Harvard Bioscience Inc (HBIO) 2005 Q1 法說會逐字稿

Good day ladies and gentlemen and welcome to the first quarter 2005 Harvard Bioscience, Incorporated earnings conference call.

My name is Megan and I'll be your coordinator for today.

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

We will be facilitating a question-and-answer session towards the end of this conference.

If at any time during the call you require assistance please press star followed by 0 and a coordinator will be happy to assist you.

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

Sir, you may proceed.

Thank you.

Good morning.

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

Thank you for joining us today to discuss the results of our first -- first quarter ended March 31, 2005.

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 David will provide more detail on our first quarter results.

In our discussion today we may make statements about our future expectations, plans and prospects that constitute forward-looking statements under the Safe Harbor Provision of the Private Securities Litigation Reform Act of 1995.

Our actual results may differ materially from those projected -- from those projected due to risks and uncertainties including those detailed in our annual report on Form 10-K-A for the fiscal year ended December 31, 2004, 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 which we issued last evening reporting our first quarter 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 recently comparable GAAP financial measure is available on the Investor Relations section of our website as part of our earnings release.

Additionally, any material, financial or -- or other statistical information presented on this call which is not included in our earning release, as well as our earning release, is available and will also be archived on the Investor Relations section of our website.

Look on the Investor Relations section and then click on the press release or website icon as appropriate.

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

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

Thank you, Bryce.

Despite a widespread slowdown in capital equipment spending in both pharmaceutical companies and universities, our Genomic Solutions subsidiary, which sells primarily capital equipment, continued to show improvement.

Orders for Genomic Solutions products compared compared with first quarter of last year grew and gross margins have improved significantly.

Genomic Solutions was profitable on an adjusted basis which ex -- which excludes amortization of intangible assets for the second quarter in a row.

As we stated last quarter, we believe we have turned the corner at Genomic Solutions and are now focused on growing it's revenues and profits.

However, the capital spending slowdown did have an impact on the sales of our high margin COPAS product line which fell short of our original expectations for the quarter.

During the quarter sales of core products. such as syringe pumps, spectotrometers and amino acid analyzers, grew significantly.

Sales of syringe pumps at Harvard Apparatus grew a very strong 15% over the same period last year.

Sales of spectotrometers and amino acids at our Bio -- amino acid analyzers at our Biochrom subsidiary, which had been weak for several quarters, primarily due to the reorganization of GE Healthcare, our largest distributor, grew at 8% over the same period last year.

Despite the constrained capital spending environment we are encouraged by the recent strength of our core product line, the number of funded prospects for our COPAS product line for the balance of the year and the progress we have been making at Genomic Solutions.

As a result, we believe our previous guidance for revenues and adjusted earnings per share is still achievable for 2005.

This guidance does not include impact of potential acquisitions in 2005 nor does it reflect the potential impact of foreign currency fluctuation.

I will now turn the call over to David Green who will go into further detail on our first quarter results and review some of the recent growth drivers.

David?

Thank you, Chane.

Although we're disappointed in our Q1 results overall, clearly we're very pleased with the progress that has been made at Genomic Solutions.

In Q1 last year gross margin at Genomic Solutions was 43%.

In Q1 this year it was 51%.

With the Cartesian product lines at Genomic Solutions being relocated to Holistern (ph) this quarter we expect margins to improve further.

If the sales level at Genomic Solutions followed the traditional seasonality of the capital equipment market, gross margins improve as we expect and expenses are deduced modestly by the relocation of the Cartesian business to Holistern we would expect Genomic Solutions to reach 10 to 15% operating margins in the fourth quarter.

Within Genomic Solutions revenue of our GeneMachines and BioRobotics microarrayers showed growth over Q1 last year.

As applications such as CGH, or Comparative Genomic Hybridization, and Protein Arraying start to replace traditional gene expression analysis.

In addition, we saw good growth in our synQUAD nanoliter dispensers driver by protein crystallization applications.

This growth was offset by weakness in 2-D gel to mask (ph) automation products, or Proteomics, and our nanoliter liquid dispensers for high throughput screening.

We're looking forward to the launch later this year of two new Proteomics automation products which we believe will return the Proteomics product line to growth.

As Chane mentioned, many other core product lines performed well in the quarter including syringe pump at Harvard Apparatus and spectrophotometers and amino acid analyzers at Biochrom.

Within Harvard Apparatus we saw strength in pharmaceutical, industrial and particularly biotech customers.

Academic spending was fairly flat with last year.

Geographically, Germany and Canada were weak though in Canada this was primarily due to the termination of a non-core optics product line last year.

The bioscience part of the Canadian business did well.

Most of the geographies were stable versus last year.

We're continuing to invest in expanding our product group management for both sales and marketing for Harvard Apparatus worldwide which we expect will drive growth in this business going forward.

We are also continuing to make investments in sales and marketing at our Biochrom subsidiary to strengthen our support for GE as well as direct and alternate distribution channels.

Although sales growth in these investments did not have much impact on Q1 revenues we anticipate them to be significant sources of revenue growth in the future.

