Harvard Bioscience Inc (HBIO) 2007 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Harvard Bioscience 2007 first quarter earnings conference call.

(OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded for replay purposes.

At this time, I will turn the presentation over to 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 for the first quarter ended March 31, 2007.

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, David will discuss some business trends and give an update on our divestiture process, and lastly 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, 2006 and other public filings.

Any forward-looking statements, including those related to the divestiture of our capital equipment business 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 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 directly comparable GAAP financial measure is available on the investor relation section of our website 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 website.

Look on the investor relation section and then click on the investor presentations or website icon as appropriate.

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

Lastly, all financial information presented on this conference 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.

During the first quarter, market demand remains strong for our products, particularly in the international markets.

Our revenue growth of 10% compares favorably to revenue growth of 8% during Q1 of 2006.

And continued the strong revenue growth we have achieved over the last year.

However, the 10% revenue growth in the first quarter of 2007 understates the strength of our core business as orders grew this quarter by 18%.

Our revenue growth was lower than our order growth, primarily because of vendor delays and delivering parts for our new spectrophotometers.

As a result, our backlog increased by $800,000 from December 2006.

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

We anticipate the economic trends to remain favorable, plus we anticipate generating revenues between 19.5 and 20.5 million at current exchange rates and reporting non-GAAP adjusted earnings per diluted share from continuing operations between $0.07 and $0.08 for the second quarter of 2007.

Our full-year guidance remains unchanged as we expect to generate revenue between 80 and $83 million and report non-GAAP adjusted earnings per diluted share from continuing operations between $0.29 and $0.31 without considering any potential 2007 acquisitions.

This non-GAAP adjusted earnings per diluted share from continuing operation 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 tax returns for continuing and discontinuing businesses.

I will now turn the call over to David Green.

David?

Thank you, Chane.

As Chane mentioned first quarter results continued strong growth trends in 2006.

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

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

In particular, demand from pharma, biotech, and industrial customers in the U.S.

improved in 2007 continuing the trend from 2006.

Academic and government spending in the U.S.

was relatively weak in the quarter.

Outside the U.S., demand remained strong.

During the second quarter of 2007, we continued our investment to drive growth with the launch of our third generation of our popular GeneQuant range of life science spectrophotometers.

These new products include our industry-leading CCDRA spectrophotometer technology, which allows us to significantly broaden the range of applications from UV to near infrared while reducing the time taken to read a sample from around one minute to around 8 seconds.

These new products also have very low cost of ownership with long life Xenon lamps and no moving parts.

Gross margin in the first quarter was slightly down from a year ago, primarily due to a higher proportion of lower gross margin business of our Asys subsidiary, which includes the Anthos business we acquired last year.

And under absorption of manufacturing overhead due to the delays in the delivery of parts to the new spectrophotometers that I just mentioned.

While our gross margin on the Anthos business is lower than our average growth margin, there are very few selling expenses on these products and the operating margins on these products continues at high levels.

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 have recently signed a nonbinding letter of intent to acquire a business whose product will be complementary with our Harvard apparatus product line.

We believe that the environment for these acquisitions remains favorable.

Finally, I'd like to update you on the divestiture of our capital equipment business.

During the quarter we have made significant progress toward completing the divestiture of our capital equipment business.

During the quarter we have made significant progress towards completing the divestiture of the capital equipment business.

However, we've not yet reached a definitive agreement.

The leading candidates to acquire this business is in the process of obtaining the necessary financing to acquire the business.

If the financing is successful, the deal is likely to close by the end of the second quarter.

We've recently became aware of a new posting regarding the divestiture of the Union Biometrica subsidiary included in our capital equipment business.

This posting was incorrect.

When we have reached a definitive agreement on the divestiture of the capital equipment business, the Company will announce it in the press release.

I'd now like to turn the call back over to Bryce for some additional financial highlights.

Thank you, David.

The Company continues to report a strong balance sheet.

As of March 31, 2007, we had cash and cash equivalents of $9.6 million.

$8.6 million of the cash was held in our continuing businesses and $1 million was held in our discontinued businesses.

The balance outstanding on our revolving credit facility at the end of the first quarter was $1.5 million compared to $8.5 million outstanding on the line at March 31, 2006 and $3 million outstanding at December 31, 2006.

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

Our net cash position at March 31, 2007 including our discontinued businesses was $8.1 million, an increase of $4.7 million from $3.4 million a year ago.

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.

As of March 31, 2007, accounts receivable balances were $11.8 million and inventory balance was $12 million.

DSOs in the first quarter were 57 days, up from 50 days 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.

To the extent that our international sales remain strong, DSOs are likely to remain at current levels.

Inventory turns during the first quarter of 2007 were 3.4 times, down from 3.6 times a year ago.

The decrease in inventory turns is primarily the result of an increase in inventory due to the vendor delays in delivering parts for our new spectrophotometers.

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 continued and discontinued businesses is expected to be between 32 and 35%.

