Q2 2024 Harvard Bioscience Inc Earnings Call

August 8, 2024

Operator: Good day, and thank you for standing by. Welcome to the Q2 2024 Harvard Bioscience Inc earnings conference call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speaker's presentation, there will be a question and answer session. 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. I would now like to hand the conference over to your speaker today, Kathryn Flynn, Corporate Controller.

Good day, and thank you for standing by. Welcome to the Q2 2024 Harvard Bioscience Inc Earnings Conference Call. At this time, all participants are in a listen-only mode.

Operator: Earnings Conference Call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speaker's presentation, there will be a question-and-answer session. To ask a question, please press star-one-one on your telephone and wait for your name to be announced. To withdraw your question, please press star-one-one again. I would now like to hand the conference over to your speaker today, Kathryn Flynn, Corporate Controller.

Please be advised that today's conference is being recorded. After the speaker's presentation, there will be a question and answer session.

Speaker Change: To ask a question, please press star 1 1 on your telephone and wait for your name to be announced.

Speaker Change: To withdraw your question, please press star 1 1 again. I would now like to hand the conference over to your speaker today, Katherine Flynn, Corporate Controller.

Kathryn Flynn: Thank you, Josh. And good morning, everyone.

Kathryn Flynn: Thank you for joining the Harvard Bioscience second quarter 2024 earnings conference call. Leading the call today will be Jim Green, 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 about 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.

Katherine Flynn: Thank you, Josh, and good morning, everyone. Thank you for joining the Harvard Bioscience second quarter 2024 earnings conference call.

Speaker Change: Leading the call today will be Jim Green, President and Chief Executive Officer, and Jennifer Cote, Chief Financial Officer.

Speaker Change: 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.

Kathryn Flynn: Actual results may differ materially from those expressed or implied. Please refer to today's press release for other disclosures regarding 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 our financial condition and results.

Speaker Change: Please note that statements made in today's discussion that are not historical facts, including statements or expectations or future events or future financial performance, are forward-looking statements.

Speaker Change: 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 for other disclosures on forward-looking statements.

Speaker Change: These factors and other risks and uncertainties are described in the company's filings with the Securities and Exchange Commission.

Harvard Bioscience: Harvard Bioscience assumes no obligation to update or revise any forward-looking statements publicly and management statements are made as of today.

Kathryn Flynn: 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. I will now turn the call over to Jim. Jim, please go ahead.

Speaker Change: 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.

Speaker Change: These non-GAAP measures are intended to supplement GAAP financial information and should not be considered a substitute. Reconciliations of GAAP to non-GAAP measures are provided in today's earnings press release.

Jim Green: Thank you, Kathryn. Hello, everybody.

Speaker Change: I will now turn the call over to Jim. Jim, please go ahead. Thank you, Catherine. Hello, everybody.

Jim Green: Let's move to slide three of the presentation and look at our quarterly results. We had a tough first half of the year, and Q2 was more challenging than expected. Revenue in the second quarter came in at $23.1 million, that's down $5.7 million from last year. Taking a minute on the market environment, as expected, slower sales to China and Asia Pacific continued through our second quarter. Q2 also saw the effects of reduced capital spending by our CRO and biopharma customers in Europe and the U.S., which primarily affected our preclinical product shipments.

Jim Green: Let's move to slide 3 of the presentation and look at our quarterly results.

Jim Green: We had a tough first half of the year, and Q2 was more challenging than expected.

Jim Green: Revenue in the second quarter came in at $23.1 million. That's down $5.7 million from last year.

Jim Green: Taking a minute on the market environment, as expected, slower sales to China and Asia Pacific continued through our second quarter. Q2 also saw the effects of reduced capital spending by our CRO and biopharma customers in Europe and the U.S., which primarily affected our preclinical product shipments. And I'll mention we're still seeing the impact of some of the supply chain issues, which we do expect to be able to resolve over the course of the second half of this year.

Speaker Change: Taking a minute on the market environment, as expected slower sales to China and Asia-Pacific continued through our second quarter. Q2 also saw the effects of reduced capital spending by our CRO and biopharma customers in Europe and in the US, which primarily affected our preclinical product shipments.

Jim Green: And I'll mention we're still seeing the impact of some of the supply chain issues, which we do expect to be able to resolve over the course of the second half of this year. Our gross margin came in at 57.2%, but remained strong with primary differences to our target of lower absorption of fixed expenses. On a GAAP basis, we reported an operating loss of $2.1 million.

Jim Green: And I'll mention, we're still seeing the impact of some of the supply chain issues, which we do expect to be able to resolve over the course of the second half of this year.

Jim Green: Our gross margin came in at 57.2%, but remained strong with primary differences to our target of lower absorption of fixed expenses. On a GAAP basis, we reported an operating loss of $2.1 million. On an adjusted basis, we reported an operating loss of $2.1 million. Our operating profit measured $800,000, or 3.5% of revenue, and adjusted EBITDA came in at $1.3 million, or 5.5% of revenue. All of that said, we continue to focus on our operating cost structure and our new product initiatives while we weather the challenging market environment.

Speaker Change: Our gross margin came in at 57.2% but remains strong with primary differences to our target of lower absorption of fixed expenses.

Jim Green: On an adjusted basis... Our operating profit measured $800,000, or 3.5% of revenue, and adjusted EBITDA came in at $1.3 million, or 5.5% of revenue. All of that said, we continue to focus on our operating cost structure and our new product initiatives while we weather the challenging market environment. As we announced in April, we took advantage of operating synergies to reduce our operating cost structure and support our ongoing investments in new products.

Speaker Change: On a GAAP basis, we reported an operating loss of $2.1 million. On an adjusted basis, our operating profit measured $800,000, or 3.5% of revenue, and adjusted EBITDA came in at $1.3 million, or 5.5% of revenue.

Speaker Change: All of that said, we continue to focus on our operating cost structure and our new product initiatives while we weather the challenging market environment.

Jim Green: As we announced in April, we took advantage of operating synergies to reduce our operating cost structure and support our ongoing investments in new products. We're seeing these investments come to fruition, and expect them to add new revenue streams starting in the second half and help underpin our long-term double-digit revenue growth goal. I'll give some more color to our new product commercializations later in the presentation, but first, let me turn it over to Jennifer Cote, our CFO, to discuss our second quarter financial results in more detail. Jen? Thank you, Jim.

Speaker Change: as we announced in april we took advantage of operating synergies to reduce our operating cost structure and support our ongoing investments in new products

Jim Green: We're seeing these investments come to fruition and expect them to add new revenue streams starting in the second half and help underpin our long-term double-digit revenue growth goal. I'll give some more color on our new product commercializations later in the presentation, but first, let me turn it over to Jennifer Cote, our CFO, to discuss our second quarter financial results in more detail. Jen? Thank you, Jim.

Speaker Change: We're seeing these investments come to fruition and expect them to add new revenue streams starting in the second half and help underpin our long-term double-digit revenue growth goal.

Jennifer Cote: I'll give some more color to our new product commercializations later in the presentation, but first let me turn it over to Jennifer Cote, our CFO, to discuss our second quarter financial results in more detail. Jen? Thank you, Jim, and hello, everyone.

Jennifer Cote: Thank you, Jim, and hello everyone. Let's dive further into our financial statements. As Jim mentioned, this was a challenging quarter. Please move to slide four, where we'll look at revenue for the quarter by product, family, and region. Starting with the Americas, revenue is down 12% as reported from last Q2, and slightly down sequentially 3% from Q1 2024. Preclinical sales were down compared to prior year, Q2, and also sequentially to Q1. Pharma and CROs are still delaying spending on capital equipment.

Jennifer Cote: Thank you, Jim, and hello everyone. Let's dive further into our financial statements. As Jim mentioned, this was a challenging quarter. Please move to slide 4, where we'll look at revenue for the quarter by product, family, and region. Starting with the Americas, revenue was down 12% as reported from last Q2, and slightly down sequentially 3% from Q1 2024. Preclinical sales were down compared to prior year, Q2, and also sequentially to Q1. Pharma and CROs are still delaying spending on capital equipment.

Jennifer Cote: Let's dive further into our financial statements. As Jim mentioned, this was a challenging quarter.

Jennifer Cote: please lomove to slide four where we'll look at revenue for the quarter by product family and region starting with the americas's revenue was down twelve percent as reported from last q two and slightly down sequentially three percent from q one two thousand and twenty four

Speaker Change: Preclinical sales were down compared to prior year Q2 and also sequentially to Q1. Pharma and CROs are still delaying spending on capital equipment. And going forward, we are starting to see signs for market optimism.

Jennifer Cote: And going forward, we are starting to see signs of market optimism, with increases in biotech-related capital raises and increased drug development activity. But as we learned from recent announcements, the CROs, while optimistic, are challenged over the course of the rest of the half of the year. As this recovers, we expect to see improvements cascade through our business as things get better. While cellular and molecular was down slightly 5% compared to Q2 of last year, CMT showed sequential growth of 9% compared to Q1 2024. And so we're encouraged to start to see some return of growth in our academic market.

Jennifer Cote: with increases in biotech-related capital raises and increased drug development activity.

Jennifer Cote: While Cellular and Molecular was down slightly 5% compared to Q2 of last year, CMT showed sequential growth of 9% compared to Q1 2024 and so we're encouraged to start to see some return to growth in our academic markets.

Jennifer Cote: Moving on to Europe, overall revenue was down 29% as reported versus last year in Q2 and was essentially flat sequentially to Q1. Both preclinical and cellular and molecular saw large declines versus last year but were essentially flat sequentially to Q1. We attribute the year-over-year decline in Europe to the overall economic environment, including higher interest rates, energy costs, and the Ukraine war, resulting in tighter spending by CROs, pharma companies, and the government. Moving to China and Asia Pacific, overall APAP revenue was down 22% against prior year Q2 and 16% sequentially to Q1.

Jennifer Cote: Moving on to Europe, overall revenue was down 29% as reported versus last year in Q2 and was essentially flat sequentially to Q1. Both preclinical and cellular and molecular saw large declines versus last year but were essentially flat sequentially to Q1. We attribute the year-over-year decline in Europe to the overall economic environment, including higher interest rates, energy costs, and the Ukraine war, resulting in tighter spending by CROs, pharma companies, and the government. Moving to China and Asia Pacific, overall APAC revenue was down 22% against prior year Q2 and 16% sequentially to Q1.

Jennifer Cote: Moving on to Europe, overall revenue was down 29% as reported versus last year Q2 and was essentially flat sequentially to Q1.

Jennifer Cote: Both preclinical and cellular and molecular saw large declines versus last year, but are essentially flat sequentially to Q1.

Jennifer Cote: we attribute the year-over-year decline in europe to the overall economic environment including higher interest rates energy costs and the ukraine war resulting in tighter spending by co's pharma companies and the government

Jennifer Cote: Moving to China and Asia-Pacific, overall APAC revenue was down 22% against prior year Q2 and 16% sequentially to Q1.

Jennifer Cote: Preclinical sales in Q2 saw further erosion compared to the prior year and sequentially from Q1 due to continued lower spend by pharma and CRO companies. Cellular and molecular products are down compared to the prior year in Q2, but appear to be stabilizing with improvements sequentially from Q1. Specific to China, market information suggests that the impact of stimulus is shifting into 2025 as companies apply for these funds but are delaying orders until funding is received. We are seeing increasing levels of quoting activity consistent with what others in the industry have shared.

Jennifer Cote: Preclinical sales in Q2 saw further erosion compared to prior year and sequentially from Q1 due to continued lower spends by pharma and CRO companies.

