Harvard Bioscience Inc (HBIO) 2003 Q2 法說會逐字稿

Good afternoon my name is Tracy.

I will be your conference facilitator today.

At this time, I would like to welcome everyone to the Harvard Biosciences 2003 second quarter earnings conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' 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.

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Thank you.

Ms. Luscinski you may begin your conference.

Thank you.

This is sue Luscinski.

Thank you for joining us today to discuss our second quarter results.

Chane Graziano and David green our president are also on the call today.

I will take you through the results of the quarter, primarily in GAAP format and Chane will present an overview of the quarter.

David will discuss our pro forma results further, as well as discuss our technology growth initiatives.

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 Reform 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 10-K for the fiscal year ended December 31st, 2002, filed with the SEC, and other public filings.

Any forward-looking statements represent our estimates as of today and should not be relied upon as representing our estimates as of any subsequent day.

Further information regarding forward looking statements and risk factors is included in the press release we issued yesterday reporting second quarter results.

Any material financial and other statistical information presented on the call, which is not included in our earnings release, as well as our earnings release itself, is available and be archived on the investor relations section of our web site.

Click on the investor relations button and then click on the press release or web cast icon as appropriate.

A replay of this call will also be archived at the same location on our web site.

Foreign exchange had a favorable affect of approximately 4% on revenues for the second quarter of 2003, when compared to the same quarter last year, due primarily to the strengthening of the British pound sterling and the euro against the U.S. dollar.

On a year to date basis, the favorable foreign exchange effect is approximately 3.8%.

Cost of product sales through the quarter included a charge of $205,000 related to the orders that were sold during the second quarter for fair value adjustments made to the vin Torre and backlog acquired with the acquisition of Genomic Solutions, GTX and GeneMachines.

There remains an approximately 100,000 of fair value you adjustments related to these three acquisitions.

Our gross margin of $11,418,000 for the second quarter was negatively impacted by this charge, thereby reducing our gross margin percent by approximately 1 percentage point.

Without this charge of 52% for the quarter, our gross margin percent increased approximately 1-2% from the second quarter 2002, which was 51.5% and decreased slightly from the first quarter 2003 which was 52.2%, again after adjusting for first quarter 2003, for fair value adjustments related to the acquisition of genomic solutions BTX and GeneMachines.

For the year, cost of product sales includes $538,000 related to orders that were sold during the year, since the acquisitions of genomics solutions, BTX and GeneMachines for fair value adjustments made to inventory and backlog acquired.

Gross margin of $21,256,000 was negatively impacted by approximately 1 percentage point.

Without this charge, at 52.1%, our gross margin percent increased about a half percentage point compared to our gross margin percent of 51.7% for the first six months of 2002.

Fluctuations of our gross margin percent is expected due to customer and product mix.

SG&A spending at $6.8 million is 30% of revenues for the quarter, compared to 3.9 million or 28.7 of revenue for the second quarter of 2002.

This increase in two-two spending year to year is due primarily to acquisitions 2.8 million of the increase relates to acquisitions made since the second quarter of 2002.

The absolute dollar spending increase also included approximately $178,000, due to the effect of the increasing in foreign exchange rates.

Since genomics solutions uses a direct sales force to sell their products, SG&A spending as a percentage of revenue is higher than the traditional HBIO spending rate for sales through catalog or distributors.

The annual percentage rate of SG&A revenues is in the range we expect although quarterly will fluctuate.On a year to date basis SG&A Spending at 13.2 million, 31% percent of revenues compared to 7.3 million dollars and 28.and a half for the same period last year.

Approximately 5.4 million dollars of the increase in year to year spending is due to acquisitions.

An additional 335,000 of the increase is due to exchange rate fluctuations.

Historically the HBIO revenue cycle has not been impacted by the cyclical nature of the capital equipment market.

However, genomics solutions products do fall into that category and as such revenues for the first half of the year relative to the year are lighter than the average expected for the year.

R&D spending of 1.7 million is 7-1/2% of revenues for the second quarter of 2003, compared to the second quarter of 2002 of $1 million or 7.3% of revenues.

The 1.7 million includes approximately $770,000 related to the acquisitions we made since the second quarter of 2002.

The restructuring in 3rd quarter of 2002 and our subsidiary comes from the majority of net decrease in spending over 2002.

On the year to date basis, R&D was 3.1 million over 7.4% of revenues, compared to 2million, or 7.9% of the same period last year.

Approximately 1.4 million of the increase is due to acquisitions, made since the second quarter of 2002.

The combination of the timing and spending for R&D projects and restructuring in the third quarter 2002 and the union biometric subsidiary account for the remaining net decrease in 2002 spending.

Compensation expense is approximately 134,000 for the quarter compared to 281, 000 for the second quarter of 2002.

On the year to date basis, compensation expense is approximately 281,000 for the current year compared to 655,000 for 2002.

This expense is due mainly to options granted during 2000, free IPO, which will revalue for GAAP accounting to our expected public offering share price.

The charge for immunization of intangibles for the second quarter and year to date 2003 was 729,000 and 1,35 -,000 respectively, compared to 307,000 and 612,000 respectively for last year.

This increase is directly related to the acquisitions made since the second quarter of 2002.

Other expenses of the quarter of $1 million included approximately 815,000 in certain one-time charges related to an arbitration award to the former shareholders of [inaudible] Other expenses included net interest expenses of approximately 53,000, compared to net interest income of $92,000 for the second quarter of 2002.

On a year to date basis, other expenses included 26,000 in net interest expense, compared to net interest income of 39 for 2002.

This shift from interest income to interest expense is due to cash and interest bearing debt being used to fund acquisitions since the second quarter of 2002.

