Harvard Bioscience (NASDAQ:HBIO) has reported a challenging first quarter for 2024, with a noticeable decline in sales, particularly in the China and Asia Pacific markets, and faced supply chain issues. The company's revenue for the quarter stood at $24.5 million, a decrease from the previous year's figure. Despite the downturn, Harvard Bioscience maintained a strong gross margin of 60.3%.
Still, the company recorded an operating loss of $2.3 million on a GAAP basis, while adjusted operating profit was reported at $1.2 million, or 4.8% of revenue. Looking forward, the company anticipates the full year's performance to be roughly flat compared to 2023, with expected growth in the second half of the year driven by new product launches and improved market conditions.
Key Takeaways
- Q1 2024 revenue decreased to $24.5 million, down from the previous year.
- Operating loss on a GAAP basis was $2.3 million, with an adjusted operating profit of $1.2 million.
- Gross margin remained robust at 60.3%.
- The company launched new products aimed at driving growth.
- Full year performance is expected to be roughly flat, with significant growth in the second half.
- Improved funding conditions in China are anticipated to contribute to growth.
Company Outlook
- Full year performance projected to be roughly flat compared to 2023.
- Expectation of a stronger second half with meaningful growth.
- Gross margin anticipated to remain in the 60% range.
- Improved adjusted EBITDA margins expected.
Bearish Highlights
- Revenue for Q1 2024 was down $5.5 million from the previous year.
- The company faced slower sales in China and Asia Pacific regions.
- Supply chain issues impacted the overall performance.
Bullish Highlights
- Gross margin remained strong at 60.3%.
- New products launched in telemetry, behavior testing systems, electroporation, and organoids.
- Positive outlook for revenue shipments in the latter half of the year.
- Long-term aim for double-digit growth and a strong growth trajectory into 2025.
Misses
- Operating loss recorded at $2.3 million on a GAAP basis.
- Unusual drivers for Q1 2024 financial differences, including a loss on equity securities and costs related to employee retention credits.
Q&A Highlights
- Jim Green, a company executive, expressed confidence in revenue shipment growth in Q3 and Q4.
- Company has addressed budgetary constraints that contributed to the previous decline in revenue.
- Cost initiatives are in place to fund growth activities while maintaining profitability.
- Next earnings call scheduled for August for Q2 updates.
In summary, Harvard Bioscience (HBIO) is navigating through a tough start to 2024 but remains optimistic about future growth prospects. With new products in the pipeline and a focus on maintaining strong gross margins, the company is positioning itself for a recovery in the latter half of the year, despite the current financial setbacks.
InvestingPro Insights
Harvard Bioscience's first quarter of 2024 reflects a challenging period, but the company's long-term strategy may hold potential for investors. According to InvestingPro, the company is expected to see net income growth this year, which could signal a turnaround from the operating loss reported in the first quarter. This aligns with the company's anticipation of improved performance in the second half of the year, supported by new product launches and market conditions.
InvestingPro Data highlights a market capitalization of $169.99 million, indicating a relatively small cap company with potential growth opportunities. Despite the negative revenue growth over the last twelve months, a strong gross profit margin of 59.15% has been maintained, which is in line with the reported gross margin of 60.3% for the first quarter. Furthermore, the company's valuation implies a strong free cash flow yield, which could be attractive to investors looking for companies with the potential to generate cash.
InvestingPro Tips suggest that while Harvard Bioscience has not been profitable over the last twelve months, analysts predict the company will be profitable this year, offering a glimmer of hope for investors. Still, it is important to note that the company does not pay a dividend to shareholders, which may influence investment decisions for those seeking income.
For investors interested in a deeper dive into Harvard Bioscience's financial health and future prospects, InvestingPro offers additional tips and insights. With a total of 8 InvestingPro Tips available, investors can make more informed decisions by considering a broader range of financial metrics and analyst expectations. To explore these insights further, consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro, and unlock the full potential of your investment research.
Full transcript - Harvard Bioscience Inc (HBIO) Q1 2024:
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.
