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Welcome to the Hamilton Thorne Limited Third Quarter 2022 Earnings Conference Call. Before turning the call over to your host today, please be reminded of our standard public company policy on forward-looking information and use of non-IFRS measures. Certain information presented or otherwise discussed on this call may contain forward-looking statements. These statements may involve, but are not limited to, comments 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, performances 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 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, the company's management discussion and analysis for the quarter ended September 30, 2022, whose filings are available under the company's profile at www.sedar.com. During this call, the company may reference adjusted EBITDA, constant currency and organic growth as non-IFRS measures, which are used by management as measures of financial performance. Please see the sections entitled use of non-IFRS measures and results of operations in the company's management's discussion and analysis for the periods covered for further information and reconciliation of adjusted EBITDA to net income. Now let me turn the call over to Hamilton Thorne's CEO, David Wolf.
Thank you very much. Good morning, all, and welcome to the Hamilton Thorne Ltd. for Third Quarter 2022 Earnings Conference Call. I would like to introduce myself, I'm David Wolf, President and CEO of Hamilton Thorne. I would also like to introduce Francesco Fragasso, who is on the call with me today. Francesco joined Hamilton Thorne, as our Chief Financial Officer on September 1. Before Hamilton Thorne, Francesco served as CEO of several public and private organizations focused on manufacturing high-technology products. Francesco started his career with Deloitte, where he spent about 10 years in auditing and corporate finance advisory services. I believe that Francesco's global manufacturing and business operations experience at both an entrepreneurial division of a very large public company, as well as most recently CFO of a somewhat larger than Hamilton Thorne stand-alone public company with complex worldwide operations will serve Hamilton Thorne well as we continue to grow. I would also like to take a moment to recognize and thank Michael Bruns, our retiring CFO, for his years of dedicated service to the company, during which our company grew from mid-single digits to where we are today, nudging just about $60 million in sales. 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, 2022, with a focus on sales, markets and operational performance. Francesco will follow with more detailed discussion of financial results for the periods as well as a review of our financial position and liquidity, and I will return for a few minutes to provide some information on our outlook for the balance of 2022. We will then open the line up for questions. I would like to remind all these statements 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 third quarter of 2022 was an extremely strong quarter for Hamilton Thorne. We continue to see strength in the fundamentals of our business with well above market organic growth of 17% for the quarter and 12% year to date. I'm also happy to report that supply chain issues eased somewhat in the quarter, leading to fewer days in production and shipping. Reported sales results continue to be negatively impacted by exchange rate fluctuations in our European, U.K. operations. Our sales of $13.5 million were up 6% versus the prior year on U.S. dollar basis, but up 17% on a constant currency basis, meaning that foreign exchange translation reduced reported revenues supported by approximately $1.3 million. Let me give you some of the highlights from our performance. Sales, as I mentioned, increased 6% year-over-year to $13.5 million for the quarter and increased 14.7% -- 14% to $41.7 million for the 9-month period. Sales and constant currency [indiscernible] with FX fluctuation, as I mentioned earlier, increased 17% for the quarter and 22% for the 9-month period. Organic growth was 17% for the quarter and 12% for the 9 months. Gross profit as a percentage of sales increased 100 basis points to 48.5% for the quarter versus 47.5% in the prior year period and was 49% for the 9 months ended September 30. Adjusted EBITDA increased 3% to $2.1 million for the quarter and increased 4% to $7 million for the 9-month period. Sales into the human clinical market were significantly faster than our overall growth and continue to be the largest target market coming in at about 90% of our revenues. Sales into the animal ERT market were also up for the 3 and 9-month period while sales into the research and cell biology markets were somewhat down for both periods. Sales into the Americas and the EMEA, our Middle East and African regions grew for both periods while sales into Asia Pac were somewhat down, partially as a result of renewed COVID-19 related lockdowns in China. From a product perspective, our equipment business continued to have the largest growth in both periods, largely due to the addition of the IVF tech product-line as well as growth of equipment sales in the EMEA region. Gross profit margins, as I mentioned, were up 100 basis points versus the prior year due to product mix as well as the full impact of price increases that we instituted at the beginning of this year are being recognized. EBITDA margins were down somewhat this quarter at 15.6% in part due to the impact of currency fluctuations and as expenses increased due to continued planned investments in growth as well as inflationary pressures leading to increased personnel costs and other expenses. Our operating expenses were generally in line with expectations, with travel and trade show expenses returning to historical levels and increased costs associated with maintaining investments in R&D investments and sales and other personnel to support our growth. I will now turn the call over to Francesco to provide a more detailed discussion on the numbers.
