Harvard Bioscience Inc (HBIO) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the fourth-quarter and year-end 2014 Harvard Bioscience earnings conference call. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Ms. Cheryl Schneider of Dian Griesel Int'l. Please go ahead.

Thank you, Kate, and good morning, everyone. Thank you for joining us today for the Harvard Bioscience fourth-quarter and year-end 2014 earnings conference call. Leading the call today will be Jeffrey Duchemin, CEO and President; and Robert Gagnon, Chief Financial Officer.

Cheryl, your line might be muted.

Actually, Kate, why don't we do this? Let's get started, and I'm sure Cheryl will be joining us.

Okay. In that case, sir, please go ahead.

Thank you, everyone. Good morning. Thank you for joining us for our fourth-quarter and year-end 2014 conference call. I am pleased to be addressing you today about our strong fourth-quarter and very exciting and transformational year for Harvard Bioscience. Before I go into details, I want to thank our worldwide employees, who were instrumental in helping us achieve our results.

Our positive financial and operational results reflect the initial successes of our new growth strategy and of our world-class organization that we are building on and adding to through organic growth and acquisitions. I am proud to say that our businesses on track and getting stronger, exactly as we had planned. Our strategy remains on target as we continue to leverage our growth, implement operational efficiencies, and improve productivity as well as our bottom line.

Our strong performance positions us well for further growth in 2015. On today's call, I will review the progress we've made in each of our four elements of our business strategy, which are, first, commercial excellence and organic growth; second, new product development; third, business development and acquisitions; and, fourth, operational efficiencies.

The first element I want to discuss is commercial excellence and organic growth. Following the realignment of our operations at the end of 2013, our reinvigorated sales and marketing team has strongly focused on advancing our global growth initiatives. I'm happy to report that our commercial teams are executing to plan, resulting in a return to revenue growth. As a brief overview, revenue for the fourth quarter ended strong with an 11% increase of $30.4 million on a constant currency basis compared to last year's fourth quarter. Revenue for the full year increased approximately 2.4% to $108.7 million excluding foreign currency compared with $105.2 million in 2013.

In terms of geographic expansion our US and European sales were strong. Like many other companies, we have been impacted by the effects of foreign exchange. China, however, was softer than expected, which we believe was the result of a slower release of funds from the government that has been a factor this entire year and has affected our industry. However, there are indications that the Asian markets will continue to be a major player in the industry. As a result, we have been gearing up for growth by completing our commercial organization in China, and we are pretty during to build exposure into other Asian countries including Korea, Japan, and Southeast Asia.

To help prepare for our continued growth, we just announced the appointment of Ryan Atienza to our newly created position of Vice President of Sales at our Denville Scientific subsidiary. As Vice President of Sales, Ryan will also be a member of our executive leadership team, responsible for North American sales. I have worked with Ryan in the past and have every level of confidence that he will be an important contributor to our growth in North American consumable product sales as an integral component of our revenue base.

With these building blocks in place and having developed new channel relationships through the year, we are in a strong position to capitalize on the further growth opportunities. The second element I want to highlight is our new product development process. Over the past year we have made it a priority to reinvigorate product development with the goal of accelerating the path from concept to commercialization. Illustrating the success of this new approach was our successful launch of the OxyletPro system for metabolic monitoring, which was introduced in July 2014. It measures respiration and metabolism, animal activities, and food intake. The product has been well accepted in Europe, Asia, Latin America, and the US.

The third element of our strategy involves business development acquisitions. Over the past few months we successfully completed acquisitions of three companies specializing in electrophysiology equipment, which is an approximate $100 million market and an important segment in academic research and drug discovery. Our first acquisition, Multi Channel Systems, develops and manufactures and markets instrumentation for extracellular recording and stimulation. Our second acquisition, Triangle BioSystems, develops, manufactures and markets wireless neural interface equipment to aid in vivo neuroscience research. Our third acquisition, HEKA Electronik, which we acquired in January, specializes in patch clamp amplifier instrumentation for biomedical research applications.

