Harvard Bioscience, Inc. Price & Performance (HBIO)

Actual results may differ materially from those expressed or implied. We 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 GAAP financial measures, which can be useful in evaluating the company's operations related to our financial condition and These non GAAP measures are intended to supplement GAAP financial information and should not be considered today's earnings press release. I will now turn the call over to Jim. Jim, please go ahead.

Thanks, Catherine.

Thank you and good morning.

Start at Slide three of the presentation and look at our quarterly results. Revenue in the fourth quarter came in at $24,600,000 which is 13% below revenue from Q4 last year. On a sequential basis, revenue were up 12% from the third quarter and we had a positive book to bill ratio. Gross margin for the fourth quarter was $14,000,000 or 57% of revenue impacted by lower revenue year over year. Operating income was breakeven on a GAAP basis, On an adjusted basis, our operating income measured $2,500,000 or 10% of revenue and adjusted EBITDA came in at $3,000,000 or 12% of revenue. I'll now turn it over to Jennifer Cody, our CFO, to discuss our financial results in a little more detail. Thank you.

Thank you, Jim, and hello, everyone. I'll provide further detail, repeat a little bit of what Jim said, but just want to go through this in detail. So on Slide four, if you could please refer where we will look at revenue, for the quarter by product family and region. Overall revenues in the fourth quarter showed sequential improvement finishing at $24,600,000 compared to $22,000,000 in the prior quarter. Revenues for the year were $94,000,000 compared to $112,000,000 last year.

You can see our quarterly trend, which shows evidence of quarter to quarter stabilization across the globe. I will now break it down to look at regional results. Starting with The Americas, revenues in the fourth quarter grew sequentially by 3% over revenues in Q3 and but were down 11% versus revenues in the fourth quarter of last year.

Our preclinical sales rebounded sequentially with a return normal purchasing during Q4. As shown in the light blue, CMT is down sequentially and we did not see the typical end of year bump we attribute to end of year academic budget spending. Moving on to Europe. Overall revenue in Europe in the fourth quarter grew 28% sequentially, but was down 7% compared to revenue in Europe in last Q4. Our European revenues have been relatively leveled through the first three quarters of the year and during Q4 experienced a nice growth sequentially in Q4 over sales in Q3, with increased telemetry and respiratory sales offset by lower behavioral sales. Cellular and molecular sales grew sequentially and year over year, we are excited to see the impact of early adopters of our MEA systems and mesh MEA chips. Moving to China and the Asia Pacific. Overall, in the fourth quarter, APAC revenue was sequentially up by 8% over the previous quarter [indiscernible] though APAC revenue was down 24% compared to prior year. The APAC market has been especially difficult this past year but Q4 was our first sequential improvement this year and trailing orders have remained consistent over the last few quarters indicating stability.

Preclinical APAC sales in Q4 saw but were down compared to prior year, which we attribute to destocking. Cellular and molecular APAC products showed some minor declines in Q4 sequentially and year over year. We continued throughout Q4 to experience improvements in our booking trend and continue to see growth in our global trailing three month trend. This has been trending positive now since June. We do expect to see a dip sequentially in Q1 and Jim will discuss this with our outlook.

If you can please refer to Slide five, on which we'll discuss additional metrics.

Please refer to the middle of the slide Gross margin during Q4 was 57.1%, compared to 58% in Q4 of last year. Sequentially, margins are effectively neutral.

When adjusted for FX. The strengthening of the U. S. Dollar relative to foreign currencies in Q4 contributed to a one percentage point margin decline during Q4 relative to Q1. Q3, sorry. We maintained stability in our gross margin by managing expenses to offset lower absorption of fixed manufacturing costs during Q4 and throughout the last year. We are encouraged that despite lower revenue levels, we are maintaining gross margins close to our target of 60%. We are now also operating on one U. S. ERP system, which represents 80% of our manufacturing and As part of implementing our new ERP system, we are experiencing some inefficiencies as we start to use the new system in our Boston facility but we are working to stabilize our processes and associated controls as we move deeper into 2025. This new consolidated environment constitutes an opportunity for us to mature our sales and operations planning, supply chain and and further improvement of processing controls. If you refer to the right side of the graph, our adjusted EBITDA during Q4 finished at $3,000,000 compared to $3,600,000 in last year's fourth quarter. [indiscernible] $3,000,000 adjusted EBITDA figure was a sequential improvement of 1,700,000.0 over adjusted EBITDA of $1,300,000 in Q3.

