Q1 2024 Harvard Bioscience Inc Earnings Call
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Operator: Good day, and thank you for standing by. Welcome to the Q1 2024 Harvard Bioscience Inc earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. 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.
Speaker Change: Good day and thank you for standing by welcome to the Q1 'twenty 'twenty four Harvard Bioscience, Inc. Earnings Conference call. At this time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session. Please press star one one on your telephone.
Speaker Change: And wait for your name to be announced to withdraw your question. Please press star. One again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, David Joyce director of SEC reporting.
David 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.
David Joyce: Thank you Josh and good morning, everyone. Thank you for joining the Harvard Bioscience first quarter 2024 earnings Conference call.
David Sirois: 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 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 as related to its financial condition and results. These non-GAAP measures are intended to supplement GAAP financial information and should not be considered a substitute. Reconciliations of gap-to-non-gap measures are provided in today's earnings press release.
David Sirois: I will now turn the call over to Jim. Jim, please go ahead. Thank you, David.
David Joyce: Leading the call today will be Jim Green Chairman of the Board, President and Chief Executive Officer, and Jennifer Cody Chief Financial Officer.
In conjunction with todays 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 Doc Harvard Bioscience Dot com.
Jennifer Cote: Please note that statements made in today's discussion that are not historical facts, including statements of our 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.
Jennifer Cote: Actual results may differ material materially from those expressed or implied.
Jennifer Cote: You can refer to todays press release or other disclosures on forward looking statements.
Jennifer Cote: These factors and other risks and uncertainties are described in the company's filings with the Securities and Exchange Commission.
Jennifer Cote: Harvard Bioscience assumes no obligation to update or revise any forward looking statements publicly.
Jennifer Cote: Management's statements are made as of today.
Jennifer Cote: During the call management will also reference certain non-GAAP financial measures, which can be useful in evaluating the companys operations related to our financial condition and results. These non-GAAP measures are intended to supplement GAAP financial information and should not be considered a substitute.
Jennifer Cote: Reconciliations of GAAP to non-GAAP measures are provided in today's earnings press release.
James W. Green: Thanks, David. Hello, everybody.
Jennifer Cote: I will now turn the call over to Jim Jim. Please go ahead.
James W. Green: Let's go ahead and start and move to slide three 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 growth margins, combined with previously communicated cost reductions, it positioned us to underpin our commercial investments for growth while at the same time meeting our earnings targets. Also, as expected, you know, significantly slower sales in China and Asia Pacific continued through Q1, further exacerbated by some slowing in Europe.
James W. Green: Thanks, David and Hello, everybody.
James W. Green: Go ahead and start and move to slide three of the presentation take a look at the highlights for the quarter.
James W. Green: 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. For example, Q1 saw one product alone that had a million dollars in revenue shipment delays pushing it out of Q1. So now, let's go ahead and look at the numbers.
James W. Green: 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 a position us to underpin our commercial investments for growth while at the same time meeting our earnings.
James W. Green: 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.
James W. Green: I'll also mention we're still seeing some supply chain issues. As an example, Q1 saw one product alone it had $1 million in revenue shipment delays pushing it out of Q1.
James W. Green: Revenue in the quarter came in at $24.5 million, down $5.5 million from last year. Gross margin remains strong at 60.3%. On a GAAP basis, we recorded an operating loss of $2.3 million.
James W. Green: So now let's go ahead and look at the numbers revenue in the quarter came in at 24, and a half million dollars down $5 5 million from last year.
James W. Green: Gross margin remained strong at 63%.
James W. Green: On a GAAP basis, we reported an operating loss of $2 $3 million.
James W. Green: On an adjusted basis, Operating profit measured $1.2 million or 4.8% of revenue. An adjusted EBITDA measured $1.6 million or 6.6% of revenue. Now, let's move to slide four and look at the revenue for the quarter by product family and by region. So starting with the Americas, revenue was down 6.6% as reported.
James W. Green: On an adjusted basis operating profit measured $1 2 million or four 8% of revenue and adjusted EBITDA measured $1 6 million or six 6% of revenue.
James W. Green: Let's move to slide four look at the revenue.