Thank you, David. Good morning, everyone. I'm Francesco Fragasso, CFO of Hamilton Thorne. I'm very excited to have joined the Hamilton Thorne team. I will briefly highlight the third quarter and September year-to-date financial results. David already provided an update on sales and gross profit, so I will focus on other elements of the income statement as well as the cash flow and liquidity of the company. Operating expenses increased 20% to $6.7 million for the quarter and 21% to 19.1 million for the 9-month period. Expense increases were primarily due to the inclusion of IDS tax expenses post-closing of the July 2021 acquisition and increased costs associated to the investment in sales and other personnel to support growth. The return to pre-COVID level for sales and marketing activities is also a factor for expenses increase. Overall increases in operating expenses were in line with our expectations. Interest expense in the quarter decreased 11% to $103,000 due to repayment of outstanding principal on term loans and increased 15% to $322,000 for the 9-month period due to the additional term loan incurred in July 2021 to finance the IVFtech acquisition, partially offset by interest we earned on the company cash deposit. Income tax expense for the quarter decreased to 337,000 credit and decreased to 185,000 expense for the 9-month period. This was primarily due to the reduction in income before taxes. Income tax expense included the traded income tax recovery expense of $431,000 in the quarter and 367,000 in the first 9-month period. Those are non-cash increases of the company [indiscernible]. Net income for the quarter was $99,000, a decrease from net income of $249,000 in the prior year. Net income for the 9-month period decreased to $930,000 from $1.6 million in the prior year. This is primarily due to increased operating expenses. Adjusted EBITDA, which we consider an important metric for our financial performance, increased by 3% to $2.1 million for the quarter and increased 4% to $7 million for the 9-month period. This was mainly due to revenue and gross profit growth, offset by the negative impact of foreign currency exchange headwinds as well as planned increase in operating expenses. As a reminder, adjusted EBITDA is a non-IFRS measure. Please see our reconciliation of adjusted EBITDA to net income for the quarter and year-to-date in our management discussion and analysis report we filed today. Turning now to the company cash flow and balance sheet. The company's cash balance at the end of September was $16.7 million compared to $17.9 million at the end of December 2021. A decrease of $2.2 million in cash balances was primarily due to reductions in U.S. dollar in cash accounts maintained in European currencies due to fluctuation in exchange rate of approximately $2.4 million, as well as working capital fluctuation, including continued investment in growing inventories to support expected growth and mitigate potential future supply chain issues. The company generated cash from operations of $908,000 in the quarter and $471,000 in the first 9 months of 2022. The return to quarterly positive operating cash flow shows that the company has recovered from COVID-19 impacted quarters. Cash used in investing activities in the quarter was $1 million and $1.9 million for the 9 months of 2022. Those were related to the ongoing investment in product development and capital expenditures for equipment and demo units. Prior year uses of cash included a total cash payment of 6.7 million in connection with the 2021 acquisitions. Cash used in financing activity in the quarter was 350,000 and 800,000 for the 9 months of 2022. Those were mainly related to payment of scheduled term loan and lease obligations, net of about 900,000 proceeds from working capital line of credit. Note payables and term loans outstanding totaled 5.4 million at the end of September 2022. At end of September 2022, the company continued to have a strong liquidity position of 27.4 million, including 15.7 million in available cash and 11.7 million in additional borrowing capacity. This liquidity availability makes us well positioned to support our acquisition program and financing the expected growth. I will now turn the call back over to David to comment on the company outlook.