Combined, these three companies complement our existing electrophysiology product line offered through our Warner Instruments subsidiary. As a result, we now offer the most comprehensive set of solutions for electrophysiology customers. MCS and Triangle have already started to produce positive results for us, adding to our top line. We do not intend to stop here. Acquisitions will continue to be an integral part of our growth strategy. Our acquisition pipeline is full and we will continue to strategically approach business development opportunities that align with our business strategy and core competencies.

The fourth and final element of our strategy involves operational efficiency. In March 2014 we appointed Ron Aplin as our Vice President of Global Operations and Quality. Immediately, Ron begin to implement changes such as site consolidation, ISO certification for previously noncertified facilities and cost reduction programs, which have allowed us to streamline our operations. In Q4 we completed the buildout of our new distribution center in Charlotte, North Carolina. Denville Scientific will now have a new state-of-the-art distribution center which allows us to fulfill orders much more efficiently. We are also in the process of consolidating the UK manufacturing facility of our Biochrom subsidiary into our facility in Holliston, Massachusetts.

So to recap, the business strategy we put in place just about a year ago when we realigned our operations, created organizational efficiencies, cost reduction initiatives, talent acquisition, and geographic expansion is working well. As I mentioned, for the fourth quarter our revenues increased 11% excluding foreign currency to $30.4 million. In addition, non-GAAP earnings per diluted share increased 100% to $0.10 per diluted share. For the full year, revenue increased 3.3% to $108.7 million, and income from continuing operations on a non-GAAP basis increased 26% to $8.9 million. And on a per-share basis, it increased 21% to $0.27 per diluted share.

These increases, which are on target with our expectations, show that we are achieving our goal to stabilize revenues after many quarters of declines. Our bookings remain strong for the quarter at $30.4 million and our backlog increased more than 41% over last year's fourth quarter to $7.2 million.

We are executing in all four areas of our strategy, as I outlined a moment ago. Our three acquisitions have made Harvard Bioscience a global player in the field of electrophysiology. We revamped our new product development process and focused solely on our core Harvard Bioscience products without the distraction that our previous Harvard Apparatus Regenerative Technology business presented to the Company. We have a new and dedicated team in place. We have stabilized are declining businesses, a significant turnaround from 2013's drop of 5.4%. Since December 2013, we have realized cost savings of $2 million pretax after investment. We expanded our commercial presence in China and elsewhere in Asia and revamped our new product development process to focus on our core products.

To sum up, we had an excellent quarter and year. I once again would like to thank all of our talented employees for their incredible hard work and dedication, which makes our continued success possible. This year we will continue to execute on our four-pillared strategy, and I look forward to additional success. The future truly looks bright for Harvard Bioscience.

At this point, I will turn the discussion over to Rob Gagnon, our CFO, who will provide more insight into our financials. Rob?

Thank you, Jeff. Good morning, everyone. I just want to begin and state that the remarks we make today -- they may constitute forward-looking statements. The Company's actual results and performance may differ materially from what had been projected do to risks and uncertainties including those detailed in our annual report on Form 10-K for the periods ended December 31, 2013, and our other public filings. Any forward-looking statements, including those related to the Company's future results and activities, represent estimates as of today and should not be relied upon as representing estimates at any subsequent date.

So, consistent with previous quarters, much of my focus will be on non-GAAP quarterly results, which we believe better represent ongoing economics of the business, reflects how we set and measure incentive compensation plans and how we manage the business internally. However, I will briefly review the GAAP results, the differences of which are outlined in the press release we issued today, which can be found on our website under press releases.

Our results for Q4 and full-year 2014 will also reflect the results of our two recent acquisitions, Triangle BioSystems and Multi Channel Systems, both of which were completed on October 1, 2014. As a reminder, HEKA Electronik is not reflected in these results, as that business was acquired in early January 2015. 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. And a replay of this call will also be archived at the same location on our website at www.HarvardBioscience.com.

Now beginning with the top line, revenues in the fourth quarter increased 11% to $30.4 million on a constant currency basis compared with revenues of $27.9 million in the fourth quarter of last year. For the full-year 2014, revenues increased 2.4% to $108.7 million on a currency basis compared with revenues of $105.2 million in 2013. Bookings increased approximately 9% to $30.4 million in Q4, also a constant currency basis compared with bookings of $28.5 million in the fourth quarter of last year. For the full-year 2014, bookings increased 3.1% on a constant currency basis to $109.9 million compared with bookings of $105.6 million in 2013, and we finished Q4 with backlog of approximately $7.2 million, up more than 41% compared to backlog of $5.1 million at the end of Q4 last year.