Jennifer Cote: Cellular and molecular products are down compared to the prior year Q2 but appear to be stabilizing with improvements sequentially from Q1.

Jennifer Cote: Specific to China, market information suggests that the impact of stimulus is shifting into 2025 as companies apply for these funds.

Jennifer Cote: but are delaying orders until funding is received. We are seeing increasing levels of quoting activity consistent with what others in the industry have shared.

Jennifer Cote: If you can please refer to slide 5, we will share additional financial metrics. Please refer to the top middle of the slide. Growth margin during Q2 2024 was 57.2% compared to 58% in Q2 last year. As Jim mentioned earlier, the year-over-year decrease is mainly driven by lower absorption of our fixed manufacturing costs and also by a lower mix of higher-margin preclinical products sold to CROs. We are encouraged that our growth margin remains close to our target of 60% despite a challenging revenue quarter.

Jennifer Cote: If you can please refer to slide 5, we will share additional financial metrics. Please refer to the top middle of the slide. Growth margin during Q2 2024 was 57.2%, compared to 58% in Q2 last year. As Jim mentioned earlier, the year-over-year decrease is mainly driven by lower absorption of our fixed manufacturing costs and also by a lower mix of higher-margin preclinical products sold to CROs. We are encouraged that our growth margin remains close to our target of 60% despite a challenging revenue quarter.

Jennifer Cote: Please refer to the top middle of the slide. Growth margin during Q2 2024 was 57.2% compared to 58% in Q2 last year.

Jennifer Cote: As Jim mentioned earlier, the year-over-year decrease is mainly driven by lower absorption of our fixed manufacturing costs and also by a lower mix of higher margin preclinical products sold to CROs.

Speaker Change: We are encouraged that our growth margin remains close to our target of 60% despite a challenging revenue quarter. This reflects the impact of the improvements we've made to our operating structure and provides room for increased margin drop down with expected improvements in revenue.

Jennifer Cote: This reflects the impact of the improvements we've made to our operating structure and provides room for increased margin drop-down with expected improvements in revenue. If you refer to the top right graph of the slide, our adjusted EBITDA during Q2 was down from $3.9 million last year to $1.3 million this year. The primary driver for reduced adjusted EBITDA was the drop in lower gross margin dollars. As Jim spoke about earlier, we continue to stay focused on investing in new product development and commercialization of our growth areas while actively managing our costs.

Speaker Change: If you refer to the top right graph of the slide, our adjusted EBITDA during Q2 was down from $3.9 million last year to $1.3 million this year. The primary driver for reduced adjusted EBITDA was the drop down of lower gross margin dollars.

Jennifer Cote: As Jim spoke about earlier, we continue to stay focused on investing in new product development and commercialization of our growth areas while actively managing our costs.

Jennifer Cote: We implemented actions during early Q2 to reduce our operating expenses and take advantage of efficiencies in our operating structure and to fund our ongoing investments and growth. We realized savings from these actions of approximately $700,000 during Q2, and we expect these actions to support annual run rate savings of approximately $4 million. We will continue to manage through these market headwinds and drive operational improvements while investing in the critical areas of growth for our business.

Speaker Change: We implemented actions during early Q2 to reduce our operating expenses and take advantage of efficiencies in our operating structure and to fund our ongoing investments and growth.

Speaker Change: We realize savings from these actions of approximately $700,000 during Q2, and we expect these actions to support annual run rate savings of approximately $4 million.

Speaker Change: We will continue to manage through these market headwinds and drive operational improvements while investing in the critical areas of growth for our business.

Jennifer Cote: Moving to the bottom left, where we show both reported and then adjusted loss earnings per share. First, I will describe the primary differences between our GAP EPS and our adjusted EPS. The differences between our GAAP and adjusted earnings are highlighted in the reconciliation tables on slide 11, but the primary drivers continue to be stock compensation and amortization and depreciation, both of which are non-cash items. Together, these items impact both years by six cents per share.

Speaker Change: Moving to the bottom left, where we show both reported and then adjusted loss earnings per share. Thank you. Thank you.

Speaker Change: First, I will describe the primary differences between our GAP EPS and our adjusted EPS.

Speaker Change: The differences between our GAAP and ADJUSTED are highlighted in the reconciliation tables on slide 11, but primary drivers

Jennifer Cote: continue to be stock compensation and amortization and depreciation, both of which are non-cash items. Together, these items impact both years by $0.06 per share.

Jennifer Cote: During Q2, the remaining difference of one cent was attributed to a loss on the sale of investments and the impact of restructuring costs incurred with the cost reduction actions earlier in the quarter. Adjusted EPS declined 4 cents compared to the previous year, primarily due to growth margin declines from lower revenue, which was partially offset by lower interest expense and an income tax benefit. Switching gears to cash flow and liquidity, if you refer to the graph in the middle of the bottom row, cash flow from operations was $0.6 million for the first half of 2024, compared to $5.4 million for the same period last year. This decline is largely, again, driven by the drop-down of the impact of lower sales during the quarter.

Jennifer Cote: adjusted eps declined four cents compared to the last year primarily on growth margin declines from lower revenue which was partially offset by a lower interest expense and an income tax benefits

Jennifer Cote: Switching gears to cash flow and liquidity, if you refer to the graph in the middle of the bottom row,

Jennifer Cote: Cash flow from operations was $0.6 million for the first half of 2024, compared to $5.4 million in the same period last year. This decline is largely, again, driven by the drop-down of the impact of lower sales during the quarter.

Jim Green: As we discussed last quarter, 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. Also, during the first half of 2024, we were able to sell all of our investment in HRGN stock for $1.9 million, which is included in our cash flow from investing activities. These additional sources of cash help support our cash position, and net debt is down $0.7 million compared to the end of 2023.

Jennifer Cote: As we discussed last quarter, 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. Also, during the first half of 2024, we were able to sell all of our investment in HRGN stock for $1.9 million, which is included in our cash flow from investing activities. These additional sources of cash help support our cash position, and net debt is down $0.7 million compared to the end of 2023.

Speaker Change: as we discussed left quarter in februarytwo thousand and twenty-four we received cash benefit net of commissions of two point six million for the employee retention credit provided by the care's act

Jennifer Cote: Also, during the first half of 2024, we were able to sell all of our investment in HRGN stock for $1.9 million, which is included in our cash flow from investing activities.

Jennifer Cote: These additional sources of cash help support our cash position and net debt is down $0.7 million compared to the end of 2023.

Jennifer Cote: As we return to stronger revenue quarters, we expect to continue on our path towards paying down our debt and improving our leverage. Further details on the above items can be found in the non-GAAP reconciliation tables included in our press release and in the appendix to this presentation and will be available in our 10-Q.

Jim Green: As we return to stronger revenue quarters, we expect to continue on our path towards paying down our debt and improving our leverage. Further details on the above items can be found in the non-GAAP reconciliation tables included in our press release and in the appendix to this presentation and will be available in our 10-Q.

Jennifer Cote: As we return to stronger revenue quarters, we expect to continue on our path towards paying down our debt and improving our leverage.

Jim Green: further details on the above items can be found in the non-gaap reconciliation tables includde in our press release and the appendix to this presentationand will be available in our ten -q i'm now happy to hand things back to jim thank you jen let's move on to slide six

Jim Green: Let's move on to slide six. I'm not going to go through this whole slide, but I do want to take a minute to remind you how we think of our base business and investments for expanding into high-growth applications with significant consumable and recurring revenues. Our base business is designed to deliver long-term, better-than-market growth. New base product revenue, combined with new high-growth revenue streams from bioproduction and MEA-organized applications, begin in the second half and underpin our long-term double-digit growth target going forward.

Jim Green: I'm not going to drain this whole slide, but I do want to take a minute to remind you how we think of our base business and investments for expanding into high-growth applications with significant consumable and recurring revenues. Our base business is designed to deliver long-term, better-than-market growth.

Speaker Change: new-bed new-bed product revenue combined with new high growth revenue streams from bioproduction and ma organized applications begin in the second half and underpin our long-term double-digit growth target going forward

Jim Green: Now let's move to slide 7 to discuss our considerable progress on our key new product launches in more detail. The first row of the table highlights the commercial status of two new products we consider part of our base bread and butter business. Early in Q3, we began production shipments of our new SOHO family of telemetry devices, which now enable real-time telemetry measurements in a shared animal housing environment. This, we believe, will lead to additional demand, especially in Europe, though likely starting really in 2025.

Speaker Change: Now let's move to slide 7 to discuss our considerable progress on our key new product launches in more detail.

Jim Green: The first row of the table highlights the commercial status of two new products we consider part of our base bread-and-butter business.

Jim Green: Early in Q3, we began production shipments of our new SOHO family of telemetry devices, which now enable real-time telemetry measurements in a shared animal housing environment.

Jim Green: This, we believe, will lead to additional demand, especially in Europe , though likely starting really in 2025.

Jim Green: Late last year, we announced the initial delivery of our groundbreaking VivaMars Neurobehavioral Monitoring System to one of our largest CRO customers. This CRO has adopted the system as part of their preclinical testing offering. Later in the second half, we expect to ship additional VivaMars products to this customer as they expand their use of these systems to more locations.

Jim Green: Late last year we announced the initial delivery of our groundbreaking VivaMars neurobehavioral monitoring system to one of our largest CRO customers.

Jim Green: This CRO has adopted the system as part of their preclinical testing offering.

Jim Green: later in the second half we expect to ship additional vamars products to this customer as they expand their use in these systems to more locations

Jim Green: As an aside, we expect to see posters describing the initial results of testing using the VivaMars system at this September's Safety Pharmacology Society show. We're also encouraged by the initial response to VivaMars, which supports our optimism as we are seeing strong interest from other CROs and biopharma customers and expect expanding sales in 2025 and beyond. The second row of the table highlights the commercial status of our products targeted at electroporation and bioproduction.

Jim Green: As an aside, we expect to see posters describing the initial results of testing using the Viva Mars system at this September's Safety Pharmacology Society show. We're also encouraged by the initial response to Viva Mars, which supports our optimism as we are seeing strong interest from other CROs and biopharma customers and expect expanding sales in 2025 and beyond. The second row of the table highlights the commercial status of our products targeted at electroporation and bioproduction.

Jim Green: As an aside, we expect to see posters describing the initial results of testing using the VivaMAR system at this September's Safety Pharmacology Society show.

Jim Green: We're also encouraged by the initial response to Viva Mars, which supports our optimism as we are seeing strong interest from other CRO and biopharma customers and expect expanding sales in 2025 and beyond.

Jim Green: The second row of the table highlights the commercial status of our products targeted to electroporation and bioproduction.

Jim Green: This year we began in earnest the selling process in the bioproduction segment. Last year, we announced that a large pharma company adopted our BTX electroporation system configured for bioproduction. We're pleased to see that consumable revenue with this customer has now grown to approximately $1 million annual run rate, in line with our original expectations.

Jim Green: This customer is now exploring the use of BTX for bioproduction for an additional drug application, which could be as big as the current application. We're also very encouraged by the number of new customers considering our BTX as a bridge to GMP bioproduction applications. Also in Q3, we begin shipping our new CGMP compliant amino acid analysis system for bioprocessing applications. Our AAA is an adaptation of our leading Biochrome AAA system currently in operation in clinical labs around the world and is expected to do well in bioproduction applications.

Jim Green: This customer is now exploring the use of BTX for bioproduction for an additional drug application, which could be as big as the current application. We're also very encouraged by the number of new customers considering our BTX as a bridge to GMP bioproduction applications. Also in Q3, we begin shipping our new CGMP-compliant amino acid analysis system for bioprocessing applications. Our AAA is an adaptation of our leading Biochrome AAA system currently in operation in clinical labs around the world and is expected to do well in bioproduction applications.

