Q1 2025 Harvard Bioscience Inc Earnings Call
Speaker Change: Good day and welcome to the first quarter 'twenty twenty-five Harvard Bioscience, Inc Earnings Conference call.
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Speaker Change: I would now like to turn the conference over to Catherine Flynn The corporate controller. Please go ahead.
Catherine Flynn: Thank you Betsy and good morning, everyone. Thank you for joining the Harvard Bioscience first quarter 'twenty 25 earnings conference call.
Speaker Change: Leading the call today will be Jim Green, President and Chief Executive Officer, and Mark Frost, the incoming interim Chief Financial Officer.
Speaker Change: In conjunction with todays recorded call. We have provided a presentation that will be reference during our remarks that is posted in the investors section of our website at Investor day at Harvard Bioscience Dotcom.
Speaker Change: Please note that statements made in today's discussion that are not historical facts, including statements or expectations or future events or for future financial performance are forward looking statements and are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 19 nine.
Speaker Change: The fast Act.
Speaker Change: Actual results may differ materially from those expressed or implied.
Speaker Change: 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 security and Exchange Commission.
Speaker Change: Harvard Bioscience assumes no obligation to update or revise any forward looking statements publicly and management's statements are made as of today.
Speaker Change: During the call management will also reference certain non-GAAP financial measures, which can be useful in evaluating the companys operations related to our financial condition and results.
Speaker Change: non-GAAP measures are intended to supplement GAAP financial information and should not be considered a substitute.
Speaker Change: Reconciliations of GAAP to non-GAAP measures are provided in today's earnings press release.
Mark Frost: Ill now turn the call over to Mark Morris. Please go ahead. Thank you Catherine and good morning, everyone I am Mark Frost, the interim CFO for Harvard Bioscience effective tomorrow with US is Jennifer Kotte. The current CFO for Harvard Bioscience, we'd like to thank Jen for supported the.
Mark Frost: The last three years and our willingness to spend the last months, helping me in the transition.
Mark Frost: For those of you are not familiar with my background I spent the first half of my career at general electric and a wide variety of businesses, including GE capital in health care.
Mark Frost: After GE transition to the health care space and they have been a public CFO of four companies, including when I worked with Jim at Analogic.
Mark Frost: I'm excited to be here and look forward to working with the team at Harvard Bioscience I'll now move to our first quarter 2005 results on slide three.
Mark Frost: Now our revenue at 21.8 was below $24 5 million in the prior year. This result was aligned with the higher end of our guidance communicated in March for Q1.
Mark Frost: I'll go through a color on the revenue in the next slide.
Mark Frost: Gross margin was 56% versus 63% in 2024, and I will fight detail later as well.
Mark Frost: Excluding a noncash goodwill impairment charge, which I'll discuss in a moment operating expense declined $3 2 million from prior year driven by the operating actions. We took in 2024 as well as further actions in the first quarter.
Mark Frost: The operating loss of $49 7 million versus $2 3 million loss in quarter. One 'twenty four was caused primarily by the goodwill impairment impairment charge now without the goodwill charge. Our adjusted operating income was <unk> 3 million below prior year's $1 2 million.
Mark Frost: Reflective of the cost actions, we executed to offset anticipated lower revenue.
Mark Frost: Quarter, one adjusted EBITDA was <unk> 8 million versus $1 6 million in quarter, one 'twenty four with a major driver being lower revenue, partially offset by our cost actions.
Mark Frost: Now turning now to the goodwill impairment, we had noted indicators of a possible impairment as we exited 2024 duped.
Mark Frost: Due primarily to the decrease in our market capitalization at quarter. One we performed additional impairment testing as we exited the quarter.
Mark Frost: As a result, our quarter. One results include a noncash goodwill impairment charge of $48 million, which is reflected in operating expense more detail is provided in the 10-Q.
Mark Frost: Now I'll move next to slide four and revenue results for the quarter by product family and region.
Mark Frost: So overall, usually in the first quarter showed an expected seasonal decline from quarter four finishing at 20, $21 8 million compared to $24 6 million in the prior quarter quarter four.
Mark Frost: Year over year revenue was down from $24 5 million last year's quarter. One now, let's now break it down to look at regional results.
Mark Frost: So starting with the Americas revenue in the first quarter declined sequentially by five 4% from quarter, four and were down nine 4% versus revenues in the first quarter of last year.
Mark Frost: As shown in the light Blue C.
Mark Frost: CMT did not see the typical quarter for seasonal bump and continue to stay slow in quarter one.
