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Welcome to the Hamilton Thorne Limited Third 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 the 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 the actual results could differ from those reflected in the forward-looking statement unless and until required by securities law applicable to the company.Additional information identifying risks and uncertainties is contained in filings by the company with the Canadian security regulators including, without limitation, to the company's management discussions analysis for the third quarter and 9 months ended September 30, 2020, which filings are available under the company's profile at www.sedar.com or http://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 Limited Third Quarter 2020 Earnings Conference Call. I'd like to reintroduce 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 the 9 months ended September 30, with a focus on 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 our financial position and liquidity. And I'll then return for a few minutes to provide some information on our outlook for the remainder of 2020 and into next year, during which I will also address the COVID-19 virus' impact on our business in more detail. We will then open the line up for questions.I would like to remind all participants that we do not provide financial guidance. So I'd like to ask you to limit your questions to the historical periods or general trends in the business.I'll begin with our sales results. I'm pleased to report a substantial improvement in the company's performance in the third quarter. Let me give you some of the highlights. Sales increased 10% year-over-year to $9.8 million for the quarter. Sales for the 9-month period increased 12% to $27.5 million. This is a constant currency increase of 8% for the quarter and 13% for the 9-month periods.Gross profit increased 3% year-over-year to $4.9 million for the quarter and 8% to $12.9 million for the 9-month period. Net income increased 41% to $459,000 for the quarter. We also had net income of $10,000 for the 9-month period versus a loss in the prior period. Adjusted EBITDA decreased 8% to $1.7 million for the quarter and decreased 16% to $4.1 million for the 9-month period. And Michael will give you a little more color on that in his comments.As you know, we measure and report on our organic growth. Sales declined 7% on an organic basis and were down 9% in constant currency during the quarter. Sales declined 6% on an organic basis and 5% in constant currency for the 9-month period. Cash generated from operations was substantial for the quarter, was $2.8 million and $2.0 million for the 9-month period, leaving us with total cash on hand at September 30 just under $20 million, actually $19.98 million.Digging a little deeper, sales into the human clinical market were up for both 3- and 9-month periods as despite the effects of the COVID-19 pandemic, ART Activity, assist a reflective technology activity in our 2 largest markets, U.S. and Germany, returned to near-normal levels. This was buttressed by the expanded contribution from our Planer acquisition.Sales into the human clinical market in the third quarter were also positively affected as the production delays in our incubated product line that we experienced in Q2 and we mentioned on our last conference call were resolved. Sales into the cell biology research markets grew substantially during the 3- and 9-month periods, primarily due to the contribution from the Planer acquisition augmented by the strong toxicology equipment sales, albeit still remains a relatively small percentage of our overall sales. Sales into the animal breeding market was down for the quarter after a very strong performance in Q2 and down for the 9-month period as well.Gross profit margins decreased to 50.1% for the quarter and to 50.6% for the 9-month period ended September 30 versus 53.6% and 52.6% for the comparable periods. Again, Michael will address this in more detail in his remarks.Our operating expenses were generally in line with expectations, with reduced travel and trade show expense, offset by increased personnel costs associated with the increased investments that we made in sales and support personnel during the year. Adjusted EBITDA decreased to $1.7 million for the quarter and decreased 16% to $4.1 million for the 9-month period. The Q3 results are a substantial improvement over the $1.1 million from adjusted EBITDA in the second quarter, where we posted $573,000.I will now turn the call over to Michael to provide a more detailed discussion on the numbers.