Now turning to costs and expenses, cost of revenues in Q4 were $16.2 million, an increase of approximately $400,000 compared to $15.8 million in Q4 of last year. For full-year 2014, cost of revenues were $58.9 million, an increase of approximately $1.6 million compared to $57.3 million in 2013. Gross profit margin in Q4 was 46.7%, an increase of 330 basis points compared to 43.4% in Q4 last year. And for the full-year 2014, gross profit margin was 45%, an increase of 300 basis points compared to 45.5% in 2013.

Our operating expenses for Q4 were $9.5 million, an increase of $100,000 compared to $9.4 million in Q4 of last year. And for the full-year 2014 operating expenses were $36.5 million, a decrease of over $400,000 compared to $36.9 million in 2013.

Included in operating expenses are the costs of the newly acquired companies in the fourth quarter, partially offset by a gain of $760,000 for the sale of our Edenbridge, England manufacturing facility, which was completed this quarter. Also included in operating expenses in 2014 were expenses related to a companywide incentive bonus program based on the achievement of certain performance metrics which did not exist in previous years.

Operating income in Q4 increased $4.7 million, an increase of approximately $2 million as compared to $2.7 million in Q4 of last year. For full-year 2014, operating income increased to $13.3 million, an increase of approximately $2.4 million as compared to $10.9 million in 2013.

Our operating margin in Q4 was 15.5% on a non-GAAP basis, an increase of 580 basis compared to 9.7% in Q4 of last year. For the full-year 2014 operating margin was 12.2% on a non-GAAP basis, an increase of 180 basis points compared with 10.4% in 2013. Excluding the impact of the Edenbridge gain, our operating margin would have been 13% and 11.5% for the fourth quarter and full year, respectively.

Our non-GAAP effective tax rate was 25.3% in Q4, a decrease of 270 basis points compared to 28% in Q4 of last year. The main driver of the decrease was related to the extension of the US R&D tax credit in December for all of 2014, as well as overall geographic mix of income. For full-year 2014 our non-GAAP effective tax rate was 27.1%, a decrease of 100 basis points compared to 28.1% in 2013. The decrease in the full-year tax rate is primarily due to the geographic mix of income. We continue to forecast our effective tax rate in the range of 28% to 30%.

On a GAAP basis, our not loss was $19,000 in Q4 compared with a $760,000 net loss in Q4 of last year. For full-year 2014, net income a GAAP basis was $2.4 million compared with $1.8 million net loss in 2013. Our GAAP loss from continuing operations was also $19,000 in Q4 or $0.00 per diluted share, compared with a $260,000 net loss or $0.01 per diluted share for Q4 last year.

For full-year 2014 our GAAP income from continuing operations was also $2.4 million or $0.07 per diluted share compared with $720,000 or $0.02 per diluted share for 2013 last year. Our non-GAAP income from continuing operations for Q4 was $3.3 million or $0.10 per diluted share, an increase of $0.05 per diluted share or 100% compared with $0.05 per diluted share in Q4 last year. And for full-year 2014, our non-GAAP income from continuing operations was $8.9 million or $0.27 per diluted share, an increase of $0.05 per diluted share or 21% compared with $0.22 per diluted share in 2013.

Weighted average shares outstanding was 32.4 million in Q4 compared to 31.1 million in Q4 last year. The higher shares are primarily as a result of that additional equity awards issued at the time of the HART spinoff.

Now turning to the balance sheet, we finished Q4 with approximately $14.1 million of cash and equivalents, a decrease of approximately $11.7 million compared to $25.8 million from Q4 last year. The decrease is primarily due to the acquisition of Multi Channel Systems and the completion of the business restructuring that we announced back in December 2013, partially offset by cash flow generated by the business.

Accounts receivable as of Q4 were $16.1 million compared to $13.9 million as of Q4 last year. DSO or days sales outstanding was 49 days at the end of Q4 compared to 47 days as of Q4 last year. The accounts receivable associated with acquisition of Multi Channel Systems and Triangle BioSystems is the primary reason for the increase in receivables year over year.

