Full Press Release Details
HBIO Reports Third Quarter 2007 Results
Holliston, MA, November 1, 2007 / Harvard Bioscience, Inc. (Nasdaq: HBIO), a global developer, manufacturer, and marketer of a broad range of
tools to advance life science research, today reported unaudited financial highlights for the three and nine months ended September 30, 2007.
Revenues from our continuing operations for the three months ended September 30, 2007 were $19.4 million, an increase of 2.2% compared to revenues of $18.9 million for the three months ended September 30, 2006. Income from
continuing operations, as measured under U.S. generally accepted accounting principles ( GAAP ), was $1.5 million, or $0.05 per diluted share, for the three months ended September 30, 2007 compared to $1.3 million, or $0.04 per
diluted share, for the same period in 2006. Non-GAAP adjusted income from continuing operations was $2.1 million, or $0.07 per diluted share, for the three months ended September 30, 2007 compared to $1.7 million, or $0.06 per diluted share,
for the same period in 2006. See Exhibits 3 and 4 for reconciliations of GAAP to non-GAAP adjusted income from continuing operations and GAAP earnings per diluted share from continuing operations to non-GAAP adjusted earnings per diluted share from
continuing operations.
Revenues from our continuing operations for the nine months ended September 30, 2007 were $58.9 million, an
increase of 8.0% compared to revenues of $54.5 million for the nine months ended September 30, 2006. Income from continuing operations, as measured under GAAP, was $5.3 million, or $0.17 per diluted share, for the nine months ended
September 30, 2007 compared to $4.7 million, or $0.15 per diluted share, for the same period in 2006. Non-GAAP adjusted income from continuing operations was $6.7 million, or $0.21 per diluted share, for the nine months ended September 30,
2007 compared to $5.7 million, or $0.18 per diluted share, for the same period in 2006. See Exhibits 3 and 4 for reconciliations of GAAP to non-GAAP adjusted income from continuing operations and GAAP earnings per diluted share from continuing
operations to non-GAAP adjusted earnings per diluted share from continuing operations.
During the third quarter of 2007 non-GAAP adjusted income from continuing operations grew 23% and
non-GAAP adjusted earnings per diluted share grew 17% compared to the same period a year ago. Also during the quarter, we launched our patented microliter spectrophotometer through our strategic partnership with GE Healthcare. We estimate that the
microliter spectrophotometer market is approximately $50 million and growing 20% per year. We believe the combination of our high performance product and GE Healthcare s excellent name recognition in spectroscopy as well as its global
distribution will be a formula that will drive significant organic growth in 2008. Shortly after the end of the quarter, we finalized the acquisition of Panlab s.l., which we expect to be accretive to non-GAAP earnings per diluted share in the
fourth quarter and to add between $0.03 and $0.04 per share in 2008 (or $0.01 and $0.03 per diluted share under US GAAP). The Panlab acquisition expands our presence in the estimated $35 to $70 million behavioral segment of the neuroscience research
market and gives us expanded distribution in Spain for our existing Harvard Apparatus products, said Chane Graziano, CEO of Harvard Bioscience.
Mr. Graziano continued, Although our overall organic growth rate was down for the quarter, most of our core product lines and major geographies showed good organic growth. Harvard Apparatus in the US and UK
showed double-digit organic growth primarily driven by a new cell biology catalog in the US and an additional salesperson in the UK. Spectrophotometer sales through GE Healthcare were also strong, up 12% from a year ago, driven by the launch of the
microliter spectrophotometer. This strong performance was offset by a decrease in sales in Japan, France and China due to unusually large shipments in the third quarter last year. The decline in sales in China was primarily due to a large tender
order for our Anthos plate reader product line in third quarter 2006, which was not repeated in 2007. In addition, sales during the third quarter of our electrophoresis products distributed through GE Healthcare declined compared to the third
quarter of 2006. We believe we can re-invigorate the GE Healthcare electrophoresis business the same way we are currently re-invigorating the spectrophotometry products, primarily by launching new products. We already have new products in the
pipeline, and to accelerate this process, at the beginning of October, we hired a new general manager to run this business. We expect that a renewed and dedicated focus on this business will both return it to growth and improve its profitability
which was significantly down in the quarter due to the underabsorption of manufacturing costs on lower than expected volumes.
Looking forward to the fourth quarter of 2007, we expect the launch of our microliter spectrophotometer through GE Healthcare to continue to drive organic growth in our spectrophotometry business. However, due to the lack of a large tender
order for plate readers to China in 2007, we expect that overall organic growth will be minimal in the fourth quarter. For the fourth quarter of 2007, we expect to report revenues between $23 million and $24 million and adjusted non-GAAP earnings
per diluted share between $0.08 and $0.09.