Thank you very much. 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 positive industry trends in our field that we've discussed many times in past calls and as demand and growth in general have returned to pre-pandemic levels in nearly every market that we serve. Fourth quarter bookings continue to be strong and barring new supply chain issues, we expect to continue to achieve well above market organic growth. We feel that we are well positioned to continue to execute on our strategy of driving long-term growth and EBITDA expansion by investing in our organic growth, while building scale, enhancing our product offerings and expanding our geographic and direct sales footprint through acquisitions. As I mentioned in my opening remarks, supply chain issues, did [ use somewhat ] in the third quarter, perhaps more accurately, we built our inventories and processes to be better equipped to handle them. That being said, I don't think we are out of supply chain issues going forward, and we continue to see the possibility of a continued quarter-to-quarter variability in sales and margins as we continue to work to manage supply chain issues as well as inflationary pressures. All of the above so I would mention, are the type that we believe are affecting all the market participants in our deals. Finally, I should mention that the European currencies have strengthened recently against the dollar. They are still down significantly versus Q4 in 2021, and this weakness will continue to affect our reported results for the quarter. Regarding our M&A activities, we have an extensive pipeline, we're actively working on multiple acquisition opportunities. As Francesco mentioned, we had $27.4 million of liquidity and additional debt capacity, we feel we're well positioned to be able to complete the types of transactions we have in our pipelines. In summary, despite the various issues that we face on a day-to-day basis, we feel good about our market position and our confidence in our team's ability to execute on our strategy of driving long-term growth and EBITDA expansion and while building scale and expanding our geographic product offerings. We'll now open the line up for questions. Thank you.
[Operator Instructions] First question comes from Kyle McPhee from Cormark Securities.
Just on the topic of margins, you had to move down for EBITDA margin percentage versus what we're used to seeing from you. Can you kind of give us color on quantifying that split between kind of the labor inflation and it sounds like growth in investments that are triggering the lower margin? Also, do you plan on taking more pricing to offset this kind of higher OpEx level cost?
Yes. So I'll comment briefly. In terms of gross profit margins, again, they were actually higher versus last year. So we have seen the effect of our pricing actions take place. I will say that our goal in increasing pricing as we did in the first quarter, and then I'll address what our plan is for next year, was to maintain margins, so we do not see this as an opportunity for margin expansion. That's a strategy position that we make. We do intend to have price increases again, taking effect in the first quarter of this year. Similarly, our strategy will be the same, which is we are doing our best to address both past price increases and what we perceive to be future increases. It's a little bit of, as you can imagine, a crystal ball. I think in hindsight, even though margins were up a little bit in the quarter versus last year, there probably was more price increase we could have or should have done in order to maintain margins, so I think that had overall had an effect on margins as certain things such as labor costs, inflationary cost, shipping and the like continue to increase. There's also beneath the surface, a fair level of impact of mix on both margins and EBITDA margins. And finally, as we mentioned, our expenses reflected both a return to more normal expense levels particularly around trade show and spending. So that is certainly an increase versus last year as well as some investments that we've made in, I would say, again, each of these is relatively small, but important in improving our business, expanding our capacity, for example, bringing on Francesco, while keeping our former CFO online for a period of time, so some double payments in there. So in many events, a number of small things.
The next question comes from David Martin from Bloom Burton.
You mentioned that the consumable, well, the equipment growth was the strongest, so I'm assuming consumables lagged a bit. Is that a leading indicator that maybe IVF procedures are slowing down a bit, could we be seeing an impact of economic downturn?
We don't believe that's the case. I should have probably to put a little more color on this in that most of our consumables, as you may know, are sold into European markets. We have been and we've been talking about trying to increase substantially our consumables in the U.S. and while we have increased them, it's still a relatively small number. So consumables on a constant currency basis, actually growth was very strong. Consumables on a reported basis were significantly impacted by particularly the euro versus dollar changes.
Okay. As far as trying to increase sales in North America of the consumables, are there things that you're doing special programs to get that done? And do you see an inflection for that category of products at any time soon?