Inventory at the end of Q4 was $20.5 million compared to $15.8 million at the end of last year. Inventory turns were 3.4 times compared to 3.7 times in Q4 last year. In addition to the inventory associated with acquisitions of Multi Channel Systems and Triangle BioSystems, the increase in inventory is also due to the temporary inventory requirements necessary to relocate our Denville Scientific business from New Jersey to North Carolina and the consolidation of our UK manufacturing operation with our Holliston, Massachusetts facility. More on both of these topics in a moment.

Capital expenditures were $2 million for the 12 months ended December 31, 2014, compared to $1.6 million in 2013. The increase in capital expenditures this year is due to investments in our infrastructure and ERP system as well as buildouts related to the consolidation of our UK manufacturing facility with our Holliston, Massachusetts facility.

Debt at the end of Q4 was $21.5 million compared to $24.8 million as of December 31, 2013. The decrease was due to scheduled principal payments made during the year offset by an increase in borrowings at the end of the third quarter to fund the previously announced back position of Triangle BioSystems as well as normal working capital needs to accommodate [site needs].

I will now turn to annual guidance. The guidance includes the expected negative impact of currency translation due to the strengthening of the US dollar, expected cost of relocation and consolidation of certain facilities, and contributions from recent acquisitions. We expect revenues to be approximately $114 million to $116 million. Included in this guidance is our expectation that currency translation will lower revenues by between $6 million and $7 million, based on current foreign currency exchange rates. On a constant currency basis, we expect revenues to be approximately $120 million to $123 million or a 10% to 13% increase compared to 2014 revenues. The increase is driven primarily by the three acquisitions and, to a lesser extent, organic growth.

We expect to report full year 2015 non-GAAP earnings per share of 0.27 to $0.28 based upon forecasted weighted shares outstanding of 34.5 million. This translates to GAAP diluted earnings per share of approximately $0.16 to $0.17. Included in this guidance is our expectation that currency translation will lower non-GAAP EPS by approximately $0.02 per diluted share. On a constant currency basis, we expect non-GAAP EPS to be approximately $0.29 to $0.30 per diluted share or 7% to 11% increase compared to 2014 non-GAAP EPS.

In addition to the recent acquisitions, also reflected in this guidance are approximately $750,000 to $1 million in cost we expect to incur in 2015 to relocate our Denville Scientific business from New Jersey to North Carolina and to consolidate our UK manufacturing operation with our Holliston, Massachusetts facility. The UK manufacturing operation is our second-largest manufacturing site within Harvard Bioscience. These changes represent a major step forward in our plans to optimize our manufacturing footprint and reduce the number of sites. We will begin to realize annual savings of approximately $750,000 to $1 million for these moves in 2016.

As mentioned on past calls, the differences between our GAAP and non-GAAP financial guidance, including EPS and reconciliations, are outlined in the earnings release we issued today, which can be found on our website under press releases.

Kate, we will now open the line for questions.

(Operator Instructions) Paul Knight, Janney Capital Markets.

The FX hit on 4Q EPS -- did you guide on that or indicate on that?

I'm going to let Rob answer this, Paul. Hold on one second.

Paul, we did not guide on the FX impact to EPS for 4Q. It actually wasn't as significant as the impact that we expect in 2015 because of the weakening -- or the strengthening of the US dollar as largely occurred right at the end of the year and into January.

And then, Jeff, on your quote where you say you've completed your China commercial initiatives, what do you mean by that statement?

We had put in, in the beginning of the year, the goal of filling five positions in China, five commercial positions in China. We have a full team in place today.

And how many more positions would you want to add in the rest of Asia now?

Well, I think I stated we are looking outside of China in 2015. We are now going to spend some time in Korea, Japan, and Southeast Asia. We are currently there, we currently have business there. But we are putting a little bit more focus. We haven't guided to adding headcount in those areas at this point in time, but it is a focus for us in 2015.

And Jeff, on the macro, can you talk to what you are seeing on the academic side and then, second, on the biopharma side of the market for you?

