Harvard Bioscience Inc (HBIO) 2006 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Harvard Bioscience 2006 fourth quarter earnings conference call.

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

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

We will be facilitating a question-and-answer session towards the end of this conference. [OPERATOR INSTRUCTIONS] If at any time during the call you require assistance, please key star followed by zero and a coordinator will be happy to assist you.

As a reminder, this conference is being recorded for replay purposes.

At this time I will now turn the call over to 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 to discuss the results of the fourth quarter full-year ended December 31, 2006.

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

After the Safe Harbor Statement, Chane will present an overview of the quarter and the year, David will go into more detail on our results and I will present some additional financial highlights.

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 10-K for the fiscal year ended December 31, 2005 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 issued earlier today reporting our fourth quarter and full-year 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, which is located at www.HarvardBioscience.com as part of our press release.

Additionally, any material, financial, or other statistical information presented on the call, which is not included in our press release, will be archived and available in the Investor Relations section of our Web site.

Look on the Investor Relations section and then click on the investor presentation or Web site icon as appropriate.

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

Lastly, all financial information presented on this call relates to our continuing operations unless otherwise stated.

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

Thank you, Bryce.

Good afternoon, everyone.

Harvard Bioscience had an excellent performance for continuing operations in the fourth quarter and full-year 2006.

We continue to see strong demand for our core products, particularly from the international markets.

This strong demand coupled with the investments we made in sales and marketing over the last year and a half and the acquisition of the Anthos plate reader product line enabled us to grow revenues by 22% for the quarter and 13% for the full-year 2006.

More significantly, our 2006 full-year non-GAAP adjusted earnings per diluted share from continuing operations grew approximately 37% to $0.26 per share from $0.19 in 2005.

I would like to point out some specific highlights from our fourth quarter and full-year financials.

During the fourth quarter, overall revenue grew 22%, 8% of this growth was organic, 8% was attributed to our Anthos acquisition, and 6% was the impact of foreign exchange.

Non-GAAP operating income was 16% after accruing $700,000 or 3% of revenues for performance-based bonuses, and non-GAAP adjusted earnings per diluted share from continuing operations was $0.08.

For the full-year 2006, overall revenue grew 13%, 9% of this growth was organic, 3% of the growth was attributed to our Anthos acquisition, and 2% was the impact of foreign exchange.

Non-GAAP operating income was increased 150 basis points over 2005 to 16% of revenue after accruing 1.5 million or 2% of revenues for performance-based bonuses.

Non-GAAP adjusted earnings per diluted share from continuing operations grew 37% to $0.26 from $0.19 in 2005.

As we look forward to the first quarter of 2007, our goal is to continue the trends of 2006.

We anticipate the economic trends to remain favorable and thus we anticipate generating revenues between $18.5 and $19.5 million at current exchange rates and reporting non-GAAP adjusted earnings per diluted share from continuing operations between $0.06 and $0.07 in the first quarter.

For the full-year 2007, we expect to generate revenue between 80 and 83 million and report non-GAAP adjusted earnings per diluted share from continuing operations to be between $0.29 and $0.31.

This non-GAAP adjusted earnings per diluted share from continuing operations guidance excludes amortization of intangible assets, the impact of any potential 2007 acquisitions, stock compensation expense, and the impact of tax benefits associated with filing consolidated returns for continuing and discontinued operations.

I will now hand the call over to David Green.

Thank you, Chane.

As Chane mentioned, fourth quarter results were strong with overall revenue growth of 21.5% versus Q4 last year.

Revenue growth for the four quarters of 2006 was 7.7% in Q1, 11.7% in Q2, 10.3% in Q3, and 21.5% in Q4.

This demonstrates the power of our strategy of combining organic growth with tuck-under acquisitions to generate both topline and bottom line growth.

Stiff revenue growth is a result of those improved market conditions and investments we made in sales and marketing.

In particular, demand from Big Pharma in the U.S. improved in 2006 and declined in prior years.

Investments we've made in driving sales in Japan, the European Union, and the rest of the world have shown results as have investments in new product developments, especially in spectrophotometer.

Gross margin in the fourth quarter was slightly down from a year ago primarily due to high cost portion of low gross margin tender business to China out of our Anthos subsidiary.

Although our gross margin on this business is lower than our average gross margin, we have very little selling expenses on these products and the operating margin on these products is at record levels in Q4.

Although in our guidance we have not included the impact of any further acquisitions, we continue to pursue the tuck-under part of our acquisition strategy and the environment to these acquisitions remain favorable.

Finally I would like to update you on the divestiture of our capital equipment business.