James W. Green: For the quarter by product family and looking at the regions. So starting with the Americas revenue was down six 6% as reported preclinical revenue was slow on reduced demand of COVID-19 related respiratory products cellular.
James W. Green: Preclinical revenue was slow on reduced demand for COVID-related respiratory products; cellular molecular products were up modestly in advanced cell, primarily with advanced cell-based testing systems. We saw slow sales in academic research with NIH grants that seemed to be taking longer to approve. But we believe much of that's 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.
James W. Green: Cellular and molecular products were up modestly.
James W. Green: In advanced cell, primarily with the advanced cell based testing systems.
James W. Green: We saw slow sales in academic research with NIH grants that seem to be taking longer to approve but.
James W. Green: But we believe much of that is due to the uncertainty that was around the congressional.
James W. Green: <unk> resolution situation last quarter, we're hopeful that the more recent longer budget resolution will start to solve some of this for us.
James W. Green: PhRMA and CROs are still keeping tight strings on spending, though we're encouraged to see biotech-related capital raises improving. Biotechs, we see, represent a potential long-term tailwind for our technologies. Moving on to Europe, overall EMEA revenue was down 16% as reported, that includes about a 1% currency headwind. Preclinical systems were down because of tight budgets for both pharma and CRO companies. Scheller Molecular saw some slowness in tight government spending for academic research. The European economic environment is being impacted by higher interest rates, and government spending also has been hit by the situation that's occurring in Ukraine.
James W. Green: Pharma and CRO are still keeping tight strengths on spending that we're encouraged to see biotech related capital raises improving biotechs, we see represent a potential long term tailwind for our technologies.
James W. Green: Moving onto Europe overall, EMEA revenue was down 16% as reported and that includes about a 1% currency headwind.
James W. Green: Preclinical systems were down on tight budgets for both pharma and <unk> companies.
James W. Green: CLR molecular saw some slowness on tight government spending for academic research.
James W. Green: The European economic environment is being impacted by the higher interest rates and government spending also was hit by a situation thats occurring in Ukraine.
James W. Green: 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. Stellar 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.
James W. Green: 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.
James W. Green: Preclinical revenue was down on continued slow capital equipment spending by pharma CRM companies.
James W. Green: Taylor and molecular products saw continued headwinds as academic customers awaited news on government academic research funding.
James W. Green: 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 the second half for a cure.
James W. Green: 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 recent Society for Neuroscience and the Society for Toxicology. Our primary focus is to strengthen our bread and butter-based business, which represents nearly 85% of total revenue and which we target to deliver better-than-market growth. We invest to continue our leadership position in telemetry for safety and toxicology applications.
James W. Green: Let's move to slide five and discuss some new product launches designed to strengthen our base business. While at the same time investing in new high growth opportunities.
James W. Green: Our commercialization focused started with new product introductions showcased at the latest society for neuroscience and the society for toxicology.
James W. Green: 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.
James W. Green: We invest to continue our leadership position in telemetry for safety and toxicology applications. We introduced our new Soho shared housing telemetry family of implantable to expand our offering to multi animal shared housing environment.
James W. Green: 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 PANEMA software that integrates VivaMars, the high-capacity behavioral testing system, onto a single GLP-compliant data system.
James W. Green: At the same time, we introduce our latest <unk> software that integrates veeva Mars the high capacity behavior testing system onto a single GMP compliant data system.
James W. Green: Adding high-capacity neuropharmacology testing expands our addressable market by expanding the test menu offering to neuropharmacology and builds on our base business. The PANEMA 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 toxin safety testing now for both telemetry and now for behavior. By combining these new applications on a single data manager platform, the PANEMA system opens up opportunities to use emerging AI and machine learning technologies to analyze study data.
James W. Green: Adding high capacity neuropharmacology testing expands our addressable market by expanding the test menu offering took neuropharmacology and built on our base business.
James W. Green: The <unk> platform, which is used by the leading CRO biopharma large academic institutions around the world processes and manages extremely large data pools acquired during toxin safety testing now for both telemetry and Napa behavior.