Thank you, David. Good morning, everyone. Thank you for joining our call this morning. I am Michael Bruns, the CFO of Hamilton Thorne. I will review the third quarter and 9-month year-to-date 2020 financial results, along with our balance sheet and liquidity.Company's total sales, as David mentioned, increased 10% to $9.8 million for the quarter, an increase of $924,000 over the previous year. 9-month year-to-date sales for 2020 increased 12% to $27.5 million. Total equipment sales increased 3% to $4.4 million in the third quarter and comprised 45% of total sales attributable to the Planer acquisition -- Planer operation acquired in August of 2019, which contributes primarily equipment sales to the overall HTL product mix. Nearly all geographic markets saw capital equipment orders continue to be deferred by customers as recoveries from the COVID-19 continue.9-month year-to-date 2020 equipment sales were 18% to $12.3 million, also primarily attributable to the addition of Planer equipment sales. Equipment sales were 45% of year-to-date sales. Total consumables and services sales increased 17% to $5.4 million as ART activity in our 2 largest markets, the U.S. and Germany, returned to near-normal pre-pandemic levels. 9-month 2020 consumable service sales increased 8% to $15.2 million and comprised 55% of both Q2 and year-to-date total enterprise sales.Gross profit dollars increased 3% to $4.9 million in the quarter ended September 30 compared to $4.8 million in the previous year and increased 8% to $13 million for the comparable 9-month periods. Gross profit as a percentage of sales decreased to 50.1% for the quarter and 50.6% for the 9 months year-to-date versus 53.6% and 52.6% for the comparable periods in 2019, primarily due to product mix and the addition of somewhat lower-margin sales of Planer products, 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 cost of manufacturing spread over a reduced base of sales. Operating expenses increased 2% for the quarter and 18% for the 9 months ended September 30 to $4.2 million and $12.5 million for the 3 and 9 months versus $4.1 million and $10.6 million for the comparable periods in the previous year, which included acquisition expenses of $386,000 for the quarter and $700,000 for the 9 months. The increase is primarily attributable to the additional Planer operating expenses post-closing as well as continued investments in sales and support resources, increased R&D, increased share-based compensation, and increased general and administrative spending, while somewhat offset by travel and other cost savings.Research and development expenses increased 13% to $721,000 for the quarter ended September 30 to 1.9 for the 9-month period, primarily due to the addition of Planer's R&D expenses and new product amortization expenses as well as the reduction in expenses related to the development of products, which the company capitalizes.Sales and marketing expenses increased 2% to $1.9 million for the quarter and 11% to $5.9 million for the 9-month year-to-date, attributable primarily to the addition of Planer expenses, including amortization of acquisition-related intangibles as well as the continued planned investments in direct sales and support resources in Europe and the U.S., all of which were partially offset by substantially reduced travel, trade shows and commission expense, particularly in Q2 and somewhat in Q3.General and administrative expenses actually decreased to $1.59 million for the quarter and increase to $4.8 million for the 9-month period. Third quarter reduction is due to the absence of the prior year acquisition expenses and is offset by the addition of Planer's general and administrative expenses. Third quarter G&A, absent the effect of those 2 factors, increased 4.9% and is attributable to compensation expense related to additional staffing, increased amortization and depreciation and increased spending on professional fees related to the company's securities filings and compliance. 9-months year-to-date G&A expenses increased 6.4%, absent the effect of planning.Net interest expense decreased 47% to $108,000 for the quarter and decreased 36% to $586,000 for the 9-month period versus the prior year, primarily due to reductions in the outstanding convertible debentures after the April 2020 conversion to equity, reduction in other term debt due to principal reductions and partially offset by increased term debt incurred in August 2019 to partially offset the Planer acquisition as well as precautionary utilization of the company's revolving line of credit.Income tax expense increased to $141,000 for the quarter and decreased to $209,000 for the 9-month period. Current income tax expense increased due to changes in the mix between foreign and U.S. state taxes. The deferred income tax was a recovery in the quarter in the 9 months, which increases the company's deferred tax assets.Net income for the third quarter increased to $459,000, primarily due to increased gross profit, relatively flat operating expenses and reduced interest expense. For the 9 months year-to-date, the company returned to profitability to a net income of $10,000, which substantially reduced revenues and profitability in the second quarter due to the impact of the COVID-19 pandemic. Other comprehensive income for the quarter and 9-month period was $1.2 million and $299,000, respectively, due to substantial foreign currency translation gains by the parent company from the foreign operations of the subsidiaries, primarily in euro.Total comprehensive income for the quarter in 9 months was $1.7 million and $309,000, respectively. Adjusted EBITDA for the third quarter decreased 8% to $1.7 million from $1.8 million in the prior year. The $1.7 million achievement for Q3 represents a substantial threefold recovery from the $573,000 in Q2, which was attributable to the pandemic. 