Mark Frost: Should we attribute to the lack of budget clarity for academics and NIH funding.
Our preclinical sales declined sequentially mid single digits, driven by lower CRO sales.
Mark Frost: Now moving onto Europe overall revenue in Europe in the first quarter declined 29% sequentially as we exited 2024 with a strong seasonal and every year by now compared to last year Q1, Europe revenues were down 9%.
Mark Frost: Cellular and molecular sales declined sequentially and year on year, but we continue to see growth in cell based testing are excited to see the impact of early adopters of our new EMEA systems.
Mark Frost: Now our preclinical sales were down sequentially in quarter, one following the quarter four bump with lower CRO and academic sales, but stayed relatively consistent with the middle quarters of 2024.
Mark Frost: Now moving to China, and the Asia Pacific overall in the first quarter APAC revenue was sequentially up by six 6% over the previous quarter, though APAC revenue was down 17% compared to the prior year quarter one.
Mark Frost: The APAC market has been especially difficult this past year quarter, one was our second sequential quarter of improvement.
Mark Frost: We don't see this continue in quarter two given the immediate softening of revenue in China. Following the tariff announcements in early April.
Mark Frost: We have considered this in our guidance for a quarter or two.
Mark Frost: Now cellular and molecular APAC APAC products showed some minor declines in the third quarter sequentially and year over year.
Mark Frost: Preclinical APAC sales at quarter, one saw sequential growth over sales in quarter, four but were down compared to quarter one of the prior year, which was a strong quarter for shipments.
Mark Frost: Now I'll move to slide five to discuss further financial metrics.
Mark Frost: Now looking at gross margin first gross margin during quarter, one 2025 was 56%.
Mark Frost: Compared to 63% in quarter, one 2024.
Mark Frost: During last year, we had a change in accounting methods that benefited our gross margins by one six points.
Mark Frost: The gross margin decline compared to last year quarter. One was also impacted by lower absorption of fixed manufacturing overhead and nominally by mix.
Mark Frost: Now if you refer to the top right graph, our adjusted EBITDA during quarter. One finished at 0.8 million compared to $1 6 million in last year's first quarter.
Mark Frost: Compared to the prior year quarter, one reduced gross profit of $2 6 million was partially offset by lower operating expenses of $1 8 million.
Mark Frost: Now moving to the bottom left where we show both reported and adjusted loss earnings per share.
Mark Frost: As mentioned in the past I will remind you of the typical differences between GAAP EPS and adjusted EPS.
Is the impact of stock compensation amortization and depreciation as I mentioned earlier during quarter. One. We also recorded an impairment in our goodwill balance. These differences between net income loss and adjusted EBITDA are highlighted in the reconciliation tables on slide 10 and are all noncash.
Mark Frost: <unk> items.
Mark Frost: Now moving to the bottom middle graph.
Mark Frost: Cash flow from operations were $3 million during quarter, one 2025 compared to $1 4 million in quarter. One last year. The primary driver for the improved cash flow from operations was improvements in our working capital management.
Mark Frost: Now net debt is down $1 million from quarter, one 2024, and $2 4 million from year end 'twenty four from $33 2 million to $30 8 million. This reflects our quarterly principal payment of $1 million and improved operating cash flow.
Mark Frost: Now I'll now turn from our liquidity comp commentary to an update on our efforts to refinance our debt facility.
We are making progress and we have received indications of interest from multiple providers.
Mark Frost: We are in process of evaluating the proposals and are moving forward with the intention to close per amendment timing.
Mark Frost: So I'll now turn it back over to Jim to discuss our new product introductions, Jim. Thank you Mark good morning, everybody.
Speaker Change: Mark it's good to be back working with you again.
Speaker Change: Let's go ahead and move to slide six let me update you on progress on our key new product launches and a little more detail.
Speaker Change: The new product introductions are aligned into three categories.
Speaker Change: The base business, which makes up approximately 76% of total revenue and this was from FY 'twenty four from last year.
Also we breakup, we break out and look at electric duration of bio production related systems, which is about 16% of last year's revenue and.
Speaker Change: In EMEA in Organoid related systems, which was about 8% of FY 'twenty for revenue.
Speaker Change: Now the top section of the table on this slide highlights the commercial status of two new products, we consider part of our base business.
Speaker Change: We've long been a leader in implantable telemetry for preclinical safety and Tox testing late in 2024, we began production shipments of our new Soho family of implanted telemetry devices, which allow animal models to live and shared housing environment.