The non-GAAP adjusted earnings per diluted share from continuing operations guidance excludes
amortization of intangible assets, the impact of future acquisitions in 2007, the impact of stock-based compensation expense recognized under SFAS No. 123(R), and the impact of tax benefits associated with filing consolidated tax returns for
continuing and discontinued businesses. See the table below for a reconciliation of our estimated non-GAAP adjusted earnings per diluted share from continuing operations to our estimated GAAP adjusted earnings per diluted share from continuing
operations and Exhibit 6 for a reconciliation of the estimated impact of the Panlab s.l. acquisition on 2008 financial results.
Reconciliation of Guidance for US GAAP Earnings per Diluted Share From Continuing Operations to Adjusted Non-GAAP
Earnings per Diluted Share From Continuing Operations
| Three Months Ended December 31, 2007 | ||||||||
| Low Estimate | High Estimate | |||||||
| Non-GAAP adjusted diluted earnings per common share from continuing operations A | $ | 0.08 | $ | 0.09 | ||||
| Less the impact of: | ||||||||
| Amortization of intangible assets, net of tax A | (0.01 | ) | (0.01 | ) | ||||
| Stock-based compensation (SFAS No. 123(R)), net of tax B | (0.02 | ) | (0.02 | ) | ||||
| Tax benefits of filing consolidated tax returns for continuing and discontinued businesses C | 0.01 | 0.01 | ||||||
| Diluted earnings per common share from continuing operations A | $ | 0.06 | $ | 0.07 |
A Includes estimated impact of Panlab s.l.
acquisition and assumes no additional acquisitions.
B Assumes no additional 2007 stock option grants.
C Does not include the tax impact of completing the divestiture of our Capital Equipment Business.
Operating Results for Continuing Operations
September 30, 2007 compared to three months ended September 30, 2006:
Revenues increased $0.4 million, or 2.2%, to $19.4
million for the three months ended September 30, 2007 compared to $18.9 million for the same period in 2006. The increase in revenues was due in part to favorable foreign exchange on sales denominated in foreign currencies of $0.8 million, or
4.1%, during the third quarter of 2007. In addition, our Harvard Apparatus reporting unit reported strong sales into the US and UK markets. This growth was largely driven by the strengthening of our sales and marketing efforts. Also contributing to
the increase in revenues, our Biochrom reporting unit experienced growth in sales to GE Healthcare for spectrophotometers, primarily due to the launch of a new microliter spectrophotometer, in sales of plate readers outside of China, and sales of
electrophoresis equipment, to customers other than GE Healthcare. Offsetting these increases, sales of plate readers to China, sales of 1D electrophoresis equipment to GE Healthcare declined and Harvard Apparatus sales into Japan and France were
down compared to a year ago due to unusually large pump orders shipped during the third quarter of 2006.
Cost of product revenues increased $0.5 million, or 5.2%, to $10.1 million for the three months ended
September 30, 2007 from $9.6 million for the three months ended September 30, 2006. The increase in cost of product revenues is primarily the result of an increase in foreign exchange rates of $0.4 million. Gross profit as a percentage of
revenues decreased to 47.9% for the three months ended September 30, 2007 compared with 49.4% for the same period in 2006. The decrease in gross profit as a percentage of revenues was primarily due to a higher proportion of sales from our lower
margin products and to a lesser extent due to the under-absorption of certain manufacturing costs.
Sales and marketing expenses increased
$0.3 million, or 12.4%, to $2.5 million for the three months ended September 30, 2007 compared to $2.2 million for the three months ended September 30, 2006. This increase was primarily due to an increase in foreign exchange rates of $0.1
million and commissions due to higher sales volumes and other employee related costs of $0.1 million.
General and administrative expenses
were $3.5 million, a decrease of $0.6 million, or 14.1%, for the three months ended September 30, 2007 compared to $4.1 million for the three months ended September 30, 2006. The decrease in general and administrative expenses was
primarily due to a decrease in bonus expense of approximately $0.7 million and in professional fees of $0.1 million. Offsetting these decreases was an increase in foreign exchange rates of $0.1 million and stock-based compensation of $0.2 million.
Research and development expenses were $0.9 million, an increase of $0.1 million, or 7.8%, for the three months ended September 30,
2007 compared to $0.8 million for the three months ended September 30, 2006. The increase in research and development expenses was primarily due to an increase in employee and other costs associated with recent product introductions.
Nine months ended September 30, 2007 compared to nine months ended September 30, 2006:
Revenues increased $4.4 million, or 8.0%, to $58.9 million for the nine months ended September 30, 2007 compared to $54.5 million for the same period
in 2006. The increase in revenues was due in part to favorable foreign exchange on sales denominated in foreign currencies of $2.3 million, or 4.2%, during the nine months ended September 30, 2007. The revenue increase was also derived from our
core physiology and cell biology equipment sold by our Harvard Apparatus business, the impact of new spectrophotometers, including our recently introduced microliter spectrophotometer, sold by our Biochrom subsidiary and the impact of our Anthos
product lines acquired late in June 2006.
