Harvard Bioscience Inc (HBIO) 2008 Q2 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Q2 2008 Harvard Bioscience Inc.

earnings conference call.

My name is Lakisha 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 call.

(OPERATOR INSTRUCTIONS) I would now like to turn the presentation over to your host for today's call, Sue Luscinski, Chief Operating Officer.

Please proceed.

Good afternoon, this is Sue Luscinski, Chief Operating Officer of Harvard Bioscience.

Thank you for joining us to discuss our results for the second quarter of 2008.

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

After the Safe Harbor statement, I will turn the call over to Chane and David, who will present an overview of this quarter.

We will then open up the call for any questions.

In our discussion today we may make statements 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-KA for the fiscal year ended December 31, 2007, and other public filings.

Any forward-looking statements, including those related to our future results, 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 this call, we will 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 of our website.

Look on the Investor Relations section and then 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.

Chane?

Thank you, Sue and good evening, everyone.

During the second quarter, we continued to make excellent progress towards achieving our goals for 2008.

Our results are in line with our guidance, and the strong order rate in the first half of the year.

Significantly increasing our backlog positions us well to achieve our operating plan for the year.

Our growth in orders was driven by the demand for the new Biochrom microliter spectrophotometer, the launch of the Harvard Apparatus Physiology catalog, worldwide sales of Panlab behavior products and a large order from China for plate readers.

Additionally, we have completed the relocation of our Asys Anthos product lines from Austria to our Biochrom facility in the UK.

Based on these trends, we are comfortable with our guidance for the full year of $0.36 to $0.38 non-GAAP adjusted EPS and $94 million to $96 million in revenue.

Our guidance for the third quarter is $0.07 to $0.09 non-GAAP adjusted EPS and revenue of $21 million to $23 million.

Guidance for both the year and third quarter exclude the impact of any additional acquisitions.

I will now turn the call over to David to expand on these initiatives.

David?

Thank you, Chane.

And good evening, everyone.

The implementation of our growth plan of organic growth plus secondary acquisitions plus operational improvement is starting to deliver results.

In the second quarter, overall revenue grew 12.9%, and in the first half revenue grew 13.9%.

We anticipate overall revenue growth for the year of between 13% and 15% excluding the impact of any additional acquisitions.

We anticipate non-GAAP adjusted EPS growth of approximately 20%, again excluding the impact of any additional acquisitions.

The reported revenue growth understates the true strength of the business.

The $1.2 million of growth of Panlab over Q2 last year, which was before we owned Panlab, counts as acquisition growth the way we report it and not as organic growth.

This, combined with the unusually high backlog -- nearly $7 million at the end of Q2 -- gives us increased confidence in our full year guidance of 5% to 6% organic growth and total revenue growth of 13% to 15% for total revenue of $94 million to $96 million.

We're clearly starting to see the impact from several of the organic growth initiatives we outlined in our plan.

Let me review each one of these in turn.

The most important growth initiative we announced for the year was our new microliter spectrophotometer, which did especially well in the quarter, driving overall spectrophotometer growth of 31% in local currency.

Sales to GE were the biggest contributor to this.

The sales of spectrophotometers to other OEMs also did well in the quarter.

The second major growth initiative we announced was the new Harvard Apparatus Physiology catalog.

Revenue for the products contained in this new catalog in the US grew 10% in the second quarter.

In addition, the marketing of the recently acquired Panlab products in the US has led to a 27% increase to Panlab orders in the US this year versus the run rate of 2007.

Total Panlab revenue grew 72% or approximately $1.2 million over the same period last year.

These successes in the Harvard Apparatus business were offset by some weakness in France, which had a long-sought order come through in Q2 of last year, and in our Warner cell biology products, which was not included in the latest Harvard Apparatus catalog.

However, we plan to mail a new Warner catalog later this year.

The third major growth initiative that we announced is the launch of our 2D electrophoresis product at our Hoefer subsidiary.

This launch has gone slower than we expected so far, so we plan additional marketing in the third quarter, which we hope will drive growth in the balance of the year.

These successes in growing the business are offset by a 30% drop in revenue from GE for our Hoefer electrophoresis products.

We're currently in discussions with GE to try to improve on this situation in the future.

In addition, we also had low shipments of Asys plate readers after a particularly strong quarter in Q2 last year.

However, orders were up significantly, including another large order from China that we expect to be shipped in the second half of this year.

We ended the quarter with $1.6 million in backlog in this product line.

In addition to organic growth, we also drive total revenue growth for making tuck under acquisitions.

As discussed previously, the acquisition of Panlab has been successful so far, contributing to both revenue and profit growth.