9 months year-to-date, adjusted EBITDA decreased 16% to $4.1 million from $4.87 million in the prior year attributable primarily to the substantial revenue and gross profit decreases in the second quarter caused by the pandemic, along with planned increases in operating expenses in the periods.A full reconciliation of adjusted EBITDA to net income can be found in the company's management discussion and analysis, both on our website and on SEDAR.Turning now to liquidity and the balance sheet. Company's cash balance at September 30 was $19.98 million, an increase of $1.5 million for the quarter and $7.2 million for the 9 months year-to-date compared to $12.8 million at December 31. Working capital increased to $21.2 million at September 30. The increases in cash balance and working capital are primarily due to the May 2020 equity private placement of $4.9 million, the drawdown of the company's line of credit in the first quarter, largely as a precaution against the potential liquidity issues related to COVID-19 pandemic.An additional COVID-19 related Bank and government supported loans in the second and third quarter, the generation of operating income in the first and third quarters, all partially offset by the company's operating loss in the second quarter and increases in inventory. Company intentionally increased some inventory levels as precaution against COVID-19 supply chain challenges. In Q2, a substantial planned payment was made for accrued interest as the 2017 convertible debentures matured and were converted to equity under those debenture agreements.As of September 30, the company generated $2.9 million in cash from operations in the third quarter, improving the 9-month year-to-date cash from operations to $2.0 million, and that compares to $2.7 million of cash from operations in the prior year 9-month period. This is all primarily due to increased inventories attributable to COVID-19 precautions, together with the continued strategy of broadening our product offerings as well as increases from seasonally low inventory levels at the calendar year-end.Cash was also used for the payment of the 3-year accrued coupon interest of $388,000. Current year cash generation was also diminished by reduced profitability attributable to COVID-19 sales slowdowns, particularly in the second quarter. Cash used in investment activities was $1.1 million, primarily investments in intangible development costs and equivalent for the 9-month period ended September 30 versus $7.3 million in the prior period, which included last year's $6.3 million investment in connection with the Planer acquisition.Cash generated by financing activities for the 9 months ended September 30 was $6.3 million, attributable to the completion of the equity private placement of $4.9 million, precautionary drawdown of the company's line of credit in the first quarter and the company obtaining COVID-related loans, all partially offset by scheduled term loan debt and lease obligations and reductions in the company's line of credit. This compares to $1.2 million of cash generated in financing activities in the prior year period.Company has generated cash from operations since 2013. As I stated in the earnings release, we currently expect to continue to generate cash in the fourth quarter. However, given the ongoing uncertainty surrounding the COVID-19 outbreak, it is impossible to predict whether the company will generate meaningful cash from operations in 2021. We currently maintain a very strong balance sheet, with cash on hand on September 30 of just under $20 million and net bank debt of only $9.1 million following our accelerated paydown of our revolving line of credit in Q3.I'm also pleased to report that we increased our acquisition line of credit with our bank from $3 million to $5 million of availability, further increasing our resources to execute on new acquisitions. We continue to actively manage our acquisition program with the goal of completing one or more meaningful acquisitions every 12 to 18 months. However, the effects of the COVID-19 outbreak have already affected this goal.In summary, we are well positioned to support our operations in the coming months, capitalize on improving sales opportunities with our investments 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. What I'm going to do today to talk a little bit about COVID, which is obviously stored on everybody's mind and give some idea of some of the initiatives that we have planned for next year as we are now obviously to give, again, about moving our business forward.So the COVID-19 outbreak continues to add substantial uncertainty to the short and midterm outlook for our business. While as reported about, we saw a degree of normalization of our business in our major markets, COVID-19 cases, as we all know, are increasing sharply in parts of these countries as well as other parts of the world. To give you a little more detail, overall we saw growth in our consumables business, while we continue to have meaningful variability of the sales of capital equipment with significant differences from country to country.Our services business also had some slowdown due to travel restrictions and reductions in activity, but we expect this to be less impacted going forward. As discussed in prior calls, in March 2020, 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 clinic 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. And despite the recent resurgence of the COVID-19, with some exceptions, this continues to be the overall guidance. So today, again, with some exceptions, clinics on most of our major markets are open, we're not always running at full capacity.I'd like to turn it now to some of the initiatives that we're working on, and we expect to contribute positively to our growth in 2021. First, we will be launching a broad array of the Gynemed cell culture media for sale in the U.S. As I've mentioned many times, I would caution, overall, everybody do not expect an immediate dramatic increase in sales mix. But clearly over time, we expect media to provide a meaningful addition to U.S. sales and profitability.Second, we will be aggressively launching our direct sales and field service initiative in the U.K. to support the Planer Gynemed [ in ultimately ] foreign brands are augmented by a selection -- selected a third-party capital equipment and consumables allow us to support the entire lab. Third, our product development teams are hard at work on developing and testing