Jim Green: Also in Q3, we began shipping our new cgmp compliant immunoassay and analysis system for bio processing applications are AAA is an adaptation of our leading Biocrime AAA system currently in operation and clinical labs around the world and is expected to do well in bio production applications.

Jim Green: The third row of the table highlights the commercial status of our exciting new MESH-MEA organoid platform. We have adapted our market-leading MEA electrophysiology systems to be the first in-vitro organoid data acquisition and analysis system capable of supporting long-life longitudinal analysis of organoids.

Jim Green: The third rule the table highlights the commercial status of our exciting new mesh EMEA organized platform.

Jim Green: We have adapted our market, leading EMEA electrophysiology systems to be the first in vitro Organoid data acquisition and analysis system capable of supporting long life longitudinal analysis of organized we believe these new systems are well positioned to support fundamental research by our academic customers. In addition to <unk>.

Jim Green: We believe these new systems are well positioned to support fundamental research by our academic customers in addition to biopharma companies to streamline safety and toxicology testing, as well as reduce costs, reduce test time, and reduce expensive animal usage that's used in new drug programs and developments today. In the first half of this year, we installed and began beta usage at four customer sites focusing on neuro and cardiac, and toxicology applications.

Speaker Change: Biopharma companies to streamline safety and toxicology tests toxicology testing as well as reduce costs reduce test time and reduce expensive animal usage from during the new that's used in the new development drug programs in development today.

Jim Green: In the first half of this year, we installed and began beta usage at four customer sites, focusing on neuro and cardiac and toxicology applications.

Jim Green: For the second half of this year, we're well on our way to 10 or more additional installations with early adopters, as well as with well-known biotech and large pharma companies, in addition to leading academic research institutions and the NIH. We're planning a full production launch in Q1 of 2025. I'd like to point out that each of these new revenue streams is based on leveraging our well-established technologies and adapting them to significantly larger biopharmaceutical applications with high pull-through recurring revenues.

Jim Green: For the second half of this year, we're well on our way to 10 or more additional installations with early adopters, with well-known biotech and large pharma companies, in addition to leading academic research institutions and the NIH. We're planning a full production launch in Q1 of 2025. I'd like to point out that each of these new revenue streams is based on leveraging our well-established technologies and adapting them to significantly larger biopharmaceutical applications with high pull-through recurring revenues.

Jim Green: For the second half of this year, we are well on our way to 10 or more additional installations with early adopters as well note with well known biotech and large pharma companies. In addition to leading academic research institutions and the NIH.

Operator: Good day and thank you for standing by. Welcome to the Q22024 Harvard Bioscience Inc, earnings conference call. At this time all participants are in a listen only mode. Please be advised that today's conference is being recorded. After the speaker's presentation, there will be a question and answer session. To ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.

Jim Green: We're planning full production launch in Q1 of 2025.

Jim Green: I'd like to point out that each of these new revenue streams are based on leveraging our well established technologies and adapting them to significantly larger biopharma applications with high pull through recurring revenues.

Operator: I would now like to hand the conference over to your speaker today.

Jim Green: Now let's move on to our outlook summary on slide nine and take a look at what we see for the full year. In light of a weaker second quarter and the market recovery expected to delay to later in the second half, we're reducing our full year 2024 revenue outlook to approximately $97 million to $102 million. We expect sequential growth in the second half, supported by new product shipments, which will be heavily back-end loaded.

Kathryn Flynn: Kathryn Flynn, Corporate Controller. Thank you, Josh and good morning, everyone.

Jim Green: Now, let's move on to our outlook summary on slide nine and take a look at what we see for the full year.

Kathryn Flynn: Thank you for joining the Harvard Bioscience second quarter, 2024 earnings conference call leading the call today will be Jim Green, President and Chief Executive Officer and Jennifer Cody, 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 or future events or future financial performance are forward looking statements and are made pursuant to the safe harbor provisions of the Private Security's Litigation Reform Act of 1995.

Jim Green: In light of a weaker second quarter and the market recovery expected delay to later in the second half, we're reducing our full year 2020 for revenue outlook to approximately $97 million to a $102 million.

Jim Green: We expect sequential growth in the second half supported by new product shipments, which will be heavily back end loaded.

Jim Green: In spite of lower expected revenue, we expect 2024 full-year gross margin of approximately 59 to 60%, reflecting our continued focus on expense management. We now expect adjusted EBITDA margin in the high single digits. Like many in the industry, we've been challenged by a difficult market environment. Through it all, we've remained focused on fielding exciting new products designed to meet the needs of academic researchers, CROs, and the drug development market and to support our goal of long-term, double-digit revenue growth. Thank you. Now, I'll turn the call back over to the operator to open the line for questions. Thank you.

Speaker Change: In spite of lower expected revenue, we expect 2020 for full year gross margin of approximately 59% to 60%, reflecting our continued focus on expense management. We now expect adjusted EBITDA margin in the high single digits.

Jim Green: Like many in the industry, we've seen challenge, we've been challenged by a difficult market environment.

Jim Green: Through it all we remain focused on fielding exciting new products designed to meet the needs of academic researchers crows in the drug development market and to support our goal of long term double digit revenue growth.

Kathryn Flynn: As your results may differ materially from those expressed or implied, please refer to today's press release for 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-gaps from measures, which can be useful in evaluating the company's operations related to our financial condition and results. These non-gaps measures are intended to supplement gap financial information and should not be considered a substitute. Reconciliation of gap to non-gap measures are provided in today's earnings press release.

Speaker Change: Thank you 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 Capital Markets. You may proceed.

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 Capital Markets. 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: Our first question comes from Paul Knight with Keybanc capital markets. You May proceed.

Paul Knight: Hi Jim. Regarding APAC, I guess you say in the release that China is most of it. What's your total APAC exposure percent of revenue at this time?

Paul Knight: Hi Jim, regarding APAC, I guess you say in the release that China is most of it. What's your total APAC exposure, percent of revenue at this time?

Paul Knight: Hi, Jim.

Speaker Change: Regarding APAC I guess, you're saying the relief that China is most of it.

Speaker Change: APAC exposure.

Jim Green: Given our revenue at this.

Jim Green: Historically, Asia-Pacific has been about a quarter of our total revenue, with again, predominantly China, but it does include a few others like Korea and Japan, but it is predominantly China.

Jim Green: Historically, Asia-Pacific has been about a quarter of our total revenue, with again predominantly China, but it does include a few others like Korea and Japan, but it is predominantly China.

Jim Green: Hi.

Speaker Change: Historically Asia Pacific has been about a quarter of our total revenue.

Jim Green: With again predominantly thats predominantly China, but it does include a few others like Korea, and Japan, but it is predominantly China.

Jim Green: I will now turn the call over to Jim. Jim, please go ahead. Thank you, Catherine. Hello, everybody. Let's move to slide three of the presentation and look at our quarterly results. We got a tough first half of the year and Q2 was more challenging than expected. Revenue in the second quarter came in at $23.1 million, that's down $5.7 million from last year. Taking a minute on the market environment as expected, slower sales to China and Asia Pacific continued through our second quarter.

Operator: and your outlook there.

Jim Green: and your outlook there.

Jim Green: And your outlook there.

Jim Green: We feel like we've pretty much reached the bottom there. But our funnels are growing. You know, early indications look pretty good. I mean, quote rates are going up. And we have seen, you know, the first recovery in Asia really seems to have come from the academics. We do expect things to have stabilized there, and just be starting to move back to growth on the academic side. The part that has been a little more struggling was more the industrial side with biopharmaceutical and CRO-type companies in China.

Jim Green: We feel like we've pretty much reached the bottom there.

Jim Green: Our funnels are growing.

Speaker Change: Early indications look pretty good I mean, we're going to quote rates going up.

Jim Green: So where we have seen in the first recovery in Asia. It really seems to be have come from the academics.

Jim Green: We do expect things to stabilize there just be starting to move back to growth in the academic side. The part that has been a little more struggling was more of the industrial side with Biopharma and CRO type companies in China. The outlook. There again, what we're seeing is the funnels are growing but the problem. We've seen is.

Jim Green: Q2 also saw the effects of reduced capital spending by our CRO and biopharma customers in Europe and in the US, which primarily affected our pre-clinical product shipments. And I'll mention, we're still seeing the impact of some of the supply chain issues, which we do expect to be able to resolve over the course of the second half of this year. Our growth margin came in at 57.2%, but remained strong with primary differences to our target of lower absorption of fixed expenses, on a gap basis.

Jim Green: The outlook there, again, what we're seeing is, you know, the funnels are growing, but the problem we've seen has been the velocity through the funnel. So we measure things like funnel aging, and we look at, you know, math on things like, you know, the quote, the time from quote to order. That has remained slower, so it's taken a little more time. And, you know, again, as Jen mentioned, we're thinking, you know, it's fairly stable at this point for that revenue stream. But, you know, as far as going back to real growth, that's probably later in the second half, maybe moving into 2025 as far as the growth factor on that stream is concerned.

Speaker Change: Ben the velocity through the funnel. So we look we measure things like funnel aging and we look at method math on things like the.

Jim Green: The quote the time from from quote to order. That's been that has remained slower. So that's taken a little more time and again as John mentioned, we're thinking.

John: It's fairly stable at this point for that revenue stream, but as far as going back to real growth. That's probably later and later in the second half maybe moving into 2025 as far as the growth vector on that stream.

Jim Green: We reported an operating loss of $2.1 million on an adjusted basis. Our operating profit measured $800,000 or $3.5% of revenue and adjusted EBITDA came in at $1.3 million or $5.5% of revenue. All of that said, we continue to focus on our operating cost structure and our new product initiatives, which, while we weather the challenging market environment, as we announced in April, we took advantage of operating synergies to reduce our operating cost structure and support our ongoing investments in new products.

Paul Knight: And then slide seven, most of these products are going to be introduced here in the second half of 2020, in early 2025. Are you, you know, are you getting orders now and is your sales force, I think the sales force, years ago or got that teed up?

Speaker Change: And then slide seven most of these products are going to be.

Speaker Change: Introduce here in the second half of.

Speaker Change: 20.

Speaker Change: In early 'twenty five.

Paul Knight: And then slide 7, most of these products are going to be introduced here in the second half of 2020, or early 2025. Are you, you know, are you getting orders now? And is your sales force, I think the sales force years ago, got that teed up?

Jim Green: Our U.

Speaker Change: Are you getting orders now any of your sales force I think the sales.

Speaker Change: Years ago, Yes.

Jim Green: Yeah, great question. We actually introduced them to the market starting at SFN near the end of last year. So we've been, these are now products that we are selling. We're already collecting orders, working toward orders in each one of these segments. We've talked about what we expect in these areas.

Speaker Change: Got that.

Jim Green: Yeah, great question. We actually introduced them to the market starting at SFN near the end of last year. So these are now products that we are selling. We're already working toward orders in each one of these segments. We've talked about what we expect in these areas.

Speaker Change: Yes, great Great question, we actually introduced to the market.

Speaker Change: Starting in SFA in Alaska.

Speaker Change: The end of last year. So we've been these are now products that we're selling we're already collecting getting working toward orders in each one of these segments.

Jennifer Cote: But first, let me turn it over to Jennifer Cote, our CFO, to discuss our second-quarter financial results in more detail. Jen? Thank you, Jim, and hello, everyone. Let's dive further into our financial statement. As Jim mentioned, this was a challenging quarter.

