Harvard Bioscience Inc (HBIO) 2002 Q1 法說會逐字稿

Good afternoon. My name is Kelly, and I will be your conference facilitator for today. At this time, I would like to welcome everyone to the Harvard Bioscience Quarter One 2002 Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press "star," then the number "1" on your telephone keypad. Any questions will be taken in the order they are received. If you would like to withdraw your question, press the "pound" key. Thank you. Miss Luscinski, you may begin your conference.

Thank you. Good evening and to those of you who are not on the East Coast, good afternoon. This is Su Luscinski, CFO of Harvard Bioscience. Thank you for joining us today to discuss our results in the first quarter of 2002. Chane Graziano, our CEO and David Green, our President, are also on the call today. Today, after the Safe Harbor statement, I will take you through GAAP results for the quarter, then Chane will discuss the results from a pro forma operating perspective. David will then update you on technology and business development activities of the company. After this, we will open up the call for questions.

In our discussion today, we may make statements about our future expectations, plans, and prospects that constitute forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Act of 1995. Our actual results may differ materially from those projected due to risks and uncertainties including those detailed in our Annual Report on Form 10K filed with the SEC. Any forward-looking statements represent our estimate as of today. It should not be relied on as representative of our estimates at any subsequent day. Further, forward-looking statements and risk factors information is included in the press release we issued earlier today reporting first quarter results. Foreign exchange had approximately a 1 percent unfavorable effect on revenues for the first quarter of 2002. Our operating metrics though remained solid during Q1 with gross profit margin percents unchanged from the last quarter, and that's 2.5 points from a year ago. This year-on-year improvement in gross margin percent is mainly a result of favorable product mix sold. Manufactured versus non-manufactured, the percentage of sales to third party distributors, which will be essentially share margins and the inclusion of collaborative revenues from Union Biometrica for which the majority of costs are included with R&D expense, not cost of product sales. 02:45 We anticipate the gross margins to improve on a year-to-year basis; however, we report -- however, the quarterly mix of revenues will cause fluctuations. First quarter R&D and SG&A spending remained consistent with Q4, 2001 in both absolute dollars and approximate percent of revenues. When Q4 SG&A is adjusted for a one-time severance and related costs of approximately $450,000. Compared to the first quarter last year, R&D spending has increased from 5 percent of revenues to approximately 8.5 percent due mainly to the increased level of R&D spending at Union Biometrica. Other incomes for the quarter netted to $41,000 and consisted primarily of approximately $94,000 net interest income and a currency loss of approximately 44,000; this compares to net income for Q1 of last year of 344,000 consisting primarily of 546,000 net interest income offset by a currency loss of approximately $207,000. The reduction in net interest income results in the earned interest rate in 2001 being approximately three times higher than the current rate of interest being earned, as well as the reduction of the amount of cash being available to earn interest, which is the cash being used for acquisitions during 2001. The charge to amortization and goodwill and intangibles for 2002 excludes amortization of goodwill and certain intangibles as a result of the company adopting SFAS 142, goodwill and intangibles. This accouting rule requires the goodwill and certain intangibles to be [tested] for impairment annually rather than doing the amortize monthly. Had this rule been adopted in 2001, the charge to amortization would've been approximately $10,000 compared to the Q1, 2002 charge of 305,000. 04:44 We ended this quarter with approximately 30 million of cash and cash equivalents, approximately a $650,000 increase from year end. Before turning the call over to Chane, let me say that we still feel it's important to discuss the results on a basis that excludes non-cash, non-operating, and exceptional one-time items as we've done since our IPO. Accordingly, Chane's comments here will be made in reference to the pro forma format issued in our earnings press release. We feel this presentation is easy to understand, and we believe it is a more meaningful way to present our business results. This discussion will exclude the charges for amortization of intangibles, stock compensation expense, one-time severance and related costs, and a warrant interest income -- interest expense and income. Chane.

