Harvard Bioscience Inc (HBIO) 2008 Q4 法說會逐字稿

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

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

We will conduct a question-and-answer session towards the end of the conference.

(Operator instructions).

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

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

Tom McNaughton, Chief Financial Officer of Harvard Bioscience.

You may proceed, sir.

Thank you, Jerry.

Good afternoon.

This is Tom McNaughton, Chief Financial Officer of Harvard Bioscience.

Thanks for joining us to discuss our results for fourth quarter and full year 2008.

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

After the Safe Harbor Statement, I'll turn the call over to Chane and David, who will present an overview of the fourth quarter and comment on our outlook for 2009.

Then I will present some additional financial highlights related to our balance sheet.

Following those comments, we'll open 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 10K 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 as 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 2008 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 an available in the investor relations section of our website, look on the Investor Relations section and click on the investor presentation or website icon as appropriate.

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

Our website is located at www.HarvardBioscience.com.

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

I will now turn the call over to Chane.

Chane?

Thank you, Tom.

And good evening, everyone.

Despite the weakening economy during the second half of 2008, we finished the year with a strong fourth quarter.

Organic growth in revenues was approximately 6% and non-GAAP operating profit was a record high of $4.6 million, up approximately 18% versus 2007.

We saw strength in most product lines, but the highlights in revenue growth were the Harvard Apparatus catalog business in the US, worldwide demand for Panlab behavior products and biochrom plate readers.

The record nonGAAP operating profit was largely driven by the consolidation of the plate reader business from Austria into our Biochrom subsidiary and sales and marketing and G&A from the Hoefer products from California to Harvard Apparatus in Hollinston, Mass.

I believe our strength in fourth quarter demonstrates the strength of our strategy of providing a broad range of well established specialty products at relatively low price points, leverage of acquisition products through our distribution channel, and operational improvements in the companies we acquire.

As we look forward to 2009, we see a difficult economic situation with 11% foreign exchange headwinds in revenues and $0.04 earnings per share at January 31, 2009, exchange rates.

Therefore, without acquisitions, we expect revenues to be in the $80 million to $85 million range and non-GAAP earnings per share in the $0.27 to $0.32 range.

For the first quarter of 2009, without acquisitions, we expect revenues to be in the $19 million to $20 million range and non-GAAP earnings per share in the$0.06 to $0.07 range.

There are factors such as continued expansion of the distribution of Panlab products, penetration in the US market for the Biochrom products, continued impact to the catalogs we launched in 2008, and further operational improvements that could enable us to overachieve this guidance.

However, it will be the acquisitions that we are able to make in 2009 that will be the major factor.

Therefore, with a strong balance sheet and good credit line, acquisitions will be a major focus in 2009.

David will now comment further on fourth quarter results and our 2009 initiatives.

Thank you, Chane.

The second half of 2008 saw a significant deterioration in the overall business environment.

Despite this global recession an unprecedented strengthening of the US dollar, in Q4 our results were strong.

Fourth quarter revenue of $23.1 million exceeded our guidance of $22 million to $23 million and EPS of $0.10 exceeded our guidance of $0.08 to $0.09.

At constant currency, our EPS would have been $0.11 versus $0.10 in Q4 last year.

The strength in revenue in Q4 was driven largely by strong shipments of spectrometers and plate readers in our Biochrom business and strong shipments of Panlab behavioral research products at our Harvard Apparatus business.

In addition, the Harvard Apparatus US catalog business did well.

Overall organic growth was a strong 6.4% for the quarter.

The foreign exchange headwind for Q4 was 12.4%, resulting in overall revenues of a decline of 6% from Q4 last year.

Despite this revenue decline in dollars, operating profit was at an all-time high in dollars and would have been significantly higher still at last year's foreign exchange rates.

Operating profit in Q4 was a very strong 20% of revenue.

Operating profit increased by four percentage points of revenue versus Q4 last year driven by good capacity utilization and the consolidation of facilities we made throughout the year.

These results clearly demonstrate the robustness of our strategy of driving EPS growth through a combination of organic growth, tuck-under acquisitions and operational improvements.

The foreign exchange headwind of 12.4% in Q4 is very significant for us as approximately 56% of our revenue is in either pounds or Euros.

Therefore, a decline in our revenue in dollars is not indicative of the underlying strength of our business.

2009 will be dominated by both continued weakness in pharma and biotech spending and a strong foreign exchange headwind.

For us, the foreign exchange headwind in 2009 will be approximately 11%.

Despite this, our business has considerable strength.

Our position is relatively well in the recession.

