Harvard Bioscience Inc (HBIO) 2004 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2004 Harvard Bioscience earnings conference call.

My name is Bill and I will be your conference coordinator for today.

At this time all participants are in a listen only mode.

However, we will be facilitating a question and answer session towards the end of today's conference.

If at any time during our conference today you require assistance, please key star followed by zero and an operator will be happy to assist you.

I would now like to turn the conference over to your host for today's presentation, Mr. Bryce Chicoyne, Chief Financial Officer.

Please proceed, sir.

Thank you.

Good afternoon.

This is Bryce Chicoyne, Chief Financial Officer of Harvard Bioscience.

Thank you for joining us today to discuss the results for our fourth quarter and year ended December 31st, 2004.

Chane Graziano, our CEO, and David Green, our President, are also on the call today.

After the Safe Harbor statement Chane will present an overview of the quarter and 2004.

David will then discuss progress at Genomic Solutions in detail and some of our growth drivers.

In our discussion today we may make statements about 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 10K for the fiscal year ended December 31st, 2003 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 of any subsequent day.

Further information regarding forward-looking statements and risk factors is included in the Press Release we issued earlier this evening reporting the fourth quarter and year-end results.

Please note that during this call we may discuss non-GAAP financial measures.

For each non-GAAP financial measure discussed a presentation of the most directly comparable GAAP financial measure and a reconciliation of the differences between the non-GAAP financial measure discussed and the most directly comparable GAAP financial measure is available on the investor relations section of our Web site as part of our Press Release.

Additionally, any material financial or other statistical information on the call, which is not included in our earnings release as well as our earnings release, is available and will be archived on the investor relation's section of our Web site.

Look on the investor relation's section and click on the Press Release or Web site icon as appropriate.

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

I would now like to give a quick update on our Sarbanes-Oxley compliance efforts.

In connection with the Company's 2004 year-end financial review the Company has been assessing and testing its internal control over financial reporting as required by Section 404 of Sarbanes-Oxley.

At the present time the Company's management has not yet completed its review of internal control over financial reporting as of December 31st, 2004 and plans to utilize the SEC's exemptive order which granted companies an additional 45 days to include in their annual reports management report on internal control over financial reporting and the related auditor's report on management's assessment of the internal controls over financial reporting.

Finally, before I turn the call over to Chane I would like to apologize for the delay in our earnings announcement.

The delay was the result of additional time required to finalize the Company's income tax provision.

The Company believes that this delay was prudent to ensure the accuracy of our financial results.

I would now like to turn the call over to Chane.

Thank you, Bryce. 2004 was a very disappointing year for Harvard Bioscience.

Our results were well short of the expectations we had at the beginning of the year.

Even so we generated revenues of 92.6 million, non-GAAP adjusted earnings per diluted share of 17 cents and a strong cash flow.

The primary cause of our disappointment was the shortfall in revenues at our Genomic Solutions subsidiary.

From 2003 to 2004 revenues at Genomic Solutions decreased approximately 8.4 million and the contribution to our earnings per diluted share from Genomic Solutions decreased approximately 12 cents.

Additionally the Company dedicated significant time and expense to our Sarbanes-Oxley internal control compliance effort.

External costs related to the Sarbanes-Oxley effort including external audit fees relating to the audit of our internal controls were $1.3 million or approximately 3 cents per diluted share going to 2004.

However, we believe we have turned the corner.

Genomic Solutions returned to profitability on a non-GAAP adjusted basis during the fourth quarter of 2004.

This was driven by the impact of our restructuring efforts as evidenced by the increase in adjusted gross margin percentage for Genomic Solutions to 51.1 percent for fourth quarter, up from a low of 43.6 percent for first quarter.

In the fourth quarter, even with external costs related to Sarbanes-Oxley of approximately $800,000 or 2 cents per diluted share, the Company generated non-GAAP adjusted earnings per diluted share of 6 cents.

In looking forward to 2005 we remain encouraged by the improved performance of Genomic Solutions for the fourth quarter, the performance of our recent acquisitions and continued strengthening in the life science market.

We want to reiterate that the Company remains committed to our goal of restoring high revenue and profit growth by implementing our three-part strategy of innovation, acquisition and partnership.

With the current run rate of revenue, the Genomic Solutions stabilizing, the full year impact of the KDS acquisition and modest growth in the rest of the business, we expect to generate revenues between 95 and 100 million and non-GAAP adjusted earnings per diluted share between 22 and 26 cents.