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

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

(OPERATOR INSTRUCTIONS) And your first question comes from the line of Paul Knight representing Thomas Weisel Partners.

Please proceed.

Hi, guys.

This is [Steven Willey] in for Paul Knight.

I guess sales abroad are pretty strong again this quarter.

Can you just kind of break out which products are selling particularly well in those markets?

Yes.

The strongest product lines in the international markets today is really the Harvard Apparatus product.

The preclinical testing product.

And so you pretty much imagine that preclinical growth will continue in these markets at a pretty good rate?

Yes, there's no reason at this point in time to anticipate any change for the balance of the year.

I'm optimistic about both Europe and Asia to continue to be strong.

And those are the assumptions we've made in our guidance.

Great.

And so bookings were up 18%, shipments were down 10%, and that was mostly attributable to lack of parts for the spectrophotometers.

Could you elaborate on that product a little bit?

Is that just a product that determines DNA and RNA concentration of purity?

Is there something more to that?

First of all shipments were up 10%, not down 10%.

Oh, yes, I'm sorry.

Bookings are up 18% shipments were up 10%.

The $800,000 we put in backlog was largely due to spectrophotometers.

DNA, new products that David explained, DNA calculators as well as some of the products we acquired when we acquired Anthos.

Great.

And you said that you're still looking for possible bolt-on acquisitions.

Is there any kind of a price cap, I guess or multiple that you're looking for?

Yes, I don't think there's really a price cap.

The way we've approached tuck under acquisitions is we look for acquisitions that are complementary product lines, that are of a size that we can typically gain some benefits either on the manufacturing side, or the sales and marketing side.

So although we buy it as often as a complete product line or complete entity, several years after we've owned it typically we've been able to improve the revenues and improve the gross margins and operating margins.

Those are really our criteria for looking at acquisitions.

And typically we expect them to be accretive to earnings per share in the quarter in which we acquire them.

When I say that, what I mean is on a non-GAAP basis.

I don't mean counting step up in inventory and amortization of intangibles and things like that.

I'm talking about on traditional operating margin, the kind of way that we report our adjusted results.

We expect them to be accretive immediately in the quarter that we acquire them.

Those are really the criteria we set for doing the acquisitions rather than having any sort of price cap or size cap for them.

So it's a functionality then issue.

Okay, that's great.

And you imagine that the capital equipment sale is probably going to be an end of 2Q quarter event, if I heard that correctly?

Yes, if I could reiterate what I said earlier.

We're in discussions with one of the people who are bidding on the business to close the acquisition.

They require financing to get it done.

That financing is done, it will likely close before the end of the second quarter.

Great.

Then just one more quick question if I may.

On the last page of your press release when you lay out your organic revenue growth, you don't have any acquisition revenue in there.

So am I to assume that there were no sales of the Anthos products or?

Are those being treated as legacy?

I think you're looking at 2006.

If you look at 2007's March 31, you'll see 7.7%.

Oh, got you.

Sorry about that guys.

That's okay.

I appreciate you taking my questions.

Thanks.

Thank you very much.

(OPERATOR INSTRUCTIONS) And your next question comes from the line of [Carrie Nelson] representing Sky Stone Capital Management, please proceed.

Hi.

Could you just maybe give us a sense of the size of the acquisition on which you signed the LOI?

As you know, Carrie, until these are done, they're not done.

But the products will be complementary to Harvard.

It's about an $8 million deal.

And as David said earlier, we would expect it to be immediately accretive.

Terrific.

Thanks.

And your next question comes from the line of [Jeff Macon], with [Courtside Capital].

Please proceed.

Hi, just a follow-up on that last question.

Just a clarification.

Is that 8 million in revenue, Chane?

8 million in revenue.

And just to extend on that, how full is that pipeline of potential acquisitions assuming this one gets done?

Well, traditionally, we probably have half a dozen things that we're looking at actively.

My goal, as I stated last quarter is still the same is to try to close two of these this year.

Close two of these this year, great.

And this would be one of them?

Great.

And the parts that were delayed in receipts to get out the products that you got orders for.

Have those parts been received at this point?

Or is that delay ongoing?

Yes, no, that is -- that's behind us.

They were really parts that were ordered from our China distributor, they are mirrors for the spectrophotometers.

And there was a delay and that affected a couple of product lines.

But that -- that's behind us now.

We've received the mirrors.

So at this point in the second quarter, have the orders for those products already been fulfilled?

Can't answer that question, don't know.

Fair enough.

But the supply chain shouldn't affect things?

No, I would anticipate that we would be able to ship most of that backlog and have a normal kind of shipment in the second quarter to make up the shortfall.

The backlog build in 1Q.

Great.

Thank you very much.

And continued good luck.

At this time, there are no further questions.

I will now turn the call over to Mr.

Graziano for closing remarks.

Thank you, all, we appreciate you joining our conference call today.

We're pleased with the performance of the first quarter.

We remain very encouraged about the prospects for the balance of 2007.

Thanks again for joining us.

Have a great evening.

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.