In addition to our core products, some of our newer products are also starting to penetrate the market.

In Q4 last year and Q1 this year, we invested in developing a new version of our BTX 2001 system for electrofusion which we launched in Q1.

This system is used primarily to fuse two cells together during nuclear transfer cloning.

This system has been well-received by both distributors and end-users.

Renewed focus on our BTX product line with the addition of an experienced business unit manager should grow this product line during the balance of the year.

Another of our new product lines, our MIAS automated microscopy instruments, are continuing to be sold to the automation partnership, or TAP, under our OEM agreement with them.

TAP system, called Cello, is currently being used by leading pharmaceutical and biotech companies to automate cell culture.

Cell culture is rapidly becoming the bottleneck in both high throughput and high content screening labs.

The biggest disappointment for us in the quarter was sales of our COPAS large bore flow cytometry.

Revenues for COPAS were down significantly from what we originally expected for the quarter and last year.

COPAS is one of our highest gross margin product lines and this shortfall contributed significantly to a product mix in the quarter that was adverse to gross margin.

Based on a review of the prospects for COPAS sales for the balance of the year we do not think this is a trend and we expect COPAS sales in the future to return to historical levels.

As we hope these initiatives make clear, we are aggressively pursuing organic growth throughout the group.

With the situation improving at Genomic Solutions and as we expect to realize the benefits of many of the investments we have recently made we expect revenues and operating margin to continue to improve over over the balance of the year.

In addition, the environment for TAP and other acquisition remains attractive and we continue to review several possible TAP and acquisition candidates.

We'll now open the call for any questions.

(OPERATOR INSTRUCTIONS) And you first question comes from the line of Paul Knight with Thomas Weisel.

David, how big is the COPAS business?

It's a few million dollars a year.

And you believe it's improving?

Well, clearly it had a big disappointment in Q1.

But, as I mentioned, based off a review of the funded prospects, I want to make that very clear, the prospects that already have funding for the balance of the year, the issue on COPAS in -- in the first quarter was many of those prospects that we expected to get for the quarter lost their funding.

Either -- either as a academic grants or a couple of major pharmaceutical companies that cut back on capital spending in the quarter.

Looking at major pharma, what happened as the quarter rolled out?

Did it get better as Q1 ended?

Orders or sales?

And as Q -- as -- as the March quarter ended?

I don't think we saw any real change throughout the quarter.

I would say the quarter as a whole was disappointing.

Is Sanofi-Aventis a customer and is it a weak customer at that at this point?

For COPAS in particular, no.

I don't think they were -- they were a prospect for the sale of COPAS in the first quarter.

And I'm not sure they're on the prospect list right now.

Other product lines of ours have been weak at Sanofi in Europe.

And then on the microarray business, what are the -- what are the product lines and the company names that are involved in -- I would -- let's call it per -- the linkage studies that -- that are, I think developing, so can you take about the array's -- the array business line you have and how big they are and where we -- you think we are in that business development or business growth?

The -- the microarraying product line is the biggest single product line within Genomic Solutions and the two main brand names we sell under there are the BioRobotics brand name and GeneMachines brand name.

The applications there, which I -- which I think is really what you're getting at in your question, the applications there are definitely in transition.

If you went back, perhaps two or three years you would fins almost all of those microarrayers are being sold for spotting DNA, either CDNA or [INAUDIBLE - heavy accent] onto glass slides for use in -- in gene expression analysis.

That was -- that was almost 100% of the market.

Today, that changed quite dramatically and the -- the traditional gene expression business is probably slowing down, probably in decline at this point but what is contributing to the growth of that product line, remember all those orders for instruments increased in Q1 this year over Q1 last year.

What's contributing to that growth is new applications such as CGH, comparative generic hybridization, and also protein microarrays either spotting down antibodies or spotting down proteins, looking for protein / protein interactions.

And as I look to the future of that business I think that those kind of applications, not the traditional gene expression applications, which I think will drive the growth of those product lines.

Can I ask you a question Paul?

10% of the total revenue in the quarter those businesses or less.

I'm sorry, Paul, I didn't catch your question.

What's the percentage share that those businesses represent of Harvard Bio, David?

Capital equipment is around 25% of our total revenues.

Total cap equipment?

Right.

Capital equipment is about 25% of our total revenue.

And then BioRobotics and GeneMachines, how big are they?

I'm sorry, you're asking what proportion of that is the microarraying business?

Yes.

[INAUDIBLE] about a third and a half.

Okay.

Thank you.

And you now have a question coming from the line of Adam Chazan with Pacific Growth Equities.

Hey, thanks for taking the call.

I was hoping you guys could run down what transpired with GE over the quarter and your feeling as to the durability, or your visibility, into the, kind of, revenue stream stemming from your relationship with them going forward?

Yeah, Adam, Chane Graziano.

One of the things that happened last year, or actually for the last couple of years, as Amersham reorganized and then GE acquired them and went through the reorganization we had a considerable slow down in those revenues.

What we saw in first quarter this year and fourth quarter last year was revenues starting to stabilize.