We have had pretty good success with increasing some categories of our consumable products, particularly our glass micro tools, the pipettes that we sell, which are under the name. And we've increased sales of those fairly significantly on a percentage basis, and it's now becoming, I wouldn't say it's a huge up, but it's now becoming a meaningful number. As we have discussed on a number of occasions, one of the larger opportunities for us is to increase our media sales in the U.S. again the cell culture media, which is the liquid that supports the cells while outside the body. We have seen progress on that, particularly in the last 2 quarters. And I'm therefore a little more hopeful that we're going to see some meaningful sales in that. But I would say the numbers are still very small. For 2023, we intend to put significantly more effort into all consumables in the U.S. including both external programs to promote sales, which are sales, marketing and promotional and internal programs to promote those sales, which would include incentive schemes.
Okay. Great. And then to the supply chain issues, how many basis points would you say the supply chain issues took away from the gross and EBITDA margins? And do you think you'll get those back once supply chains have normalized?
Yes. So that would be unfortunately on the speculation for me, I don't know, maybe I'll turn it over to Francesco after I babble on for a bit. But I believe there are some areas where it's easy to quantify, for example, freighting, absolutely it's going to be as much as 100 basis points freight out gets paid for, as you can mention, for the most part by the customers. There are some costs that we from a personnel perspective, some of our labor costs increased because we feel it's incredibly important to maintain a loyal dedicated to skilled workforce versus employee turnover. In fact, our employee turnover is extremely low. Others are much, much harder to calculate so my estimate, which I'm not sure I want to stand behind is probably 200 basis points, but it's again, a little bit of an estimate not as mathematically derived as I would like.
And it sounds like some of those things like the increased labor cost to keep the personnel, that may not reverse either once things get back to normal, I guess?
I would say that's not going to reverse. But on the other hand, we don't see that happening again if that makes sense to you.
Yes. Got it. Would you say then that like 15% to 16% is the new normal for EBITDA margin?
No, that's still, I would say, on the low side for what we would expect to see on a normalized basis. Now you're asking a little bit about predictions about what next year is going to do, we have a lot of things that we can't control, which are some of the supply chain issues and cost and inflation. I would say next year is likely to have some EBITDA that's going to be lower than our historical levels and lower than our longer-term goals. But I wouldn't say that's structurally permanent so that again, I think it's going to be last half of '22, first half of '23 phenomenon more so than anything else.
Okay. And then much like your revenues where you see some seasonality, a seasonal uptick in Q4, you also tend to see that in margins as well. I assume that's because you're selling more on the same-sized overhead. Is that correct? Like what I see in the EBITDA margins rising in Q4. Is that correct?
Yes, because in the short term, again, we have essentially the same fixed cost and Q4 tends to be a much bigger number so I would say that's accurate.
Our next question comes from Justin Keywood from Stifel.
Just on the foreign exchange headwind, quite substantial in the quarter and I think I heard in the opening remarks that this is expected to persist. Are you able to give any context to that comment? And also, if there's anything that Hamilton can do as far as hedging to try to negate that headwind?
Yes. So let me respond briefly, and I would like to turn it over to Francesco to maybe amplify. So in terms of headwind, just to give you by way of example, for purposes of our P&L, we use the average exchange rate for the quarter, for the balance sheet, we do it a little bit differently. So just to give you a sense in euros, the average exchange rate in Q3 of last year was almost $1.18. This Q3 of this year was about $1, so a huge swing. The average exchange rate in Q4 of last year was about $1.14. This is all U.S. to euro. and so far this month it's slightly under $1. It's shown some strength, so it may be coming back. So that's compressed a little bit, but it's still a pretty significant difference so it went from 17% to enter 14% difference so those are still meaningful numbers but, as you start to lap that Q1 of this year had a much lower exchange rate in Q2 and Q3 so eventually, those become less significant. Francesco, if you want to add anything to that I'd welcome that.
Yes. And to clarify, those are not actual realized losses. Those are differences that emerged by translating our business in Europe where functional currencies, mainly the euro to U.S. dollar, so you will see in our quarterly report that there is a substantial unrealized difference on exchange rate, both on the cash flow and on other comprehensive income which is exactly by translating to a lower exchange rate revenue that would have been translated to a different rate last year. Of course, looking at the future, we cannot make any prediction where the exchange rate is going, although we are seeing a slight improvement of the foreign currency versus the U.S. dollar.