We intend to continue to focus on the acquisition component of our growth strategy and expect to be able to add approximately 10% to 15% of revenue each year through these tuck under acquisitions.

We have recently made good progress with our pipeline of acquisition candidates.

We are currently working on three to four near-term prospects and believe we are on track to complete at least one acquisition this year.

Additionally, we have begun discussions to increase our credit facility, either by increasing the limit on the current facility with Brown Brothers Harriman and Bank of America, or by entering into a new larger credit facility to accommodate our acquisition strategy.

The third driver of EPS growth is operational improvements.

Our goal is to get our non-GAAP adjusted operating income to 20% of revenue.

We have already completed the consolidation of the Hoefer marketing administrative functions in San Francisco to Holliston, which resulted in significant cost savings.

We have also now completed the consolidation of the entire Asys and Anthos cellular business from Austria to our Biochrom facility in Cambridge, UK.

We expect it to lead to substantial cost savings in the second half of this year and into next year.

We expect that the annualized impact of both of these consolidations will likely be a gain of approximately $0.02 to $0.03 per share.

Based on what I have just discussed, we believe we're on track to deliver our plan for 2008 and our long term goal of 20% to 25% annual growth in non-GAAP adjusted earnings per share.

We will now open the call for questions.

(OPERATOR INSTRUCTIONS) Our first question comes from the line of Jay Jacobs.

Please proceed.

Question with respect to increasing the visibility of the company going forward.

Clearly you're meeting your benchmarks and your stated expectations.

To what degree is the company making efforts to attend conferences, get to know the -- readdress the community and increase sponsorship?

Hi, Jay.

This is David.

As you probably know, I do a lot of the road shows and conferences on behalf of the company.

I think this year, I have actually done more meetings -- one on one meetings with fund managers than probably in any previous year.

There are also conferences coming up which I expect to attend later in the year.

Part of our overall plan in addition to putting together growth plan which we just reviewed so far and that we're on track both this year and the long term growth plan -- was also to increase the visibility of the company through putting more effort into the Investor Relations program.

So those two really do go hand in hand.

We think we have really turned the corner with the company in terms of the operating performance now.

And we're on a much better growth track.

I don't think we're getting recognized for that yet.

And that's why we want to go hand in hand with the results, an increased effort on Investor Relations.

Great.

Thank you.

Our next question comes from the line of Kelly Cardwell from Central Square Capital.

Please proceed.

Hi, guys.

How are you?

Fine.

Hi.

Just could you give us a little bit more clarification on the backlog number and the conversion into revenues in the second half?

It looks like -- I mean obviously you're at the low end for your guidance for Q2, but you're still comfortable for the full year.

Just want to get a little more color in terms of how that translates.

It sounds like bookings were in line, but maybe you just didn't get to recognize it.

Yes, actually, bookings growth is very strong in the first half of the year.

And that was both at Panlab and at the rest of the business, too.

Particularly strong in the Biochrom spectrophotometer business.

So we go into the second half of the year with over $7 million in backlog, which is an increase of $4 million from the same point in 2007.

So I think you can see from that, we think all of that increase in backlog is shippable between now and the year end.

So we expect that that will turn into revenue growth by the year end.

Obviously, the revenue growth is what we actually count as organic growth.

So by the year end, we think we will be reporting somewhere in the range of 5% to 6% organic growth for the full year.

And I think that really marks the turn-around from the prior year we showed minus 1%.

It was 8% the year before that.

We didn't really get back on to that track that we talked about, getting to 5% to 10% organic growth plus the 10% to 15% from acquisitions, plus the 10% to 15% from acquisitions, plus a little bit of operational improvements giving us 20% to 25% overall growth in earning per share.

Okay.

Thanks.

Our next question comes from the line of Quynh Pham from [Delafield].

Please proceed.

Hey.

How are you guys doing?

All right.

I was just wondering, can you give me the order of growth rate this quarter?

You're talking about really strong order growth rate, even though it didn't turn into revenue growth.

It was 20% in the order -- sorry, it was 20% in the quarter and it was also 20% year to date.

Okay.

So 20%.

And then the $7 million, you said you expect that to be converted into revenue by the end of this year?

Not quite.

$7 million is the total backlog.

Obviously, we don't expect to end the year with $0 backlog.

And that has never happened.

We always carry a few million dollars of backlog.

But the increase in backlog over this time last year which I mentioned which is $4 million -- we would expect at least that amount to turn into revenue between now and the year end.

Okay.

And then would most of that be coming into your Q4?

Is that why Q4 a more back end loaded this year than previous years?