Jim Green: We've talked about what we expect in these areas and as I look at the base business.

Jim Green: And if I look at the base business, this is targeted overall to be better than market growth. Now, of course, that's been an issue. But the two new areas in the base business, adding the new Soho implantable devices, are going to start to support our growth in the base business. And then when you look at the Viva Mars system, you'll see announcements at SPS for our first large CRO customer, who bought the first article last year. They're starting to buy more of these now.

Jim Green: And if I look at the base business, this is targeted overall to be giving us better than market growth. Now, of course, the market's been an issue, but the two new areas in the base business, adding the new Soho implantable devices, that's going to start supporting our growth in the base business. And then when you look at the Viva Mars system, you'll see announcements at SPS for our first large CRO customer who bought the first article last year. They're starting to buy more of these now. So that's going to be expanding revenue growth here in the second half of this year. And those are products in the acquisition process now.

Jim Green: This is targeted overall to be giving us to be better than market growth now of course market has been an issue, but the two new areas in the base business, adding the new Soho implantable devices that that's going to start start to support our growth in the base business and then when you look at the the vivo Maher system, we're going to Youll see enel.

Jennifer Cote: Please move to slide four. We'll look at revenue for the quarter by product, family, and region. Starting with the Americas, revenue was down 12% as reported from last Q2, and slightly down sequentially 3% from Q1 2024. Preclinical sales were down compared to prior year Q2, and also sequentially to Q1. Farma and CROs are still delaying spending on capital equipment. And going forward, we are starting to see signs for market optimism with increases in biotech-related capital raises and increased drug development activity.

Jim Green: Incidents at Sps for our first large CRM customer who bought the first article last year, they're starting to buy more of these now.

Jim Green: So that's going to be expanding revenue growth here in the second half of this year. Those are products in the acquisition process now. And we have other CROs and biopharma companies lining up, also looking at moving toward this technology for their neuro testing. On the bioproduction side, you know, that has been a nice entry for us. It's a little longer sale, but that's been growing quite well.

Jim Green: So that's going to be expanding revenue growth here in the second half of this year. So that's those are products.

Jim Green: And we have other CROs and biopharma companies lining up, also looking at moving toward this technology for their neuro testing. On the bioproduction side, you know, that has been a nice entry for us. It's a little longer sale, but that's been growing quite well.

Speaker Change: The acquisition process now and we have other <unk> and.

Speaker Change: Pharma companies lining up also looking at moving towards this technology for their neuro testing.

Jennifer Cote: But as we learned from recent announcements, the CROs, while optimistic, are challenged over the course of the rest of the half of the year. As this recovers, we expect to see improvements to cascade to our business, as things get better. While cellular and molecular was down, slightly 5% compared to Q2 of last year, CMT showed sequential growth of 9% compared to Q1 2024.

Speaker Change: In the in the bio production side that we know it's been a nice entry for us, it's a little longer sale, but that's been growing quite quite well, we expect to have another new drug announced with this the same large pharma company Thats now spending right now about because we were like a $1 million of consumables just on that one drug today.

Jim Green: You know, we expect to have another new drug announced with this. The same large pharma company that's now spending right now about consuming like a million dollars of consumables just on that one drug today, we're working with them now to move toward adoption of another drug. So, this could be another very large book of business added to the bioproduction side. And there, we're seeing, you know, we're working with a number of customers in biotechs using us as an initial bridge to production.

Jim Green: You know, we expect to have another new drug announced with this. The same large pharma company that's now spending right now about consuming like a million dollars of consumables just on that one drug today, we're working with them now to move toward adoption of another drug. So this could be another very large book of business added to the bioproduction side. And there we're seeing, you know, we're working with a number of customers, a number of biotechs using us as an initial bridge to production.

Speaker Change: We're working with them now to move to move toward adoption in another drug. So this could be another very large book of business added to the bio production side and there we're seeing and we're working with a number of customers out of our biotechs using us as a as the initial bridge to production. So if they used us he used our <unk> four.

Jennifer Cote: And so we're encouraged to start to see some return to growth in our academic markets.

Jennifer Cote: Moving on to Europe, overall revenue was down 29% as reported versus last year Q2, and was essentially flat sequentially to Q1. Both preclinical and cellular and molecular saw large declines versus last year, but are essentially flat sequentially to Q1. We attribute the year over year decline in Europe to the overall economic environment, including higher interest rates, energy costs, and the Ukraine war, resulting in tighter spending by CROs, pharma companies, and the government.

Jim Green: So, if they used us, they used our BTX for, you know, initial compound creation, it's a very effective, low barrier way for them to move toward CGMP bioproduction, at least to get through the levels of volume that they need for preclinical and late stage clinical testing. And then, of course, as they move into, you know, large volume production, that's when they'd have to make a decision: do we expand what we're doing with them with more base systems, or do we, or do they have to then go to another manufacturer, in theory, depending on the size of the demand?

Jim Green: So if they used us, used our BTX for, you know, initial compound creation, it's a very effective, low barrier way for them to move toward CGMP bioproduction, at least to get through the levels of volume that they need for preclinical and late stage clinical testing. And then, of course, as they move into, you know, large volume production, that's when they'd have to make a decision. Do we expand what we're doing with them with more base systems, or do we or do they have to then go to another manufacturer, in theory, depending on the size of the demand?

Speaker Change: Initial compound creation.

Speaker Change: Very effective low barrier way for them to move toward a cgmp bio production at least to get through the levels of volume that they need for preclinical and late stage clinical testing and then of course as they move into a large volume production. That's what they'd have to make a decision do we expand what we're doing.

Speaker Change: With them with more more based systems or do we or do they have to then go to another manufacturer in theory, depending on on the size of the demand, but we're working to try and it would be the real value proposition is that is that kind of low to medium level of demand and to get through the bio production phases, and then again the third spaces and I think the most important.

Jennifer Cote: Moving to China and Asia Pacific, overall APAC revenue was down 22% against prior year Q2, and 16% sequentially to Q1. Preclinical sales in Q2 saw further erosion compared to prior year and sequentially from Q1, due to continued lower spend by pharma and CRO companies. Cellular and molecular products are down compared to the prior year Q2, but appear to be stabilizing with improvements sequentially from Q1. Specific to China, market information suggests that the impact of stimulus is shifting into 2025 as companies apply for these funds, but are delaying orders until funding is received. We are seeing increasing levels of quoting activity consistent with what others in the industry have shared.

Jim Green: But, you know, we're working to try and, to me, the real value proposition is that kind of low to medium level of demand and to get through the bioproduction phase. And then again, the third space, and I think the most important and most interesting, is organized work.

Jim Green: But, you know, we're working to try and be the real value proposition that is that kind of low to medium level of demand and to get through the bioproduction phase. And then again, the third space, and I think the most important and most interesting, is organized work.

Speaker Change: And most interesting is the is the organised work.

Jim Green: And as I said last time, I've got four systems now up and running in sites that are proving out the algorithms. We've already started with a number of large customers, early adopters, who are going to be picking this system up. I'm targeting to get 10 or more of these new systems shipped here in the second half. I mean, these systems can sell for up to $100,000 a piece, and the consumable is not inexpensive.

Jim Green: And as I said last time, I've got four systems now up and running in sites that are proving out the algorithms. We've already started with a number of large customers, early adopters who are going to be picking this system up. I expect to, you know, I'm targeting to get 10 or more of these new systems shipped here in the second half. And these are, I mean, these systems can sell for up to $100,000 a piece, and the consumable is not inexpensive.

Speaker Change: As I said last time, we would be I've got four systems now up and running insights that are proving out the algorithms. We've already started with a number of large customers.

Speaker Change: Early adopters, who are going to be picking this system up I expect too I'm targeting to get 10 or more of these new systems.

Speaker Change: <unk> here in the second half and these are I mean, these systems can sell for up to $100 a piece and the consumable is not inexpensive.

Jim Green: So the kind of companies you're going to see picking this up, the applications are going to be, they're starting with the neuro, and they're starting with cardiac. But we see this moving toward an opportunity for in vitro testing for really optimizing safety pharmacology and tox testing. So you're going to see some real interesting names buying into this with installations and early adopters in this second half. We're talking Q3 and really heavily in Q4, and then we'll start full production starting next year.

Jim Green: So, you know, the kind of companies you're going to see picking this up, the applications are going to be, they're starting with the neuro, and they're starting with cardiac. But, you know, we see this moving toward an opportunity for in vitro testing for really optimizing safety pharmacology and tox testing. So, you're going to see some real interesting names buying into this with installations and early adopters in this second half. We're talking, you know, Q3 and really heavily in Q4.

Jennifer Cote: If you can please refer to slide five, we will share additional financial metrics. Please refer to the top middle of this slide. Gross margin during Q2, 2024, was 57.2% compared to 58% in Q2 last year. As Jim mentioned earlier, the year-over-year decrease is mainly driven by lower absorption of our fixed manufacturing costs and also by a lower mix of higher margin preclinical products sold to Sirois. We are encouraged that our gross margin remains close to our target of 60% despite a challenging revenue quarter.

Speaker Change: And the kind of companies you're going to see picking this up the applications are going to be there starting with the neuro and theyre, starting with cardiac but we see this moving toward an opportunity for in vitro in vitro testing for four really optimizing safety pharmacology and tox testing, so youre going to see some real interesting.

Speaker Change: Names buying into this with installations and early adopters. This in this second half, we're talking Q3 and really heavily in Q4.

Jim Green: And then we'll start full production starting next year. So, this is the start of a whole new area for us, and it is one-of-a-kind where you can non-destructively measure how a proxy for an organ, whether it's neuro or cardiac, how it's performing over longitudinal studies. So, you're looking at months.

Speaker Change: And then we will start full production starting next year. So this is the start of a whole new area for us and it is a one of a kind where you can non destructively measure the how a proxy for an Oregon, whether it's neuro or cardiac how it's performing over longitudinal studies that youre looking at months you can see how they react with <unk>.

Jim Green: So this is the start of a whole new area for us, and it is a one-of-a-kind where you can non-destructively measure how a proxy for an organ, whether it's neuro or cardiac, how it's performing over longitudinal studies. So you're looking at months. You can see how they react with various compounds. Is it positive for a diseased state of an organoid, and is it not negative for a healthy organ, like a healthy brain? So it really is the start of a potential new way to filter compounds before making the decision to go into the millions of dollars that are spent once you start the preclinical phases.

Jennifer Cote: This reflects the impact of the improvements we have made to our operating structure and provides room for increased margin drop down with expected improvements in revenue. If you refer to the top right graph of the slide, our adjusted even during Q2 was down from 3.9 million last year to 1.3 million this year. The primary driver for reduced adjusted even it was a drop down of lower gross margin dollars. As Jim spoke about earlier, we continue to stay focused on investing in new product development and commercialization of our growth areas while actively managing our costs.

Jim Green: You can see how they react with various compounds. Is it positive for a diseased state? Is it of an organoid? And is it not negative for a healthy organ, like a healthy brain? So, it really is the start of a potential new way to filter compounds before making the decision to go into the millions of dollars that are spent once you start the preclinical phases.

Speaker Change: Various compounds is it positive.

Speaker Change: Two to a disease state of.

Speaker Change: Of an organized and is it not negative to a healthy healthy organ like a healthy brain. So it really is a start of a potential new way to filter compounds before making the decision to go into the millions of dollars that are spent once you start the preclinical phases.