Yes. The academic market, we believe, will drive 1% to 3% growth in 2015. As we stated many times, about 70% of our business is in the academic space. But the way we look at our business and the way we look at growth for 2015 is off of the execution of our strategy and not relying on the budgeting process of the NIH. We believe any upside in growth coming from the NIH budget will just add to top-line performance for us in 2015.

On the bio side and pharma side, I think you are seeing global strength coming from those areas. And what we'd like to do is diversify our portfolio in the future to be a little bit better balanced in academia, biotech, and pharma moving forward. So as we develop new products, as we look at business acquisitions, we always have in mind a better balance to our market approach.

And then last, on Multi Channel, Triangle, and HEKA and, what you think that has added to your organic growth rate?

Well, Paul, the 11% that we experienced in 4Q -- I think the way to think about that is 8% to 9% of that would be contributions from acquisitions and approximately 2% to 3% would be organic. That gets you to 11%. FX was a negative headwind of about 2%. But I think, in terms of the guidance we gave at the time of the acquisitions, I still think we feel good about that guidance. And that's the way we are thinking about it for 2015.

I guess my question was really, what do you think the growth rates are of those three combined firms together?

Well, I think you have to look at the segment of the market. Electrophysiology is about a $100 million market. We believe we will see where the market will see high single-digit growth coming from that market. We would expect similar type growth coming from those three acquisitions moving forward. One of the things that we're doing, though, is we are blending these products into other product families within Harvard Bioscience. So they are not going to be stand-alone or they will not be standalone product, electricphysiology. It will be blended -- it will actually crossover into multiple product families that we have today such as our cell analysis business and our animal physiology business.

Okay, thank you.

Ray Myers, Alere Financial Partners.

I first want to touch on the gross margin trends. So Jeff, what gross margin trends are you expecting going into next year, in light of the restructuring that you conducted during 2014 and some of the changes that you are planning this year?

Yes, so I'm going to let Rob jump in. I'll just give you my overview real quick, Ray. Gross margins, I think, will continue to improve and they will improve for multiple reasons. Once again, as we execute our strategy, as we become more efficient, as we look at expanding products on a global basis, we would expect to see improvement in gross margin.

Just to add to that, like we've discussed, 2015 is going to be a year of investment for us as we relocate and consolidate two large facilities. So the impact on margins year on year -- I think what we experienced in 2014 is probably a good expectation for 2015. It would really be 2016 we would start to reap the benefits of those investments and those moves.

Okay, good, understood. So the two facilities -- would that be Denville and the Biochrom that are being shifted? Is that correct?

That's correct.

Okay. So the Biochrom was a source of the $760,000 gain from the sale of manufacturing facility? Is that right?

No. Actually -- so we had -- when we started the year we had two manufacturing operations in the UK. So our first consolidation was to combine both of those facilities, which would be really the first step in bringing one facility back to the US. So that was a separate operation.

Okay. So you made a gain previously on another facility and Biochrom is the second one. Are there similar types of potential gains from selling either equipment or facilities, real estate, either from Biochrom or from others that you've owned worldwide?

Oh, well, certainly, the $760,000 gain was significant in the fourth quarter. It probably exceeded our expectations of what we thought we would receive for that building. But we tend to lease our facilities. And so as we look at optimizing our footprint and in terms of monetizing assets, I wouldn't expect a lot of facilities to be sold. There may be opportunities to rationalize equipment. And we could realize some gain or losses down the road on operating assets. But this one was a little bit larger than usual.

Okay, good. Makes sense. The recent currency exchange fluctuation has been pretty dramatic. And we do see that Harvard has facilities all over the world. Does that open opportunities to shift production to lower-cost regions to take advantage of global currency exchanges?

Well, Ray, we're looking at that relative to our strategic plans around optimizing the footprint. So that is a key component of those considerations. But today the impact that you see, the impact that we expect on 2015 revenues, that $6 million to $7 million that I spoke about -- that impact on the bottom line is far less. It's closer to, say, $1 million because largely we are manufacturing in these countries and the decrease in cost and expenses from translations offset the decrease in revenue. So the impact this actually muted, and that's why it's only a couple of pennies of EPS. But it is a factor of consideration that we look at when we think about our plans for facility consolidation.

