Yahoo Finance Harvard Bioscience, Inc. (NASDAQ:HBIO) Q1 2024 Earnings Call Transcript
Harvard Bioscience, Inc. (NASDAQ:HBIO) Q1 2024 Earnings Call Transcript May 7, 2024
Harvard Bioscience, Inc. misses on earnings expectations. Reported EPS is $-0.10815 EPS, expectations were $0.02. Harvard Bioscience, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, and thank you for standing by. Welcome to the Q1 2024 Harvard Bioscience Inc. Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Dave Sirois, Director of SEC Reporting.
Dave Sirois: Thank you, Josh, and good morning, everyone. Thank you for joining the Harvard Bioscience first quarter 2024 earnings conference call. Leading the call today will be Jim Green, Chairman of the Board, President and Chief Executive Officer; and Jennifer Cote, Chief Financial Officer. In conjunction with today's recorded call, we have provided a presentation that will be referenced during our remarks that is posted to the Investors section of our website at investor.harvardbioscience.com. Please note that statements made in today's discussion that are not historical facts, including statements or expectations of future events or future financial performance, are forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Actual results may differ materially from those expressed or implied. Please refer to today's press release or other disclosures on forward-looking statements. These factors and other risks and uncertainties are described in the company's filings with the Securities and Exchange Commission. Harvard Bioscience assumes no obligation to update or revise any forward-looking statements publicly and management's statements are made as of today. During the call, management will also reference certain non-GAAP financial measures, which can be useful in evaluating the company's operations related to our financial condition and results. These non-GAAP measures are intended to supplement GAAP financial information and should not be considered as a substitute.
Reconciliations of GAAP to non-GAAP measures are provided in today's earnings press release. I will now turn the call over to Jim. Jim, please go ahead.
Jim Green: Thanks, David. Hello, everybody. Let's go ahead and start and move to Slide 3 of the presentation and take a look at the highlights for the quarter. Well, as expected, we had a tough start to the year. However, I will say that with strong gross margins, combined with previously communicated cost reductions, it position us to underpin our commercial investments for growth while at the same time meeting our earnings targets. Also, as expected, significantly slower sales in China and Asia Pacific continued through Q1, further exacerbated by some slowing in Europe and in total, a tough comparison to a record high prior year Q1. I'll also mention, we're still seeing some supply chain issues. An example, Q1 saw one product alone that had $1 million in revenue shipment delays pushing it out of Q1.
Now let's go ahead and look at the numbers. Revenue in the quarter came in at $24.5 million, down $5.5 million from last year. Gross margin remained strong at 60.3%. On a GAAP basis, we recorded an operating loss of $2.3 million. On an adjusted basis, operating profit measured $1.2 million or 4.8% of revenue, and adjusted EBITDA measured $1.6 million or 6.6% of revenue. Let's move to Slide 4, look at the revenue for the quarter by product family and looking at the regions. So starting with the Americas. Revenue was down 6.6% as reported, preclinical revenue was slow on reduced demand of COVID-related respiratory products. Cellular molecular products were up modestly in advanced cell primarily with the advanced cell-based testing systems. We saw slow sales in academic research with NIH grants that seem to be taken longer to approve, but we believe much of that is due to the uncertainty that was around the congressional continuing resolution situation last quarter.
We're hopeful that the more recent longer budget resolution will start to solve some of this for us. Pharma and CROs are still keeping tight strengths on spending, but we're encouraged to see biotech-related capital raises improving. Biotech, we see represent a potential long-term tailwind for our technologies. Moving on to Europe. Overall, EMEA revenue was down 16% on a reported that includes about a 1% currency headwind. Preclinical systems were down on tight budgets for both pharma and CRO companies. Cellular molecular saw some slowness on tight government spending for academic research. The European economic environment is being impacted by the higher interest rates and government spending also was hit by the situation that's occurring in Ukraine.
Now moving to China and Asia Pacific. Q1 reported revenue was down 35% on continued slower spend levels, which should annualize in the second half of this year. Preclinical revenue was down on continued slow capital equipment spending by pharma and CRO companies. Cellular molecular products saw continued headwinds as academic customers awaited news on government academic research funding. We see the weakness in China continuing into Q2, though we're hopeful that the recent announced Chinese stimulus package will lead to improved market conditions entering the second half for us here. Let's move to Slide 5 and discuss some new product launches designed to strengthen our base business, while at the same time, investing in new high-growth opportunities.
Our commercialization focus started with new product introductions showcased at the latest Society for Neuroscience and the Society for Toxicology. Our primary focus is to strengthen our bread-and-butter base business, which represents nearly 85% of total revenue, in which we target to deliver better-than-market growth. We invest to continue our leadership position in telemetry for safety and toxicology applications. We introduced our new SoHo shared housing telemetry family of implantables to expand our offering to multi-animal shared housing environments. At the same time, we introduced our latest Ponemah software that integrates VivaMARS, the high-capacity behavior testing system onto a single GLP-compliant data system. Adding high-capacity neuropharmacology testing expands our addressable market by expanding the test menu offering to neuropharmacology and builds on our base business.
The Ponemah platform, which is used by the leading CROs, biopharma and large academic institutions around the world, processes and manages extremely large data pools acquired during tox in safety testing, now both telemetry and now for behavior. By combining these new applications on a single data management platform, the Ponemah system opens up opportunities to use emerging AI and machine learning technologies to analyze study data. At the same time, we continue to fortify our leading position in cellular molecular and inhalation technologies for research and discovery. And also at the same time, we're expanding our field service offerings designed to increase recurring revenue and consumables. This year, we're driving to commercialize exciting new high-growth opportunities.