First, within life sciences, our focus on relatively inexpensive apparatus rather than expensive capital equipment makes us less vulnerable to the cutbacks in capital spending that have been experienced by the major instrument companies in our space.

And second, our emphasis on products aimed at universities and government-sponsored research gives us some level of insulation from the problems facing big pharma.

In short, our focus on lower cost apparatus sold for academic research is a relatively good place to be in a recession.

In 2009, we plan to drive organic growth for both new product development and direct marketing.

The key elements of the growth plan for 2009 are as follows.

First, the launch of Biochrom USA, a new subsidiary to drive growth of the Biochrom spectrophotometer products in the US market.

Second, the full year impact of Warner and Panlab catalogs mailed at the end 2008.

Third, the continued search engine optimization of our websites.

Fourth, the launch of a new catalog to drive the Hoefer Scie-Plas electrophoresis business in Q2.

Fifth, the launch of a new product in Q2, and sixth, the development of new products that will have little impact on 2009 revenue, which would position us well for future growth.

We expect that these initiatives will drive organic growth in the low single-digit range in 2009.

We also expect to continue the program of operational improvements we began last year and have recently announced the consolidation of part of our electrophoresis operations that we expect will save approximately $0.5 per share on a full-year basis and $0.25 per share during 2009.

We anticipate that we will incur restructuring costs associated with this consolidation of approximately $.5 million in the first half of 2009.

While getting any growth at all might seem like a strong performance in a severe global recession, as major shareholders ourselves we are not satisfied with this and believe that one of the best opportunities for us to grow this year is through acquisitions.

We are constantly pursuing acquisitions and we'll have an increased focus on this in 2009.

Currently we have a robust pipeline of acquisition candidates.

We do not include potential future acquisitions in our guidance, but they are inherently uncertain.

We have a strong balance sheet and lines of credit to support our acquisition strategy.

In short, while we face a very uncertain business condition in 2009 and a significant foreign exchange headwind, we believe that the execution of our strategy of organic growth, tuck-under acquisitions and operational improvements, we'll be able to grow both revenue and EPS in 2009.

I'll now turn over the call to Tom for additional comments.

Thanks, David.

The company has a strong balance sheet.

At December 31, 2008, our cash and cash equivalents net of debt totaled $12.2 million, which is up from $10.1 million at the beginning of the year.

During 2008 we repaid $6.3 million in debt and repurchased approximately 900,000, or 3% of our shares for approximately $2.6 million.

During 2008 we repatriated a significant amount of cash held by our foreign subsidiaries.

Today our cash balances are primarily held in the US and are entirely held in either bank deposits or very short-term liquid investments.

We ended 2008 with no balance outstanding on our $20 million senior credit facility.

We're currently negotiating to increase the facility and extend its term.

Lastly, in addition to the company's own share repurchase program, there's been significant buying of our shares by insiders.

We consider this to be a clear demonstration of the faith we have in the future prospects of the company.

We will now open the call to any questions.

(Operator Instructions).

And we'll pause for just a brief moment to compile a list of your questions.

(Operator Instructions).

Please stand by for your first question.

And your first question comes from the line of Jay Jacobs with Embarcadero Funds.

You may proceed.

Thank you.

Question, I've been aware of the dialogue which talks about looking for potential acquisitions for some time.

I may be under a wrong impression, but I thought that could be a pretty high priority in 2008 and I know for whatever reason we didn't see much activity relative to what I thought.

That said, how is the environment or the conviction level of management different now versus last year when you were very enthusiastic about the ability to complete accretive acquisitions?

This is Chane Graziano.

In 2008, we were working on several acquisitions, to be honest with you, and they didn't materialize.

I don't think anything has changed with the exception that we have a much bigger pipeline than we had last year.

We were working on about $70 million worth in revenues of companies that had -- that were potential for acquisition.

The situation last year I think has changed a little bit in that the negotiation and some of the situations and some of these private companies took a lot longer than we ever anticipated and therefore we never really got any to the table.

I think we feel that we're starting off at a much stronger position this year than we were last year.

That's why I think we're much more optimistic today than we were last year.

Thank you.

And a follow-up is, and I know this, this has been discussed in previous conference calls, but we've seen the stock trade down to as low as $1.70 and clearly there are a number of objectives in making an acquisition.

At what point, at what valuation is it preferential to acquire or to buy more shares in the open market versus making an acquisition, given the reduced execution risk of acquiring stock versus making an acquisition?

Jay, this is David here.

You probably remember, we authorized a stock repurchase plan for up to $10 million back early in 2008 and we actually started buying our own shares late in the year, I think it was September, maybe the first ones.