Jim Green: Jim, last question is, if the market goes to 5% growth, which is kind of what most companies in the sector are saying, you know, this is maybe next year or normalized, if the market's at 5%, what do you think Harvard Bioscience's growth would be? Yeah, that's a great, great question. The way I model it is,

Speaker Change: Jim last question is if the market goes to 5% growth, which is kind of what most companies in this sector are saying this is.

Jennifer Cote: We implemented actions during early Q2 to reduce our operating expenses and take advantage of efficiencies in our operating structure and to fund our ongoing investments in growth. We realized savings from these actions of approximately $700,000 during Q2 and we expect these actions to support annual run rate savings of approximately $4 million. We will continue to manage through these market headwinds and drive operational improvements while investing in the critical areas of growth for our business.

Speaker Change: Maybe next year or normalized.

Jim Green: If the markets at 5% why do you think Harvard Biosciences growth would be.

Jim Green: Yeah, that's a great question. The way I model it is I expect my new product development in these areas to give me roughly double-digit growth with new products. So if I can get to somewhere around 10% with incremental new business, and if the market's growing at 5%, then I should be able to reasonably underpin low double digits for this business. If the market stays flat, then at least I've got my new products driving me arguably up toward double digits on its own. That, to me, is the long-term growth factor here.

Jim Green: Yes, that's a great great question the way I model. It is I expect my new product development in these areas to give me roughly double digit growth with new products. So if I can get to somewhere around 10% with incremental new business and if the market's growing at 5% that I should be able to reasonably underpin low.

Jennifer Cote: Moving to the bottom left where we show both reported and then adjusted loss earnings per share. First, I will describe the primary differences between our gap EPS and our adjusted EPS. The differences between our gap and adjusted are highlighted in the reconciliation tables on slide 11 but primary drivers continue to be soft compensation and amortization and depreciation, both of which are non-cash items. Together, these items impact both years by 6 cents per share.

Speaker Change: Low double digits for this business if the market stays flat then at least Ive got my new products driving me arguably up towards double digits on its own that to me is that as the long term growth vector here, it's not so much that I have to count on the market growth I can count on the new products going in these are exciting new things in these areas were very.

Jim Green: It's not so much that I have to count on market growth; I can count on the new products going in. These are exciting new things, and these are areas where very few, if any, competitors have a position. And these are areas that leverage technologies that we've developed over 30-plus years. So to me, this is a very exciting time for the company.

Speaker Change: Few if any competitors have a position on it and these are areas that leverage technologies that we've developed over 30 30 plus years. So I just to me. It is a very exciting time for the company and how this how this develops it's going to be really interesting and fun to see how how organized start to take over and again. What this system does is it may.

Jennifer Cote: During Q2, the remaining difference of one cent is attributed to a loss on the sale of investments and the impact of restructuring costs incurred with the cost reduction actions earlier in the quarter. Adjusted EPS declined for cents compared to the last year, primarily on growth margin declines from lower revenue, which was partially offset by lower interest expense and an income tax benefit.

Jim Green: And how this develops, it's going to be really interesting and fun to see how organoids start to take over. And again, what this system does is it makes the use of organoids efficient. Normally, if you're looking at today's state of the art, you're building various proxies for organs, and then you pull them out, and with a PhD scientist, you look at them under a microscope. That is not an efficient way to run to do the kind of automation that you need to be able to do.

Speaker Change: The use of organized efficient normally if you were looking at with today's state of the art you take your building various proxies for organs. And then you are you are pulling them out and with a Phd scientists you'd look at them under a microscope that is not an efficient way to run to do the kind of automation that you need to be able to do today, there's there's such high volumes of small <unk>.

Jim Green: Today, there are such high volumes of small animals that are used to get through the large population testing. That's the only thing that they can do today. But this is an alternative that should make that a lot safer and a lot less costly and a lot more efficient for the pharma company. So, this is going to be the one to watch. I'm really excited about it.

Jim Green: Today, there are such high volumes of small animals that are used to get through the large population testing. That's the only thing that they can do today. But this is an alternative that should make that a lot safer and a lot less costly and a lot more efficient for the pharma company. So this is going to be the one to watch. I'm really excited about it.

Jennifer Cote: Switching gears to cash flow and liquidity. If you refer to the graph in the middle of the bottom row, cash flow from operations was 0.6 million for the first half of 2024 compared to 5.4 million in the same period last year. This decline is largely, again, driven by the drop down of the impact of lower sales during the quarter. As we discussed last quarter, in February 2024, we received cash benefit net of commissions of 2.6 million for the Employee Retention Credit provided by the CARES Act.

Speaker Change: Animals that are used to get through the large population testing thats. The only thing that they can do today, but this is an alternative that should make that a lot safer than a lot a lot less costly and a lot more efficient for the pharma companies. So this is going to be the one to watch I'm real excited about it.

Speaker Change: Thanks.

Paul Knight: Thanks, Paul.

Speaker Change: Thank you.

Operator: Our next question comes from Bruce Jackson with The Benchmark Company. He may proceed.

Speaker Change: Our next question comes from Bruce Jackson with the Benchmark Company you May proceed.

Jennifer Cote: Also during the first half of 2024, we were able to sell all of our investment in HRGN stock for 1.9 million, which is included in our cash flow from investing activities. These additional sources of cash help support our cash position and net debt is down 0.7 million compared to the end of 2023. As we return to stronger revenue quarters, we expect to continue on our paths towards paying down our debt and improving our leverage.

Bruce Jackson: Hi, good morning, and thanks for taking my questions. Hi, Bruce. Jim, could you just finish your thought on if the market is flat next year, what would your growth be? Would it be like high single digits, or low single digits?

Bruce Jackson: Hi, good morning, and thanks for taking my questions.

Speaker Change: Hi, Bruce if you could just.

Speaker Change: You can just finish your thought if the market is flat next year, what would your growth will it be like high single digits low single digits.

Jim Green: Well, when I look at these new products coming out, I would expect to get somewhere close to 10% growth out of the new products, independent of whatever the market's doing. And if you look at the growth rate inside of these, especially these new areas like bioproduction and the mesh M&A-organized products, I mean, even in the first year, between them, they should arguably bring 5% to 8% of total growth to the business. And that should be expanding. So, a year out, I mean, I would expect this.

Jim Green: Well, when I look at these new products coming out, I would think, you know, I would expect to get somewhere close to 10% growth out of these new products, independent of whatever the market's doing. And if you look at the growth rate inside of these, especially these new areas like bioproduction and the mesh M&A organized products, I mean, even in the first year, between them, they should arguably bring 5% to 8% of total growth to the business.

Operator: Well, I've, I've, when I look.

Jim Green: Well, I've, I've, when I look.

Speaker Change: Well when I look at these new products coming out.

Bruce Jackson: I would think I would expect to get somewhere close to 10% growth out of the new products independent of whatever the market is doing.

Speaker Change: And if you look at the growth rate inside of these especially these new areas like bio production and in the mesh M&A, our M&A or going to organize products I mean, even in the first year between them they should put.

Jennifer Cote: Further details on the above items can be found in the non-GAP reconciliation tables, including our press release and in the appendix to this presentation that will be available in our 10Q.

Jim Green: I'm now happy to hand things back to Jim. Thank you, Jim. Let's move on to slide 6.

Speaker Change: Arguably put 5% to 8% of total growth on the business and that should be expanding so a year out I mean I would expect.

Jim Green: And that should be expanding. So a year out, I mean, I would expect this, you know. I look at the revenue stream for the organized side, that's, you know, it's a low base, you know, maybe it's 5 or 6 million today. But you know, I'm targeting, I'm targeting somewhere around 50% or better CAGR on that revenue stream. You know, so you look, maybe in the first year, it adds three or four points, and the next year, you're adding another seven or eight points. So this really moves the needle.

Jim Green: I mean, I look at the revenue stream for the organized side, it's a low base. Maybe it's 5 or 6 million today, but I'm targeting somewhere around 50% or better CAGR on that revenue stream. So, you look, maybe in the first year, it adds three or four points, and the next year, you're adding another seven or eight points. So, this really moves the needle.

Jim Green: I'm not going to drain this whole slide, but I do want to take a minute to remind you how we think of our base business and investments for expanding into high growth applications with significant consumable and recurring revenues. Our base business is designed to deliver long-term better-than-market growth. New base product revenue combined with new high growth revenue streams from bio-production and MEA-organized applications begin in the second half and underpin our long-term double-digit growth target going forward.

Speaker Change: I look at the revenue stream for the organized side Thats, a low base, maybe its five or $6 million today, but I'm targeting I'm targeting somewhere around 50% or better CAGR on that revenue stream.

Speaker Change: Look maybe in the first year it adds three or four points in the next year youre, adding another seven or eight points. So this really moves the needle and if the base business is growing it even if it's growing zero like you say.

Jim Green: And if the base business is growing at, you know, even if it's growing zero, like you say, this, you know, and I don't, I don't, I think our base business should do better than that anyway, simply because we've now added the Viva Mars product. And that expands our service opportunity there pretty substantially. You know, so that alone is going to cause our base business to well outperform the market itself as it just sits today.

Jim Green: And if the base business is growing at, even if it's growing zero, like you say, this, and I don't, I think our base business should do better than that anyway, simply because we've now added the Viva Mars product, and that expands our service opportunity there pretty substantially. So, that alone is going to cause our base business to well outperform the market itself as it just sits today. So, that's kind of how we see it.

Speaker Change: This.

Speaker Change: I think our base business should do better than that any way simply because we've now added the <unk> product and that expands our served opportunity there pretty substantially.

Jim Green: Now, let's move to slide 7 to discuss our considerable progress on our key new product launches in more detail. The first row of the table highlights the commercial status of two new products we consider part of our base bread and butter business. Early in Q3, we began production shipments of our new SOHO family of telemetry devices, which now enable real-time telemetry measurements in a shared animal housing environment. This, we believe, will lead to additional demand, especially in Europe, though likely starting really in 2025.

Speaker Change: So that alone is going to cause our base business to well outperformed the market itself is it just sits today.

Jim Green: So that's kind of how we see it. And to me, the main thing is these are sustainable growth drivers. These aren't just things that, well, let's get to a market growth of five and then ride that out. This is incremental, it's new, it's exciting, and we're going to make a great success of this.

Jim Green: And to me, the main thing is these are sustainable growth drivers. These aren't just things that, well, let's get to a market growth of five and then ride that out. This is incremental, it's new, it's exciting, and we're going to make a great success of it.

Speaker Change: That's kind of how we see it in.

Speaker Change: The main thing is these are these are sustainable growth drivers. These arent just things that well, let's get to a market growth of five and then ride that out this is incremental it's new it's exciting.

Speaker Change: And we're going to make a great success of this.

Bruce Jackson: And then, if we could just go into a little bit more detail about the Organoid marketing strategy here. Obviously, it's a very important product for you, and you're going to be moving deliberately. It looks like the strategy here is to get some lead users and some publications going. Can you kind of just talk a little bit more about how you intend to build this business and build the market? Sure.

Jim Green: And then if we could just go into a little bit more detail about the organoid marketing strategy here, obviously, it's a very important product for you, and you're going to be moving deliberately. It looks like the strategy here is to get some lead users and some publications going. Can you kind of just talk a little bit more about how you intend to build this business and build the market? Sure.

Speaker Change: Okay got it.

Jim Green: Late last year, we announced the initial delivery of our groundbreaking VIVA Mars Neural Behavioral Monitoring System to one of our largest CRO customers. This CRO has adopted the system as part of their preclinical testing offering. Later in the second half, we expect to ship additional VIVA Mars products to this customer as they expand their use in these systems to more locations. As an aside, we expect to see posters describing the initial results of testing using the VIVA Mars system at this September's Safety Pharmacology Society show. We're also encouraged by the initial response to VIVA Mars, which supports our optimism as we are seeing strong interest from other CRO and biopharmac customers and expect expanding sales in 2025 and beyond.

