Harvard Bioscience(HBIO) - 2023 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue for Q3 2023 was $25.4 million, down 6% from the previous year, with an underlying core revenue decline of approximately 3.5% after adjusting for foreign exchange and discontinued products [5][6] - Adjusted operating profit improved to $1.8 million, representing 7.3% of revenue, up from $700,000 the previous year, marking an improvement of nearly 5 percentage points [6] - Adjusted EBITDA was $2.2 million or 8.9% of revenue, also up 5 percentage points from the prior year [6][14] - Gross margin improved to 58% from 45% in the same period of FY '22, with underlying gross margin improvement of about 9% over the prior year quarter [28][13] Business Line Data and Key Metrics Changes - In the Americas, revenue increased by 5.9% as reported, with underlying core revenue growth of about 11% after accounting for discontinued products [7] - Cellular molecular products saw a decline primarily due to discontinued low-margin products and some slowness in cell-based testing systems [30] - EMEA revenue was down 1.4% as reported, with a 6.2% reduction from discontinued products but a positive FX impact of 7.7%, leading to an adjusted decline of roughly 3.5% [30] Market Data and Key Metrics Changes - Revenue in China and Asia Pacific decreased by 30%, with a modest negative effect from FX and discontinued products of approximately 4.5% [8] - Demand for preclinical respiratory products in China dropped significantly, as prior purchases were driven by COVID research needs [8][27] Company Strategy and Development Direction - The company is focusing on new product introductions and expanding service offerings to fuel growth, particularly in the organoid research area [9][31] - New product offerings include the mesh microelectrode array platform, VivaMARS high-capacity behavior monitoring systems, and SoHo small animal model telemetry platform [9][10][11] - The strategy aims to penetrate larger industrial applications while continuing to support academic research and pharma discovery [31] Management's Comments on Operating Environment and Future Outlook - Management noted that the core business remains strong despite post-COVID challenges in China and Asia Pacific [27] - The company expects gross margins to remain strong in the 60% range and adjusted EBITDA margins in the 13% to 14% range [41] - There is optimism about the potential for recurring revenues to increase from over 35% to the mid-40s or better due to new product offerings [49] Other Important Information - Cash flow from operations was $4.4 million compared to $600,000 last year, allowing for an additional $2.8 million paydown against the credit facility [15][29] - The company is targeting a net leverage reduction to approximately 2x by the end of 2023 [18] Q&A Session Summary Question: Sustainability of gross margins and potential expansion in 2024 - Management expressed confidence in maintaining gross margins around 60% going forward, despite some accounting changes impacting current results [20][43] Question: Recurring revenues and new product offerings - Management indicated that recurring revenues are currently over 35% and expect to increase significantly with new product introductions [24][49] Question: Demand for products in China and respiratory research exposure - Management acknowledged a slowdown in respiratory product demand in China but anticipated a return to normalized levels over time [54] Question: Opportunities for acquisitions or partnerships - Management is actively exploring opportunities for acquisitions or partnerships to accelerate growth in new areas, particularly as the capital structure improves [60]