Harvard Bioscience, Inc. (NASDAQ:HBIO) Q1 2023 Earnings Call Transcript
Harvard Bioscience, Inc. (NASDAQ:HBIO) Q1 2023 Earnings Call Transcript April 25, 2023
Harvard Bioscience, Inc. beats earnings expectations. Reported EPS is $0.06, expectations were $0.05.
Operator: Good day, and thank you for standing by. Welcome to Harvard Bioscience First Quarter 2023 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Dave Sirois, Director of -- SEC Director. Please go ahead.
Dave Sirois : Thank you, Amy, and good morning, everyone. Thank you for joining the Harvard Bioscience First Quarter 2023 Earnings Conference Call. Before we begin, I would like to suggest that you take a moment and download a copy of a presentation that will be referred to during this call. The file is entitled Q1 2023 HBIO Quarterly Earnings Presentation and is located in the Investor Overview, Events and Presentations section of our website. Leading the call today will be Jim Green, Chairman of the Board, President and Chief Executive Officer; and Jennifer Cote, Interim Chief Financial Officer. Before I turn the call over to Jim, I will read our safe harbor statement. In our discussion today, we may make statements that constitute forward-looking statements.
Our actual results and performance may differ materially from what we have projected due to risks and uncertainties, including those described in our Annual Report on Form 10-K for the period ended December 31, 2022, our subsequently -- subsequent Quarterly Reports on Form 10-Q and our other public filings. Any forward-looking statements, including those related to the company's future results and activities, represent our estimates as of today and should not be relied upon as representing our estimates as of any subsequent day. Also, much of today's call will focus on our non-GAAP quarterly results, which we believe better represents the ongoing economics of the business, reflects how we set and measure our incentive compensation plans and how we manage the business internally.
The differences between our GAAP and non-GAAP results are outlined in the earnings release and today's presentation. These two documents, as well as a replay of this call can be found on our website under Investor Overview, Events & Presentations. Additionally, any material, financial or other statistical information presented on the call, which is not included in our press release and presentation, will be archived and available in the Investor Relations section of our website. I will now turn the call over to Jim. Jim, please go ahead.
James Green : Thank you, Dave. Hello, everybody. Let me start by saying how pleased I am to have the last two years in the turnaround phase behind us and to now focus on delivering the profitable growth platform we envisioned. Let's go to Slide three of the presentation to take a look at the highlights for the quarter. Reported revenue for the quarter was $30 million, up 4% on an as-reported basis. When I think about $0.5 million of negative impact from currency and consider the $1.1 million of discontinued products, I see underlying core growth of around 10% over Q1 last year. Gross margin improved to $18.3 million, or 61% of revenue. That's five percentage points above last year. Adjusted operating profit improved to $4.4 million, or 15% of revenue, up seven percentage points.
Adjusted EBITDA measured $4.8 million, or 16% of revenue, also up seven percentage points from last year. GAAP earnings per share improved to a positive $0.01 from negative $0.17 last year. Adjusted EPS measured $0.06 per share, up $0.02 from last year. Cash-flow from operations was $1.8 million versus a negative $2 million last year. And in the appendix, you'll find the bridge from non-GAAP measurements to GAAP. Move to Slide four. Take a look at the revenue in the quarter by product family. This slide shows Q1 '23 revenue adjusted to reflect Q1 '22's exchange rates. Starting with the first row of the table, our cellular molecular technology revenue was roughly flat when adjusted for currency and includes an impact from the discontinued products.
We had solid growth in Asia Pacific, which was offset somewhat by slowness in the Americas and Europe. BTX Electroporation growth was driven by our new focus in bioproduction. Cell-based testing products were up strong. We continue to rotate out of low-margin products primarily sold through distribution and discontinued product sales decreased by approximately $1.1 million versus prior year. Next, our preclinical product revenue was up 10.3% as reported, and up 11.6% on a constant currency basis. Asia had strong growth in Ponemah enterprise software, telemetry and respiratory systems. Americas saw strong growth in respiratory systems. US dollar compared to the euro and British pound caused a currency impact of $0.5 million. All said, we grew 4% as reported, and this includes a $0.5 million negative impact of currency and further negative impact of discontinued products of $1.1 million compared to last year.
Photo by National Cancer Institute on Unsplash
Now let's move to Slide five. I can tell you a little bit about some of the exciting new product introductions. Before I start, let me explain a little bit about this slide. Over the last three years, we've optimized our product offerings to critical areas of the drug and therapy continuum. Our product strategy is to continue to introduce new technologies and applications in academic research and at the same time, apply these technologies to further penetrate larger industrial applications with our customers in pharma, CROs and biotech. A key benefit to this approach is to offer higher-value products with higher ASPs and recurring revenue streams. We do this by capitalizing on our strong call points with preclinical customers. I'd like to highlight three of the new products that we've introduced so far this year.
