And do you expect any further price increases later in the year?
Yes. So in terms of -- maybe answer 3 things. So one is we do a, generally speaking, annual price increases for our product lines. In most cases, consumables, this is -- it's been steady practice over the years. In most cases, those have been on the consumables and services side, where we go up single-digit percentages and then on the capital equipment side, we tend to keep the price relatively stable and then when a new generation of existing product is introduced, that's when we think about price increases and implementing price increases.
This year, again, specifically because of supply chain issues, including increased cost of commodities and all the other things that we've been talking about, we increased our consumables fairly consistently with what we've done in the past, maybe a little bit more, but not wildly more and the significant increases on our capital equipment. Good news is we didn't see -- nobody likes prices going up, but we didn't see a huge pushback from that.
And I think that really gets to your second point, maybe it was your third, but --which is our price increases were very consistent with what others are doing in our field and what other people are experiencing. So I don't think we were out of the ordinary at all. We -- with some modest exceptions, we are not planning to do across the board price increase -- a second across the board price increase this year, but certainly will -- to be applied during 2022. But certainly, we'll do one in late 2022 to apply for 2023.
[Operator Instructions] And ladies and gentlemen, I'm showing no additional questions. I'd like to conclude today's question-and-answer session and turn the floor back over to David for any closing remarks.
Well, okay. Thank you very much. And I'd like to reiterate my thanks as I've done in the last few quarters to all of our stakeholders: our employees, for example, who have just shown remarkable resiliency and dedication to our business; to our customers and other business partners who continue to work with us and grow our business; and to our shareholders and the analysts who are on this call for thoughtful questions and the support you've shown through and they have shown to our business.
So with that, I would like to encourage you to go to our website, which is www.hamiltonthorne.ltd for more information on our company, products, initiatives, further investor information. And as I said, we will certainly – that's the end of this call, and we'll certainly see you in the November time frame with our Q3 results.
And ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.