Lastly, during the second quarter of 2003, we recorded a $143,000 foreign exchange loss compared to $173,000 foreign exchange gain for the same period last year.

On a year to date basis, for 2003, other expense included $30,000 foreign exchange loss compared to $277,000 foreign exchange gain for 2002.

Majority of these exchange gains and losses are related to debt amongst our subsidiaries.

We ended the quarter with cash of 9.2 million, $6.1 million increase, decrease since December 31st, 2002.

Approximately 6.6 million in cash was used to partially fund the acquisitions of BTX in January of 2003 and GeneMachines in march 2003.

An additional 6,million in -proceeds was entered into march of 2003 was used to fund the remaining purchase price of the acquisition of GeneMachines.

This $6 million bridge loan was entered into with brown brothers Herriman in company in anticipation of closing our revolving credit facility to fund future acquisitions of working Capital.

))) We're currently negotiating a $25 million revolving credit facility instead of the originally planned $12 million facility.

Also during the second quarter, 1.3 million in cash was used to settle a dispute between our subsidiary genomics solutions and alphametrics -- this amount was fully reserved for Genomic solutions on the balance sheet prior to our acquisition of Genomic Solutions. .

Before turning the call over to chane.

We believe it is useful to present pro forma results of the company as well as the GAAP results for the company, because the pro forma results, specifically the pro forma operating results approximate how we measure the operating results internally.

This is how we have discussed the company externally since our IPO.

Historically pro forma results exclude one-time nonrecurring charges, star compensation expense, and charges relating to acquisition such as restructuring, acquired inprocess research and development expense, amortization of intangibles, fair value adjustments for inventory and backlog required for , all net of tax.

A tabular reconciliation of second quarter pro forma results and pro forma guidance to comparable GAAP measures is included in the press release issued last evening.

Both Chane and David's comments today will be made in reference to all proforma formats issued in our earnings press release-- we feel this presentation is easy to understand and believe it is a meaningful way to present our business results.

Chane.

Thank you, Suzanne good afternoon, and welcome to our call.

We are very pleased with our second quarter 2003 results.

With revenues of over $22 million and pro forma operating profit over $3 million, we had a record quarter for HBIO.

Pro forma operating profit increased 50% compared to the second quarter of 2002.

This strong performance in a difficult economic environment was only possible because of our three part growth strategy of new product development, acquisition and partnership.

During the quarter, we continue to see lower demand for some of our more mature products, and an increase in demand for our newer technology products.

Both am mer shan and perk[inaudible] Connell mer businesses are still south as he they work their way through still sluggish economy and their internal restructuring. -- However, we did see our ADMET business strengthen, particularly in the U.S Last year, we saw demand for our ADMET products slow down in the second half of the year.

First in Europe and then in the U.S Since the January-february time frame, we have been seeing a continuing strengthening both in the U.S. and U.K.

France and Germany still are fairly soft, however.

Operationally, we maintained solid gross margins and saw expenses in line with revenues.

For the year through second quarter pro forma operating profit is up 40%.

These results were from strong performance across all major product lines.

We are now cautiously optimistic that the economic environment is starting to turn around.

Yet, it is still uncertain.

Therefore, we continue to remain comfortable with our previous pro forma EPS guidance of 26 cents per share for the year with anticipated revenues tracking in the 83 to 88 million dollar range.

I will now turn the call over to David who will discuss our results further and bring you up to date on our technology development growth initiatives.

David?

Thank you, Chane.

Good afternoon, everyone.

As Chane stated we achieved strong growth in revenue from pro forma operating income-- despite a poor economic environment.

We were able to achieve these strong operating results because our growth strategy combined organic growth with the acquisition of the complementary product lines.[inaudible] Field sales and service infrastructure, the facility costs and being a public company are somewhat fixed, we can by acquiring complementary product lines gain operating efficiencies that contribute to earnings growth.

In tough economic times, this strategy enables us to maintain substantial growth, even when organic growth is flat as it has been thus far this year.

The results speak for themselves.

From 1997, our first full year since acquiring the original Harvard apparatus business to our 2003 guidance, the compound after growth rate of revenues is 39%, strong pro forma profitability throughout.

Because of the industry is good underlying growth characteristics and has many small companies that make attractive acquisition candidates, we believe our strategy is capable of achieving our goals since becoming a major player in the tools industry and increasing shareholder value.

I'll now discuss some of our near term growth initiatives.

The BTX business was successfully transitioned from California to Holliston, Massachusetts in march.

BTX makes productsin inserting DNA, RNA and drug into cells, a process called transsection.[inaudible] We've invested considerable time and money to bring out the number 96 plate products after the first time enable high through put.[indiscernible] We believe the interest in RNAI or RNA interference has a method for establishing gene function and target validation will be a key driver of the growth of this product line as it is necessary as it is necessary to trans-- the RNI into the cells interest.

These products currently in beta test with several customers, including a major life science consumables company and a major pharmaceuticals company.

We expect to launch this product at the end of third quarter or early fourth quarter.

We also continued to invest in the automated microscopy image acquisition platform MIAS.

MIAS was originally developed by a major pharmaceuticals company who have a continuing -- we now have a second partner, again providing funding to further develop this technology for use specific to these areas.

Both these R&D projects are good examples of how we partner with others to contribute to our growth.

Finally, the environment for acquisition remains attractive and we continue to review several opportunities.

We'll now open up the call for any questions.

Questions?

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We'll pause for just a moment to compile the Q & A roster.

At this time, there are no questions.

Okay, thank you everyone for joining the call.

This concludes today's conference call.

You may now disconnect.