In the last quarter we've made significant progress towards completing the divestiture of our capital equipment business.

We received multiple written offers to acquire the business and we are now in the diligence phase; however, no definitive agreement has yet been reached.

When we reach a definitive agreement, we will announce it in a press release. .

I would now like to turn the call back over to Bryce to go over some additional financial highlights.

Thank you, David.

The Company continues to report a strong balance sheet.

As of December 31, 2006, we have cash and cash equivalents of $9.8 million, $9.4 million of the cash was held by our continuing business and $400,000 was held by our discontinued businesses.

The balance outstanding on our revolving credit facility at the end of 2006 was $3 million compared to $8.5 million outstanding on the line at the end of 2005.

Cash flow improvements have allowed us to make repayments on our revolving credit facility.

Our net cash position increased $5.5 million from $1.3 million at the end of 2005 to $6.8 million at the end of 2006.

For these purposes, we calculate our net debt or cash position by subtracting our total debt from our cash and cash equivalents at the end of the respective period.

Also during the quarter, we extended the terms of our credit facility three years, as it will now expire on December 1, 2009.

As of December 31, accounts receivable balances were $13.3 million and the inventory balances were $10.7 million.

DSOs in the fourth quarter were 57 days, up from 53 a year ago.

The increase in DSOs is primarily due to the increase in sales to foreign customers, who tend to pay a bit slower.

Inventory turns during the quarter rose to 4.1 times, up from 3.7 times a year ago.

Finally, the tax rate we expect to apply to our non-GAAP adjusted pretax income from continuing operations, which excludes the tax benefits of filing consolidated tax returns for the continuing and discontinuing businesses to be between 32 and 35%.

The comparative period excludes the capital equipment business, which is classified as discontinued operations, unless it was specifically mentioned.

We would now like to open up the call for any questions.

[OPERATOR INSTRUCTIONS] and your first question comes from the line of Paul Knight with Thomas Weisel Partners.

Please proceed.

What did you have as organic growth in the quarter, Chane?

8%.

Talk about it geographically.

And then can you talk about what you're seeing in the preclinical market, specifically?

And then the third question is, I know you've made a lot of initiatives in the molecular biology area.

Where are you with that?

The bulk of the growth in fourth quarter and for the year, actually, came from the international markets.

It was strong in China, Japan, and also Europe.

The U.S. in fourth quarter, we did see an increase as David had indicated in the pharmaceutical industry compared to the other quarters and compared to last year.

If I can answer that.

If you look at it across the business segment, the strongest part of the business in the fourth quarter was the preclinical segment of the market.

And then the question on molecular biology and what you try to build there?

Are you speaking specifically about spectrophotometer and plate readers?

Yes.

Yes.

To be honest with you, that business was very strong for the entire year.

The General Electric business has been the soft spot of that as they've gone through their reorganization and restructuring.

But the balance of the business has been strong around the world.

And then, you had done the Austrian plate reader business, when was that done, Chane?

That was done in June.

And how is that acquisition rolling out now for numbers, for contribution?

Actually, the kind of revenues that that's been generating, it's about $1.5 million a quarter, roughly.

And some of that business -- a significant portion of that business is Chinese -- business in China, which is mainly large tenders and that's the business that David was referring to that has lower margins, but relative low cost basis but is a strong contributor to the operating profits.

And then the last question is on discontinued operations.

You finished, I think, a major reorg of those operations in the first half of the year.

Is there anything you've had to do since then regarding those business lines?

Excuse me, no, Paul, this is David.

You're correct.

We did undertake a major restructuring and relocation of part of that business, part of the discontinued operations business starting in the middle of last year.

The manufacturing in June side of that was down by about Q3 and since then we've really been just doing the cleanup on that.

We had a few vacant slots we had to refill here.

But by now, I would say that's virtually entirely complete by this point.

And no, I don't anticipate any further action like that in the business.

I think the business is now on a very nice cost structure, much lower than it was at the start of last year.

In fact, in the fourth quarter within the Genomic Solutions product line we even saw a return to growth for the first time in eight quarters.

So, no, I don't anticipate any further restructuring there.

And it's continuing to be cash flow positive?

It's either neutral or positive, yes.

Okay, thanks. [OPERATOR INSTRUCTIONS] As a reminder, ladies and gentlemen if you wish to ask a question please queue star follow by one on your touch tone telephones.

And there are no further questions.

If there are no further questions, I'd like to thank you on behalf of the management team for joining us tonight and have a great night.

Thank you.

Thank you for your participation in today's conference.

Ladies and gentlemen, this concludes the presentation.

You may all disconnect, and have a good day.