next generations of some of our existing products as well as new products to expand our offerings.Finally, I would like to repeat, despite the uncertainties around the COVID-19 outbreak, we continue to work on our acquisition program. Clearly, we had some slowdown in the first half of the year. And as Michael mentioned, given the nature of the COVID-19 outbreak, we -- there's certainly uncertainty on the future of whether we can maintain the momentum we've had in the past, but it continues to be a priority for us.In addition, as everybody knows, there have been some recent positive developments on the preliminary success in a number of vaccines under development. Due to preliminary nature of these reports as well as significant logistical hurdles regarding scaling up production and distributing the vaccines, for tending purposes, the company has taken the cautious approach that the effects of the COVID-19 pandemic in our markets and consequently the variability of our business, performance will continue at least through the first half of 2029.That being said, I want to emphasize that we are reporting today on current state of our business, and there's still significant uncertainties around how quickly all IVF clinics and our other customers will be starting to pre-pandemic levels, progression of the COVID-19 buyers, the possibility equipment of lockdowns, regulation or economic conditions that may lead to further reductions in demand on a regional or worldwide basis. This as additional cautionary notes, these fluctuations in demand for many of our products and services may last for a period of time that is difficult to determine and could have an adverse effect on our financial results in 1 or more quarters.I'd like to add a few comments to reiterate Michael's points on how we improved our balance sheet this year and during the quarter. So again, during the quarter, we generated over $2.8 million in cash, including we maintain a strong balance sheet with cash on hand -- over 9 months to support continued investments in growing our business as well as our acquisition program.In closing, I would like, again, to thank all of our employees who do remarkable resiliency and dedication to our business and our customers and to our shareholders for the support you've shown our company.We will now open the line up for questions and I ask the operator to please present the first call through the queue.
[Operator Instructions] Our first question comes from Chelsea Stellick of IA Securities.
Just a couple of questions. I see that the service sector, as you mentioned, obviously experienced a bit of a lag or slowdown as travel restrictions still remain. And then you did mention that you expect to see the sector rebound or, I guess, have less of an impact going forward. Are we -- like we're likely to see or to face continued travel restrictions into 2021. What factor do you think will offset that and allow for the sector to rebound?
Yes. So the services business had a little bit of a hit in the quarter for 2 reasons. One is travel related, which I think we expect to continue, though we are developing, I guess, better strategies for navigating that. And as we've expanded our service organizations in Europe and in U.K. and Germany and as well as in the U.S., we see perhaps in some ways more local coverage and hopefully less need for travel. We also have a piece of our business that is very much related to the activity -- the overall activity in the market. And that's -- we saw a decline in that in -- that's our toxicology testing services business.And we saw a decline in that in Q3. Then in hindsight, we -- frankly, we didn't predict, but probably you should have, was a little bit of a delayed reaction from Q2. As people's activities slowed down in Q2, they built inventory level, so the testing that they needed to do in Q3 somewhat declined. That was little bit offset by some of the increases as labs reopened and needed more testing to work look at materials that they had on hand and other materials. But overall, we saw that had a meaningful decline. And at least early in Q4, that's come back completely.
Okay. And then I guess my second question, would you be able to give us some additional color on some of the geographic variability that you experienced in equipment sales this quarter?
Yes. So there's -- I would say it regionally, and to some extent it relates both consumables and equipment sales. There's a lot of moving pieces. So in Asia, except for India, we -- the clinics are and our customers are largely open, but clearly operating with lesser capacity. In some cases, that has -- in many areas, not all areas. In some cases, that has to do with continued restrictions, either -- and people's behavior and they're not excited about going into hospitals at this time as well as in some parts of Asia, there's a fairly significant reliance on medical tourism, which has been impacted by travel.So we saw -- again, we've seen some ups and downs. Clearly, India was the most negatively impacted of those markets. And again, country by country, there's some variability, but in general theme is the same that people clearly are deferring some level of capital expense. Again, in Europe, as we mentioned, Germany, which is our largest market today. Hopefully, U.K. will get it around for the money once we start getting going on the direct sales in areas. We're operating at nearly 100% levels as compared to prior year. And we back saw a pretty meaningful increase in consumable sales and pretty decent equipment business, but we're still a little bit down.Other countries in Europe are really mixed. Some are fully open, again, maybe even operating at lower capacity, while we are seeing some of the lockdowns and restrictions having -- for example, in France, having a more pronounced effect on laboratory activity. And then in the Americas, we're operating at nearly full capacity peers, probably about 90%-ish. Again, some of the clinics that have been more focused on medical tourism, primarily from Asia. We saw a little bit of -- saw some decline. But clearly, our business in the Americas was up and equipment business was reasonably strong.