Speaker Change: And then if we can just go into a little bit more detail about the the organoid.

Speaker Change: Marketing strategy here, obviously, it's a very important product for you and youre going to be moving deliberately.

Speaker Change: It looks like the strategy here is like some lead users in some publications going can you kind of just talk a little bit more.

Speaker Change: How you intend to to build this business and build the market.

Jim Green: Sure, sure. If you, you know, we have great exposure to academic researchers. That's our bread-and-butter customer, and that's what we initially used for these first beta units to prove the technology. Because what comes out of there are the papers and whether they're peer-reviewed papers and posters on the use of this technology. And even with the first four or five beta users, we're also testing with a small CRO who's focusing on all of the primary compounds that are used in safety and tox testing. So this is not only going to be for researchers. We'll get the neural researchers involved too. We'll have the cardiac researchers. That's going to be a big driver for us.

Jim Green: Sure, sure. If you, you know, we have great exposure to academic researchers. That's our bread-and-butter customer, and that's what we use initially for these first beta units to prove the technology, because what comes out of there are papers, whether they're peer-reviewed papers and posters on the use of this technology. And even with the first four or five beta users, we're also testing with a small CRO who's focusing on all of the primary compounds that are used in safety and toxicology testing. So this is not only going to be for researchers. We'll get the neural researchers. We'll have the cardiac researchers. That's going to be a big driver for us.

Speaker Change: Sure sure. If you we have great exposure to the academic researchers thats, our bread and butter customer.

Speaker Change: And Thats, where we what we use and it will be used initially for these first beta units to prove the technology because what comes out of their of the papers and whether they are peer reviewed papers and posters on the use of this technology and even even with the first four or five.

Speaker Change: Beta users. We're also apply we're also testing with a small CRO who is focusing on all of the primary compounds that are used in safety and tox testing. So this is not only going to be for researchers will get we'll get the neuro researchers will have the cardiac researchers thats going to be a big driver for us, but then that.

Jim Green: The second role of the table highlights the commercial status of our products targeted to electrification and bioproduction. This year, we began in earnest the selling process in the bioproduction segment. Last year, we announced that a large pharma company adopted our BTX electrification system configured for bioproduction. We're pleased to see the considerable revenue with this customer has now grown to approximately $1 million annual run rate in line with our original expectations. This customer is now exploring the use of BTX for bioproduction for an additional drug application which could be as big as the current application.

Jim Green: But then the adapting of that toward safety pharmacology and toxicology is a real critical area for us to now potentially go into a multi-billion dollar market of going after what has to happen through large populations of small animals. And so if we can show that, and that's why you'll see in the second half of the year, it's not just going to be academic researchers. And we are now lining up the NIH to be one of the adopters here.

Jim Green: But then the adapting of that toward safety pharmacology and toxicology is a real critical area for us to now potentially go into a multibillion-dollar market of going after what has to happen through large populations of small animals. And so if we can show that, and that's why you'll see in the second half of the year, it's not just going to be academic researchers. We are now lining up the NIH to be one of the adopters here.

Speaker Change: The adapting of that toward safety pharmacology and Tox is a real critical area for us to know potentially go into a multibillion dollar market of going after what today has to happen through large volume large populations of small animals and so if we can show that and Thats why youll see in the second half of the year.

Jim Green: We're also very encouraged by the number of new customers in consideration of our BTX as a bridge to GMP bioproduction applications. Also in Q3 we begin shipping our new CGMP compliant amino acid analysis system for bioprocessing applications. Our AAA is an adaptation of our leading biochrome AAA system currently in operation in clinical labs around the world and is expected to do well in bioproduction applications.

Speaker Change: It's not just going to be academic researchers and we now are lining up the NIH to be to be one of the adopters here, but then biopharma companies youre going to see I expect to be able and part of this is I wanted to be able to publicly announce who they are because you have a lot of times the big pharma guys. They don't like their names mentioned unless and if you have to get their agreement on our press release.

Jim Green: But then biopharma companies, you're going to see, I expect to be able, and part of this is that I want to be able to publicly announce who they are. Because, you know, a lot of times the big pharma guys don't like their names mentioned unless and if you have to get their agreement on a press release, it gets a little tough. But I can, you know, the leverage I have is if they want to work with me on it. They're going to have to let me talk about it.

Jim Green: But then biopharma companies, you're going to see. I expect to be able, and part of this is that I want to be able to publicly announce who they are. Because a lot of times, the big pharma guys don't like their names mentioned unless, and if you have to get their agreement on a press release, it gets a little tough. But the leverage I have is that if they want to work with me on it, they're going to have to let me talk about it.

Speaker Change: It gets a little tough, but I can the leverage I have is if they want to work with me on it they're going to have to let me talk about it so youre going to see some very interesting names in very interesting places and Youll see where these things are going so I think.

Jim Green: So you're going to see some very interesting names in very interesting places, and you'll see where these things are going. So I think, you know, the revenue growth, the growth markets that we're looking at here are, certainly, the neuro side. You see what's happening right now at the University of Texas and a few other places with neuro, and neuroorganoids. Cardiac is going to be a big one. But then again, adapting it to safety pharmacology and toxicology applications. That is a massive market, and it's right in our wheelhouse with customers that we already sell to.

Jim Green: So you're going to see some very interesting names in very interesting places, and you'll see where these things are going. So I think the revenue growth, the growth markets that we're looking at here is neuro. Certainly, it's very big on the neuro side. You see what's happening right now at the University of Texas and a few other places with neuro, and neuroorganoids. Cardiac is going to be a big one. But then again, adjusting it to safety pharmacology and toxicology applications, that is a massive market. And it's right in our wheelhouse, with customers that we already sell to.

Jim Green: The third role the table highlights the commercial status of our exciting new MESH-MEA-organoid platform. We have adapted our market leading MEA electrophysiology systems to be the first in vitro-organoid data acquisition and analysis system capable of supporting long-life longitudinal analysis of organoid. We believe these new systems are well-positioned to support fundamental research by our academic customers in addition to biopharma companies to streamline safety and toxicology testing as well as reduce costs, reduce test time, and reduce expensive animal usage that's used in the new development drug programs and developments today.

Speaker Change: The revenue growth the growth markets that we're looking at here is narrow it certainly it's very big on the neuro side, you see what's happening right now at University of Texas, and a few other places with neuro neuro organized.

Speaker Change: Cardiac is it going to be a big one, but then again adapting it to safety pharmacology and Tox applications that is a massive market and its right in our wheelhouse with customers that we already sell to.

Bruce Jackson: Okay, great. And then last follow-up question on that: would you expect to see more of these studies coming out later this year or in 2025?

Bruce Jackson: Okay, great. And then, on that, would you expect to see more of these studies coming out later this year or in 2025?

Speaker Change: Okay, Great and then.

Speaker Change: Last follow up question on that.

Speaker Change: Would you expect to see more of these.

Speaker Change: Studies coming out later this year or in 2025.

Jim Green: You're going to see some of them. In fact, some have already started to come out.

Speaker Change: So youre going to see some of them in fact, some have already started to come out I'd say some of the bigger ones that youll see in.

Jim Green: I'd say some of the bigger ones that you'll see at the Safety Pharmacology Society meeting in September. There, you'll see papers with the use of our neurotesting with our MEA-MARS system. And you should also see it with the well-known large CRO who adopted this technology first. And we're now working with them to place a few more systems into a few more of their labs. So you'll see it here.

Jim Green: In the first half of this year we installed and began beta usage at four customer sites focusing on neuro and cardiac and toxicology applications. For the second half of this year we're well on our way to ten or more additional installations with early adopters as well known with well-known biotech and large pharma companies in addition to leading academic research institutions and the NIH. We're planning full production launch in Q1 of 2025. I'd like to point out that each of these new revenue streams are based on leveraging our well-established technologies and adapting them to significantly larger biopharma applications with high pull-through recurring revenues.

Speaker Change: At the safety Pharmacology Society. That's that's in September there youre going to see you're going to see papers with the use of our neuro testing with our EMEA Maher system and you should also see it with the well known large CRO, who work who have sold this firm who has adopted this technology first and we're now work.

Speaker Change: And with them to place a few more systems into a few more of their labs, so youll see youll see it there.

Jim Green: When you get to SFN, the Society for Neuroscience, that's when you really start to see the papers coming out and the posters on the use of mesh MEA and organoids. So for neuroscience and then for safety, the last big one would be the American College of Toxicology. That's where you'll see the real rollout of mesh MEA. And by then, we're looking at, I think that's going to be in March. By then, we should be in full production with these systems. And keep in mind, these are not cheap systems. These are arguably up to $100,000 for the system, plus you have services, and you have software licenses.

Speaker Change: When you get to SFM Society for neuroscience, that's when you'll really start to see the papers coming out and the posters on the use of.

Speaker Change: Mesh MAA and organized so those for neuroscience and then for safety.

Jim Green: Now let's move on to our outlook summary on slide 9 and take a look at what we see for the full year.

Speaker Change: <unk> a big one would be the American college of toxicology, that's where you'll see really the rollout of mesh MAA and by then we're looking at I think that's going to be in March and then we should be in full production with these systems and keep in mind. These are not cheap system. These are these these are.

Jim Green: In light of a week or second quarter and the market recovery expected delay to later in the second half we're reducing our full year 2024 revenue outlook to approximately $97 million to $102 million. We expect sequential growth in the second half supported by new product shipments which will be heavily back-in loaded. In spite of lower expected revenue we expect 2024 full year gross margin of approximately 59% to 60% reflecting our continued focus on expense management.

Speaker Change: Arguably you have $200000 for the system plus you have services you have software licenses and then the consumable on this depending on the customer type there could be a very large revenue consumable revenue stream on this product. So again the way I look at it is the initial work comes out with the beta testers that are already started those papers.

Bruce Jackson: And then the consumables on this, depending on the customer type, there could be a very large consumable revenue stream for this product. So again, the way I look at it is that the initial work comes out with the beta testers that have already started. Those papers are in progress now. You'll see those coming out at the various shows, whether it's the SFN, College of Toxicology, or State Farm Ecology. And then you'll also see more of our stuff starting to come out with the Bioprocessing Summit.

Jim Green: And then the consumables on this, depending on the customer type, there could be a very large consumable revenue stream for this product. So again, the way I look at it is that the initial work comes out with the beta testers that have already started. Those papers are in progress now. You'll see those coming out at the various shows, whether it's the SFN, College of Toxicology, or State Farm Ecology. And then you'll also see more of our stuff starting to come out with the Bioprocessing Summit.

Speaker Change: In progress now Youll see those coming out at the various shows whether it's the SFA and policy toxicology safety Pharmacology Youll see and then you'll also see more of our stuff starting to come out with the bio processing summit.

Jim Green: We now expect adjusted even a margin in the high single digits. Like many in the industry we've seen challenge by a difficult market environment. Through it all we've remained focused on fielding exciting new products designed to meet the needs of academic researchers, CROs and the drug development market and to support our goal of long-term double-digit revenue growth.

Bruce Jackson: So across the board, these are not just things that we're talking about. These are things that we're now selling. And again, the big drivers are going to be bioproduction and then the organoid work with MeSH MEAs. OK.

Jim Green: So across the board, these are not just things that we're talking about. These are things that we're now selling. And again, the big drivers are going to be bioproduction and then the organoid work with MeSH MEAs. OK.