James W. Green: By combining these new applications on a single data management platform. The <unk> system opens up opportunities to use emerging AI and machine learning technologies to analyze study data.
Jennifer Cote: At the same time, we continue to fortify our leading position in cellular, molecular, and inhalation technologies for research and discovery. Additionally, 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 microelectrode array products about 5%. Bioproduction and organized retail provide exciting new opportunities for high growth well above our base business.
James W. Green: At the same time, we continue to fortify our leading position in cellular and molecular in inhalation technologies for research and discovery.
James W. Green: Also at the same time, we're expanding our field service offerings designed to increase recurring revenue and consumables.
James W. Green: This year, we're driving to commercialize exciting new high growth opportunities electric.
James W. Green: Electroporation and amino acid related products make up around 10% of our revenue and advanced microelectronic micro electrode array products about 5%.
James W. Green: Bio production and organized provide exciting new opportunities for high growth well above our base business as such we have established.
Jennifer Cote: As such, we've established a 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 and 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 system, which is in operation today in leading clinical laboratories around the world.
James W. Green: Dallas commercial and application science team dedicated to bio production.
James W. Green: Two advanced cellular applications with emerging organized.
James W. Green: We're now offering bio production configurations of our well known Bts family of Electroporation Electric fusion systems <unk>.
James W. Green: Production has an opportunity to drive significant recurring consumable revenue for us.
James W. Green: We recently also announced a cgmp compliant amino acid analyzer also now targeted for bio production applications.
James W. Green: This AAA system has adapted from our clinical immuno acid systems, which is an operations today and leading clinical laboratories around the world.
Jennifer Cote: 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 in applications in research in 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.
James W. Green: Finally, we are leveraging our historical leadership position in advanced cellular applications to drive high volume growth in both Biopharma and CRO.
James W. Green: We launched the mesh EMEA organized platform at the society for Neuroscience. We also showcase mesh organoid at the society for toxicology, where we see a potential for in vitro neuro and cardiac safety and toxicology lab toxicology applications.
James W. Green: 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.
James W. Green: Now I'll turn the call over to Jennifer our CFO to take a look at the key financials.
Jennifer Cote: Thank you, Jim. Now, 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's taking 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.
Jennifer: Thank you Jim let's jump into our Q1 financial results in greater detail. If you can please refer to slide seven as it.
Jennifer: A reminder, in addition to our reported GAAP results. We also include a discussion about our adjusted or non-GAAP financial results, which aligns with how we internally manage the business.
Jennifer: 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 called out as non-GAAP.
Speaker Change: Jim has taken you through revenue performance. So I will take you through some of the other key financial metrics in more detail.
Speaker Change: So please refer to the top middle of the slide.
Jennifer Cote: 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. We continue to expect a 60% margin for the year.
Speaker Change: Excited to share as Jim mentioned that on a reported basis. Our Q1 gross margin was 63% 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.
Speaker Change: Record Q1, and we are pleased to maintain our gross margin performance despite lower revenue absorption in this year.
Speaker Change: This year's Q1, we continue to expect 60% margin for the year.
Jennifer Cote: 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 the 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 Viva Mars 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.
Speaker Change: If we can please refer to the top right graph on the slide.
Speaker Change: Our adjusted EBIT. During Q1 was down from $4 8 million last Q1 to $1 6 million this year.
Speaker Change: Mary 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 <unk>, and Soho and growth opportunities and bio production and organize that Jim mentioned earlier these apps.
Occasions are starting to penetrate the market starting with our key academic partners with additional opportunities ahead and cri within pharmaceutical companies.
Jennifer Cote: 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 and growth. We expect to realize overall annual run rate savings from these actions of approximately $4 million beginning in the second quarter. The severity associated with the action was about $500,000. And we continue to stay, drive operational improvements, and stay focused on the achievement of our financial target.
Speaker Change: 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.
Speaker Change: We expect to realize overall annual run rate savings from these actions of approximately $4 million beginning in the second quarter.
Speaker Change: Severance associated with the accident was about $500000 and we continue to stay.
Speaker Change: Drive operational improvements and stay focused on achievement of our financial targets.