The sequential improvement was mainly due to revenue and margin growth as well as cost reductions taken throughout last year. Compared to the prior year Q4, the reduction in gross profit was mostly offset by lower operating expenses in Now moving to the bottom left where we show both reported and adjusted loss and earnings per share.

First, as I've done in the past, I will remind you of the primary differences between GAAP and adjusted EPS [indiscernible] which includes amortization and depreciation. These differences can be found and highlighted in the reconciliation tables on Slide 11. And are all non cash items. We recorded a correction during Q4 related to our accounting for the closure of a legacy pension plan which favorably impacted Q4 of twenty twenty four by $0.03 The impact of this non cash activity is zero year to date and is offsetting activity in Q3. [indiscernible] Cash flow from operations was $1,700,000 during Q4 compared to $4,300,000 in Q4 of last year. The Q4 cash flows figure represents sequential improvement compared to Q3. Now I will move to Slide six, where we will cover cover the full year results and we can discuss liquidity and debt position. We maintained consistent gross margins during 2024 at 58.2%, compared to 58.9% in 2023. We managed our costs to largely offset the impact of lower revenue and gross profit. [indiscernible] the full year, adjusted EBITDA was down $7,400,000 due to reduced gross margin, of 11,300,000.0 partially offset by these reduced operating expenses of $3,900,000 Full year 2024 adjusted EPS was $0.03 compared to $0.14 in 2023, as a result of the drop down of lower gross margins offset partially by lower expenses.

This included an unfavorable impact compared to prior year of the loss on sales of equity securities of $0.03 Differences between GAAP and adjusted EPS during 2024 also included restructuring expenses, commissions for employee retention credit payments and settlement of an abandoned property audit, which resulted in $0.04 of unfavorable impact for the year. We have reduced the quarterly run rate of our operating expenses by $2,000,000 or 12% when you compare Q4 of twenty twenty four with Q4 of twenty twenty three. Which positions us for improved OpEx in 2025. If you refer to the bottom middle graph, cash flow from operations for the year ending 12/31/2024 finished with a a $1,400,000 decline and declined by $12,600,000 compared to last year. We struggled early in 2024 to drive favorable operating cash flow. [indiscernible] but showed improvements and you see the results in Q4 through this careful expense management On the bottom right, you can see that we maintain stability in our net debt position and at the end of the year, our net debt was just slightly above net debt at the end of twenty twenty three. As of year end, we are not in compliance with the consolidated net ratio, net leverage ratio covenant contained in our existing credit agreement.

Earlier this week, we entered into an amendment in which the lenders agreed to waive our Q4 non compliance. Under the amendment, we are required to refinance the existing agreement by June 30.

Are also precluded from further borrowings under the credit facility. That said, based on our current operating plans, we expect that our available cash and cash generated from operations will be while we work to refinance the credit agreement. For more information on the amendment, please refer to the eight ks that we filed with the SEC last night. Now I will turn it back over to Jim.

Thank you, Jen. We can move to Slide seven. Where I first want to mention that we've historically, we've augmented our European sales through distribution agreements with the large distributors like Fisher and BWR. We're now working with them to extend this agreement with Fisher and BWR specifically the formal distribution relationship to also now include North America And we're also planning to offer through the distributors to increase our number of products including our new unique MEA systems. Now if we go to the next slide, let's see actually that's it's still Slide seven, right?

I just want to say, I'm not going to drain this, but I like to think about our business as our base business and then areas where we're expanding, expanding into potentially high growth areas like [indiscernible] and also expansion into organoid related technologies another area that we believe provides significant growth opportunities. The base, which we expect to be to roughly run with the market, the life science tools market, and it's augmented by new product introductions, some of which you'll hear about today. Both electroporation and bioproduction and our emerging Massimier Organite applications are expected to be long term high growth opportunity that also drive a higher recurring revenue consumable. Moving to Slide eight, I'll update you on the progress on key new product launches and more [indiscernible] The first row of the table on this slide highlights the commercial status of two new products we consider part of our base business. Late in 2024, we began production shipments of our new SOHO family of telemetry devices, which now enable real time telemetry measurements of animal models in shared housing environments. 2025, we plan to expand our SOHO capable implants to also cover cardiac and neuro monitoring capabilities.