GE has made a fairly strong commitment to support our product line going forward.

They've added an additional 15 people in the United States.

They now have, I believe, 50, or 55 people in the United States that all of them will be selling our products as well as other products.

It'll be one of their product lines.

And they have agreed to work with us to give us space in their office for a technical person to support their sales people in the field to manage their leads and drive their business for them.

So they made a much stronger commitment than they've ever been able to -- willing to make in the past.

So we're pretty encouraged by the results in first quarter, although they were down on a year-to-year basis relative to fourth quarter.

They stabilized well and second quarter starting well as, very well as well.

Okay.

And can you offer up any -- any thoughts or comments as to how your direct selling efforts are going, how that business is kind of coming together and -- and how you might think about either filling the -- the bags of the direct reps that you're going to be putting on the street going forward?

Where those products going to come from, where might they be focused and how does that contribute to the anticipated growth?

Well, in -- in the Biochrom business, which is really spectrophotometers, plate readers, liquid dispensers in the 5 to $10,000 a year range, we've been growing that business well through using alternate distribution and the [INAUDIBLE] product line and plate readers and dispensers have -- have been showing strong a growth there.

We'll continue to do that.

When we acquired Biochrom, 95% of the business came through Amersham at the time.

Today, 30% of our business is -- is direct either through alternative distribution or direct.

In some countries where we have the infrastructure in place we have put people like in France, which I believe will add significant to our growth as we go forward and we're starting to see some impact this quarter as well.

Chane, I apologize, I should have specified, I thought that was -- the question was more directed to the Hoefer efforts.

Okay.

Well, the Hoefer business is a lot like the Harvard Apparatus business.

It really is a catalog driven business.

And we will launch a catalog in second quarter.

At the end of second quarter there will be a catalog which will be a one-stop shop approach that we took with Harvard Apparatus and it'll be anything you need when you're working with electrophoresis.

That will be driven in the United States directly as a catalog business.

On an international basis it will be driven through distribution channels.

Okay.

We really won't have direct sales people in the field on that.

There'll be internal where -- where you call in and respond and then they provide tech support.

Okay.

That's -- that's great then.

I appreciate the -- the answers there.

Thank you .

Sure.

As a reminder ladies and gentlemen, it's star, 1 with any questions.

And your next questions is from the line of Larry Neighbor with Tho -- Robert W. Baird.

Good morning.

It's actually Tom Russo for Larry.

I was wondering, to touch back on Genomic Solutions, it sounds like things are definitely looking up.

Can you highlight what organic growth of revenues was for the first quarter and what organic growth expectations are that tie to the guidance of 95 to 100 million specific to Genomic Solutions?

Sure, Tom, this is David. [Cough] Excuse me.

Revenue for Genomic Solutions were actually down quarter to quarter Q1 last year to Q1 this year but orders were up.

And that's one of the things we find very encouraging particularly when you -- when you lay out the last four quarters as we went through the restructuring of Genomic Solutions.

It's not a big increase at this point but towards the end of last year, particularly the fourth quarter, it was when we rebuilt the sales and marketing group at Genomic Solutions as we transitioned the Genomic and Proteomic products from San Carlos, California to Huntington in England.

So obviously we had to rebuild the -- particularly the marketing side there, and we really only got that back to full strength in the fourth quarter.

So clearly that's not going to have a -- a huge impact immediately but I think we now have the right team in place to drive the growth of that business through the balance of the year.

As to our guidance for the year the organic growth assumption built into the Genomic Solutions business is very, very small.

We're not planning on having growth to -- to -- the solve the problem we've had at Genomic Solutions.

We think the restructuring was the right way to go.

Add one thing.

Growth -- organic growth in first quarter was 7%.

And if you look at first quarter revenues they were similar to fourth quarter revenues.

And because first quarter is normally seasonally low it would indicate that the trend is better than we have in our current budget.

Okay.

And just to follow up, the operating margins specific to that piece, it sounds like looking for 10 to 15% by the end of the year.

What -- what is -- how does that stand today?

In the -- in the fourth quarter of last year it was when we first got the Genomic Solutions business back to profitability.

There wasn't much profitability but it was positive.

It was low single-digit operating margin.

It was very similar in the first quarter because this year, which as Chane mentioned, it -- it's traditionally the seasonally weak quarter.

So, if you sort of in your mind offset for that seasonal weakness, I think that result was -- was better on a comparable basis than the fourth quarter and -- and by the end of the year given the things we mentioned that we -- we are doing, relocating the Cartesian product lines in particular into Hollistern where we think we can pick up a bit in gross margin and pick up a bit in expenses as well we think we can improve the margins going through the year and by the fourth quarter we think we can get to 10 to 15% operating margin on that business.

Okay.

Thank you very much.

And once again, ladies and gentlemen star, 1 with any questions.

And you have no further questions at this time.

I'd like to thank everybody for joining us our -- on our call today and we look forward to a much stronger balance of the year.

Thank you.

Ladies and gentlemen, we thank you for your participation in today's conference.

This concludes the presentation and you may now disconnect.

Good day.