Operator: Thank you. [Operator Instructions] Our first question comes from Paul Knight with KeyBanc. You may proceed.
Jim Green: Hi, Paul.
Paul Knight: Hi Jim, on the quarter, the - where are you with electroporation? Do you think that's the biggest driver of growth here in 2024? And overall, what portion of revenue in '24 do you think will be from products introduced in the last year?
Jim Green: Great question. I mean certainly, bioproduction and electroporation are a key part of our business, and we've been expanding in that area. It's certainly - we're expecting that to start being -- to be meaningfully growth to drive meaningful growth for us. And if you look on the chart that I put together here on one of the slides, it shows that we're breaking out the base business and what we expect there. And then there, we expect to be at, or better than market growth in the base business. And that's almost - it's in the 80% to 85% range of our business. Electroporation and bioproduction, that represents somewhere around 10%. We're also - as you know, we're starting to include our AAA product, which is now starting to sell into bioproduction and production type of applications. So there, we're looking at - it's probably somewhere in the neighborhood of 10-plus percent of our business. And that's going to be a major driver of growth for us. It will be - and we expect that to be ramping up over the years. So in this first year, we'll see some growth out of there. Maybe it's in the point or two kind of region. As we look into next year, we expect that to ramp up to two, three, four kind of points of overall growth for adding that kind of growth to the overall business. So that's kind of the number that we're looking at. So, it's a bit of a long sale bioproduction, because you have to you have to introduce it. You have to build it into their production facility, you have to go help them with certification processes. That takes a little bit of time. But in the meantime, we're expanding the product capability to make it also now applicable for the new generation technologies that are coming out, with cell and gene therapy. So again, that's a really nice growth driver for us. And then also, as we've talked about winning with organoids, that's also we see a great growth area for us, and a very long-term large market opportunity for us.
Paul Knight: What do you think your exposure is to the cell and gene therapy market? Is it 10%, 20%?
Jim Green: It's hard to say. Early on, with many academic researchers and folks in the discovery side of pharma companies, they've been using our product pretty much for a lot of the nettle development for cell and gene therapy. That's why we think it's a good candidate for us to migrate that to be an easier use for production, as we start to see the actual cell and gene therapy type of applications come into play here. As far as how much of it is with our product, it's hard to say there's only a small number of companies that have a product that can do this kind of transfection. So those tend to be very large companies, but we focused, because we're so well known in the Academics side, so I think we have a good position and a good brand with the Academics. And it will really depend on how well, we're able to transfer that capability into the more production, and larger volume applications. And to get it with the biotechs as they start to develop.
Paul Knight: Okay. Thanks.
Jim Green: Thanks, Paul.
Operator: Thank you. One moment for questions. Our next question comes from Bruce Jackson with The Benchmark Company. You may proceed.
Jim Green: Hi, Bruce.
Bruce Jackson: Hi, good morning. And thanks for taking my questions. So the second quarter is generally either flat or down over the first quarter, but you've got that one order that shifted out from the first quarter. Can you kind of give us a rough idea of what your expectations, are for second quarter revenue?
Jim Green: Yes. I don't - I typically don't give quarter level splits. But I would say, historically, when you look at the environment of the business, typically the second and the fourth quarter are stronger than the first and the third. I don't know that we're yet that, I can say yet that we're starting to get back into that kind of natural change - environmental change across the quarters. And that was always due to the government funding with you had the academic year and then you had the year-end year, and budgets needed to typically be expended during the time frame. But certainly, we expect to see things improving throughout the year here. There'll be - we would expect to see some sequential improvement. And then the second half is where we really see things adding up, because by the second half, we expect to see the headwind from China. We expect that to be reversing here going into the second quarter. That moves the tide. At the same time, the new product introductions, they take time to really catch on. We started introducing these over the last year or so. So we expect that, though, to really start shipping for revenue shipments, as we more meaningfully as we get into the second half. So I would - again, we're really looking at the total year. We think we'll see kind of basically flat to last year, mostly driven in the second half. But certainly, I would expect to see some level of improvement even sequentially going forward.