Yes, that is the main reason.

We think a lot of that will actually ends up shipping in the fourth quarter.

Okay.

And just on the guidance, and regarding currency, I mean currency recently had just dropped a little bit.

The price, the spot price that you're using, is that as of today?

Or was it a range from the last couple of weeks and just remind me how you look at that for your guidance?

It is based on the exchange rates as of the end of July.

Okay.

Perfect.

Thanks, you guys.

(OPERATOR INSTRUCTIONS) At this time, our next question is a follow-up from Quynh Pham from Delafield.

Please proceed.

Sorry to jump back in again.

On the cash flow statement, can you just remind me, how much was the restructuring charge impacting you guys this quarter?

Cash charge?

Cash charge in the quarter?

Yes.

Don't know off the top of my head, to be honest in the quarter.

We've recorded $1.9 million total.

And it remains $1.1 million on the cash flow for noncash and accrued.

So first two quarters, $0.8.

Okay.

Perfect.

For the year last year, you guys did almost $11 million in terms of free cash flow.

Does it look like we're going to get the same kind of run rate again this year?

I mean, the operating income for us is going up year-over-year, so should we expect roughly the same proportion increase in the free cash flow?

Generally, I think that is about right, Quynh.

I think the way we report our non-GAAP adjusted operating income, it is pretty close to what most people consider an EBITDA minus CapEx number.

It is pretty close to that number and that's honestly why we reported it that way.

So yes, I think generally speaking, cash flow moves -- bar the change in DSO or inventory terms, cash flow is going to track that non-GAAP adjusted operating income number.

All right.

Thanks, guys.

Our next question comes from the line of Kerry Nelson from Skystone Capital.

Please proceed.

Hi.

A couple of different questions.

Could you comment on how much of the restructuring or rate of restructuring charge went through?

Did that go through the COGS line?

Most of it went through the restructuring line.

There is like $260,000 that went through cost of goods sold.

Okay.

Can you help us understand that Warner catalog.

When do you expect that to ship and what impact in the past has it had on revenue?

We expect the Warner catalog to go out probably right at the end of the third quarter or the beginning of the fourth quarter.

The last time we did a Warner catalog, we saw quite a substantial increase in revenue.

It was around 15% to 20% in the post-catalog period versus the pre-catalog period.

So I think we probably expect something similar this year if this one follows the trend of past ones.

Could you just remind us how big is the Warner -- ?

I'm sorry, I couldn't hear you.

How big is the Warner business?

How big is that catalog in terms of revenue?

The Warner product line is about $4.5 million to $5 million in revenue.

Okay.

Could you also give us some color on what you're seeing from an acquisition front?

I can give you some very limited color.

At any point in time -- sorry?

I was going to say maybe Chane could jump in.

Kerry, as you know, we're always working on several acquisitions.

I think the color David tried to give this time is we're further along with several of the candidates.

At any time, we have six or eight people that we're talking to, but we're pretty well down the path with three or four of those, and we're pretty comfortable we will get one of those done this year, and hopefully even more.

As I said, I think last time, the acquisitions over the next 12 to 18 months is about $70 million in revenues.

And those are still very active.

And I think that they will all happen.

I think that getting them done this year, in the timeframe I had hoped -- I had hoped to have one done in six months and one done in the second half of the year.

They will be back-ended, what happens, this year.

But we're pretty comfortable with one significant one, and there is the possibility of a couple other small ones.

Okay.

$70 million refers to the total revenue of the four that you're talking about?

No.

It is the -- there is more than four in the pipeline that we're talking to over the 24-month period that we've been looking at.

That includes what we think will happen this year, and next year.

It has the potential of $70 million in revenue.

Okay.

And then could you give a little bit more color on Panlab and what is driving the growth there?

And now that you've had it for almost a year, could you comment on what you think the outlook for growth on Panlab is?

Yes, I think that the Panlab -- particularly coming in the US, as I said in the last call, we would expect potentially $1 million worth of growth.

And it seems to be tracking toward that.

It is going up very strongly in the US because it is is a segment of the market we haven't been in, in the past.

And the market is about a $50 million market segment that we've had a very small position in.

So I think taking their products and pushing them through our subsidiaries is the key driver of that growth.

Okay.

Thanks.

Our next question comes from the line of Jay Jacobs.

Please proceed.

Hi, my question was asked.

Thank you.

Okay.

(OPERATOR INSTRUCTIONS) At this time, there are no more questions.

Okay.

If there are no more questions, I want to thank all of you for joining today's conference call.

I look forward to our prospects for a bright future.

Have a good evening.

Thank you.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.