Then throughout the fourth quarter, as Tom mentioned in his commentary, we bought about 900,000 shares about 3% of the total outstanding by the end of the year.

That represents just under $3 million.

So that's still -- that's less than a third of the total authorization that was put in place.

So I think we agree with you at the end of the day.

I think at the prices we've been trading at recently, we're very happy using some of that cash flow to buy our own shares.

Great.

Thank you.

(Operator instructions).

Please stand by.

And your next question comes from the line of Jay Jacobs with Embarcadero Funds.

Please proceed.

Sorry, I guess I'm the only one queued up.

David, I'm excited that management has acquired shares over the last quarter.

As somebody who has also been in the market buying shares, is there a way for -- are we on the same -- as I'm in the market along with management acquiring shares on occasion, are we on the same page with respect to the information being publicly available as to when the management chooses to acquire stock?

In other words, do you and I know the same information as to when shares are being -- the company may buy back stock and when they may not?

Because if I'm not aware of the same information you are, it seems to be a bit of a competitive disadvantage on my end.

Well, couple things, Jay.

Firstly, any trades made by insiders are reported on form four within two days of the trade, so the information on trade is obviously publicly disclosed.

From my personal point of view, the plan that I have for purchasing company stock is actually a 10 B51 plan and so it's a program plan to avoid having to continual check to see whether you have material nonpublic information for making a trade.

So typically trades can either be made under a plan like I just described, or they can be made in open windows, but if you put a 10 B51 trading plan in place in an open window, then it can actually make purchases under that plan even if the company is in possession of material nonpublic information.

Okay.

Well, again, I just want to be clear.

I'm excited by the fact that management has acquired shares.

That's not my point at all.

I just -- I want to make sure that when I'm trying to acquire shares, as well as management, that I'm aware of everything, that the game is fair.

Well, I think the game is completely fair, Jay.

But I want to be completely clear.

Under a 10 B51 purchase plan, I could be in possession of material nonpublic information and still make acquisitions of shares.

I think I am clear.

I just -- when the stock is trading at $2, I think it's important to know if the company is going to acquire stock or not, and I -- as the best of my ability, I haven't been able to figure that out while as an individual and in the position that you are, I think it's easier for you to make a purchase decision at that point than somebody who is not aware of that information.

But that said, I'm very supportive of your actions.

I'm just making a comment, which is I just wish the information with respect to management's desire to acquire more shares was more -- that information was more available to me and other shareholders.

The forms four are available to you.

Those are public.

Right, as David said, within two days.

If you're looking for trend as to how many shares people are buying, and insiders, we do have insider trading policies here, like every other publicly held company.

So any time we have material in a nonpublic information, we close the window for everybody.

I completely understand your perspective.

From where I sit, when a stock trades from $3 to $1.70 and I am given everything that you file in terms of information flow, and you know what the company stock buyback policy is and how it is being implemented and I don't, and you have been acquiring stock at higher levels, it's quite confusing, and I would suggest that the gain -- everything you can do to even the playing field with your current investors would be helpful.

That's all.

I mean we're actually buying shares under 10 B5 as a corporation as well.

Perhaps we're not clarifying, Jay, I thought you were asking particularly about my personal purchases, which as I said, are made under one of these programmatic 10 B51 plans.

The company has a purchase plan as well and part of the purchase plan is executed through a similar 10 B51 preprogrammed trading plan.

That's not the only way that the company can purchase shares, but it is one of the ways that we can purchase shares.

And so those programs are essentially fire and forget, you put an algorithm into the plan that says buy so much under these conditions and that plan is executed automatically then, regardless of whether or not the company or the individual has material nonpublic information at the time of the trade.

However, at the time the plan is put in place, either the company or the individual must not have material nonpublic information at the time the plan is put in place.

So hopefully that clarifies.

I think there's no doubt about the company and the individual and the stockholders are all seeing the same information at the time the plans are put in place.

That doesn't mean the same thing is true at the time the trades are made.

And thus far, we've only bought shares under that plan.

Okay.

Thank you.

(Operator instructions).

And we will pause for just a moment to wait for your questions.

And it does appear we do not have any additional questions at this time.

All right, thank you.

I want to thank everyone for joining our call today.

Despite the weak economy, Harvard Biosciences is in very strong financial condition, and we remain committed to use our strength to increase the long-term growth in revenues and profits.

Thank you, again.

Good night.

Thank you for participating in today's conference.

This concludes your presentation.

You may now disconnect, and have a good day.