Launching at this month's Society of Top the The first delivery of our new automated Veeva Mars neurobehavioral monitoring system went to LabCorp. We've been working with LabCorp to tune the system and supporting them in the integration of it into their testing network. We're now in discussions with them to acquire another Vibomar system for a second one of their facilities we assume later in this year. And we're also working to get the next large CRO customer on board with VIVAMAR's. The second row of the table highlights the commercial status of our products targeted to potentially long term high growth electroporation and bioproduction opportunities. Late in 2023, we announced that a large pharma company had adopted our BTX electroporation system configured for bioproduction. Looking at the commercial status in 2024, we're pleased to see that consumable revenue from this first large customer has now grown to approximately $1,000,000 annual run rate. This first large customer, a top five pharma company worldwide has adopted the BTX for bioproduction of vaccine application and is validating our right to win in higher volume GMP applications. [indiscernible] This first application is a vaccine for companion animals And in this way, it allowed us to fast track into bio production and get to higher volumes quickly.

This same customer is adopting our system for a second potentially high volume vaccine another site. [indiscernible] we talk about human use, Novo Nordisk, a longtime customer of Harvard Bioscience, is an early adoption of our BTX for a new generation therapy. Also for human use, a large U. S. Biotech is adopting our BTX riboproduction of a CAR T based therapy. And we're also currently prototyping our next generation BTX platform designed for ease of use in new compound creation and also ease of transition to bioproduction in CMP cGMP environments. Also in 2024, we began shipping our new CGMT compliant amino analysis system to pharma companies for bioprocessing applications. [indiscernible] Our AAA is an adaptation of our leading BioChrome AAA system currently operating in clinical labs internationally. And is showing initial demand in bioproduction applications such as biomaterial quality control. The third row of the table highlights commercial status of our emerging new high growth Mesh MEA Organoid platform. We have adapted our MEA electrophysiology system to be the industry's first in vitro organoid data acquisition and analysis system. It's capable of supporting long life longitudinal analysis of organoids and they're initially targeted to neuro and to cardiac applications.

As for commercial progress of MESH MEA systems, in 2024, we initiated five beta sites, three of which were academic sites including University of Texas, Tempere University in France and the University of Michigan. In Synaxis is an advanced CRO in France focusing on safety and toxicology applications. And a leading biopharma company with operations in Cambridge and multiple multiple sites across California, focusing on longitudinal viability testing for neuro and cardiac applications. [indiscernible] In Q4, early adopters including Stanford and the Mayo Clinic purchased 10 systems for a combination of neuro and cardiac applications. Our 2025 goals include expanding adoption by leading academic sites plus government labs in The U. S, UK and the European Union. Interestingly enough, the NIH itself recently purchased one of our Mesh MEA systems for neuro applications. This year, we'll focus on adapting the system to to more potential high growth industrial applications in biotech and pharma. And we see a growing pipeline of biotechs and pharma opportunities as we look forward this year. In terms of refinancing efforts, we've retained an investment banker to assist and there have been and we've held multiple discussions with potential lenders. We plan to complete this refinancing effort by the June.

For more information, you can look to the eight ks that we filed last night. Now if we move on to our guidance and outlook on the next the next slide, Given the lack of visibility around NIH funding and the recent effects on academic research funding, we're going to hold off on giving an outlook for the full year at this time. So at this time, we'll just discuss Q1 twenty twenty five and some basics about finishing how we're operating through the rest of the year. Considering the uncertainty around NIH related academic funding and such, along with the typical Q4 to Q1 seasonality, we expect Q1 revenue to range from $19,000,000 to $21,000,000 We expect Q4 gross margin to be in the 56% to 58% range. Regarding Q1 EBITDA, we expect unusually high professional fees related to audit and debt related refinance activities. When I think about going forward, absent these unusual fees, with our gross margins remaining strong and our continued focus on reducing operating expenses, we expect sufficient positive EBITDA [indiscernible] to support continued self funding of our business and continued servicing of our debt obligations and this while we work to refinance our debt facility.