Thank you Su. Good afternoon everyone and welcome to our call. The first quarter of 2002 gave us a very strong start to the year. Orders were up by 56 percent and revenues were up 41 percent before the effects of foreign exchange, raising our backlog approximately $700,000. We also have continued our trend of increasing revenue each quarter now for eight consecutive quarters and for year-on-year growth for 15 consecutive quarters. Our growth was largely due to the strength of the ADMET business around the world and the acquisitions we completed last year. Approximately half of our growth has come from our core business and growth in the business as we acquired as we leveraged the HBIO infrastructure. The balance of the growth was the purchase growth from last year's acquisitions. Our operating profit continues to increase in spite of the investments we've been making in Union Biometrica subsidiary, due in large parts to improvements in gross margins that Su mentioned earlier, and our leveraging of the HBIO infrastructure to support our 2001 acquisition. David will discuss more specifically our marketing activities.

That concludes my comments on first quarter performance. Now, for guidance on Q2 of the year. We expect pro forma EPS to be 6 cents and the revenues to be in the $13.5 and $14.5 million range for the second quarter, and we remain comfortable with our previous guidance for the year of 25 to 30 cents pro forma EPS and 55 to 60 million in revenues. I will now turn the call over to David Green.

Thank you Chane. Q1 was a strong growth quarter, and I'll provide you further analysis of resources of this growth. I will discuss end user segments, capital equipments, expense items, and geography. In contrast to some of the tools at our [discovery] companies, we've seen growth in demand in USA from all end user segments, including pharmaceutical companies, biotech companies, and academic institutions. Demands were particularly strong in the pharmaceutical and biotech segments. In addition, we have seen strong demand for high-priced capital equipment such as our COPAS model organism screening technology and [indiscernible] Isolated organ testing equipments, and we have seen strong demand for lower price point, specialized equipment such as syringe pumping ventilators. We believe the contrast of the strong demand that we have seen versus the weak demand seen by some others is due to three reasons: Firstly, the specialized and unique nature of our products. Secondly, the targeting of these products at bottlenecks in drug discovery, and third, the fact that unlike gene sequences and high [indiscernible] screening equipments, there is not already a large installed base of our capital equipment. Specifically referring to our COPAS technology from model organism based drug screening, major customers for COPAS in the third quarter included three major pharmaceutical companies, each of which is in the top 20 worldwide - The Yale University, The University of Wisconsin, and The University of the [Mediterranean] in Massey in France. We had previously estimated that Union Biometrica would be diluted approximately 1 cent per share in the first quarter, which it was. Our current order rate and pipeline of prospects is tracking considerably ahead of third quarter. Our goal is the Union Biometrica to reach breakeven in the second quarter and to make a positive contribution to EPS in the third and fourth quarters. Finally, geographically, we've also seen good growth in Japan and Europe as well as in USA. Looking forward into the balance of the year, we expect to see revenue growth in the ADMET business driven primarily by new catalogue launches. By the end of March, we distributed approximately 20,000 catalogs under the Warner instruments name with a greatly expanded product collection. This catalog is positioned as the one-stop shop store for all the researchers needs in the cell and tissue physiology areas.

This catalog has over three times as many pages as had the Warner catalog prior to us acquiring the Warner business last summer. In addition, we'll mail this catalog to both Warner and Harvard mailing lists, approximately tripling the distribution of this catalog. This is a good example of what we mean by leveraging our distribution channels. Although this catalog has only been on the street for approximately four weeks, we've already taken significant new orders directly attributable to this catalog. Later this year, we plan to launch similar new catalogs under the [Kieger] fax name aimed at the Isolated Organ research market and also a new products catalog under the Harvard Apparatus name. We believe these strong marketing programs will continue to drive revenue growth in the ADMET business. In the molecular biology business conducted primarily under the Biochrom name and sold primarily through our long-standing partnership with Amersham Biosciences who expect to reduce the new product lines acquired with [ASICs HiTech] to Amersham later this year. These include low volume dispensers and [plain] needles. We also recently launched a line of spectrophotometers to sail outside Amersham, primarily on an OEM basis. We believe these new product launches will drive revenue growth in this business.