This guidance does not include the impact of potential acquisitions in 2005, which we believe would be accretive to earnings.

The quarterly guidance range is in our Press Release and reflects the strong seasonality of the capital equipment market and continued spending on Sarbanes-Oxley compliance efforts of approximately $1 million during 2005.

I will now turn the call over to David Green who will go into more detail on Genomic Solutions and review some of the recent growth drivers.

David?

Thank you, Chane.

Although 2004 was disappointing, we still achieved overall revenue growth both for Q4 and for the year.

Many core product lines demonstrated solid growth including our cell biology products within the Harvard Apparatus product lines, our Libra [ph] brand spectrophotometers and amino acid analyzers within our Biochrom product lines, our COPAS large bore flow cytometer and MIAS high content screening systems within our capital equipment product lines.

In addition, the two most recent acquisitions, Hoefer and KDS, both showed revenue growth over their pre-acquisition run rate.

This growth was partly offset by some weakness in sales of spectrophotometers to GE Health Care so they complete their internal restructuring.

In Harvard Apparatus Biochrom, COPAS and MIAS product lines combined revenue growth was a strong 25 percent and because of fixed cost leverage growth in operating margin was even stronger illustrating the fundamental strength of the innovation, acquisition and partnership business model.

Clearly the disappointment of the year was Genomic Solutions.

The restructuring and reorganization of Genomic Solutions is now largely complete.

Following the shortfall in Q1 and Q2 we announced the closure of one Genomic Solutions factory out of three and laid off approximately 24 percent of the employees at Genomic Solutions.

Adjusted gross margin at Genomic Solutions has since increased from 44 percent in Q1 to 48 percent in Q2, 50 percent in Q3 and 51 percent in Q4.

On an adjusted basis Genomic Solutions returned to profitability in Q4.

Having returned Genomic Solutions to profitability we are now focused on growing those profits.

In Q3, Q4 and early Q1 of 2005 we hired additional sales and marketing personnel with solid industry experience to drive revenue growth.

The early signs in Q1 of Genomic Solutions are encouraging.

In Q2, 2005 we will consolidate the Cartesian operation in Irvine, California into the Holliston, Massachusetts's facility.

After a short transition period this is likely to further improve gross margin and allow a greater focus on growing revenues for the Cartesian product line.

In addition to hiring the new sales and marketing people we've also continued to invest to create new products.

In particular, in Q1 we launched our new plate array [ph] capability.

This enables the printing of hundreds of pico-liter [ph] spots of DNA or proteins into individual wells of either 96 or 384 well microtiter [ph] plates.

This enables hundreds of tests to be performed on the contents of well of a microtiter plate.

Historically only one test has been performed on each well of a microtiter plate.

This integration of the proven multiplexing capability of microarrays [ph] with the industry standard automation form factor of the microtiter plate allows the automation of large numbers of DNA or protein tests on large numbers of drug treated or patient samples.

It brings the technology of microarrays into the automated world of drug discovery and may also lead into diagnostics labs too.

We have several other new products for Genomic Solutions in the pipeline for launch during 2005.

Having turned the corner with Genomic Solutions and signs of returning to organic growth combined with an attractive pipeline of potential acquisitions, we look forward to a greatly improved 2005.

We will now open the call for any questions.

++ q-and-a

[operator instructions] Paul Knight of Thomas Weisel Partners.

It's actually Ross Meecham [ph] for Paul Knight.

I wanted to touch upon gross margins first.

You know you saw a nice improvement in the quarter.

Where do you guys see that going on a going-forward basis in terms of the rate we should look for, the sort of-- maybe not peaking at it but sort of approaching over the next year or so?

This is David.

We only give guidance or revenues and adjusted earnings per share.

We don't really give guidance for anything in between but I think the trend that you've seen, particularly the improving trend at Genomic Solutions is something that we can expect to continue.

I think the consolidation of the Cartesian operation in Irvine, California into the operation here in Holliston, Massachusetts will have a beneficial effect on gross margin at Genomic Solutions and obviously that will have an impact on the overall corporate gross margin on a consolidated basis.

With respect to your Biochrom line of products, what sort of growth have you seen there and going forward do you see that market being a nice area of growth for you guys?

In the product not sold through General Electric we've seen nice growth and we expect that to continue.

We've seen some of the products double in revenues.