So with that, I will turn it over to turn the call back to the operator and to open the open the line for questions. Thank you.

Thank you. Our first question comes from Matthew Parisi with KeyBanc. Your line is open.

Hi, Jim. It's Paul Knight calling from KeyBanc. The question is on how are you? Number one, this debt financing, what was the metric that was busted With three or four quarters of reducing revenue, which we saw through starting in early 'twenty four, it really impacted our net leverage ratio, which which looks at our current debt divided by our trailing twelve month EBITDA, So even with positive EBITDA, whether it's $1,000,000 $2,000,000 or $3,000,000 we had had we had built strong EBITDA over the prior years and in fact we had gotten our net ratio down to under $2,000,000 I believe. With three quarters lining up of EBITDA of lower EBITDA that that ratio just starts to get ahead of you pretty fast. We were bouncing up against that covenant for a while and [indiscernible] should have earlier tried to work on a refinance, but we worked with the banks to get to get coverage through those to get to this point now. But either way, we knew we needed to put a new debt facility in place and that's really the focus now. And you were paying on debt rate was what percent rate and then what would a new transaction look like?

I'm Harvard at yes, we were sitting at we were at so far, so far plus 3.75. So I think that adds up to around, I don't know, 8 or so, I'm guessing. And then ranges are probably what, somewhat above 10 and other? Yes, I think when you look to the more private debt facilities, they're probably again, we're looking at a number of different opportunities and they will range based on various various ways they set it up. But in general, we expect to go up two to three points maybe four. So it's going to be higher on the interest rate [indiscernible] It will give us much more flexibility. We have needs to continue to we have these new products launching. I certainly don't want to be held back but and not be able to put some of the capital into expanding capacity in a couple of these new areas. So we're going to need a little less flex flexibility on the on a debt ratio covenant like that. At least for a little for a short time. And that's why we need the kind of lender that's used to working with growth companies that makes investments and doesn't get held back by having a more conservative debt facility.

And Jim, moving to the good news, part, it seems like the new product introductions are gaining traction. What part of revenue are these new products like mesh MEA and BTX and other that you would call high growth And what was their growth in 4Q? Thanks. Well, I think when you look at the numbers, for instance, that Jed showed you, what really jumped out is, for instance, mesh MEA systems, We really started heavily in academic research there and heavily in Europe where we have very strong relationships plus with the pharma companies there. So we saw Europe really led the way with growth in again by placing 10 or more systems in one quarter. I mean these systems sell for $770,000 to $100,000 plus they bring kazools in, that was a very nice incremental pop for the business. And really leads the way toward us this and that is adapting of this technology into the much higher industrial users. So certainly this is going to be a big growth area for us. We had in general, our EMEA business had been around 5% of our business. I think if you go back a year or so, I think in this year, we're we I think we even put in the presentation that with the MEA that section is around seven, so it's grown by a couple by from 5% to 7% just in that one year of that section of that of that revenue stream.

So it's definitely a wind up area for us and a growth opportunity. Bioproduction is another big growth [indiscernible] You have to get the systems incorporated and validated in their production environment. You'll notice that I described some of the applications specifically what was because the system is really designed for these new types of drugs where you're going to be transfecting just transfecting mammalian cells to create it, So there's often a long time from when you get through testing, you get through preclinical before you get into first Phase one clinical human it takes a while for that to really ramp up. So the thought was by having a couple of applications like this first one, being going to companion animals, mean, I don't know you, but I've always loved selling technology to our selling to people who who spend it on their pets because people I think that's spend more on their pets than their kids these days. So that gave us the ability to very quickly prove that we could do higher volumes in a cGMP type environment at the same time, we've been working with human applications with a number of our customers. And one of them which I think is pretty exciting, is Nova Nordisk, working with them toward one of their applications that would be one of the first uses the BTX in a bioproduction environment for next generation therapy.