Jennifer Cote: Move to the bottom left, where we'll talk about reported and adjusted loss in 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.
Speaker Change: Move to the bottom left where I'll talk about reported and adjusted loss and earnings per share.
Speaker Change: The differences between GAAP diluted loss per share and our adjusted diluted earnings per share are highlighted in the reconciliation table on slide 11, but the primary typical drivers.
Speaker Change: To be stock compensation amortization, depreciation and income tax expense.
Jennifer Cote: I'd also like to point out some additional unusual drivers for the difference between Q1 of 2024 and Q1 of 2023 when viewed on a gap basis. These include a loss on equity securities of $1.3 million or $0.03 per share, commissions of $500,000 or one cent 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 one cent.
Speaker Change: 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.
Speaker Change: These include a loss on equity securities of $1 3 million or <unk> <unk> per share.
Speaker Change: Commissions of $500000 or <unk> paid in connection.
Speaker Change: With the receipt of employee retention credits and an estimated loss related to an unclaimed property audits wrapping up with an impact of 500000 or one cents.
Jennifer Cote: Last year in Q1, we had a gain on the sale of a discontinued product line of $400,000, or approximately one cent. So these unusual Q1 items amount to a total of a six cent swing for Q1 2024 versus Q1 2023 in our GAAP results, which you see on the left. So a lot of unusual activity which has been removed from our adjusted EPS. When you look at the adjusted EPS, the primary driver is the lower gross margin dollars from lower revenue.
Speaker Change: Last year in Q1, we had a gain on the sale of a discontinued product line of 400000 or approximately one fan. So these.
Speaker Change: Unusual Q1 items amount to a total of six swing for Q1 2024 versus Q1 2023, and our GAAP results. What 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.
Speaker Change: The lower revenue.
Jennifer Cote: 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.
Speaker Change: 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.
Speaker Change: 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 <unk>.
Jennifer Cote: 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.
Speaker Change: Guidance. These are included in our other current life liabilities on our balance sheets.
Speaker Change: We were also able to unwind a portion of our investment position in HR Gn and during Q1 sold $500000, we pay down our debt by $1 million in Q1, and net debt is down $9 2 million compared to Q1 2023.
Speaker Change: 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 2020 for guidance.
James W. Green: Moving to the summary on slide nine, we take a look at the full year. We expect the full year to be roughly flat to 2023, with 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 from 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 to improve to the mid-teens, up from 13% last year.
James W. Green: Thank you Jan moving.
James W. Green: Moving to the summary on slide nine and take a look at the full year.
James W. Green: Expect the full year to be roughly flat to 2023, we.
James W. Green: We see weakness in the first half versus a strong and difficult prior year comparison.
James W. Green: This is especially true in China for Q1, 2023 was up significantly in Q1 2022.
James W. Green: We expect second half growth versus both the first half of this year and the second half of last year.
James W. Green: We expect meaningful growth from new product commercialization, and we expect China funding to improve going into the second half.
James W. Green: You seem to expect gross margin of 60% range up from 59% last year.
James W. Green: We continue to expect adjusted EBITDA margins improving to the mid teens up from 13% last year.
Operator: Thank you. Now I'll turn the call back over to the operator to open the line for questions. Thank you.
Speaker Change: Thank you and now I'll turn the call back over to the operator to open the line for questions. Thank you.
Operator: Thank you. As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. One moment for questions. Our first question comes from Paul Knight with KeyBank. You may proceed.
Speaker Change: Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, one moment for questions.
Speaker Change: Okay.
Operator: Our first question comes from Paul Knight with Keybanc you May proceed.
James W. Green: Bye, Jim. On the quarter, the... Where are you with electrification? Do you think that's the biggest driver of growth here in 2024? And overall, what portion of revenue in 2024 do you think will be from products introduced in the last year?
Paul Richard Knight: Hey, Paul by Jim.
Paul Richard Knight: On the quarter.
Paul Richard Knight: Okay.
Paul Richard Knight: 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 2004 or do you think will be from.
Paul Richard Knight: Products.
Paul Richard Knight: Introduced in the last year.