Understood. And then my other question, we saw in the quarter Walmart to start offering IVF services as a benefit to its U.S. employees and I imagine there will likely be other corporations that follow suit for, I think, historically, services that have been pay out of your pocket. I'm just wondering if you're seeing this type of announcement translate into any increased activity in the States and how do you see that trend playing out if that's anticipated to perhaps lead to even more robust organic growth going forward?
Sure. So that's a great question. I would say, in particular, the focus on the U.S. here, and then we could talk about other markets and it may be worthwhile talking about Japan as well. But in the U.S., as you know, IVF is largely an out-of-pocket cost of private pay. There are a handful of states, a relatively small number that do ensure employers to offer IVF benefits but that's a minority so there's been a little bit of a hodgepodge of response to that. So one example is private insurers, they prefer to be called benefits managers in insurance, that offer employers who want to offer an IVF benefits for either because they're self-insured or because they are a state that doesn't have a mandate they want to offer to their employees and that's been a trend which has increased pretty substantially. Mostly, it's been taken up by larger corporations, often those who are in, I say, the higher end of the revenue or maybe pay scheme from an employee perspective so the knowledge worker, companies like banks, insurance companies, Facebook, the Googles' of the world have begun to offer these kinds of things. Just to give you some numbers, I believe, the most recent numbers are somewhere between 5 million and 6 million covered lives on that, which has probably doubled over the past couple of years so you can see that trend continuing. The Walmart situation, I think, is interesting in 2 respects. One is Walmart is the largest prime employer in the U.S. so it's going to have a significant impact and their employee census tends to be a little bit different than the kinds of people who've been getting these private company benefits in the past. It may order well for continued, I guess, the democratization of these benefits, which, again, are clearly just to put in context, clearly, the more public pay there is or private insurance or public insurance, however, it is sponsored it's out of pocket. There's a much proven greater correlation to IVF usage. So clearly, more subsidization however, it's not of IVF increases the overall usage of IVF and will have a positive impact on our business. In terms of seeing that, certainly, the Walmart announcement is a little bit too early to tell. And just given the geographic scope of their operations I'm not sure we would ever be able to see it in particular in such a clear way. That being said, just to give you an example, New York, the state of New York, in 2020 mandated that employers offer IVF coverage large employers with over 100 employees offer IVF coverage to their employees. So that a significant number of new wides were covered by IVF coverage and in that case, hard to quantify to be fair, but we absolutely saw into, 2020 was an average year in some ways, but as 2020 developed into 2021,continued a greater-than-expected growth in that market, both in terms of sales, but particularly in terms of lot expansions, move out activities as the labs saw a much greater usage than they have previously seen. I know somewhat of a long answer, but I hope that covered the waterfront on your question.
Yes. I really appreciate it. Sorry, you mentioned something about Japan?
Oh, yes. So that's a good point. We tend to be focused on the U.S. in some ways, but remember that our business is truly an international business with over 70% outside the U.S. so in the spring of this year, Japan, which has, as most people know, are very significant demographic challenge with low birth rates and not being able to replace the population and unlike certainly Canada and to an extent the U.S. is not very welcoming for immigrants. Japan instituted basically subsidies for IVF and mandated insurance for IVF so they are what, almost 100 million more Japanese are now covered by IVF is obviously a population [indiscernible] smaller number than that, so that's an example of a very large country, expanding IVF overnight to address in this case, a very specific demographic problem. We're also seeing as well while on the topic a greater geographic expansion. We've also heard about, transparency is not as good as in Japan, that there are some regions in China that are beginning, to experiment with, piloting is probably more accurate, doing pilot projects to pay for IVF, again, because again the cause is different because in China the fall back from the one child policy, but also now we have a country facing a huge demographic shift.
The next question comes from Christopher Pu from IA Capital.