There are others we're working with. Another one that's coming along is a CAR T therapy and that's with a very large well known biotech here in The States. So we're trying to cover all phases. I want to be able to prove that we can that we can do the transfection efficiently, we can create these new drugs, which they use us often for discovery, But now they can use us for bio production, but I need to be able to show for instance, with what we're doing with these companion animal application that we can do volume types of production in the same type of cGMP environment. And by the way, this is with a very a top five worldwide pharma company, This is not a small start. This is a big opportunity for us And they are working with us now to have another vaccine application that will go to another of their facilities using our technology for a slightly different vaccine. Okay. And then just to quickly wrap it up on my side. The other cost of $1,400,000 in the quarter was FX, I'm assuming. And then the last is your NIH exposure is what about 15% or Yes.

It's some [indiscernible] academic academic research, we're about half a our business academic research worldwide. A little less than half of that is probably The United United States and maybe it's I'm kind of eyeballing maybe it's 40% or so. Then you split that into the sections of what's NIH, and what is academic research outside of NIH. NIH, we generally think of NIH to be around 30% or so of academic research revenue in The United States. The rest is generally more budgeted by the universities themselves. So that's kind of how we see it. But we it is we have seen and given whenever there's some unknowns, certainly we expect to see some extra time it takes for some of these some of these research grants that will have to go back through and be reviewed. And those are more the specific NIH initiated brands. But I think we're also we could see some noise just from the general academic research sites where they're maybe worried about what's coming their way. And so so there is kind of a lack of visibility with some of that. We're hoping of course that that sorts out fast. You're probably hearing something similar from other companies that are heavily exposed to academic research.

But no, we're those types of impacts we started seeing a pull down in our revenue in Q4. Where in Q4 in academic research, we would have expected a bump in U. S. But if you look at our chart, you see that the academic research part of our business or the CMT part actually went down some in Q4. Now the good news for us is it was more than offset by strong growth sequentially. In our industrial with CROs and such. But I think we've been seeing a little of this headwind for a bit. And Harvard to predict exactly when it settles out. But we're of course hoping that it settles quickly. And in the meantime, as you've heard, we are continuing to manage our cost structure to make sure that whatever revenue stream we're at, if it drops a little or whatever, we are going to make sure that we're able to deliver the EBITDA we need that we stay profitable, that we generate the cash to service our debt and our CapEx needs. So however it happens, we're flexible and able to handle it. Thank you, Paul.

Thank you.

Thank you. Our next question comes from Bruce Jackson with The Benchmark Company. Your line is open. Hi, Bruce. Hi, good morning and thanks for taking my questions. I wanted to go back to the ERP implementation. Just real quick and get some more details. So it's now in place and now it's a matter of like getting it getting the experience with it Do you think that you're going to see any operational efficiencies from the ERP system during 2025?

I do. But I've done I don't last count, I don't know if it was five or six ERP system ERP transfers I've done. And there's always some initial learning curve. So there's usually a little bit of chaos at first when you first turn it on. Because you're now teaching your people to use a better, more consistent process. We basically adopted we took the ERP system from our group Minneapolis, which was very up to date. We control it well. We support it well. We brought it up to the latest. And it's a leading type of system. And then we've integrated and we've brought rest of our operations in The U. S. Here in Boston, to that same ERP. So we're synthesizing the processes here to adapting these to be the same as what we do in Minneapolis That lets us be much more consistent. That gives us a ton of flexibility It also helps us with provide better accounting for our inventories And it also gives us a better view of how we can work on reducing inventory and more efficient supply chain and shipping. So again, I always would expect the first maybe couple of quarters to be a little noisy, maybe some inefficiencies.

With your direct labor because they're learning to do something a little different than they've been. But it's a better way to do it and you end up with a process that you can now tune And definitely during the year, you will this will help us provide much better management of our inventory, much better management of of the process around how we order the parts to take that are required for shipments. We'll be able to better predict shipment times. And with that, just an overall efficiency and that that should show up in improving gross margin. That's where I would expect financially to measure that. So gross margin, I would expect to see inventory reductions as we get to later in the year. And just an overall better business.