Finally, let me talk about acquisitions. In addition to the organic growth I've just described, we continue to pursue strategic acquisitions. While the timing of these is inherently uncertain, the environment for making acquisitions remains favorable. We'll now open the call for any questions.

At this time I would like to remind everyone, in order to ask a question please press "star," then the number "1"on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Paul Knight.

David, what do you expect for -- could you give a range, perhaps, on revenue for the COPAS business that you won?

Currently, we've not provided a breakout by product line, because I think we really only do operate in one segment, which is tools for drug discovery. So we haven't given guidance below the revenue and earnings per share, although they did mention the impact of Union Biometrica on earnings per share in the first quarter was about negative one cent, and we expect it to be breakeven in the second quarter and then accretive there afterwards.

You mentioned you had basically landed six new customers in the first quarter, that's my tally, right?

Those are the major ones, yes.

And you.

They were more out there, but those are the major ones.

Okay, you [handed] others?

Yes.

Does your 55 to 60 chain -- that is excluding acquisitions for the year?

Yes.

What was internal growth on the non-COPAS business again?

The internal growth this quarter?

Yes.

About a half of our growth came from -- was organic or leveraging that -- our infrastructure growth in the acquisition.

Okay, thank you.

Thank you.

Your next question comes from the line of Thomas Flaten.

Good afternoon, guys. A couple of quick questions. Just to go back to Paul's question. So the 55 to 60 - I was under the impression that included the impact of acquisitions made in 2002. Is that incorrect?

Now that -- our number of 55 to 60 million is -- we've based upon organic growth of our current business, and in order to get to 60 million, it would be having significant increase -- impact to the COPAS product line. But it does not include additional acquisition.

Great. And with the launch of new -- of unit catalogs, what kind of a pricing increase deemed to you do you typically go about there, if any?

We typically don't introduce new prices coincident with new catalogs. We typically introduce new prices at the first of the year. So we put in price increases at the first of the year, which were in the 4 to 5 percent range across most of our product lines. We haven't seen any negative impact from pricing at all. And so the prices that will go out with the new catalogs will be the prices that are currently available.

Great. And Su, one question for you. Your tax rate was a little bit lower this quarter than I think we had anticipated. Do you expect that to continue or jump back up to the 36 and maybe a little higher than that level?

It's basically based on where the income happens to come during the quarter. Although tampered by the [APP 28], I expect it to be where it is now, but --.

So 34 percent is pretty good going forward?

Well, yeah. The [APP 28] requires you to keep looking at your estimates around the world quarterly and adjusting the rate accordingly.

Great. And then one final question if I could. The backlog increased by about 700,000. Could you comment on the total -- the absolute number of that backlog at the end of the quarter?

Our overall backlog is running about 3.6 million to 3.7 million.

Great. Thanks. Congratulations on a great quarter.

Thanks.

Thank you.

At this time I would like to remind everyone, in order to ask a question, please press "star" then the number "1" on your telephone keypad. We have a follow-up question from Paul Knight.

Chane?

Yes, Paul?

I guess, I'm back on -- I guess I got through. What's the acquisition environment like now? Are prices better than they were perhaps six months ago or in sometime last year? What are you -- what do you think you're having to pay now for a multiple of revenue for example?

Well, the kind of companies we've looked at Paul, traditionally we've been paying anywhere from 0.5 to, you know, 1.5 times revenue. I think the things we're looking at are still in that kind of range. We haven't seen much of a change there. There are some bigger acquisitions, however, that we're looking at where the prices look like they are down instead of being 3 times revenues or 2.5 times revenues, which in the past, we've always passed on those for getting more within our range, in our price range, which is 1.5 to 2 times revenues. So we are looking at some things that in the past we would've passed them.

Okay. Thank you.

At this time, there are no further questions.

Alright.

Thank you.

In that case, we thank everybody for joining us and look forward to a great quarter.

17:32

Thank you.

17:33

Good-bye.

This concludes today's conference call. You may now disconnect.