I'm calling in for Chelsea. I just had a question on the M&A side. Regarding the current pipeline that you have, like the UC perhaps taking advantage of U.S. dollar strength and going after maybe geographies, specific geographies and just kind of wondering like in the pipeline, the things in the pipeline, are they kind of similar with the size of acquisitions in past, or how is it compare with what you looked at in the past?
So just to put it in context, the way our field is probably in terms of the companies that supply the kinds of products that we supply to IVF clinics, the way it's broken out is there are a relatively small number of large players, of which we're one of the larger players, sort of less than 10 and then a long list of the round numbers, 150-plus of companies that are $20 million or less in revenues, most of which are under $10 million or $15 million less in revenues. Also, given the historical nature of IVF, where began in Europe and has much higher per capita usage of in Europe, a lot of the companies that we would even look at as targets tend to be based in Europe. I would say that in terms of size, the size of transactions we are most likely to do, would be consistent with what we've done in the past but that's not necessarily because that's all that we target. It's because that's what's most likely to happen because there were just so many more of them available. In terms of geographic location, and I think, by the way, this would apply to maybe specialty of product as well, while there are a large number 150-plus and about half of which we qualify in as solid targets that we could be interested in doing something, it's a big enough number of fields if you can have confidence if you can complete a transaction. But it's not such a big number that we could say that well this year, we're going to focus only on this geography or this year, we're going to focus only on this product, our service category and maybe with the intersection of those, you might end up with only one company that's in a particular country and a particular product so we tend to cast a wide net. We've got a very structured and formalized program to stay in contact with all the potential targets. We then, therefore, as those targets work through the pipeline, we can be fairly systematic and thoughtful about which particular company we may want to engage in or accelerate, which ones we may want to slow down for whatever reason. So, I think the overall point is probably accurate, which is because of the law of averages, we're more likely to do transactions in countries where our currency is favorable, but it's not all that we're working on.
Just a quick follow-up question to that. Does your company have maybe a long-term target, like a leverage ratio or debt ratio at all?
So we've been pretty conservative on a leverage basis. We've been generally 2-2.5x in the total debt EBITDA and feel that, that's a comfortable ratio, we certainly would extend that in certain circumstances for example, if we were to look at an acquisition that because of the size and the nature of our balance sheet that required more debt that we would look at extending that. But, generally speaking, given our cuts and conservatism, it would need to be an asset that had a very, very strong cash flow, and therefore, was going to bring us within ratios a little more comfortable with relatively quickly or I suppose that we thought we could bring to an equity offering relatively quickly or perhaps a more speculative thing. That being said, and maybe I'll defer again to Francesco to talk about this as well, I think in today's market and today's interest rate environment, we're still comfortable with that because we think that's obviously lower cost of capital in many ways, but today it doesn't feel like the time we should be getting too far over our skis and leveraging ourselves up.
No, you described very well. We continue to have a strong cash flow so that will support potentially to leverage more, but we are taking a relatively conservative approach. But we are also in an environment where our outstanding term loans are at an average interest rate that is about 4% going forward, that cost is expected to increase so that will also be a factor in the decision of financing M&A going forward. But as we said in our opening we have a strong liquidity position today between available cash and line of credit and additional capacity we can tap into to find the right opportunities.
Our next question comes from Tania Armstrong-Whitworth from Canaccord Genuity.
First off, just a follow-on your past line of questioning on the private coverage. I guess on the alternate front, if we do see any kind of mass layoffs, especially in those larger companies that you were talking about in the tech industry particularly, I guess what is the impact to cycle volumes? Can you talk to what you saw in past economic downturns, whether that comes from out-of-pocket payers or privately covered lives, how we saw the cycle volumes trend?