James W. 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 meaningful growth, to drive meaningful growth for us. And if you look at 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 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 percent range of our business. Electroporation and bioproduction, that represents somewhere around 10 percent.
Speaker Change: Okay. Great question, I mean, certainly bio production and electroporation are a key 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 on the on the chart that I put together here on one of the slides it shows we're break.
Speaker Change: Out the base business and what we expect there and then we expect to be at or better than market growth in the base business. That's almost it's in the 80 to 80% to 85% range of our of our business and electric.
Speaker Change: Electroporation and bio production that represents somewhere around 10% now. We're also as you know we're starting to include our AAA product, which is now starting to sell into bio production and production type of applications. So there. We're looking at it's probably somewhere in the neighborhood of 10 10, plus percent of our business and thats going to be a major driver of <unk>.
James W. Green: Now, 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'll 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.
Speaker Change: For us it will be and we expect that to be ramping up over the year. So in this first year, we will see some growth out of there maybe it's in a point or two kind of region. As we look into next year, we expect that to ramp up to 234.
James W. Green: 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, you know, it's a bit of a long sale, bioproduction, because you have to introduce it. You have to build it into their production facility. You have to help them with certification processes. That takes a little bit of time.
Speaker Change: Points of overall growth for adding that kind of growth to the overall business. So that's kind of a number that we're looking at so it's a bit of a long sale bio production because you have to you have to introduce it you have to build it into their production facility you have to go to to help them with the certification processes that takes a little bit of time, but in the meantime, we're expanding the product capability to make it also.
James W. Green: But at the same time, we're expanding the product capability to make it also now applicable to 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 what we're doing with organoids, that's also a great growth area for us and a very large market opportunity for us.
Speaker Change: 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 what we're doing with the Organoid. That's also we see a great growth area for us and a very long term large market opportunity for us.
James W. Green: What do you think your exposure is to the cell and gene therapy market? It's 10%, 20%. You know, it's hard to say, you know, early.
Speaker Change: What do you think your exposure is to the cell and gene therapy market.
Speaker Change: Is it 10% 20%.
James W. Green: You know, it's hard to say early on, but with many, 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 initial development of 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, you know, the actual cell and gene therapy types of applications coming to play here. You know, as far as how much of it is in our product, it's hard to say. There's only a small number of companies that have products that can do this kind of transfection.
Speaker Change: It's hard to say early on many many academic researchers and folks in the discovery side of pharma companies, they've been using our product pretty pretty much burden for a lot of the initial development for cell and gene therapy. That's why we think it's a good candidate for us to migrate that to be an easy.
Speaker Change: Or use for production as we start to see the actual cell and gene therapy type of applications coming come into play here.
Speaker Change: As far as how much of it is with our product. It's hard to say there is only a small number of companies that have product that can do this kind of transaction. So those tend to be very large companies, but we focused because we are so well known in the academic side. So I think we got it we have a good position and a good brand with the academics and it'll really depend on how well we're able to to <unk>.
James W. Green: So, you know, those tend to be very large companies. But we focused, you know, because we're so well known on the academic side. So I think we have a good position and a good brand with the academics. And it'll really depend on how well we're able to transfer that capability into production and larger volume applications and get it with the biotechs as they start to develop.
Speaker Change: Transfer that capability into the into the more production in larger volume applications and to get it with the biotechs as they start to develop.
Speaker Change: Okay. Thanks.
Speaker Change: Thanks, Paul.
Operator: One moment for questions. Our next question comes from Bruce Jackson with the Benchmark Company. You may proceed.
Speaker Change: Thank you.
Speaker Change: One moment for questions.
Operator: Hi Bruce. Hi, good morning Ian.
Speaker Change: Our next question comes from Bruce Jackson with the Benchmark Company you May proceed.
James W. Green: 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? Yeah, you know.
Bruce David Jackson: Hi, good morning.
Bruce David Jackson: Thanks for taking my questions. So the second quarter is generally either.
Bruce David Jackson: Or down over the first quarter, but you've got that 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.
James W. Green: Yeah, you know, I don't, well, 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 quarters 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 a, you know, natural change, you know, environmental change across the quarters, you know, and that was always due to government funding with, you know, you had the academic year, and then you had the year-end year, and budgets needed to typically be expended during that time frame.