That makes sense. And finally, are there plans to drive further operating efficiencies in 2015 and beyond, in addition to the ERP system that you are launching this year? Are there other initiatives that might be enacted to further increase efficiency?

I think, to answer that, we are going to be consistent with our current strategy. Under the operational efficiency pillar of that strategy, we will continue to look to right-size our global footprint. We will continue to integrate acquisitions as they are made. And ERP is a multiphase to strategy that we will continue in 2015.

Okay, thank you. I will get back into queue.

Andrew Fleming, Heartland.

I just had a question. Nice pickup in the organic growth this quarter. Can you just explain what happened there? Is that just the market improving, or is that company initiatives coming to fruition?

Yes, I'll start. I think as part of our strategy this past year we have put a lot of emphasis on our commercial organizations, our global commercial organizations. I think you are starting to see the results of that. You have seen our backlog increase all year long. But on top of that, there were acquisitions made and there was a positive -- there's been positive results due to those acquisitions in Q4. But overall, we have built a very strong sales and marketing team on a global basis, which is aligned, which is something different from the past. And we are heading in the right direction.

Okay. And then, Jeff or Rob, maybe if you could just comment on the incremental margins that's inherent in this business model. I understand we're not going to reap the benefits of the facility consolidations until 2016. If we think about 2016, what does an incremental $10 million in revenue generate in terms of gross profit or operating profit?

Well, inherent in our guidance is -- you can actually pull apart the pieces from the acquisition. What's inherent in it is growth, the low to mid-single digits. And clearly, a large piece of that would -- or a component of that would fall to the bottom line after you back out and assume fixed costs and people cost. We haven't stated publicly what that exact amount is. But I think in terms of planning, if you think of 1% to 3% organic growth and then a variable component through cost of sales and the sales commission, you could get a pretty good estimate.

Okay. And then as we go out maybe two or three years, is 50% gross profit margins achievable?

Yes. So we -- to Jeff's point, we're going to continue to integrate acquisitions and look at optimizing our footprint. And we will reap the benefits of that longer term. But I wouldn't want to commit to you today that that results in a particular gross margin.

I'm a more just curious is that in the realm of possibility or is that --?

I think we will see.

Okay. Then in terms of the balance sheet, where do you guys expect to end the year, assuming no further M&A activities, in terms of your net debt position?

The scheduled payments annually are about $5 million in principal. So we finished the year with about $21 million of debt, so we would make $5 million of payments on that.

And the cash generated from the business? What would that be?

Yes, so we finished the year with roughly $14 million of cash. We announced acquisition of HEKA, which was purchased with cash. So in terms of pro forma you are in the $7 million to $8 million of cash. And then in terms of how we think about that balance growing, you'd look at the overall profitability and cash flow generation of the business, and back off those $5 million of scheduled debt payments.

Okay, thanks.

Bryan Kipp, Janney Capital Markets.

Couple quick follow-ups -- I guess I'm sitting here looking at the acquisition contribution. It's a little bit stronger than I had expected. And I guess color around your expectations -- I believe those closed in October, so it was only two months of contribution. Yet I have an estimate of a little bit north of $2 million in acquisition contribution. So how is that pacing in regards to where you guys had it? And any color in addition would be helpful.

I'm going to start and then I'll let Jeff add some color. But the acquisition contribution -- it was actually three months. So we closed on those acquisitions October 1. So we have the benefits of their financial performance for the entire Q4. In terms of top line performance I think they performed in line with our expectations. At the time we had acquired those two businesses, the midpoint of the guidance we gave was about $8 million. So if you take a quarter of that, that's a pretty good estimate and in line with how they performed.

And in terms of the bottom line, I think they are in line with what we had expected for the fourth quarter. Clearly, any time you go through the sale or an acquisition of the business, it's extremely disruptive and we have to get them up and ready for SEC reporting on our closed schedule and inventory systems. But I think overall it was in line with our expectations. It wasn't -- I wouldn't say it was below or I wouldn't say it was ahead.

Bryan, just to add, I think Rob stated well. But to look beyond 2014 into 2015, these acquisitions bring very exciting technology. There's significant room for growth. Our sales and marketing teams are heavily involved in growing these product lines today and will continue in the future.

