Harvard Bioscience (HBIO) 7 Nov 24 2024 Q3 Earnings call transcript

Harvard Biosciences Inc. recently held its third quarter earnings call, revealing a cautious yet optimistic outlook for the company. Despite a 13% revenue decline compared to the same quarter last year, management expressed confidence in the company's performance and its ability to navigate market challenges, particularly in the Asia Pacific region. Here are the key takeaways from the call.

Stable Base Revenue Run Rate and Operational Efficiency

Harvard Biosciences reported a stable base revenue run rate, with gross margin at 58.1% and an adjusted EBITDA of $1.3 million, or 6% of revenue. The company successfully transitioned its U.S. operations onto a modern ERP system, which is expected to significantly improve inventory and supply chain management. This operational improvement is already reflected in early Q4 improvements, with reduced shipment delays. Additionally, the company has taken steps to reduce operating expenses by $1 million per quarter, aiming for self-funding from operations even in low revenue quarters.

New Product Commercializations and Growth Opportunities

Harvard Biosciences is focusing on new product commercializations to drive growth. The company has begun production shipments of its new SoHo family of telemetry devices, which enable real-time telemetry measurements in a shared animal housing environment, and has announced the initial delivery of its groundbreaking VivaMARS neurobehavioral monitoring system to a major CRO customer. These products are expected to lead to additional demand and expand globally in 2025. The company also announced the initial delivery of its new cGMP-compliant amino acid analyzer system for bioproduction applications. These new product introductions are strategically aligned with high-growth areas in the biotechnology sector, such as electroporation and bioproduction, and are expected to significantly improve gross margins and EBITDA in the fourth quarter and beyond.

Challenges in the Asia Pacific Market

The earnings call highlighted the challenges faced by Harvard Biosciences in the Asia Pacific region, particularly in China, where revenue saw a 20% decline compared to the previous year. Management attributed this to lower spend by CROs and biopharma companies, and expressed optimism that this trend is starting to stabilize. Despite these challenges, the company is focusing on leveraging its technology edge and pricing power to tap into the growing demand for advanced research solutions in the region.

Evolving Market Dynamics and Investor Confidence

The call also touched on the evolving market dynamics in the biotechnology sector, with particular focus on the impact of COVID-19 on CRO spending and the resulting implications for Harvard Biosciences. Management acknowledged the challenges posed by the pandemic but expressed confidence in the company's ability to navigate these uncertainties and position itself for long-term growth. The company's strategic focus on new product commercializations and operational efficiency is expected to underpin high single-digit to double-digit growth in the coming years.

In summary, Harvard Biosciences Inc.'s third quarter earnings call painted a picture of a company navigating challenging market conditions with a strategic focus on operational efficiency and new product commercializations. The company's ability to transition its U.S. operations onto a modern ERP system and its strategic focus on high-growth areas in the biotechnology sector are key factors that investors should watch closely in the coming quarters. As the company continues to execute its growth strategy, investors will be looking for evidence of sustained revenue growth and operational improvements, particularly in the Asia Pacific region.