In the case of the General Electric sales of the product is they have been restructuring this past year, there has been a little bit of struggle.

We believe that we saw that start to stabilize in the fourth quarter and we expect based upon their commitments to us at this stage to start to increase again this year.

And lastly can you just talk about acquisitions for a minute?

I know you guys have been sort of quiet for the last quarter or two as you've worked through the Genomic Solutions business issues that you've had.

Will we see a return to acquisitions at some point and what sort of acquisitions are you guys sort of looking at now in your pipeline?

Clearly acquisitions is a major part of our strategy in the past and it will be continued in the future.

We've looked at several and we've always had a pipeline of prospects.

We put a lot of things in delay as we worked and are working out the details of Genomic Solutions.

The kind of acquisitions that have been accretive for us and have been very successful have basically been tuck under acquisitions that plug into our current infrastructures.

Those are the kinds of things that we're looking at today and, therefore, if we do any in this year we would anticipate they would be accretive.

Great, thanks, guys.

Adam Chazan from Pacific Growth Equities.

Thanks for taking the call.

I was curious, David, can you just as you're consolidating from three ultimately down to one facility for Genomic Solutions what does that mean in terms of ultimate head count for that group?

Where were we basically a year ago and where do we end maybe '05?

With the consolidation of the Cartesian operation from Irvine, California to Holliston, Massachusetts we'll have a fairly small impact on the overall head count there.

The biggest reduction in head count was primarily what we announced in Q2 of last year, which is 36 people.

Since then we have put back some extra people into sales and marketing positions so if you take 36 down we're probably about 3 or 4 up from there so the net change is about 32 people from where we started from.

Okay and then just to kind of move on to talk a little bit about Hoefer and the plans around going direct there, can you detail how that developed over the course of last year and how we might see it kind of progress in '05 just from the standpoint pushing through a new direct channel.

Sure, this is David.

We acquired the Hoefer business in the fourth quarter of 2003 and obviously at the time the only distribution channel was the GE Health Care one.

It was a very explicit part of that deal that we would be expanding the distribution channels post closing and that's exactly what we've done.

In the second quarter we started adding additional third-party distributors such as some of the major scientific products distributors and also smaller niche distributors often in far flung countries around the world.

That was the first step of that program.

The second step was to launch sales initiatives under the Hoefer brand name direct into the Hoefer business.

They're not going through any distributors and that began through Hoefer's own Web site in the fourth quarter of 2004.

And I think both those additional distribution channels both going through non-GE distributors and also going through the direct channel I think will be growth opportunities for us in 2005.

Great.

Thanks, David.

Larry Nabor [ph] of Baird [ph].

Hi, this is Tom Russo [ph] for Larry.

First question, I was wondering if you could provide the organic growth figures for the fourth quarter as the overall company, the company ex-Genomic Solutions and then Genomic Solutions?

This is David.

We can take the overall picture-- obviously the overall number was negative for both fourth quarter and for 2004 as a whole because of the about $8.4 million reduction in revenues from Genomic Solutions going from '03 to '04.

As I mentioned in part of my talk earlier, excluding that revenues actually grew about 25 percent in the business outside of the Genomic Solutions product lines and as I think I mentioned because there are some significant fixed cost leverage in some of those businesses that we brought in we saw operating margin grow even faster than that 25 percent.

And a big contribution to that 25 percent was the addition of the Hoefer product lines and the KDS product lines, although both those product lines grew on an organic basis from their pre-acquisition run rates.

Within what remains the strongest organic growth rates we saw were from the MIAS, microscope image automation system eye content screening platform and also the COPAS large bore flow cytometry platform.

Those both showed very good organic growth rates.

The Harvard Apparatus business showed very slight organic growth rates and the Biochrom business, the GE part of that actually declined.

Outside GE grew quite significantly.

Thank you.

I was also wondering if you could touch on-- I know you didn't want to provide gross margin guidance but can you give us an idea what tax rates should look like next year?

I think the range would b 36 to 38 percent.

Okay and lastly do you expect Genomic Solutions to be profitable on an adjusted basis in Q1?

Yes.

Okay, thank you very much.

[operator instructions] At this time we have no further questions.

If there are no further questions I'd like to thank all of you for joining us in our call today and we look forward to a much stronger 2005.

Thank you.

Thank you, sir, and thank you very much, ladies and gentlemen, for your participation in today's conference call.

This concludes the presentation and you may now disconnect.

Have a good day.

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