Yes. So there's sort of 2 different questions embedded in there. One is sort of the general which I'll answer and then can you maybe give some indications on the specifics about how maybe the tech layoff might affect the coverages that they get. But in general, what we've seen in the most recent measurable -- COVID, obviously, it's very different so I'm leaving the last couple of years out of it so we're looking at data from 2008 to 2010, which was the most recent, very significant economic downturn. I'll leave it to the macro crowd to determine if there is a recession coming, which I guess some people can still question how deep it will be, but I would say, other than the most pessimistic among us, most people aren't viewing that. We'll see what happens in [indiscernible], I suppose but most people aren't viewing that there's going to be the kind of potential global meltdown that we saw in the 2008 time frame. So, I would say what happened in 2008-2010 might be indicative, but I don't think anybody is expecting the same kind of results on a on a macro basis. As it affects our sector, we had good data from U.S. As you know, what we like about this field is virtually every country has national registries, where most of the clinics and sometimes of all the clinics register their results so you know what actually happened, it's not guess work about, let's say, cycle [counts] and users. So with the 2008, 2010 time frame, we saw a flattening of demand in our planning of cycles, so in the U.S. and obviously it will be related to demand and I think there was 1 year that was down 1%, but not the kind of trough you might see in things which are similar to costs in some ways from a household perspective, like I would say housing or automotive where the demand curve dropped off completely. So we think the field is somewhat, nothing is recession-proof, but fairly recession resistant and given that. Then coming out of that, we saw much higher than average growth rates so again, demand and a return to some normality. In Europe, where there's much more social coverage, whether it's insurance or subsidies or state-run clinics and hospitals, we saw a slight contraction in growth, but we still saw growth during that period. I won't say the U.S., I guess it's more similar to Europe than it was that now we're tapping on those 13, 14 years ago, in a sense that there is more coverage, but it's not as insulated as Europe is so I would say if we see a really significant recession, you will see some contraction in demand. I think it would be hard to believe that we would be completely recession-proof. But on the other hand, this is a field that the clock is ticking for users, and people are frankly making some difficult choices. I will say, and this is anecdotal, I guess, on your first question about how things like layoffs could affect this. One of the major companies that does do this benefits management, again, the Facebooks and Googles of the world who are at the same time maybe laying off people [Just Go] just announced their results and their perspective is from the employer side, they are not seeing people retreating from offering this as a benefit or reducing coverages, they're seeing their uptake to be as strong or stronger. They also measure actual utilization and utilization has been pretty similar to what it's been in prior periods. So again, we're mindful of potentials around recessionary issues, but we certainly haven't seen it today.
Okay. That's very good color. And then secondly, I don't think I saw it anywhere in the written remarks, but have you added any new direct salespeople in any of the geographies that you entered, I guess, last year would have been to Australia and the [ Nordic ] countries. Are you selling more of your kind of legacy U.S. products into these nations direct?
So we don't normally comment on individual hires [indiscernible] the question. We try to keep them to more kind of bigger picture if we enter a new territory. So just like in the last year, and I'm going to make sure I've got my dates right, but certainly over the last year, we have hired another person in…and again, this is either sales or our field support in some of our new territories in Nordics and in France, we just extended an offer and I don't know if she started to get a new person in Australia from a sales perspective. So we are kind of expanding but again, as you know, our general approach is to be more incremental than evolutionary than revolutionary so you're not going to see us say, maybe we're going to make a huge commitment to this market and hire 20 reps and try to smother a market, we're much more of a add judiciously here and there. So yes, we continue to add people, we added somebody in the U.S. as well, just to give you a sense, in the first half of this year, so, we're still adding as needed.
And then just lastly, for me, I think you disclosed this last quarter, which is why I'm asking again for this quarter, you were able to provide the FX impact on revenue for Q3. Are you able to break out the FX impact on EBITDA?
Yes. So Francesco and I were talking about this earlier, trying to quantify that. My sense is maybe there are too many moving parts to do it as effectively. But we'll let Francesco comment on that.
Yes. I can address that question. On the revenue, just to start with the top line, the effect of the exchange rate has been 1.3 million in Q3 and $3 million for the 9 months of 2022 so by translating revenue in foreign currency to the prior year exchange rate, revenue would have been higher by 1.3 million in Q3 and 3 million for 9 months. When it comes to the EBITDA, there is the same effect on the rest of the cost. So we estimated that the EBITDA, the effect, the net effect is way smaller, I'm talking the adjusted EBITDA and probably we are at less than $100,000 on the quarter and less than 200 or about $200,000 for the 9 months of 2020.