Okay. I guess, just based on the variability, what portion would you say, in general, is sentiment related in terms of I don't want to go to the hospital versus some of the like lockdowns that you mentioned like --?
I think it's mostly -- I think it's not a function, in most cases, of true lockdowns, except again in India, which is still troubling and I talked about France and a couple of other countries. In most cases, it has to do with some level of sentiment and some level of clinics, just by necessity, needing to slow down their activities as some of the safety precautions that we mentioned require them to reduce capacity by additional cleaning, fewer people in the clinics at any given time, no keep waiting in the waiting rooms, and those sorts of things. But we're mindful that we're entering from non-periods. So we're cautiously optimistic.
Our next question comes from David Martin of Bloom Burton.
Congratulations on the quarter. First question I have is, how much of a boost in Q3 would you say you got from the return to production of the incubators? And are you still filling back orders into Q4?
Yes. So it's a little hard to give you a pure quantification of that for a couple of reasons. So clearly, we know how many incubators specifically that didn't get shipped in Q2, got shipped in Q3. What's a little bit harder is that there was -- as we try to balance our production, we typically work in a 30-day, 45-day backlog in that facility. So the fact that some of the production slowdowns on the incubators allowed us to accelerate production and other activities, so in a way we pulled some business from Q4 -- or Q3 back into Q2, if that makes sense to you.So we've estimated kind of round numbers in a slow incremental number maybe 300,000 to 400,000 pounds of shift from Q2 to Q3. So kind of if you normalize it, Q2 was not a great quarter for us, but maybe it wasn't quite as bad in Q3, obviously, a much stronger quarter, but a little bit of that bump. Just to remind you, though, that all those -- none of that is encountered in organic sales. So organic sales number would stay exactly the same. And then we've completely filled the back order.
Okay. Okay. You talked about the initiatives, the 3 initiatives. I'm wondering with the 2 of them have launched the Gynemed in the U.S. and then bring other products into the U.K. are those ongoing? Or are those future initiatives?
So they're ongoing. We started a soft launch of the products in the Gynemed, specifically Gynemed media in the early part of the year, that required us to build coal chain facilities and the like. We sort of as we talked about in the U.S. similarly, we slowed that down as the year developed because as clinics are closing, reopening, dealing with all there, that kind of chaos is maybe too strong. All that changed. It's a hard time to go to them and suggest the now is the time to really be changing some of their core procedures.Also we had talked earlier that we needed to hire a direct -- more robust direct sales team. So we did in fact hire our first initial hire. We have one person on board. First additional hire. We started in early October. We've got another person who made an offer to and he's starting in February. So I think it's a function of both the ability of its kind of the receptivity of the clinics for new products and our ability now that we've got the start of a complete sales team, we obviously expanded over time based on capacity, the start of a complete sales team, the ability to really sell those products.
Okay. And how about in the U.K., the initiatives there? Are they underway or future?
So I'm sorry, I was talking about the U.K. on that.
Oh, okay.
So that's specifically in the U.K., where we now have, again, been conflating the person who will start in February. We now have 3 people direct sales who are fully trained, understand the products and able to hit the ground running.
Okay. And what about -- have you rationalized any costs in the U.K.? And have you taken any of the Planer products that were previously sold through distributors? And you're now selling them directly in countries where you have your own sales force?
So we've been doing a little bit of the latter. But some of the Planer products that are sold are sold into the cell biology and research markets, which is a separate distribution channel and we don't really have direct sales people probably in the IVF clinics. And we do have one product line that we sell-through, we continue to sell-through distribution. So we have been adding the Planer products. I wouldn't say that's made a material different -- so what I can tell you it has difference in sales thus far. But we certainly would be hopeful to see that be more meaningful into the future.I think the bigger opportunity is what I talked about earlier, which is the launch of the direct sales team in the U.K. and the selling of the Gynemed consumables lines, the Hamilton Thorne equipment lines as well as the other plant of products that had previously sold through distribution as well as it's not our core long-term strategy, but certainly it's additive in the short term, the ability to sell some of these third-party products which still bring in valuable revenues and gross profits to a contribution margin.
Okay. Sorry, and just to clarify, it seems like I mixed up on the U.S. and U.K. stuff. With the Gynemed media in the U.S., you said you slowed down because of COVID. But now that things are opening up again, is that back on full speed?
