Harvard Bioscience(HBIO) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics - Revenue in Q3 2024 was $22 million, down 13% YoY and 5% sequentially, primarily due to weakness in China and Asia Pacific [7] - Gross margin was$ 12.8 million or 58.1%, close to the 60% target despite a low revenue quarter [9] - GAAP operating loss was $1.9 million, while adjusted operating income was$ 800,000 or 3.8% of revenue [9] - Adjusted EBITDA was $1.3 million or 6% of revenue [9] - Cash flow used in operations was$ 0.8 million in Q3 2024, compared to $4.4 million provided in the same period last year [24] Business Line Performance - Americas revenue was down 12% YoY but stabilized sequentially, with preclinical sales declining 26% YoY due to COVID-related respiratory products and telemetry system software [13] - Cellular and Molecular (CMT) revenue grew 15% YoY in the Americas, showing modest sequential growth [14] - Europe revenue was down 12% YoY but stabilized sequentially, with preclinical sales down 21% YoY and CMT sales down 7% YoY [15] - APAC revenue was down 20% YoY and 20% sequentially, with preclinical sales down 32% YoY and CMT sales down 5% YoY [16] Market Performance - Americas and Europe markets are stabilizing, with flat sequential revenue for the last three quarters [8] - China and APAC markets saw further weakness in Q3, but are expected to stabilize or improve modestly going forward [8] - Global trailing 3-month order profile shows an inflection point to growth since June, with booking trends increasing for four months [17] Company Strategy and Industry Competition - The company successfully transitioned all U.S. operations to a modern ERP system, improving inventory and supply chain management [10] - Cost reduction actions in Q3 and early Q4 are expected to reduce operating expenses by$ 1 million per quarter starting in Q4 [11] - New product introductions, including the SoHo telemetry devices and VivaMARS neurobehavioral monitoring system, are expected to drive incremental growth [31][32] - The company is focusing on high-growth areas like electroporation, bioproduction, and Mesh MEA organoid platforms, with strong interest from biopharma and CRO customers [34][37] Management Commentary on Operating Environment and Future Outlook - Management expects Q4 revenue to range between $23 million and$ 26 million, with gross margins in the 59% to 60% range [41] - Adjusted EBITDA margins are expected to be in the mid-teens for Q4, with full-year EBITDA margins in the high single-digits [42] - The company is optimistic about 2025, with new products expected to drive high single-digit to double-digit growth [50][57] Other Important Information - The company settled a defined benefit plan in the U.K., removing future annuity payments and resulting in a noncash realized loss of $1.2 million [22] - Net debt at the end of Q3 2024 was slightly above the net debt at the end of the year, with minimal net borrowings against the revolver [25] - The company amended its credit agreement in Q3, limiting additional borrowings until annual financials are reported in March 2025 [26] Q&A Session Summary Question: CRO Dynamics and Revenue Contribution - CROs contribute about 25% of the company's global revenue, with mixed performance due to tightening budgets in biotech and pharma [44][45] - The company expects CRO demand to stabilize, with a return to normalized run rates in safety and assessment [45][52] Question: New Product Growth Potential - Electroporation and bioproduction segments are expected to grow at 20% or better, contributing 10% of current revenue [57] - Mesh MEA organoid platforms are expected to grow at a 50% to 100% CAGR, potentially adding 4-5 points of total compound growth to the business [58][59] Question: China Market Stability - The company sees signs of stabilization in China, particularly in academic research, but CRO and pharma spending remains weak [51][63] - The company expects China to stabilize and grow modestly, focusing on high-value, IP-protected products [63][66] Question: Mesh MEA Order and Shipment Lag - The company is ramping up production of Mesh MEA systems, with plans to increase biochip production tenfold by Q2 2025 [69][71] - Early adopters are showing strong interest, with potential for$ 1 million to $2 million in quarterly growth from these systems [68][71]