Speaker Change: Our initial launch was focused on measuring activity and temperature in.
Speaker Change: In 2025, we're expanding this a whole platform to also now cover cardiac and neuro monitoring.
Speaker Change: We launched these expanded capabilities at the society of Toxicology show in March and we see strong pipeline of industrial customers and academics alike. We plan to begin production shipments in Q3.
Speaker Change: The second row of our base section is the name of our system the.
Speaker Change: The first delivery of this new system, which automates, it's called me Tomorrow, and automates neuro behavioral monitoring systems and it's the first system went to lab for one of our large customers. We've been working with Labcorp to tune the system and to support the integration into their testing network. We're now in discussions with Labcorp to add additional sites.
Speaker Change: Now the middle section of the table highlights the commercial status of our products targeted to high growth opportunities of electroporation of bio production.
Speaker Change: While production applications are especially attractive because consumable usage scales with our customers' production volume.
Speaker Change: Yeah.
Speaker Change: Turning first to our Bts systems, we were pleased to see that we reached approximately $1 million in consumable revenue from our first large bio production customer.
Speaker Change: Looking to 2025, the same customers in the process of launching a second bio production application in Europe.
Speaker Change: Finally, we are exploring a new opportunity with a large biotech to adopt our bts for bio production of a car T therapy, which they used in development of the therapy.
Speaker Change: As a result, our bts or I guess, I should say and as aside our bts agile pulse is a leader in peer reviewed literature on car T applications in the research and discovery phase.
Speaker Change: With respect to AAA systems also in 'twenty 'twenty four we began shipping our new cgmp compliant amino acid analysis system to pharma companies for bio production applications for 2025, we're working to expand adoption of our AAA systems for bio production applications.
Speaker Change: Now the bottom section of this slide highlights our exciting new mesh MBA organized platform.
Speaker Change: This system is the industry's first in vitro data acquisition and analysis system capable of monitoring neuro and cardiac organized over much longer time periods measured in months not days. This new system includes both instrumentation and mesh M. B a consumable chips and is designed to help identify new drug candidates more likely.
Speaker Change: To successfully make it through preclinical testing, which can improve yields and reduce time and reduce costs going to market.
Speaker Change: In 2024, we initiated beta testing and also had numerous early adopters, including sites such as Stanford in the Mayo clinic.
Speaker Change: Now recent policy changes in Washington are encouraging or move to new alternative methods called Nance for improved efficiencies in new drug development, specifically mentioned is advancing the use of human derived organize this new policy is driving increased interest from industrial customers and we believe presents a great opportunity.
Speaker Change: Entity for expanded adoption of our mesh EMEA organized systems for higher volume applications in both drug discovery and in safety toxicology testing.
Speaker Change: This year, we see expanding adoption to more leading academic sites plus government labs in the U S. The UK and Europe.
Speaker Change: We're focusing on potential high growth industrial applications in Biopharma and finally, we see growing interest for in vitro in vivo studies targeted to safety and toxicology with Crows.
Speaker Change: Yeah.
Speaker Change: Now why don't we move to slide eight and take a look at our outlook.
Speaker Change: With uncertainty around NIH and academic research funding and the China tariff situation. We now expect second quarter revenue in the range of $18 million to $20 million and we expect gross margin to be in the 55% to 57% range.
Speaker Change: Finally.
Speaker Change: We're going to focus on expanding adoption of our new products, while we continue to lower costs as such cost actions already implemented are expected to reduce operating expense by an additional $1 million a quarter starting in the second quarter here.
Speaker Change: Thank you and now I'll turn the call back over to our operator and open for questions. Thank you.
Speaker Change: We will now begin the question and answer session.
Speaker Change: To ask a question you May Press Star then one on your Touchtone phone.
Speaker Change: If youre using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: The first question today comes from Bruce Jackson with the Benchmark Company. Please go ahead.
Bruce Jackson: Hi, good morning.
Speaker Change: Can you remember, it's just a little bit more about the impairment charge.
Bruce Jackson: Okay sure.
Speaker Change:
Mark Frost: This is mark I'll start and end Gen may add some points so.
Mark Frost: It's a normal process of assessing your goodwill you usually do it annually.
Mark Frost: But because of our drop Bruce and our market cap, we're forced to take further measures to evaluate.
Mark Frost: Hum.
Valuation of that goodwill and Theres a number of methodologies.
Mark Frost: We selected a DCF approach and one of the key aspects of doing that is you have to reconcile to your market cap and that in the end led to the 48 million charge, which is noncash.