Yes. Yes. So I should be quite clear on that. So in the U.S., we are planning first quarter full launch of -- it's a combination also of regulatory clearance is where you actually just received a one not final one that we're looking at I think it isn't final, maybe just one where I'm standing today. So now that we have the regulatories sorted and the clinics, our view being more receptive. That's going to be a big initiative for our -- for starting in Q1 for all of 2021 and on. So again, I caution everybody do not expect a hockey stick in this. It's a long slog to displace the existing media supplier in most clinics because these -- they already have a supplier typically for certain processes, but we do have some unique products that I think will be just purely additive. But on the other hand, once you have that product in the clinic would say it's good long, you typically have a lot of stickiness.
Our next question comes from Patrick Sullivan of Eight Capital.
My first question here is on the acquisition front. So I know that travel restrictions have added a new wrinkle in the due diligence process, likely increasing the overall time related to putting deals together and vetting them, but it doesn't have like that stopped the company from typical process. But can you talk about the prospect of actually integrating a potential acquisition in this environment without as much in person or face to face interaction? And I guess how much more does that emphasize the importance of finding like-minded management teams that are interested in staying on?
Yes. So that's a great question. So we -- as you probably know, we've done 5 acquisitions over our -- by the last 5 years. And in 2 of those, kind of relatively smaller acquisitions and more product line acquisitions that where production and sales and support facilities were in the country where we already had operations. We integrated those pretty significantly kind of a classic integration. So if you look at when you think about the acquisition, we looked at rationalizing facilities, rationalizing personnel, which obviously needs reducing cost, [Indiscernible] and doing whatever we can to move those completely within an existing infrastructure, both for cost savings and also for greater capability.With some exceptions, I think those kinds of integrations could continue. So say by way of example, if we were looking at similar size, maybe even larger acquisitions in the U.S., we still can travel in the U.S. Obviously with quarantines and those kinds of things, but travel is not self-restricted. So we can do that. It gets a little bit harder when the travel is -- all the acquisitions are outside the U.S., but there, we have the benefit of having significant operational infrastructures.In Europe, as an example, where the 2 acquisitions that we did there are essentially geographic -- headquarters and geographic full -- kind of full-service geographic locations with kind of a minimal level of direct operational integration, integrated finance, integrated sales and marketing and those kinds of things, which I think you can do remotely. But we didn't, for example, look at closing warehouses, moving inventories and the kinds of things that we've done when things typically are in the same country that makes a little more sense.As we get larger, we'll see how that plays out, that might be a higher -- there might be some propensity to do that. So I guess, from a smaller acquisitions in countries where we operate, I don't see any issues with some of the larger acquisitions. It's a little more challenging, but since we don't do, what I would say, of these heavy integrations, I think we can still manage. That being said, it's clearly -- as kind of coming full circle, as you said, it's added a level of complexity and delay to closing transactions.
And then I guess switching gears a bit. Looking at the previous 2 Q4 results, 2018, 2019, it seems like it's usually a seasonally strong quarter. Is there any specific reason for that? And then, I guess, in light of how 2020 has been overall, should things like seasonality just be thrown out the window when kind of looking ahead at estimates?
Yes. So again, I think it depends on the nature of the business. So clearly, the consumables business doesn't have any near as much seasonality in some of the other businesses because you buy consumables to use them in a relatively short period of time. Obviously, there can be some end of year kind of whether it's close outs securities inventory or incentives to get people to buy. But people generally aren't buying in any meaningful way far ahead on consumables and particularly on consumables to manage short shelf lives given the COVID environment and people worry they have to slow down their activities, certainly onto these things away.On the equipment business like a lot of capital equipment, capital expense businesses has a certain seasonality that tends to -- again, there is a little bit country by country, but tends to have 2 core seasonality. In some cases, but certainly in U.S. and other places there's a strong incentive to buy capital equipment in Q4 by any time, help people kind of get more focused on in Q4 for tax savings reasons, tax deductions, budgets often expire in Q4. So people are looking at spending down their budgets or completing -- not completing activities. So I think clearly, the capital equipment part of our business is the one that has historically had more of an uplift in Q4. I wouldn't go quite so far as to say you should just throw it out the window for this year. But I think that uplift is clearly going to be dampened somewhat.
Our next question comes from Devin Schilling of PI Financial.
Good quarter here. I believe you mentioned last quarter that IVF cycles in Germany were up 20% year-over-year in both May and June due to some pent-up demand. What are the standards as of today has this backlog been works through? Or should we anticipate further strength from consumables in Q4?
