Harvard Bioscience Inc (HBIO) 2005 Q2 法說會逐字稿

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

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

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

We will be conducting a question-and-answer session towards the end of today’s conference.

For assistance at any time during the call, please press star zero and a coordinator will be happy to assist you.

I would now like to turn the presentation over Mr. Bryce Chicoyne, Chief Financial Officer.

Sir, you may proceed.

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 the three and six months ended June 30, 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 update on the planned divestiture of our Capital Equipment business segment and a brief history of our Apparatus and Instrumentation business segment.

Then David will review the second quarter results and guidance for the balance of the year.

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 due to risks and uncertainties including those detailed in our quarterly report on Form 10-Q for the quarter ended March 31, 2005, filed with the SEC and other public filings.

Any forward-looking statements represent our estimates as of today and should not be relied on 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 our second and year-to-date 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 website as part of our earnings release.

Additionally, any material, financial or other statistical information presented on the 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.

As previously announced, we intend to divest our Capital Equipment business.

We have recently engaged Thomas Weisel Partners, an investment bank to assist in this process.

Therefore, in this quarter’s earnings release and conference call, we will focus our attention on the continuing Apparatus and Instrumentation business to give our investors a better understanding of its historical performance as well as guidance for the balance of the year.

The Apparatus and Instrumentation business is made up of a broad array of products, which generally occupy strong market positions in relatively small market niches within the life science industry.

These products generally cost less than $10,000 and are usually not classified as capital equipment.

We sell these products through our catalog, websites, and distributors such as General Electric, Fisher, and VWR.

In this respect the Apparatus and Instrumentation business is more similar to a reagent or consumable businesses than capital equipment businesses.

We are not dependent on one technology or product line.

Although we distribute complementary products made by other companies for the convenience of our customers, approximately 90% of our revenues from this business come from our manufactured products.

Because of our broad range of products, and relatively low price, revenues for this business are generally more predictable than those for capital equipment.

Some of our major product lines are syringe pumps, ventilators, electroporation systems, organ systems, electrophoresis equipment, spectrophotometers and plate readers.

Our Apparatus and Instrumentation business has been very successful over a long period of time.

It has shown good growth and great profitability.

We have built this business through a combination of organic and acquisition growth, measuring organic growth as growth under Harvard Apparatus – Harvard Biosciences’ ownership, over the revenues during the twelve-month prior period to the business’ being acquired by us.

The Apparatus and Instrumentation business has shown organic growth averaging 10% a year from 1997 to 2004.

Since 1996, we have made 15 acquisitions into the Apparatus and Instrumentation business.

This combination of organic growth plus acquisitions has given this business a five-year compounded annual growth rate of 20% in revenues and 24% in adjusted operating income.

Note that this does not include corporate costs, which we do not allocate to our business segments.

Adjusted operating margin for this business has consistently been above 20% of revenues.

Going forward our goal is to continue this trend.

Organic growth has been driven by expanding distribution channels, utilizing our database of over 150,000 end user scientists and the introduction of new products.

Since we expect acquisitions to continue to be an important part of our growth strategy we have recently engaged an investment bank to assist us in identifying a much larger pipeline of potential acquisitions.

I will now hand the call over to David, who will review second quarter results and guidance for the balance of the year.

Thank you Chane.

Second quarter results for the Apparatus and Instrumentation business was strong with orders growth of 8% over both Q1 this year and Q2 last year.

Revenues grew 4% with the favorable effect of foreign exchange less than 1%.

Adjusted operating margin was again over 20% of revenues.

Note that until the Capital Equipment division is divested, Harvard Bioscience will continue to bear corporate costs for both divisions and therefore we will continue to report Apparatus and Instrumentation results and corporate costs separately until the Capital Equipment division is divested.

Once the Capital Equipment is divested, we expect corporate costs to decrease by an annualized $0.02 to $0.03 per share from 2005 levels.

Guidance for the balance of 2005 is as follows.

For Q3 we expect Apparatus and Instrumentation revenues to be between $16 million and $17 million and Apparatus and Instrumentation adjusted diluted earnings per share of $0.07.

We expect corporate costs to be $0.03 per diluted share for net Q3 adjusted diluted EPS of $0.04.

For Q4, we expect Apparatus and Instrumentation revenues to be between $17 million and $18 million and Apparatus and Instrumentation adjusted diluted EPS of $0.07.

We expect corporate costs to be $0.03 per diluted share for net Q4 adjusted diluted EPS of $0.04.

The EPS numbers assume a normalized tax rate of 40%.

On July 27, we announced our intention to divest the Capital Equipment business.

This process is moving forward as planned.

We expect to use the proceeds to pay down our $15.2 million in debt and to fund our growth strategy of tuckunder acquisitions into the Apparatus and Instrumentation business.

We will now open the call for any questions.

(Operator Instructions) Paul Knight with Thomas Weisel Partners.

This is Peter Lawson (ph) in for Paul Knight.

Could you detail what your EPS for continuing would be?

I’ll answer that question for you.

The guidance we’re giving for Q3 and Q4 is for $0.07 per share from the continuing Apparatus and Instrumentation business.

The reason that I mentioned that we are giving guidance separately for the earnings from the Apparatus and Instrumentation business and for corporate costs is because the corporate costs as reported for Q3 and Q4 would include costs that we are bearing for the Capital Equipment business, which is to be divested.