Mark Frost: <unk>, but we needed to take that charge Unfortunately, and it was reported.
Mark Frost: This quarter.
Mark Frost: Okay and then if.
Speaker Change: If I could ask you a little bit more about the bio production business in the car T. In particular or is that something that's being considered for a domestic location or is it international.
Speaker Change: Yeah, Hi, Bruce this is a.
Speaker Change: A domestic customer of ours.
Speaker Change: R R.
Speaker Change: T X system, and especially the agile pulse system is one of the leading it's one of the leading technologies that's used for creating a number of these new forms and new types of therapies and car T is one of the leaders and if so if you look at the if you look in the peer reviewed literature Youll see our system referenced many many times.
Speaker Change: Throughout the industry and in academic research. So this particular customer is an advanced biotech.
Speaker Change: They've been working on this new technology. This new this new car T related therapy, and they were using our agile pulse to create the new therapy. So what we've done is we're working with them towards.
Speaker Change: Towards adopting the system for bio production of the same therapy. So again it would be a new expansion for us into again one of these advanced drugs for here are designed in men, who would be manufactured here in United States and targeted to to human populations in going into I believe at this point there are they are in.
Speaker Change: Various late various stages of of hub.
Speaker Change: The testing on humans. So if they can I believe it's still in first stage, our first clinical stage clinical.
Speaker Change: Okay and then.
Speaker Change: Last question for me is on the S. EMEA product line. So we've got some cross currents here HHS and of course with their name.
Speaker Change: Okay announcement is a positive for the space.
Speaker Change: The age funding has been kind of unpredictable.
Speaker Change: Predictable how do you see this all netting out.
Speaker Change: What's the the inbound interest on the product and that's given us Brian.
Brian: Well the interest on the product came in very strong and you even saw it last year with early adopters picking up the system.
Brian: Starting with academic researchers and then our researches and in certain Biopharma companies, but academic has really led the way.
Brian: With really heavy emphasis on neuro neuro development and then also with cardiac so as far as what we saw happening. There. There was there has been a slowing just in general with academic research and with NIH funded now it certainly.
Brian: The interest has gone up in fact, we see the funnel growing four opportunities to place this technology into academic research sites, but it's taking longer to get through the cycle are we we met with the with the NIH couple of weeks ago at their facilities.
Brian: And what we were told by them was the budgets are there, but that there were a number there was quite a large.
Brian: The reduction in force, but really targeted to the folks who are involved with purchasing so it's kind of slowed up the purchasing process. So in academics, but demand is certainly there and growing and growing big and we know we still see I would say if you look at our academic research our revenues this quarter.
Brian: And it started late in Q4, but it has slowed down some but it's but it's running consistent so it's it's still it's still moving along and we think that's going to get better.
Brian: But the other big push as you suggested with the announcement from you know from the government is this push toward the use of NAND and and specifically.
Brian: We're organized and neuro organize in testing and development and Thats, causing a lot more interest for us with the Biopharma companies. We now have a lot more inbound calls with even with the <unk> that are much more interested in and looking at this technology knowing that you know that the government is.
Brian: Expecting them to start to move to some of these newer methods. So overall you're right. This is gonna be a good long term driver for us for adoption of organized into the in the development cycle.
Okay, Great. That's it for me thank you.
Bruce Jackson: Thanks Bruce.
Brian: Oh.
Speaker Change: The next question comes from Paul Knight with Keybanc. Please go ahead.
Jim Green: Hi, Jim Hi, Paul.
Speaker Change: Thanks for the time to date, the BT X technology.
Jim Green: Thank you.
Speaker Change: Looking about certainly getting traction.
Speaker Change: When will it ever be do you think able to compete in the in the sector that Mac site participates in.
Speaker Change: That's a great question and we you know we figure certainly we could get into that level, but you know Mac side tends to focus really on high volume applications and they use a licensing structure.
Speaker Change: We felt like for us the value proposition was for us to use the razor razorblade method, but also to go. After these early adopters. So we don't have such a high cost of entry. If we were as some of the biotech and the pharma companies are exploring these new drugs. So we think that's a good space for us if it made sense for us to go to a much higher volume we would certainly have to.
Speaker Change: Put some real work into that but you know the initial real value proposition for US. We felt was was time to market and the ability to bridge, especially if somebody used us like in car T therapies that they used us to create the drug that now we can they can use us for the initial bio production and then depending on the volume needs that determines whether or not we could be the long.