The next question comes from Stefan Quenville from Echelon Capital Markets.
Just a quick modeling question. I see that CapEx has sort of ticked up a bit to about a $3 million run rate for the year. It's a bit higher than it's been in the past. Obviously, you guys are investing in growth, is it reasonable to keep it at that level going forward?
Yes, I'll jump in and then just directionally. So we've got a number of projects that we've been working on, particularly this year, that are more infrastructure projects, including systems enhancements and the like. CapEx includes investments in the capitalized portion of R&D so I would say that on that number and it's probably, as you know, it has increased substantially this year, but on a percentage basis, it's probably not a whole lot different than it's been historically. I would think that's likely to be where we are. I don't know if Francesco again, you'd like to expand on that, yes. The main investment, of course, there is the initial update upgrade of equipment, some demo units but it is really the capitalization of some product development expenses. And they might vary according to the stage of the development. There are stages of development that are equipment-intensive, others that are more type of labor and engineering work. So I don't think it's a trend. It really depends on the ongoing activity and put in the ongoing project in terms of product development. And the IFRS are pretty strict in dictating the requirement for capitalizing those type of activities so we have also a conservative approach.
Next question is a follow-up from David Martin from Bloom Burton.
I wanted to go back to Tania's first question. You mentioned in economic downturns the number of cycles annually didn't get affected that much. What about your business, equipment sales, did they stay relatively stable as well? And I guess that would extend to lab build-outs as well.
Yes, good question. I'm happy to answer questions that I can answer factually, but I'm not sure how relevant it was in the sense that if you cast your mind back to 2008, 2010 time frame, Hamilton Thorne was a very different company. We were single digits revenues, 95% capital equipment, nearly 1/3 to half of our business was focused on general laboratories and you may remember, those who've been around, there was a lot of interest, the idea [indiscernible]and we stopped doing it on the stem cell market. So it was a different business so I'm not sure I would generalize too much. That being said, it was a challenging time for CapEx in that point. We saw that certainly the general lab customers and some of the start-ups, were having trouble financing products. We didn't see it as much, I believe, in the IVF clinics, but that's a little harder for [indiscernible] I certainly remember, we might be able to find the data. And at that point, we weren't at all involved in full lab build up. So we have, I would say, I can't give you any comments on that.
Okay. I guess the U.K. right now is having more economic difficulties than a lot of regions and you bought Planer a couple of years ago. What are you seeing in the U.K. as far as your business?
So again, there's some compounding factors there. But I'll answer very optimistically that put the button there very positively. So our U.K. centric business has grown dramatically over the past couple of years and this year, it continues to grow. It's primarily kind of our call legacy business, the long established Planer of business that has been around for years and years and years, where we continue to support those customers and the addition of primarily consumables products over the past, really since the beginning of 2021 that has been by far our largest growth area about those consumable products that includes both HTL branded consumables [indiscernible] products as well as third-party consumables. So again, I think that's a confounding factor because when you enter a market, you're bound to see significant, I would say, significant growth. That being said, we've reached a level of, I wouldn't say maturity because it's still, we've been doing this for a couple of years that we're not seeing anything with in the case of slowdown in cycle usage from a recessionary base. And by the way, contrary to maybe what you might expect, the U.K. is largely a private pay market, the NHS has slowly but surely over the past several years, decreased funding in the local councils, those which actually administer the funding, have decreased funding. So it's becoming a market that looks more like the U.S. in terms of both demand and pay factors than, let's say, it was even 5 or 10 years ago.
This concludes our question-and-answer session. I would like to turn the conference back over to David Wolf for any closing remarks.
All right. Well, thank you very much. I'd like to reiterate my thanks to all of you on the call and most importantly, to our company, our employees who continue to show remarkable resiliency and dedication to our business as well as to our customers who ultimately support and the patients who are the backbone and the drivers of demand in our field. For the Americans on the call I wish everybody a happy Thanksgiving, and look forward to seeing you all on our next conference call. Thank you very much.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.