Extrapolating From VitroLife Q4 Conference Call…Looking at a stock chart of VitroLife and Hamilton Thorne there is no question that the secular growth in this space and the resulting investment opportunity. Given that VitroLife is one of the larger players in the space 13B Market Cap it is good tool to use for extrapolating to broader secular trends. VitroLife Q4 was a little softer due the timing of product sales and transitory manufacturing rationalization in its consumable production. Lets Dig In;
Revenue
Revenue up 22% for Fiscal 2017 and 11% for Q4. With an organic growth rate of 19%. With VITR still modelling 5-10% secular growth (Sandbag number) when they say they still to expect organic growth rate over 10% on a go forward basis.
HTL IMPACT: just on that organic growth figure QoQ you will get to the analysts estimate of 6.3-6.4M in Q4. This doesn’t even include market share expansion in US, Gynemed cross selling opportunities, strong seasonality or currency strength in the Euro which is up 2% QoQ and 14% YoY!!!
Geographical Strength
Asia ex China up 13%, Europe up 12%, US up 6% with softer markets in China, Middle East and Africa.
HTL IMPACT: China is a tough nut to crack the structure of few large clinics must be tough to get distribution through being non-state companies. Looking at regional strength in Europe and US falls right into HTL wheelhouse with expansion opportunities in Asia. China will forever be the ultimate golden goose but not required for strong organic growth.
Gross and EBITDA Margin
Gross Margin of 65% and EBITDA margin of 38%.
HTL IMPACT: This could be the holy grail, economies of scale that creates the upside potential to the name. Looking at HTL margins of Gross 60% and EBITDA 24% there is so much room for improvement. Granted the margin profile will always be higher for a 13B company vs 85M company. The leverage in EBITDA margin expansion from growth in the channel and sales network is huge comparing EBITDA margins from controlling SG&A costs as revenues continue to grow. If we assume HTL can half that EBITDA delta to a 30% EBITDA margin would add 1.75M in EBITDA on my 2018 numbers. Product mix should help margins going forward into 2018 for HTL as well. Realistically, it make take a few more years to get to that 30%+ EBITDA margin.
CapEx Requirement
Only 2% of Sales for CapEx
HTL IMPACT: Cashflow, cashflow, cashflow. Business model is quite capital efficient that spins off significant cashflow that Mr. Wolf and his team can pay off debt and/or seek out next acquisition target.
Outlook
Long Term Secular Growth of 5-10% w Continued Acquisitive Strategy for Compound Annual growth of 20%
HTL IMPACT: Sounds very familiar to the HTL model but on such a larger scale. The growth potential of HTL the smaller player is so much greater as they can pursue many smaller deals at better multiples where VITR will struggle with the law of large numbers. HTL will grow in FY ’17 of 100%+ vs VITR of 22%. Enough Said.
Still my best idea in the healthcare space no matter what market you look at.
LONG