Speaker Change: Term solution for bio production or not but either way. It's a it's a great place for us to start and many of the biotech they really just need to know can they can they produce the product.
Speaker Change: <unk> environment, so that they can get through their preclinical phases and get through at least their early through late stages of Av.
Speaker Change: <unk> of human testing again, and then it comes down to what's the volume needs, but you've also noticed the with the.
Speaker Change: The release of the product.
Speaker Change: That's already now reaching a million a million dollars a year on a on the application that we have already up and running that says that we can certainly get into some reasonable reasonable size of the volume and you know it really just depends on the.
Speaker Change: The number of doses in the amount of in each dose whether or not it's required to go through a transfection and the use of electroporation or or electric fusion.
Speaker Change: And then regarding the mesh EMEA product line.
Speaker Change: Okay.
Speaker Change: Or did the.
Speaker Change: The announcement seems like.
Speaker Change: NIH wants to focus on it would you not agree that.
Speaker Change: There is no way animal testing really slows down for a long time it'll be just a co.
Speaker Change: Development process would you agree with that.
Speaker Change: Yeah, I do I think if you look at where where our technology is used were used in the later stages the formal stages of safety and Tox.
Speaker Change: And that's when you that's one of the animals are really used for verification that it's safe and effective and that nobody believes that's going to stop now we do know with with the new therapies for monoclonal antibodies and by the way are our Bts system is used by.
Speaker Change: One of the leaders there regeneron and creating those monoclonal antibodies so for us that's a positive thing now.
Speaker Change: Could argue whether or not long term testing.
Speaker Change: Should it be necessary on a draw on a drug that's in like this that is really primarily targeted late stage cancer. So it makes sense that they may want to not have them to take on the cost of long term.
Speaker Change: Our Pac effects of something of a drug that really is only used in palliative care in late stages. So that we don't see as an issue but for the vast majority of new drugs, they're gonna be used on children and people chronically for years and years you do have to do we believe you have to do the full testing and we just can't see any real.
Speaker Change: Pharma company, introducing a drug that where they haven't done that level of safety and tox and to be able to correlate that back to data for four years and you know our systems have been used for safety and Tox telemetry for many years with most of the main drugs that have come through and we just can't see a major pharma.
Companies, saying, where we're now going to stop that level of testing, but we do think the move towards things like Organise might help in the use of getting the early testing. So that you don't maybe have to go through large volumes of large populations of small animals to filter out in a very inefficient way and a costly way, but once you <unk>.
Speaker Change: Get through that phase and there is no question. We believe you have to do the.
Speaker Change: Safety and Tox testing with implantable telemetry and that really means using our technology.
Speaker Change: Yeah.
Speaker Change: Mark I missed the first question I think you were talking about the refinance or if you didn't my questions. What kind of rate are you looking at somewhere around what 12% ish.
Speaker Change: Yeah, it's going to be higher than our commercial rate that we are still in the negotiation process.
Speaker Change: To finalize that but yeah, it will be more expensive than commercial that.
Speaker Change: To answer your question.
Speaker Change: Okay.
Speaker Change: And what is it what kind of term is it five year out or is it.
Speaker Change: Payments as you go through it or what are your what is the structure that we're still in the process of negotiating all of that so that kind of detail I cant really share at this point in time, we will obviously as we get closer to finalizing deals, but not at this point in time, but I think we do I think it's fair to say, we're going to be looking at multiple years yeah. Yeah.
Speaker Change: It is yes, it will be four or five years out for sure. Okay alright. Thank you.
Speaker Change: Yeah.
Paul: Thanks, Paul.
Paul: This concludes our question and answer session I would like to turn the conference back over to Jim Green CEO for any closing remarks.
Jim Green: Well, thank you everybody for joining us today.
Speaker Change: We're certainly glad to hear the news that just came out this morning about the U S and hopefully, reaching some kind of an agreement with China as you know China for Us is.
Speaker Change: It's probably somewhere around 10% of our revenue we were.
Speaker Change: Coming into this thinking that we might be we might not we might be looking at a $2 million a quarter kind of headwind hopefully that's not the case now. So again. This is good news for us because we were assuming that.
Speaker Change: With the tariffs as they are that it will certainly expect it to be a real problem for us this year.
Speaker Change: Do you think there is some good news there but.
Speaker Change: But again, thank you for your time today in today's presentation. We hope you join US again in August when we discuss the fiscal 2025 second quarter results.
Speaker Change: And this ends the call for today. Thank you.
Speaker Change: The conference has now concluded.
Speaker Change: You for attending today's presentation you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].