Bruce Jackson: Okay. And then with China, you've got an organization that's keeping an eye on potential contracts and things like that. How confident are they that they can capture, some of this new stimulus?
Jim Green: Well, we're very well-known there. Again, there's very few companies that do the kind of things that we do. Academic research has really been the part that has really been depressed in China and Asia Pacific. And often, what was happening, what we saw is the university researchers were just holding off, because they just - they didn't feel like they had full approval and the budget, and the approval to go forward with purchasing. So, we think with the announcements that came out back in March that, that should clear the way the Chinese government had indicated, they expect to see overall a two-year budget plan with about 25% growth over the two-year period. So certainly, we'll - if nothing else, we're certainly annualizing to see some level of growth off of where we are. But the real question will be, does it pop back faster or not? The good news is people are now starting to really explore, and get ready to place their orders. So, we think China is going to be a significant part of the business for us. If that growth just annualizes, well, that's unfortunate, but we - at least will be a headwind like we've seen for the last couple of quarters, as it will annualize here as we get through Q2 and c.
Bruce Jackson: Okay. Great. That's it for me. Thank you.
Jim Green: All right. Thanks Bruce.
Operator: Thank you. One moment for questions. Our next question comes from Frank DiLorenzo with Singular Research. You may proceed.
Frank DiLorenzo: Good morning, and thanks for taking my call. Hi, how are you? Just following on with China and you talked about growth getting back on track in the second half of this year. Would that be potentially Q3 or Q4 event? I was also wondering you talked about growth coming back in the funding. Can that be sustained for multiple quarters? I mean, because it looks like you might - make it easy in the second half of next year to?
Jim Green: Yes well. Yes I mean, we're - we expect to see things picking up going into the second half. So by Q3, Q4, we expect to see revenue shipments moving back up into that segment. Again, that's been a headwind on a comparable basis for a few quarters now. And now we're - again, and it was primarily waiting on clear budgetary. And in the announcement, they were - they clearly identified areas that they wanted to support and Academic research, and these types of areas was a big part of it. So, we're pretty happy to see that. So the customers should do - should start to feel here now that they're free to go ahead and start preparing for the - work that they're working on.
Frank DiLorenzo: Okay. Thanks. Regarding recurring revenue, do you have a target or a goal for fiscal '24, with percentage of overall revenues anything like that?
Jim Green: Yes, we're expecting - well, I mean, our long-term growth, clearly, I expect to be able to have this be a double-digit growth business. So we're targeting how can I underpin getting to 10% or better coming with strong growth in the second half that, should be a nice pathway toward being the kind of growth vector that I would expect to take into '25. So again, the second half of '24 is really where we see things really starting to pick back up. And then that should dovetail right into 2025.
Frank DiLorenzo: Okay. Just one other thing. Could you give us a little more granularity on the cost initiatives, the areas that we're in and the rationale behind it? Thanks.
Jim Green: Yes. My philosophy is always if you have to spend in a certain area, and you have efficiencies that you can garner you should take it, because I do need to fund the growth activities that we're taking on. We're expanding commercialization into some of these new areas that are really interesting, like with the organoid work and then bioproduction. So when you pay for that, but also at the same time, I'm committed to delivering the EBITDA number for the business. So it's a bit of a tightrope, but you have, you know, I feel like we have to do both. And if there's an opportunity to take advantage of some of the savings as we find that we - as the platform gets built. And we start to really see better improvement in things like gross margin, we need to be looking to continue to find out where, are the areas we really can reduce spend in order to be able to make those investments.
Frank DiLorenzo: Okay. Thanks.
Jim Green: Thanks Frank.
Operator: Thank you. [Operator Instructions] And I'm not showing any further questions at this time. I would now like to turn the call back over to Jim Green for any closing remarks.
Jim Green: Well, thanks, everybody. I appreciate you sticking with us here. This ends today's presentation. We hope you'll join us back next for Q2 in August of this year. So this ends the presentation. Thank you. Have a great day. Thanks.
Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.
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