Yes. So it looks like the backlog is -- has been worked through the -- we don't -- the German IVF registry, like most registries, that does not provide typically month-to-month data. And it was an exception. I think we're going to provide first quarter data as it turns out. They had their annual meeting in October -- end of October, October 31, and they did provide data for July and August that was essentially flat versus last year, slightly down. But I think you could just kind of attribute that to the typical small levels variability that might happen. So it would appear that -- and but again, that was also in the summer months, July and August. So that has objective also a separate dynamic to it.I don't know that they said explicitly that they're not going to continue to do monthlies, but we don't have any expectation. They're going to continue to provide us monthly data. Our operating assumption is that the -- because we need to be -- I think forecasting, we want to be a little cautious, is that the backlog, if you want to think with the pent-up demand, has been worked through and that the balance of 2020 and maybe into 2021 will be relatively flat with last year, with some -- maybe some small growth in 2021, but not -- we're certainly not expecting to see robust growth of 26% that we saw in a couple of months this year.
The next question comes from Tania Gonsalves of Canaccord Genuity.
Just one question from me. I think you talked about in Q2, some of those large lab installs that you end up having from quarter-to-quarter, gotten deferred into the back half of this year. Could you talk to how many you did as well as if you did any lumpy workstation installed?
Yes. So we've -- I have to actually look at it. I think we've done 2 -- certainly in the second half of the year, and I'm kind of completing third quarter and Q4, we'll do at least 2 what I would consider good-sized lab installs, one in the U.S. and one in Germany, a couple of smaller, not quite really lumpy full labs. But we're actually seeing a fair amount of workstation activity. So people are continuing to -- back to the capital equivalent. People are continuing to invest and this is a function of -- again, they have the budgets and they want to spend them before they lose them, are responding to increased activity, are replacing maybe not necessarily outdated equipment, but last generation equipment with current equipment, that's a little bit harder to divine. But we're not seeing a huge spike in full labs in Q4, that's for sure.
Okay. Perfect. And sorry, so those 2 meaningful ones, those are going to happen and are expected to happen in Q4, correct? They weren't recorded in Q3?
I think one was mostly done in Q3 and one in Q4. But to be honest, I'm not sure I have that data.
I think that's a Q3 and one in Q4.
You have a follow-up question from David Martin of Bloom Burton.
Yes. Going back to the question about seasonality. You said don't throw the trends completely of the window. But you did have the pull-through of the incubators from Q2 into Q3. In that light, are you still expecting Q4 to be the strongest quarter of the year?
So that's an interesting question. So I think of -- I kind of ignored that for purposes of thinking about trending. So I was -- I guess, to be honest, I just think less about kind of reported revenue, which I know is what we all live by, and you're trying to build your models around and more about what are the trends. And the trends are that there's still a level of fourth quarter activity that just for all the reasons that we talk about continue to happen. Clearly, just the incubator business, for example, will not be as strong in Q4 as it was in Q3. That's just originate in some ways, as you point out. But other parts of our business, I think on the equipment side, will in fact be stronger.
Okay. And then last question. Have you given thought to listing on a U.S. exchange? And when do you think the time will be right?
So I guess we always have that in our thought process. As you know, while we -- I believe we view ourselves as truly an international business, most majority of our business is in -- outside North America. And then obviously, it's a significant U.S. business, but it's not a U.S. business. But we are in fact, headquartered in the U.S. and the capital market -- capital market in the U.S. is significantly larger in the Canadian market.So we view that it is a U.S. listing is something that will make a lot of sense for us at some point. We have not made any definitive decision on whether and when. And I think that's going to be to a certain extent, a function of some things that frankly, they're all prospective, so I don't want -- I can't talk about them too much. But to the extent that we need access to additional capital to complete acquisitions, particularly if we were to get involved in some substantial larger acquisition where access to much more capital might be required, again, dealing kind of planning on speculative basis.The performance of the capital markets in the various territories. Our market cap, I think, there's sort of market cap sizes where it side at certain point you're too small, it doesn't make any sense to move to it. U.S. listing that you wouldn't necessarily increase your desirability to other investors. And some time people make a lot of sense. So I think we're reining those factors. And as we sit here today, as you know, we did a number of moves in the middle of last year to improve our readiness for listing should we decide to do it, including authorizing a reverse stock split and potentially authorizing a change of province of incorporation, which would help that as well as we started doing review financial statements and a variety of things. So we view that it's important to be ready to do it, but it's not something that we've set a time frame for.