Bruce David Jackson: Yes.
Speaker Change: I don't.
Speaker Change: We typically don't give quarter level splits, but I would say historically.
Speaker Change: You look at the.
Speaker Change: An environment of the business typically the second and the fourth quarter are stronger than the first and the third I don't know that yet, but I can say yet that we're starting to get back into that kind of a natural.
Speaker Change: Natural change.
Speaker Change: <unk> will change across the quarters and that was always due to the government funding with the academic year and then you had the year end year end budgets needed. It typically be expended during the timeframe, but certainly we expect to see see things improving throughout the year here.
James W. Green: But certainly, we expect to see things improving throughout the year here. You know, we would expect to see some sequential improvement, and then the second half is where we really see things adding up, you know, 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, you know, that changes the tide.
Speaker Change: 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 that.
Speaker Change: Headwind from China, we expect that to be reversing here going into the second quarter that moved to the tide at the same time, the new product introductions.
James W. Green: At the same time, new product introductions, you know, 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, you know, more in 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 a basically flat year, mostly driven in the second half. But certainly, I would expect to see some level of improvement even sequentially going forward.
Speaker Change: Take time to really catch on me that we strike we started introducing these over the last year or so so we expect that delta really start shipping for revenue shipments as we more than made meaningfully as we get into the second half.
Speaker Change: 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.
James W. Green: 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?
Speaker Change: Okay, and then with China, you've got an organization that keeping an eye on potential contracts and things like that.
Speaker Change: How confident are they but they can capture.
James W. Green: Well, we're, you know, we're very well known there. You know, again, there are 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, you know, often what we saw is that university researchers were just holding off because they didn't feel like they had full approval in the budget and the approval to go forward with purchasing.
Speaker Change: Some of this new stimulus.
Speaker Change: Well, we're we're very well known there.
Speaker Change: 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.
Speaker Change: And often what what's happening what we saw is.
Speaker Change: The University researchers were just holding off because it just didn't feel like to add full approval in the budget and the approval to go forward with purchasing so we think with the announcements that came out.
James W. Green: So, you know, we think with the announcements that came out back in March, that should clear the way. The Chinese government had indicated they expected to see an overall two-year budget plan with about 25% growth over the two-year period. So certainly, if nothing else, we're certainly going to annualize and see some level of growth off of where we are. But the real question will be, does it pop back faster or not?
Speaker Change: Look back in March that that should clear the way the Chinese government had indicated they expect to see overall, a two year two year budget plan with about 25% growth over that two year period.
Speaker Change: Certainly we will if nothing else, we're certainly going to annualize and see some level of growth off of off of where we are but the real question will be does it 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 it if that growth just.
James W. Green: The good news is people are now starting to really explore and get ready to place their orders. 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, you know, it at least won't be a headwind like we've seen for the last couple quarters because it will annualize here as we get through Q2 and into Q3.
Speaker Change: <unk>.
Speaker Change: Fortunate, but we'll at least won't be a headwind like we've seen for the last couple of quarters, because it will annualize here as we get into as we get through Q2 and into Q3.
Operator: Okay, great. That's it for me. Thank you.
Speaker Change: Okay, Great. That's it for me. Thank you alright, thanks Bruce.
Speaker Change: Thank you.
Operator: One moment for questions. Our next question comes from Frank DiLorenzo.
Speaker Change: One moment for questions.
Our next question comes from Frank Dilorenzo with singular research you May proceed.
James W. Green: Good morning, and thanks for taking my call. How are you?
Frank DiLorenzo: Good morning, and thanks for taking my call Hi, how are you.
James W. Green: Just following on with China, you talked about growth getting back on track in the second half of this year. Would that be potentially a Q3 or Q4 event? I was also wondering about growth coming back in funding. Can that be sustained for multiple quarters?
Frank DiLorenzo: Just following on with China, and you talked about growth getting back on track in the second half of this year.
Frank DiLorenzo: Would that be potentially Q3 or Q4 event has also wondering you talked about growth coming back in the funding.