Speaker Change: Across the board. These are not just things that we're talking about these are things that we're now selling and again the big driver. The big driver is going to be bio production and then and then the organised work with mesh Maa's.

Operator: Okay, I got it. Thank you for answering my questions. Thanks, Bruce.

Bruce Jackson: Okay, I got it. Thank you for answering my questions.

Speaker Change: Okay got it thank you for answering my questions.

Operator: Thank you now I'll turn the call back over the operator to open the line for questions. 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.

Bruce Jackson: Thanks Bruce.

Speaker Change: Thank you.

Chris Sakai: Our next question comes from Chris Sakai with Singular Research. Please proceed.

Operator: Our next question comes from Chris Sakai with Singular Research. You may proceed.

Speaker Change: Our next question comes from Chris Sakai with singular research you May proceed.

Chris Sakai: Hi Chris. Hi, good morning. Can you talk about... academic research in China? Is it coming back as you've expected?

Chris Sakai: Hi Chris. Hi, good morning. Can we talk about academic research in China? Is it coming back as you've expected?

Bruce Jackson: Hi, Chris Hi, good morning.

Chris Sakai: Can you talk about.

Speaker Change: Academic research in China.

Paul Knight: Our first question comes from Paul Knight with key bank capital markets he may proceed. Hi Jim, regarding APAC, I guess you say in the release that China is most of it, what's total APAC exposure? I've present a revenue at this time.

Speaker Change: Is it coming back like you expected.

Jim Green: Yeah, yeah, it is. In fact, you know, we did see even in Q2. If we look at the one slide, I think that we'll see that the CMT business actually did see some recovery there in Asia Pacific. Is that right, Jen? Yes. Yes, that's right, Jim.

Jim Green: Yeah, yeah, it is. In fact, you know, we did see, even in Q2. If we look at the one slide, I think that we'll see that the CMT business actually did see some recovery there in Asia Pacific. Is that right, Jen? Yes. Yes, that's right, Jim.

Speaker Change: Yes, yes. It is in fact, we did see even in even in the <unk>.

Speaker Change: Q2, I think if we look on the one slide I think that we will see that the CMT business actually did see some recovery there in Asia Pacific that right John Yes, Yes, that's right Jim.

Jim Green: And I think we're starting to see more activity in terms of quoting, and the delays, I think, are more timed with those companies wanting to take, or those academic groups wanting to take advantage of the funding that's available. So they're going through the application process, but in parallel, talking to us about their business. Yeah, so on the academic side, you know, we feel like it's already bottomed out, and it's starting, we're starting to see some recovery.

Jim Green: Historically Asia Pacific has been about a quarter of our total revenue. Again, predominantly that's predominantly China, but it does include a few others like Korea and Japan, but it is predominantly China. And you're out with there. We feel like we've pretty much reached the bottom there. Our funnels are growing. Early indications look pretty good. We're going to quote rates going up. And we have seen in the first recovery in Asia, it really seems to have come from the academics.

Jim Green: And I think we're starting to see more activity in terms of quoting, and the delays, I think, are more timed with those companies wanting to take, or those academic groups wanting to take advantage of the funding that's available. So they're going through the application process, but in parallel, talking to us about their business. Yeah, so on the academic side, we feel like it's already bottomed out, and we're starting to see some recovery.

Speaker Change: We're starting to see.

Speaker Change: More activity in terms of quoting and the delays I think are more timed with those companies wanting to take care of those academic groups wanting to take advantage of the funding that's available.

Speaker Change: So they're going through the application process, but in parallel talking to us about their business. So the.

Jim Green: On the commercial side with CROs and pharma companies, that's taken a little longer. You know, we are seeing larger funnels, so there are more opportunities, but, you know, with the way the budgeting works there, that's not expected to really hit us for revenue growth until we get later in the second half, or maybe even into 2025.

Speaker Change: I'm excited we feel like its already bottomed out and is starting we're starting to see some recovery on the commercial side with CRM and pharma companies that look thats taken a little longer we are seeing larger funnel so more opportunities.

Speaker Change: But with the way the budgeting works there that's not expected to really hit us for revenue growth until we get later in the second half or maybe even into 2025.

Jim Green: We do expect things to stabilize there to be starting to move back to growth on the academic side. The part that has been a little more struggling was more of the industrial side with Biopharma and CRO type companies in China. The outlook there, again what we're seeing is the funnels are growing, but the problem we've seen has been the velocity through the funnel. We measure things like funnel aging and we look at method, math on things like the quote that the time from quote to order. That has remained slower, so that's taken a little more time.

Chris Sakai: Okay, sounds good. And then, I guess, regarding recurring revenue, do you have a target for that for the year? Yeah, we...

Chris Sakai: Okay, sounds good. I guess regarding recurring revenue, do you have a target for that for the year? Yeah, we...

Speaker Change: Okay sounds good and then.

Speaker Change: I guess regarding recurring revenue.

Speaker Change: Do you have a target for that for for the year.

Jim Green: Yeah, we started the year, as we first started measuring it, we were at about, a little above 35 percent. Now, given that, you know, we've all seen pressure on capital purchases, at this point right now, we're probably closer to 40 percent recurring. So, as you would expect, when there's pressure on capital purchases, then, you know, you'll see less purchase of higher-cost equipment, but you'll still maintain much of your recurring revenue.

Speaker Change: Yes, we started the year as we first started measuring it we were at about we're a little above 35% now given that we've all seen pressure on capital purchases at this point right now, we're probably closer to 40% recurring so as you would expect when there is pressure on capital purchases, then youll see less less purchase.

Jim Green: And again, as Jen mentioned, we're thinking it's fairly stable at this point for that revenue stream, but as far as going back to real growth, that's probably later in the second half maybe moving into 2025 as far as the growth sector on that stream. And then slide seven, most of these products are going to be introduced here in the second half of 2025. Are you getting orders now when you're sales for, I think the sales for years ago or got that.

Speaker Change: Cost equipment, but youll still maintained much of your recurring revenue and you'll notice that each of these new products that we've talked about today, whether it's in bio production or whether it's with mesh organoid.

Jim Green: And you'll notice that each of these new products that we talked about today, whether it's in bioproduction or whether it's with mesh organoid, these are all products that have heavy pull-through. I mean, especially, you know, like electroporation and bioproduction. I mean, that first customer we talked about, there were four systems, and you're talking a million dollars of consumables just for that one drug. So, the leverage there is massive, and the ratio changes quickly as far as the percentage of our revenue being recurring as those products become more and more adopted in the market.

Speaker Change: These are all products that have heavy pull through I mean, especially the electric the electrification bio production.

Speaker Change: That first customer we talked about there were four systems and Youre talking $1 million of consumable just for that one drug so the leverage there massively changes and the ratio changes quickly from as far as the percentage of our revenue being recurring as those products become more and more adopted into this into the market.

Jim Green: Great question. We actually introduced to the market starting at SFN in the end of last year. So these are now products that we are selling. We're already collecting, getting working toward orders in each one of these segments. We've talked about what we expect in these areas, and if I look at the base business, this is targeted overall to be better than market growth. Now, of course, market's been an issue, but the two new areas in the base business, adding the new Soho and plantable devices, that's going to start support our growth in the base business.

Speaker Change: Okay, Great and then for.

Chris Sakai: For the $4 million in cost savings you mentioned, where should we expect to see that on light items?

Speaker Change: The $4 million cost savings you mentioned.

Speaker Change: Where should we expect to see that.

Jim Green: Yeah, it's well, it's about four million annualized. I think we saw about 700,000 in Q2. It's overall OPEX, but it is, it is, it is heavy on the operational side. So part of it would be the cost of goods, but you know much of it's going to be I think straight up on the OPEX line, don't you think?

Jim Green: Yeah, it's well, it's about four million annualized. I think we saw about 700,000 in Q2. It's overall OPEX, but it is, it is, it is heavy on the operational side, so part of it would be the cost of goods, but you know, much of it's going to be I think straight up on the OPEX line, don't you think?

Speaker Change: On the line item line items.

Speaker Change: Yes.

Speaker Change: Well, it's about it's about $4 million annualized I think we saw about 700000 in Q2.

Speaker Change: It's overall opex, but it is it is all is heavy on the operational side. So part of it would be in cost of goods, but much of it is going to be I think straight up on the Opex line I know, you're saying yes.

Jennifer Cote: Yeah, it's probably about half and half, Chris, so there's, you know, the piece that's operational, you'll see it bleeding through margins over time, whereas the rest of it, you'll start to see it coming through SG&A and R&D.

Jennifer Cote: Yeah, it's probably about half and half, Chris. So there's, you know, the piece that's operational, you'll see it bleeding through margins over time, whereas the rest of it, you'll start to see it coming through SG&A and R&D.

Speaker Change: Yes, it's probably about half and half.

Jim Green: And then when you look at the VIVA Mars system, you'll see announcements at FPS for our first large CRO customer who bought the first article last year, they're starting to buy more of these now. So that's going to be expanding revenue growth here in the second half of this year, so those are products in the acquisition process now. And we have other CROs and biopharmacompanies lining up also looking at moving toward this technology for their neuro tests, in the file production side.

Speaker Change: The piece, that's operational Youll see it bleeding through margins over time.

Speaker Change: Or is the rest of it youll start to see it coming through SG&A R&D.

Chris Sakai: Okay, great. Thanks for the answers.

Speaker Change: Okay, Okay, great. Thanks for the answer.

Speaker Change: Thanks, Chris.

Jim Green: I would now like to turn the call back over to Jim Green for any closing remarks.

Chris Sakai: Thank you.

Chris Sakai: I would now like to turn the call back over to Jim Green for any closing remarks.

Jim Green: Yes, thank you for joining us. This ends today's presentation. We hope you'll join us in November for our third quarter results for fiscal 2024. Thank you very much.

Speaker Change: Yes, thank you for joining us.

Speaker Change: Today. This ends today's presentation, we hope you'll join US in November for our third quarter results for fiscal 2024. Thank you very much. This ends the presentation.

Jim Green: We know it's been a nice entry for us. It's a little longer sale, but that's been growing quite well. We expect to have another new drug announced with this, the same large farmer company that's now spending right now about consuming a million dollars of consumers just on that one drug today. We're working with them now to move toward adoption in another drug. So this could be another very large book of business added to the bio production side.

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.

Chris Sakai: Okay.

Chris Sakai: [music].

Chris Sakai: Yeah.

Jim Green: And there we're seeing and we're working with a number of customers on the biotechs using us as an initial bridge to production. So if they used us, they used our BTX for you know initial compound creation. It's a very effective low barrier way for them to move toward CGMP bio production. At least to get through the levels of volume that they need for preclinical and late stage clinical testing. And then of course, you know, as they move into a large volume production, that's when they have to make a decision.

Chris Sakai: [music].

Chris Sakai: Okay.

Jim Green: Do we expand what we're doing with them with more, more based systems or or do we or do they have to then go to another manufacturer and theory, depending on on the size of the demand. But you know, we're working to try and to be the real value proposition is that is that kind of low to medium level of demand and to get through the bio production phases.

Chris Sakai: <unk>.

Chris Sakai: Okay.

Chris Sakai: [music].

Chris Sakai: Okay.

Chris Sakai: [music].

Chris Sakai: Okay.

Chris Sakai: [music].

Jim Green: And then again, the third space is it and I think the most important and most interesting is the is the organ I work. And as I said last time, you know, we I would be I've got four systems now up and running insights that are proving out the algorithms. We've already started the with a number of large customers early adopters who are going to be picking this system up. I expect to you know, I'm targeting to get 10 or more of these new systems shipped here in the second half.

