Harvard Bioscience Inc (HBIO) 2007 Q2 法說會逐字稿

Welcome to the second quarter 2007 Harvard Bioscience, Inc., earnings conference call.

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

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

We will facilitate a question-and-answer session toward the end of this conference.

(Operator Instructions) I would now like to turn the presentation over to your host for today's call, 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 our results for the second quarter of 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 the divestiture of our capital equipment business, and, lastly, I will present some additional financial highlights.

In our discussion today, we may make statements today 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 second quarter results.

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

For each non-GAAP financial measure discussed, we have made available as part of our press release or on our website in the Investor Relations section, a reconciliation to the most directly comparable GAAP financial measure.

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 on our website.

Look on the Investor Relations section and click on the "Investor Presentations" or website icon as appropriate.

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

Our website is located at www.harvardbioscience.com.

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 second quarter revenues increased $2.2 million or approximately 12% to $20.4 million compared to $18.2 million for the same period in 2006.

In particular, our Harvard Apparatus international subsidiary located in UK, France, Germany, and Canada, all reported strong revenue growth for the quarter.

Also contributing to the second quarter performance was strong market demand for our Biochrom subsidiary new UV Vis platform spectrophotometers, Asys plate readers, and our Warner Cell biology products.

Additionally, the acquisition of Anthos product lines contributed 4.2% and foreign exchange rate fluctuations contributed 3.6% to our overall revenue growth.

As we look forward to third quarter of 2007, based on the current economic trend, we anticipate generating revenues between $19 million and $20 million and reporting non-GAAP adjusted earnings per diluted share from continuing operations between $0.07 and $0.08.

Also based on these trends, our full-year guidance remains unchanged as we expect to generate revenue between $80 million 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 operations guidance excludes amortization of intangible assets, the impact of any potential 2007 acquisitions, spot consultational expense, and the impact of tax benefits associated with filing consolidated tax returns for continuing and discontinued business.

I will now turn the call over to David Green.

David?

Thank you, Chane, and good afternoon, everyone.

As Chane mentioned, Q2 was a good quarter for revenue and earnings per share group validating our strategy of combining organic growth initiatives with tuck-under acquisitions.

This quarter, we expect that we'll begin to see the impact of one of those growth initiatives with the launch of a major new product.

This new product is our micrometer spectrophotometer.

Ultraviolet and visible wavelength spectroscopy usually referred to as UV Vis spectroscopy is a well-established market of over $500 million per year.

Through our Biochrom business and more than 20-year distribution relationship with GE Health Care, we have a strong presence in the life science segment of this market.

Like most of the life science market, such as liquid handling, high throughput screening and microarrays, scientists are now demanding miniaturization.

Traditional UV Vis spectroscopy uses approximately 100 microliters or more of liquid samples.

Our new microliterspectrophotometer can measure a sample as small as 2 microliters.

It does this by using only a single drop of the sample and thereby avoids the tedious process of diluting the sample to fill the cuvette.

In fact, it does away with the cuvette entirely.

We've applied for patents on our unique approach to handling these small volumes.

The microliter segment of the spectroscopy market has grown rapidly, and we estimated it has reach about 30 million to 40 million market size in only about five years and is still growing over 25% per year.

This quarter we launch our microliterspectrophotometer through GE under the brand name of NanoView.

We think the combination of our strong product with GE's level of distribution and excellent brand name will make for a very competitive offering that will gain market share in this high-growth market.

We look forward to working with GE to make this product a success for both companies.

In addition to developing innovative new products like the NanoView, we continue to pursue the tuck-under part of our growth strategy and the environment for these acquisitions are made favorable.

As we indicated last quarter, we signed a nonbonding letter of intent with an acquisition candidate.

We are currently in the due-diligence process, and we are making progress towards completing this transaction.

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

On our last conference call we mentioned that we had completed negotiations with the leading candidate to acquire our capital equipment business but that that candidate required financing to close the deal.

That candidate was not able to raise financing satisfactory to us, and we terminated their exclusivity.

We immediately entered negotiations with several alternative buyers, and within a few weeks we had signed exclusivity with a different party.

That party is now conducting its due diligence, and we expect the transaction to close within Q3.

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, who has additional financial highlights.

Thank you, David.

The balance outstanding on our revolving credit facility at the end of the second quarter was $200,000 compared to $6.5 million outstanding on the line at June 30, 2006, and $3 million outstanding at December 31, 2006.

Operating cash flows have allowed us to make repayment on our revolving credit facility.

Our net cash position at June 30, 2007, including our discontinued businesses, was $9.8 million, an increase of $6.5 million from $3.3 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 periods.

As of June 30, 2007, accounts receivable balances were $13.1 million and inventory balance was $12.7 million.

Day sales outstanding in the second quarter were 59 days up from 57 days a year ago.

The increase in DSOs is primarily due to an 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 second 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 building of inventory in anticipation of new product introductions during the third quarter of 2007.

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

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

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

(Operator Instructions) Paul Knight, Thomas Weisel Partners.

Chane, you had a 17.5 EBITDA margin, which in one year I see better in the last couple of years.

What's driving that margin?

What should we expect on margin, going forward?

Same?

Higher?

Or lower?

No, I think that's consistent with where we're trying to drive the business.

So it's in the 17%, 18% range.

And in organic growth of 4.5, roughly, where do you think organic is normally?

It's really difficult because of the breadth of the product line.

I think that we consistently have said in presentations, we believe we can run this business in the 5% to 6% to 7% range.

I believe fundamentally because of the breadth of the product lines, as we introduce some new products, as David talked about in the presentation, we will be able to grow the business organically at a faster rate in the future than we have over the last year or so.

And the tone of the calls this earnings season has been that pharma is showing a little more strength than perhaps it has in the past.

What do you see regarding that customer base?

We really haven't seen pharma in U.S.

very strong at all.

In July we saw a significant pickup in pharma, but other than that, it's been a pretty flat business for us.

What's happening outside of the U.S.?

Very strong.

Why?

I think there are a couple of issues going on.

One is the weak dollar makes our products pretty attractive in the foreign market, and I believe one of the reasons our subsidiaries are so strong is they are taking market share, and they're much more competitive today.

Should we expect more leverage from the acquisitions you've funneled the last year in terms of is there more margin to come or better organic growth to come now that they're within the entity for a while now?

The acquisition that we made last year of Anthos has impacted our overall gross margin by about a percent of every quarter since we've owned them.

We have made some investments to improve that and, as we go forward, I would expect to see us get back that point or so of margin overall.

It may not happen in third quarter, but as we go into next year with new products, I do see that happening.

And then, lastly, regarding this capital equipment business, can you give us any magnitude as to how large it is?

This is David.

The revenue run rates of business is around 17 million, something like that -- 17 to 18 million.

Is it cash flow positive?

With the exception of the -- although [Mackie] did a major restructuring in the middle of last year when we had significant payments for severance comp and things like that, it's been pretty cash neutral for us over the last two years, actually.

And then this write-down I notice in the press release of $2.9 million, that's noncash, I am assuming.

Correct.

(Operator Instructions) At this time, there are no further questions.

I would now like to turn the call back over to Mr.

Bryce Chicoyne for closing remarks.

This is Chane Graziano.

We appreciate you joining our conference call today.

We are pleased with the performance in second quarter and remain encouraged about the prospects for the balance of 2007.

Thanks for joining us, have a great evening.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect and have a good day.