Rob, are you willing to tease out what the banking fee contribution was op expenses in the quarter? Just trying to think of the fully adjusted non-GAAP thinking on a core basis.

Yes, sure. And just to be clear on that, the banking fee for the acquisition of Multi Channel Systems -- there was no banking fee for Triangle BioSystems. But the banking fee for Multi Channel Systems has been reported in our other expenses category. And it has been backed out of the non-GAAP results. And that amount was in the $400,000 to $500,000 range.

Okay, helpful. And then the new hire -- what was the reason for it? What's the view direction? What does he bring to the table? As well as I was surprised to hear -- I think a year ago you guys had mentioned maybe leveraging Denville and using some [fighter] brands ex-US, especially on the lab consumables and supplies side. And it seems like today the focus was on leveraging Denville primarily in the US. So any comments around that and direction in light of the hire?

I'll start with the reason and the purpose for the hire. Our business is growing. We acquired three companies recently in the instrumentation-equipment side of our business. Our business is becoming very complex. If you look at Harvard Bioscience, you have Denville, which is our distribution arm. And you have everything else that is instrumentation and equipment.

For us to grow Denville, which is a big part of our strategy, we felt it was necessary to have a dedicated commercial leader leading that business. Yoav Sibony, who oversees all of our instrumentation and equipment business on a global basis, has done a tremendous job this year. But his job is one of the most complex jobs among our executive leaders. So what we've done is separated that. So now we have a dedicated leader for Denville Scientific, and we have a dedicated sales leader for all instrumentation and equipment. That was the idea around that.

What does he bring to the table? He brings significant sales leadership, understanding of taking businesses that need an emphasis in terms of transformation, need an emphasis of growth, vision, and strategy. And he's someone that I have worked with in the past and have 100% confidence that he is going to come in and help drive the growth of this business. Not only here in the US but as we build a strategy to possibly look at only distribution outside of North America, Ryan will play an instrumental role in that.

Thank you. And then your thoughts on free cash? In light of the comments, M&A continues to be a focus, continues to be a pillar. There's a lot of moving parts, a lot of facility consolidations, inventory builds, et cetera. But how are you looking at free cash and how should we look at it going forward so you can leverage that for your M&A pipeline?

We haven't given guidance on free cash in the past. But I would just tell you with the addition of the acquisitions, with the investments that we are making around the consolidations, I wouldn't see the profile of the business changing dramatically in 2015. I think it's really 2016 we start to reap the benefits of a lot of these changes.

Is there a view in your mind that you can get to plus-plus, 100% conversion of net income? Or is it something that will continue to hover at that 100% to sub 100% range?

I don't think we are prepared to give you that today, Brian. But it's something that we continue to monitor and we will think about it going forward.

And the last one I have is just capacity on M&A. I think I had you guys at 20 to 30 next year, 2015 capacity. Is that where you guys think, or is there other opportunities? Or is it less than that?

No, I think that's -- it's like we've talked about before. Outside of the US is where we have a lot of our cash. We are leveraged the US with debt. So our ability to continue to lever is subject to the ability to generate cash flow to service that debt. Your amounts that -- I would say they are in a reasonable range. That's probably how we think about it, absent looking at other alternative financings, which are just -- we are not considering at this point.

All right, appreciate it, guys.

Beth Lilly, GAMCO

I had a couple questions. First question is, Jeff, you've made it clear that in past meetings and on calls, that clearly this business can and should the operating at higher and more efficient levels. So as you look out at -- I calculated your adjusted operating margin for the full year 2014 was around 11.4%. Is it unrealistic to assume that you can get to the midteens level over time?

Well, I don't think we are going to indicate exactly where we think we can get it. But I will elaborate a little bit on our strategy moving forward. So if you look at the four elements of our strategy, we will start with organic growth. We are going to continue to geographically expand our commercial organizations. And I'll give you one example. Latin America, which probably one of the top four or five growth markets for research today, is a market that Harvard Bioscience has been very little time focused on. We've recently hired a channel manager for Latin America.

We've recently hired the Vice President of Sales for Denville Scientific. So we're going to continue to grow from an organic standpoint. That will remain a top priority for us moving forward.