Okay, great. And then if we could just go into some of the new product opportunities a little bit more detail. One of the major bottlenecks right now in CAR T therapy is production and you've got this large biotech that's working with your technology. How do you see that business unfolding over the course of this year It's going to be hard to predict because it is a longer cycle. We're talking about new drugs and we know with the changes at in human services that there is and which I think is good for us, there is going to be a push to make sure that any drug going through the pipeline goes through the full sets of preclinical testing and proper testing. So and that means they're going to going to consume our products, our telemetry products, our testing products. So that's good for us. But so clearly the BTX, it is the outdoor operation is a key technology to use for generating many of these gene edited or DNA or RNA edited generate new generation drugs, And the more of these that go into the pipeline, that to me that's the most important thing. If I can get if I can be a part of more of those and if they're using us to to discover and create the compound and they use us to bridge them into production, it's a lower efficient way to do it.

This should generate not just business for us in with these types of applications, it will also then pull in more of our other products as they get to through the preclinical phases. Don't know if that answers your question, Bruce?

That's helpful. And then if we could just also take a look at the SMA organoid business, a lot of that right now is academically focused. Are these projects fully funded? And are they going to be stable going Harvard? And this is just like just putting aside the uncertainty around new grants and the the research service expense issue. The current projects that you have going, are they are they fully funded and moving Harvard?

Yes. Well, I mean, the as we expected, the initial adopters and this is exactly what we've seen even in Q4, with placing 10 more systems, they are predominantly academics, and predominantly in neuro research, neuro applications and also neurotox and safety, which is good, and some in cardiac. We are seeing and we have placed a couple of units now with pharma companies are doing the same kind of thing. And as we the big opportunity that I've always saw was prove the technology with the academics move it into the research departments, discovery departments at the pharma companies and then allow that to get into the higher volume testing that needs to take place We are getting demand in moving into those space. Roche big customer, long term customer of ours working with us with MEAs and moving toward mesh MEA. We expect that. And as you do that with a few companies that are well known, the word spreads they all talk to each other, Then we start to see more other pharma biotech type companies. We see others that are interested, we're already talking to, some are already in the purchasing process Pfizer, AbbVie, I mean these are real players.

It's going to take a while to adopt it because it is in some ways that they've been doing something for many years, certain way. They've got to jump that bridge to technology adoption. And the way to do it is to prove it out with the academics, I think the other real opportunity that we're seeing is the ability to offer this in vitro product as a potential tox filtering capability As I said, we have Synaxis in France, working on working with standard types of drugs that you have to test you have to go through as a CSR or as a CRO does with the safety and tox testing. [indiscernible] think about to announce that we're working with a large CRO here in The United States and we're planning we're initially planning on a large correlation study between population of small animals and correlated with a population with those particular animals. The idea is those particular animals that we would create brain organize from those animals and then be able to do long term correlation studies for again being able to very quickly and efficiently filter whether a drug is going to have toxic or safety issues before you get into having to wait and spend a lot of money on lots of small animals and take months and then have to destroy the animals to find out how it affected their organs.

It's a great way to make us more efficient. And at the end of the day, it should in theory provide the opportunity for lowering throughput or shortening the elapsed time, which means then can expand and get more drugs through the cycle. So it should be an efficiency there. That's why we think that has a big financial value proposition for the pharma companies.

Okay. And then one last mesh MEA question. You mentioned I think with the new distributor arrangements that these products could be included with that? That right? [indiscernible] That's right. We've We've always tended to have a good formal relationship with the big distributors in Europe And we've tended to do more of the sale direct here in The United States. And less of our equipment going through distribution. We're now working with the big distributors, as we all know who they are, to now expand and have us be a formal relationship with with them, with both those operations here in The United States means instead of me having five or six sales reps that are prospecting, I've got 900 sales reps in The United States. Prospecting and lead generating. So and I think certainly when you do this through distribution, you always look to see does the distributor have an alternative product that maybe they're conflicted to whether they should sell yours or theirs. As we do this, something like Mesh MEA is clearly something that nobody has it. So I expect it to if nothing else just generate a lot more leads which does it is the entry into generating more orders of sales.

Okay, great. That's it for me. Thank you very much.

Thank you, Bruce.

Thank you. There are no further questions at this time. I'd like to turn the call back over to Jim for any closing remarks.

Okay. Thank you. Thank you for joining us.

This ends today's presentation. We hope you'll come back and join us in May. To discuss our fiscal twenty twenty five first quarter results. Thank you so much. Thanks, Belay.

Thank you for your participation. You may now disconnect. Everyone, have a great day.