On a net basis, it’s seven minus three, which is $0.04 in both Q3 and Q4.

However, once the Capital Equipment business is divested, we would expect that the annualized corporate costs would drop by about $0.02 to $0.03 per share.

Does that answer your question?

I was really looking for this quarter.

I don’t seem to see it in the press release.

Second quarter or third quarter?

Second quarter.

We didn’t provide that for the Instrumentation and Apparatus.

For the whole business – what would that have been on a cash basis – the EPS?

I’m not sure I’m getting your question, actually.

On a GAAP-reported basis, the results for the three months ended June 30, the most recent quarter, were $0.90 per basic and diluted share as a net loss for the quarter.

That is because of the impairment charges we took in the Capital Equipment business for the quarter.

What we did is break out for you in the tables attached to the press release, what the different business lines produced.

That is exhibit #3.

It shows the Apparatus and Instrumentation business down to the operating profit level.

Also there is a breakout – it’s exhibit #5, which shows the side-by-side income statements for the Apparatus and Instrumentation business and the Capital Equipment business.

That goes down to the level of operating income.

It doesn’t go to the level of earnings per share.

What would that be at the earnings per share level?

The only way you could calculate it is to assume a tax rate.

Tax rate is almost impossible to apply by business segment because, of course, we pay our taxes by jurisdiction, not by business segment.

The only way you could get to that is to make an assumption as to what the tax rate is.

What we’ve said for the Q3 and Q4 guidance is we’ve given that with an assumption of a 40% tax rate, which is pretty normal for us.

Okay.

Thank you.

That’s great.

Adam Chazan with Pacific Growth.

Our math – just to do the math for other folks on the call – then there is about 4 million in corporate costs on an annual basis with 1 million coming out post the sale of the Genomic Solutions business.

Can you talk a little bit the growth scene in the continuing business going forward.

You discuss numbers that broach the double-digit growth rate area.

We saw 4% in the quarter.

Can you talk a little bit about what we’re seeing there?

What might get us back up above – or into the high single-digits or low double-digits as you’ve historically seen?

And then can you talk a little bit about the sale process and how that may or may not interfere with future tuck-ins.

How soon post the sale might we see additional tuck-in acquisitions?

I’ll try to answer all your questions.

If I miss some of the pieces, remind me.

Let’s go back over organic growth.

Organic growth for the Apparatus and Instrumentation business for the second quarter is about 4%.

Orders growth level is around 8%.

Obviously we’ve built backlog during the quarter for that business.

If you go back over a longer period of time – in fact, going back all the way to 1997, which was the first year under the current management team – the organic growth there was 10%, averaged over that period from 1997 to 2004.

That is a very long-term growth rate.

In terms of the sale process, we’ve already received a very nice number of unsolicited requests for information both from what you might call strategic buyers who are companies who already have an existing instrumentation business – a capital equipment business; and also from what you might call financial buyers who are perhaps not in the business today, but obviously have a desire to be in the business.

In terms of the impact of that sale process on the tuckunder process, I don’t think there is much impact between the two.

As Chane mentioned, we’ve hired an investment bank to assist us with the buy-side transactions.

That is totally separate to hiring Thomas Weisel Partners to help us with the sell side of the Capital Equipment business.

We’ve engaged a different and separate investment bank to help us with gaining more tuckunder acquisitions into the pipeline.

I think the two processes – the sell-side and the buy-side – are actually very complementary because we expect to use the proceeds from the sell transaction to fund the tuckunder growth strategy.

So, just to get this clear, we might see additional tuck-ins before we actually see the completion of the divestiture?

We certainly have the financial resources to do that.

They are not connected in that sense.

We do not need to complete the sale of the Capital Equipment business in order to fund tuckunder acquisitions.

Okay, that’s great.

Thanks David.

(Operator Instructions).

Tim Grey (ph) with Potomac (ph) Capital.

One quick question.

You refer to it as the Capital Equipment business that you are selling.

What does that actually encompass as far as the historical acquisitions that you have made?

Or is it just the Genomics or----

The exact split of the Capital business and the Apparatus is actually quite well laid out in our investor relations presentation.

We go through all of the revenue and operating margin history for the two businesses on a GAAP and a non-GAAP basis.

We also go through the brand names and the product lines that are included in the two divisions.

Basically what it is, within the Capital Equipment business, there is the Genomic Solutions product lines, which is mainly automation gear for genomics, proteonomics, and high throughput screening.

And then at the Union Biometrica product lines, which is mainly our COPAS large-bore (ph) flow cytometer, and also our MIAS automated microscope system for high-content screening.

Those are the basic product lines that comprise the Capital Equipment division.

What was the total amount paid for those three acquisitions?

Genomic Solutions we paid about 26 million for back in 2002.

For Union Biometrica we paid about 17 million for that.

That was about two-thirds – both of those, actually, were about two-thirds in stock and one-third in cash.

The Union Biometrica acquisition was in the summer of 2001.

Okay.

Thank you very much.

There are no further questions at this time.

I’d like to turn the conference back over to management for any closing remarks they may have.

I’d like to thank you all for joining our second quarter conference call today.

We look forward to returning our focus to core the Apparatus and Instrumentation business and reporting its future results to you.

Thank you and good evening.

Ladies and gentlemen, Thank you so much for your participation in today’s conference.

This does conclude the presentation.

You may now disconnect.

Have a great day.