New product development -- as we launch new products, there will be significant growth coming from the launch of new products, whether it's a new product or a product line extension. If you go into business development and acquisitions, I think as we acquire companies they will be accretive. And they will help generate both top-line performance for Harvard Bioscience along with profitability for the Company. And operational efficiencies, Beth, I think will really impact, if we can take that 11.4% to 15%, by the way we optimize our global footprint. And we continue to create operational efficiencies.

So is it out of reach? I don't think it is. But I don't think we are prepared to comment on exactly how long it will take for us to get there.

Okay. Because if you look at your peer group, they are a lot higher than where you are today.

Absolutely. But if you look at our peer groups, probably been a little bit well organized, they are better organized than Harvard Bioscience in the past. We were a business that was, I believe had close to 26 acquisitions over the last 15 to 17 years. These acquisitions were never integrated, were never aligned. And so that's what we've been doing over the last 12 to 15 months is basically aligning these businesses, aligning product families, aligning sales and marketing organization and creating operational efficiencies [to get us] -- so that we can be aligned with our peer companies in that 15%-plus range.

Yes, okay. And I don't know if you gave this number, but what percent of your revenues are considered to be consumables?

It's about 30% of our overall revenue.

Okay, great. Okay. And then the last question is more of a housekeeping. What was your depreciation and amortization for the full year?

Beth, I'll get that for you in a moment.

Okay, thanks.

It's going to take a couple seconds to pull that up.

The amortization was $0.08 per share in 2014. And our depreciation runs at a little bit more than $1 million, roughly, a year. When we file our 10-K in the next five to seven business days, we will have the exact numbers for you.

All right. So your amortization is about $2.7 million and your depreciation is about $1 million. So it's a total of about $3.7 million.

Yes. It's actually amortization is $2.6 million.

Got it. Okay, perfect. Great, that's all I have. Thank you.

(Operator Instructions) Jack Wallace, Sidoti & Company.

Some of my other questions were answered, but can you just talk a little bit about how you are thinking about some of your other leadership below the two of you guys? It sounds like we've got a new head of -- over at Denville, head of sales there, a new head of Latin American sales. Are we going to see, as the business continues to evolve, additional leadership hires there to go after, whether it's geographical areas or maybe consolidated business families?

I think we've touched on the new hire for Denville. And I've elaborated over the last year the other executive leaders, functional leaders in the business, our head of strategic marketing and business development, our head of, obviously, sales for the instrumentation side of the business we talked about earlier, and our head of operations. There's another position that we haven't talked about today, but it's the head of IT. We brought in a very talented IT leader who is leading the ERP and integration for Harvard Bioscience. That's a position that's very important today and will be for the future growth of the business.

But as we look out, I would say, over the next 12 months think our management team is in very good shape. And I think the focus now is on the middle-level management of the organization. We have some very, very talented people. We are providing additional responsibility for them. We want to see them grow and continue to help maintain the business along with grow the business in the future as we acquire companies. So that's where we are today, Jack.

Thank you. And my apologies if this is asking you to repeat something because my line was blank early on the call. But have we seen any pickup in China, call it, year over year or even sequentially? Anything that suggests that the spigot is starting to turn back on?

I think what we are seeing right now is -- or we are hearing that things will continue to improve in China. I think, personally, market conditions will probably remain the same in China in 2015, especially in Q1 and Q2. But as the year progresses I believe we will see growth coming from China.

Got you. Thank you, that's helpful. And then lastly, and then we'll take the rest of my questions off-line, do you have any timing on when those restructuring charges for the facilities realignment might hit? Is that a first and first-second quarter event?

So starting to incur them now in the fourth quarter. But that will largely be through the first, I would say, three quarters of 2015.

Got it. Thank you, Rob. Thanks, Jeff.

(Operator Instructions) I am not showing any further questions at this time. I'd like to turn the call back over to management for closing remarks.

Thank you very much, everyone, for calling in, taking the time to listen to our year-end call. I just want to thank the employees of Harvard Bioscience one last time. It was a tremendous year for us. We have great growth opportunities moving forward. It's been a phenomenal experience in the transformation of this business. So thank you, everyone. Have a great day, and we will talk to you soon.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a good day.