We have a follow-up question from Tania Gonsalves of Canaccord Genuity.
You might not be able to answer this. But just following up on David's question. I know you got a share consolidation at approved at the most recent annual meeting. Do you have a time line of when that consolidation might happen, if it does?
So if that would happen, I don't want to go so far say only, but it was done in order to allow us if and when we wanted to move to a U.S. -- to another listing, the senior -- another exchange, presumably, U.S. exchange, but conceivably in other exchange to be able to meet the middle listing requirements under that. So most likely, I see very little reason to affect share consolidation unless, in fact, we are doing that in connection with an uplisting. So I view it as -- and we view it as something that we put in place, again, to be ready so that if and when it makes sense to move to another exchange, we would have everything in place as opposed to having a start the whole process. But we don't have plan to move independent of that [Indiscernible].
Right. Right. That makes sense. Is there a certain time that you have to do it by in order for it to be like apart from having to revote on it?
So we didn't get any specific restrictions on that. I think our operating premise is that we'll look at it again for -- again, think about it again for this annual meeting, more is just better kind of hygiene. You don't want to have us something significantly put in front of shareholders is -- we should think about that we should put in front of shareholders again as opposed to rely on what might be at some point a 1 or 2-year-old quote. But we haven't again made a decision on that. That's sort of up to the lawyers to advise us on.
Our next question comes from [Indiscernible].
Congrats on the quarter. Quick question for me. Can you give a little color -- broad color about the insurance policy regarding policy in U.S. and Germany, your major markets? How is the insurance companies doing with the fertility solution?
I assume by this, you're talking about the payer side, so whether it's say by either by the patient or by insurance or some other state subsidies?
Yes. So the main picture that I want to have is about the secular trend, if you have a secular trend, so how the demand can be boosted by help of the insurance? So is it going to be cheaper or more affordable? I want to have a more affordable picture here.
Yes. So it's kind of a longer question maybe have time for this, but I'll certainly give you some color on that. And then clearly, there's a lot of publications on this and some of the analysts have looked at this and can talk you –- I'll talk to you about offline. But in general, there's pretty good support for IVF in terms of funding in Germany. So not the majority of the expense from the German IVF cycle is paid for by through some kind of public funding, whether to insurance or state subsidies of sometimes particularly public hospitals, state subsidy hospital. Conversely, in U.S., there is the opposite case where vast majority is paid privately. There are a handful of states that do offer IVF benefits.And clearly, to your point, you can see because there are IVF benefits in those states, there's a higher usage per capita in those states. And there's been, even this year on a trend basis to probably not meaningful changes that, again, has gotten a little bit confound -- the data has been confounded this year because of COVID. But early this year, a couple of states. New York, which is obviously a pretty big population state added a mandate for large employers with over 100 employees. New Hampshire, which is a small state, but kind of a bellwether state in some ways, very fiscally conservative, social retire and purple, added an IVF mandate. So again, we're seeing more coverage. So the trend is not an overwhelming trend or tidal wave, but the trend is to its more coverage.And in addition, there are private insurers in a bit alike problems insurers, private health benefits managers that are offering employers, particularly in those states where they don't have a mandate, optional, IVF or egg banking or other kinds of ART coverage to increase the desirability of workplace, and that's become a pretty big trend. I think it's gone up from about $1.5 million covered lives last year to well over $2 million now, and I think they're projecting a $2.4 billion and $2.8 million by Q1 when as people -- they bring people online. So that's -- again, these are all trends, not going to -- but each of these is additive. And it's not confined to -– though it's obvious in one of our larger markets. It's not combined to U.S. and Germany.If you look at Japan, which is a little bit of an outlier because it has a high usage of IVF per capita, but it's all been private pay or largely private pay. The -- I guess he's no longer completely move, but the incoming and new minister has as part of his platform, the extension of insurance or IVF coverage in order to obviously, Japan has a population problem. So in order to provide a lot of incentive for people to continue to have children or had children to grow their families. So -- and that's a big country, big population already has some pretty decent usage per capita, but affordability is good. So I would say on a trend basis, we're seeing more coverage and more support. And the data is very clear that when there's more support, there's more usage.I guess there are no other questions. So I'd like to thank everybody for participating in the call. Obviously, we're delighted to have a more positive quarter than we did last quarter and look forward to speaking with you all early next year.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.