Starting from the left, our new SmartUssing Epithelial System, which builds on our Ussing technology for metabolism and permeability studies, which has already been proven in academic research labs, this new system has been designed for ease of use, making it attractive for higher volume needs of CROs and pharma customers. I'm pleased to report that the first SmartUssing system has been installed and is in use at a large pharma lab in Europe. In the middle is our new STG5 Stimulation Generator. Building on our leadership in stimulation, this new product follows the theme of simplicity, modularity and ease of use, which opens access to our technology in higher-value industrial labs where automation and ease of use enables lab techs as opposed to highly trained PhDs to operate.
Last, we're excited to announce that after the quarter end, we received the first order for our new high-capacity behavior monitoring system from a large CRO customer. This system combines our high-precision activity tracking with our GLP-compliant Ponemah enterprise software, which is heavily used by CROs and pharma today for safety and efficacy, data collection and regulatory reporting. Scalable and with substantially higher technology content, we expect the industrial level systems to provide higher ASPs and additional recurring revenue streams compared to academic research focused products. This new offering is the basis of our expanded industrial-level product line with substantially higher ASPs, ranging well into the hundreds of thousands of dollars.
As an example, this first order is in excess of $800,000. Now, I'll turn the call over to Jennifer Cote, our Interim CFO, for a look at key financials. Jen?
Jennifer Cote: Thank you, Jim. I'm excited to be able to share our Q1 financial results in greater detail. If you can please refer to Slide seven. As a reminder, my discussion will focus on adjusted results for P&L performance, which aligns with measurements we use to internally manage the business, and reconciliation between our adjusted results and the corresponding GAAP financial measures is included in the slide deck. Jim has already taken you through our revenue performance, and I'll take you through some additional details on our expenses, balance sheet and cash-flows. Q1 gross margin was 61% compared to 56% in Q1 of FY '22. This is also a strong consecutive improvement over Q4 FY '22 margin of 56%. In general, our gross margin will fluctuate from period-to-period based on revenue mix and volume, inflation, impacts of supply chain and other factors.
We had a higher mix of our preclinical products during Q1, which has stronger average margins, and we are also realizing the impact of pricing improvements and the impact of lower mix of discontinued products. We also entered Q1 2023 with lower labor and overhead costs, as the headcount reductions related to our portfolio rationalization are now complete. The implementation of these improvements, together with our pricing increases are demonstrated in our margin improvement in Q1. Moving to our adjusted EBITDA; a discussed in Q4, we are now reporting on adjusted EBITDA. The primary difference to adjusted operating margin is depreciation on our fixed assets. We believe this change aligns more closely with our focus on cash-flow improvements and is consistent with the presentation of other comparable companies.
Our Q1 adjusted EBITDA was $4.8 million or 16%, compared to $2.7 million or 9% in Q1 2022. The improvement was primarily driven by our increased gross margin. We also see favorable impact of our cost reduction activities in our Q1 results. These are partially offset in Q1 by accruals for our employee annual incentive plan. As mentioned last quarter, we do expect an increase in capital expenditures in 2023, as we invest in the consolidation of certain business tools and also invest in tooling and capital equipment related to new products. Turning my attention to cash-flow, our cash-flow provided by operations was $1.8 million in Q1 FY '23, and represents our third consecutive quarter of positive cash-flow from our operations. This is a result of our strong EBITDA, together with our continued focus on working capital management.
We continue to keep our improved DSO steady and continue to implement activities that will start to shift our inventory downwards. We are also excited to share that we reduced our net debt by $2.2 million during Q1. The combination of strong gross margins, strong adjusted EBITDA and solid operating cash-flows and our reduction in net debt results in a great start to FY '23. I'll now hand this back to Jim to cover our 2023 guidance.
James Green : Thank you, Jen. Now moving to our summary on Slide 9 and a look to see what we see for the year 2023. With growth from new products, a stronger portfolio and expanding recurring revenues, all running through our improved cost structure, we see 2023 as the year we deliver the profitable growth platform that we've envisioned. We now expect reported revenue growth in the mid-single-digit range, and that's inclusive of approximately four percentage points of discontinued product revenue compared to 2022. We expect gross margins to remain strong at the 60% level. We expect adjusted EBITDA margin in the 16% to 17% range. With expanded EBITDA, combined with improving working capital driving strong cash-flows, we plan to significantly pay down our debt.
Finally, this quarter, we reduced our debt leverage to 3.2x, and we plan to further reduce our debt leverage to approximately 2x levels by the end of 2023. Thank you. Now, I'll turn the call over to the operator to open the line for questions. Thank you.
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