Chris Sakai: Sure.

Chris Sakai: So.

Chris Sakai:

Jim Green: And these are many systems can sell for up to $100,000 a piece and the consumable is not inexpensive. So, you know, the kind of companies you're going to see picking this up the applications are going to be they're starting with the neuro and they're starting with cardiac, but you know, we see this moving toward an opportunity for in vitro in vitro testing for for really optimizing safety pharmacology and talks testing. So you're going to see some real interesting names buying into this with installations and early adopters this in this second half, we're talking, you know, Q3 and really heavily Q4.

Chris Sakai: [music].

Chris Sakai: Yes.

Chris Sakai: [music].

Chris Sakai: Sure.

Chris Sakai: Okay.

Chris Sakai: [music].

Chris Sakai: Okay.

Chris Sakai: [music].

Chris Sakai: Okay.

Chris Sakai: [music].

Chris Sakai: Okay.

Chris Sakai: [music].

Jim Green: And then we'll start full production starting next year. So this is the start of a whole new area for us and it is a one of a kind where you can non destructively measure the how a proxy for an organ, whether it's neuro or cardiac, how it's performing over longitudinal studies. So you're looking at months, you can see how they react with various compounds. Is it positive to a disease state? Is it of an organite or and is it not negative to a healthy organ, like a healthy brain. So it really is a start of a potential new way to filter compounds before making the decision to go into the millions of dollars that are spent once you start the preclinical phases.

Chris Sakai: Okay.

Chris Sakai: [music].

Chris Sakai: Yes.

Chris Sakai: Sure.

Chris Sakai: [music].

Chris Sakai: Yes.

Chris Sakai: [music].

Chris Sakai: Yeah.

Chris Sakai: Yes.

Chris Sakai: Okay.

Chris Sakai: Hum.

Jennifer Cote: Jen, last question is, if the market goes to 5% growth, which is kind of what most companies in the sector are saying, you know, this is meeting next year or normalized. If the market's at 5%, what do you think Harvard Biosciences growth would be? Yeah, that's a great question. The way I model it is, I expect my new product development in these areas to give me roughly double-digit growth with new products.

Chris Sakai: [music].

Jennifer Cote: So if I can get to somewhere around 10 percent with incremental new business, and if the market's growing at five, you know, that I should be able to reasonably underpin, you know, low double digits for this business. If the market stays flat, then at least I've got my new products driving me, you know, arguably up toward double digits on its own. That to me is, that is the long-term growth factor here.

Jennifer Cote: It's not so much that I have to count on the market growth. I can count on the new products going in. These are exciting new things in these areas where very few with any competitors have a position in it. And these are areas that leverage technologies that we've developed over 30 plus years.

Jim Green: So I just, to me, this is a very exciting time for the company. And how this develops, it's going to be really interesting and fun to see how organized start to take over. And you can, what this system does, is it makes the use of organized efficient. Normally, if you're looking at with today's state of the art, you take that you're building various proxies for organs, and then you're pulling them out and with a PhD scientist, you look at them under a microscope, that is not an efficient way to run, to do the kind of automation that you need to be able to do.

Jim Green: Today, there's such high volumes of small animals that are used to get through, you know, the large population testing. That's the only thing that they can do today. But this is an alternative that should make that a lot safer and a lot less costly and a lot more efficient for the pharma companies.

Paul Knight: So this is going to be the fun, the one to watch. I'm real excited about it. Thanks. Thanks, Paul.

Operator: Thank you.

Bruce Jackson: Our next question comes from Bruce Jackson with the Benchmark Company. He may proceed. Hi. Good morning, Ian. Thanks for taking my questions. Hi, Bruce. If you could just finish your thought, if the market is flat next year, what would your growth be? It would be like high-stinal digits, low-stinal digits. Well, when I look at these new products coming out, I would think, you know, I would expect to get somewhere close to 10 percent growth out of the new products independent of whatever the market is doing.

Bruce Jackson: And if you look at the growth rate inside of these, especially these new areas like bioproduction and the mesh, I mean, any organized products, I mean, even in the first year between them, they should put, they should arguably put 5 to 8 percent of new of total growth on the business. And that should be expanding. So a year out, I mean, I would expect, you know, this, I mean, I look at the revenue stream for the organized side.

Bruce Jackson: That's, you know, it's a low base, you know, maybe it's five or six million today. But, you know, I'm targeting, I'm targeting somewhere around 50 percent or better Kagger on that revenue stream. You know, see, you look, you know, maybe in the first year it adds three or four points and the next year, you're adding another seven or eight points. So this really moves the needle. And if the base business is growing at, you know, even if it's growing zero, like you say, this, you know, and I don't, I don't, I think our base business should do better than that anyway simply because we've now added the Viva Mars product.

Bruce Jackson: And that expands our, our served opportunity there pretty substantially. You know, so that alone is going to cause our base business to out well out perform the market itself as it just sit today. So I, that's kind of how we see it. And the, the main thing is, these are, these are sustainable growth drivers. These aren't just things that, well, let's get to a market growth of five and then, and then ride that out. This is incremental. It's new. It's exciting. And, and we're going to make a great success of this.

Jim Green: Okay, got it.

Bruce Jackson: And then, if we could just go into a little bit more detail about the organoid marketing strategy here. Obviously, it's a very important product for you and you're going to be moving deliberately. It looks like the strategy here is like it's some lead users and some publications going, can you just talk a little bit more of how you intend to build this business and build the market? Sure, sure. If you, you know, we have great exposure to the academic researchers.

Bruce Jackson: That's our bread and butter customer. And that's where we use what we use, and we'll use initially for these first beta units to prove the technology because what comes out of there are the papers and whether they're peer-reviewed papers and posters on the use of this technology. And even with the first four or five beta users, we're also testing with a small CRO who's focusing on all of the primary compounds that are used in safety and tax testing.

Bruce Jackson: So this is not only going to be for researchers. We'll get the neural researchers. We'll have the cardiac researchers. That's going to be a big driver for us. But then that the adapting of that toward safety pharmacology and talks is a real critical area for us to now potentially go into a multi-billion dollar market of going after what today has to happen through large populations of small animals. And so if we can show that, and that's why you'll see in the second half of the year, it's not just going to be academic researchers.

Bruce Jackson: We now are lining up the NIH to be one of the adopters here, but then biopharmacompanies. You're going to see I expect to be able, and part of this is I want to be able to publicly announce who they are, because a lot of times the big pharmacists, they don't like their names mentioned unless, and if you have to get their agreement on a press release, it gets a little tough. But the leverage I have is if they want to work with me on it, they're going to have to let me talk about it.

Bruce Jackson: So you're going to see some very interesting names in very interesting places, and you'll see where these things are going. So I think the revenue growth markets that we're looking at here is neuro. It's certainly, it's very big on the neuroside. You see what's happening right now in the University of Texas and a few other places with neuro, neuro organoids. Cardiac is going to be a big one, but then again, adapting it to safety pharmacology and talks applications. That is a massive market, and it's right in our wheelhouse with customers that we already sell to. We can agree.

Jim Green: And then last follow up question on that. Would you expect to see more of these studies coming out later this year or in 2025? You're going to see some of them. In fact, some have already started to come out. I'd say some of the bigger ones that you'll see in, at the Safety Pharmacology Society, that's in September. There you're going to see papers with the use of our neuro testing with our M.E.A.

Jim Green: Mars system, and you should also see it with the well-known large CRO who sold this firm, who's adopted this technology first. We're now working with them to place a few more systems into a few more of their labs. You'll see it there. When you get to SFN, Society for Neuroscience, that's when you really start to see the papers coming out and the posters on the use of M.E.A, and organoids. For neuroscience and then for safety, the last big one would be the American College of Technology.

Jim Green: That's where you'll see really the rollout of M.E.A. And by then, we're looking at, I think that's going to be in March. By then, we should be in full production with these systems. Keep in mind, these are not cheap systems. These are arguably up to $100,000 for the system, plus you have services, you have software licenses, and then the consumable on this. Depending on the customer type, there could be a very large consumable revenue stream on this product.

Jim Green: Again, the way I look at it is the initial work comes out with the beta testers that have already started. Those papers are in progress now. You'll see those coming out at the various shows, whether it's the SFN, the College of Technology, Safe Pharmacology. Then you'll also see more of our stuff starting to come out with the bioprocessing summit. Across the board, these are not just things that we're talking about. These are things that we're now selling. Again, the big drivers, the big drivers are going to be Okay, got it.

Bruce Jackson: Thank you for answering my questions. Thanks, Bruce. Thank you.

Chris Sakai: Our next question comes from Chris Sakai with Singular Research, you may proceed. Hi, Chris. Hi, good morning.

Jim Green: Can you talk about academic research in China? Is it coming back like you've expected? Yeah, it is. In fact, you know, we did see even in Q2. I think if we look on the one slide, I think that we'll see that the CMT business actually did see some recovery there in Asia Pacific? Is that right, Jen? Yes, that's right. And I think we're starting to see more activity in terms of quoting and the delays.

Jim Green: I think are more timed with those companies wanting to take or those academic groups wanting to take advantage of the funding that's available. So they're going through the application process, but in parallel talking to us about their business. Yeah, so the academic side, you know, we feel like it's already bottomed out and it's starting, we're starting to see some recovery. On the commercial side with CRIO and pharma companies, that's taken a little longer.

Jim Green: You know, we are seeing larger funnels, so more opportunities, you know, but with the way the budgeting works there, that's not expected to really hit us for revenue growth until we get later in the second half or maybe even into 2025.

Jim Green: Okay, sounds good.

Jennifer Cote: And then I guess regarding recurring revenue, do you have a target for that for the year? Yeah, we started the year as we first started measuring it. We were at about, we were a little above 35%. Now, given that, you know, we've all seen pressure on capital purchases. At this point right now, we're probably closer to 40% recurring. So as you would expect, when there's pressure on capital purchases, then, you know, you'll see less purchases of higher cost equipment, but you'll still maintain much of your recurring revenue.

Jennifer Cote: And you'll notice that each of these new products that we've talked about today, whether it's in bioproduction or whether it's with mesh organoid, these are all products that have heavy pull-through. I mean, especially, you know, the electric, the electriceration bioproduction, I mean, that's a, that first customer we talked about, there were four systems and you were talking a million dollars of considerable just for that one drug. So the leverage there massively changes and the ratio changes quickly from as far as the percentage of our revenue being recurring as those products become more and more adopted into the into the market.

Jennifer Cote: Okay, great.

Jennifer Cote: And then, for the four million cost savings, you mentioned, where should we expect to see that on the light items? Yeah, it's, well, it's about, it's about four million annualized. I think we saw about 700,000 in Q2. It's, it's overall off-ex, but it is, it is, it is heavy on the operational side. So part of it would be in cost of goods, but, you know, much of it's going to be, I think, straight up on the op-ex line, you know, you think?

Jennifer Cote: Yeah, it's probably about half and half. Chris, so there's, you know, the piece that's operational, you'll see it bleeding through margins over time, where the rest of it, you'll start to see it coming through SG&A R&D. Thank you.

Jim Green: I would now like to turn the call back over to Jim Green for any closing remarks. Yes, thank you for joining us. This is today's presentation.

Jim Green: We hope you join us in November for our third quarter results for fiscal 2024. Thank you very much. This is the presentation. Thank you.

Operator: This concludes the conference. Thank you for your participation.

Operator: You may now disconnect. Thank you.

Q2 2024 Harvard Bioscience Inc Earnings Call

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