Electroporation and amino acid-related products make up around 10% of our revenue and advanced micro electrode array products about 5%. Bioproduction and organoids provide exciting new opportunities for high growth, well above our base business. As such, we've established commercial and application science team dedicated to bioproduction and to advance cellular applications with emerging organoids. We're now offering bioproduction configurations of our well-known BTX family of electroporation electrofusion systems. Bioproduction is an opportunity to drive significant recurring consumable revenue for us. We recently also announced a CGMP compliant amino acid analyzer also now targeted for bioproduction applications. This AAA system is adapted from our clinical amino acid systems, which is in operation today in leading clinical laboratories around the world.
Finally, we're leveraging our historical leadership position in advanced cellular applications to drive high volume growth in both biopharma and CRO. We launched the Mesh MEA organoid platform at the Society for Neuroscience. We also showcased Mesh organoid at the Society for Toxicology, where we see a potential for in vitro neuro and cardiac safety and toxicology applications. We're excited to see strong interest for applications in research and biopharma discovery, which we expect to then lead to high-volume compound analysis and testing applications. Now I'll turn the call over to Jennifer, our CFO, to take a look at the key financials.
Jennifer Cote: Thank you, Jim. Let's jump into our Q1 financial results in greater detail. If you can please refer to Slide 7. As a reminder, in addition to our reported GAAP results, we also include discussion about our adjusted or non-GAAP financial results, which aligns with how we internally manage the business. Our slide deck includes a reconciliation between our adjusted results and the corresponding GAAP financial measures in the appendix. I will specifically call out the activity during Q1, which we pulled out as non-GAAP. Jim has taken you through revenue performance, so I'll take you through some of the other key financial metrics in more detail. So please refer to the top middle of the slide. I'm excited to share, as Jim mentioned, that on a reported basis, our Q1 gross margin was 60.3%, which is in alignment with our long-term target of 60% gross margin.
This was slightly behind last year's margin of 61.2%, but please keep in mind that our revenue last Q1 was $30 million, a record Q1, and we are pleased to maintain our gross margin performance despite lower revenue absorption in this year's Q1. We continue to expect 60% margin for the year. If we can please refer to the top right graph on the slide. Our adjusted EBITDA during Q1 was down from $4.8 million last Q1 to $1.6 million this year. The primary driver for reduced adjusted EBITDA was the decrease in revenue and flow through of lower gross margin dollars. We continue to invest in our growth strategy and the commercialization of our newly launched products, such as VivaMARS and SoHo, and growth opportunities in bioproduction and organoids that Jim mentioned earlier.
These applications are starting to penetrate the market, starting with our key academic partners with additional opportunities ahead in CROs and pharmaceutical companies. We continue to manage our overall expenses and in early April, implemented an action to reduce our labor force to improve our cost structure and support our ongoing investments in growth. We expect to realize overall annual run rate savings from these actions of approximately $4 million beginning in the second quarter. Severance associated with the action was about $500,000 and we continue to stay -- drive operational improvements and stay focused on achievement of our financial targets. Move to the bottom left, where we'll talk about reported and adjusted loss and earnings per share.
The differences between GAAP diluted loss per share and our adjusted diluted earnings per share are highlighted in the reconciliation tables on Slide 11. But the primary typical drivers continue to be stock compensation, amortization, depreciation and income tax expense. I'd also like to point out some additional unusual drivers for the difference between Q1 of 2024 with Q1 of 2023 when viewed on a GAAP basis. These include a loss on equity securities of $1.3 million or $0.03 per share, commissions of $500,000 or $0.01 paid in connection with the receipt of employee retention credits and an estimated loss related to an unclaimed property audit wrapping up with an impact of $500,000 or $0.01. Last year in Q1, we had a gain on the sale of a discontinued product line of $400,000 or approximately $0.01.
So these unusual Q1 items amount to a total of a $0.06 swing for Q1 2024 versus Q1 2023 and our GAAP results, which you see on the left. So a lot of unusual activity, which has been removed in our adjusted EPS. When you look at the adjusted EPS, the primary driver is the lower gross margin dollars from the lower revenue. Switching gears to cash flow and liquidity. If you refer to the middle bottom row, during Q1, we had cash flow from operations of $1.4 million compared to $1.8 million in Q1 2023. In February 2024, we received a cash benefit net of commissions of $2.6 million for the employee retention credit provided by the CARES Act. This is a credit that was allowed to encourage the retention of staff by employers that were impacted by the government orders associated with COVID-19.
And due to the evolving IRS regulations and guidance, these are included in our other current liabilities on our balance sheet. We were also able to unwind a portion of our investment position in HRGN and during Q1 sold $500,000. We paid down our debt by $1 million in Q1 and net debt is down $9.2 million compared to Q1 2023. As discussed, further details on the above items and the non-GAAP reconciliation are included in our press release and also in the appendix to the presentation and will be available in our 10-Q. I'm now happy to hand things back to Jim to cover 2024 guidance.
Jim Green: Thank you, Jen. Moving to the summary on Slide 9. Take a look at the full year. We expect the full year to be roughly flat to 2023. We see weakness in the first half versus a strong and difficult prior year comparison. This is especially true in China, where Q1 2023 was up significantly in Q1 2022. We expect second half growth versus both the first half of this year and the second half of last year. We expect meaningful growth from new product commercializations and we expect China funding to improve going into the second half. We continue to expect gross margin in the 60% range, up from 59% last year, and we continue to expect adjusted EBITDA margins improving to the mid-teens, up from 13% last year. Thank you. Now I'll turn the call back over to the operator to open the line for questions. Thank you.
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