Frank DiLorenzo: That be sustained for multiple quarters.
Frank DiLorenzo: Because it looks like currently.
James W. Green: 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 it was primarily waiting for clear budgetary. In the announcement, they clearly identified areas that they wanted to support, and academic research and these types of areas were a big part of it, so we're pretty happy to see that. Customers should start to feel here now that they're free to go ahead and start preparing for their budget.
Frank DiLorenzo: Easy in the second half of next year too.
Frank DiLorenzo: Yes.
Frank DiLorenzo: 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.
Frank DiLorenzo: Again, that's been that's been a headwind on a comparable basis here for a few quarters now and now we're again and it was primarily waiting on clear budgetary and the and.
Frank DiLorenzo: In the announcement.
Frank DiLorenzo: They clearly identified areas that they wanted to support and academic research and.
Frank DiLorenzo: These types of areas.
Frank DiLorenzo: A big part of it so we're pretty happy happy to see that customers.
Frank DiLorenzo: Customers should start to feel here now that they are free to go ahead and start preparing further the work that they are working on.
James W. Green: Okay, thanks. Regarding recurring revenue, do you have a target or goal for Fiscal 24, you know, the percentage of overall revenues? Yeah, we're expecting to be really better. Well, I mean, our long term growth, you know, clearly, you know, I expect to be able to, to have this be a double digit growth business, you know, so we're targeting, you know, how do I, how can I underpin getting to 10% or better, you know, 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 20, into 20, into 25.
Speaker Change: Okay. Thanks regarding recurring revenue do you have a.
Speaker Change: Target or goal for fiscal 'twenty for the percentage of our revenues.
James W. Green: 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. Just one other thing. Could you give us a little more granularity on the cost initiatives, the areas they're in, and the rationale behind them? Thanks.
Speaker Change: It's really about well I mean, our long term growth clearly I expect to be able to.
Speaker Change: To have this be a double digit growth business. So we're targeting how do I, how can I understand in getting to 10% or better.
Speaker Change: 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 'twenty into 'twenty into 'twenty five so again the second half of 'twenty four is really where we see things really starting to pick back up.
Speaker Change: And then that should that should dovetail right into 2025.
Speaker Change: Okay. Just one other thing could you give us a little more granularity on the cost initiatives the areas that we're in.
Speaker Change: The rationale behind it.
James W. Green: Yeah, my philosophy is always if you don't have to spend in a certain area and you have efficiencies that you can that you can garner, you should take them. Because I do need to fund the growth activities that we're taking on, you know, we're expanding commercialization into some of these new areas that are really interesting, like with the organoid work and then bioproduction. So you know, I need to pay for that.
Speaker Change: Yes.
Speaker Change: My philosophy is always if you don't have to spend in a certain area and you have efficiencies that you can 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 by our production. So you know when you pay for.
James W. Green: But also, at the same time, you know, I'm committed to delivering, you know, the even a 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, you know, as the platform gets built, and we start to really see better improvement and things like gross margin, we need to continue to find out where we really can reduce spend in order to be able to make those investments. Okay, thanks.
Speaker Change: Of that but also at the same time.
Speaker Change: <unk> to delivering the EBIT number for the Buck.
Speaker Change: For the business so.
Speaker Change: It's a bit of a tight rope, but I feel like we have to do both and if there is an opportunity to take advantage of some of the savings as we as we find that.
Speaker Change: 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.
Speaker Change: Okay. Thanks.
Operator: Thank you. And as a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. One moment. 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.
Speaker Change: Thanks Frank.
Speaker Change: Thank you and as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced.
Speaker Change: One moment.
Speaker Change: 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.
James W. Green: All right. Well, thanks, everybody. We 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.
James W. Green: Alright, well thanks, everybody I appreciate you sticking with US here. This is today's presentation and we hope you'll join US next next for.
James W. Green: For Q2 and.
Operator: So this ends the presentation. Thank you. Have a great day.
James W. Green: In August of this year, so that the presentation. Thank you have a great day.
Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.
Speaker Change: Thank you. This concludes the conference. Thank you for your participation you may now disconnect.
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