Cost of product revenues increased $3.2 million, or 11.8%, to $30.2 million for the nine months ended
September 30, 2007 from $27.0 million for the nine months ended September 30, 2006. The increase in cost of product revenues is mainly due to increased sales volumes in the first nine months of 2007 compared to the same period in 2006 and
an increase in foreign exchange rates of $1.4 million. Gross profit as a percentage of revenues decreased to 48.7% for the nine months ended September 30, 2007 compared with 50.4% for the same period in 2006. The decrease in gross profit as a
percentage of revenues was primarily due to a higher proportion of sales from our lower margin products, primarily from our Anthos product lines, and to a lesser extent due to an increase in fixed manufacturing costs and underabsorbed manufacturing
costs due to lower than expected volumes.
Sales and marketing expenses increased $0.7 million, or 9.6%, to $7.5 million for the nine
months ended September 30, 2007 compared to $6.8 million for the nine months ended September 30, 2006. This increase was primarily due to an increase in foreign exchange rates of $0.3 million and commissions due to higher sales volumes and
other employee related costs of $0.3 million.
General and administrative expenses were $10.5 million, a decrease of $0.2 million, or 2.1%,
for the nine months ended September 30, 2007 compared to $10.7 million for the nine months ended September 30, 2006. The decrease in general and administrative expenses was primarily due to a decrease in professional fees of $0.3 million
and bonus expense of $0.6 million partially offset by increases in foreign exchange rates of $0.2 million and stock-based compensation of $0.4 million.
Research and development expenses were $2.6 million, an increase of $0.3 million, or 11.6%, for the nine months ended September 30, 2007 compared to $2.3 million for the nine months ended
September 30, 2006. The increase in research and development expenses was primarily due to increases in foreign exchange rates of $0.1 million and costs associated with recent product introductions.
We ended the third quarter of
2007 with cash and cash equivalents of $15.1 million compared to cash and cash equivalents of $9.8 million at December 31, 2006. As of September 30, 2007, $13.8 million was held by our continuing operations and $1.3 million was held by our
discontinued operations. As of September 30, 2007, we had $2.8 million outstanding on our revolving credit facility compared to $3.0 million at December 31, 2006.
Trade receivables were $13.0 million and inventories were $13.3 million as of September 30, 2007. Outstanding days of sales were 62 days for the
three months ended September 30, 2007 compared to 56 days for the same period of 2006. Outstanding days of sales increased primarily due to an increase in international customers who generally pay slower and a change in the payment pattern of
GE Healthcare. Inventory turns were 3.1 times for the three months ended September 30, 2007 compared to 3.5 times for the same period of 2006. Inventory turns are down primarily due to the building of inventories in anticipation of new product
Discontinued Operations
During the quarter ended September 30, 2005, the Company announced plans to divest its Capital Equipment Business segment. The decision to divest this business segment was based on the fact that market conditions
for the Capital Equipment Business had been such that this business did not meet the Company s expectations and the decision to focus Company resources on the Apparatus and Instrumentation Business segment. As a result, we began reporting the
Capital Equipment Business segment as a discontinued operation in the third quarter of 2005. The loss from discontinued operations, net of tax was approximately $0.3 million for the three months ended September 30, 2007 compared to a loss of
$1.5 million for the same period in 2006. The loss from discontinued operations, net of tax was approximately $5.3 million for the nine months ended September 30, 2007 compared to a loss of $4.6 million for the same period in 2006. During the
quarter ended September 30, 2007, the Company utilized the terms of a proposed agreement to purchase substantially all of the assets that comprise the Capital Equipment Business segment to re-evaluate the fair value less costs to sell these
assets. The proposed agreement included contingent consideration from an earn-out agreement for which no value has been ascribed since realization is not assured. Based on management s evaluation, additional asset impairment charges of
approximately $18,000 and $2.9 million were recorded during the three and nine months ended September 30, 2007, respectively.
above proposed agreement is not a definitive agreement for the sale of the Capital Equipment Business segment. There can be no assurances that the Company will sell its Capital Equipment Business segment pursuant to the terms of this proposed
agreement or at all. We will provide an update on the status of the divestiture of the Capital Equipment Business segment during our conference call later this afternoon.
Conference Call Details
As previously announced, management will host a conference call to
discuss third quarter results and business highlights and outlook, which will be simultaneously broadcast over the Internet and can be accessed through the Harvard Bioscience, Inc. web site. In addition, management may answer one or more questions
concerning business and financial developments and trends and other business and financial matters affecting the Company, some of the responses to which may contain information that has not been previously disclosed. The conference call will begin
at 5:30 p.m. Boston time on Thursday, November 1, 2007. To listen to the conference call, log on to our website at: www.harvardbioscience.com and click on the Earnings Call icon. The live conference call is also accessible by dialing
866-277-1181 and referencing the pass code of 10188253. A replay of this conference call will be available from 7:30 p.m. on November 1, 2007 through November 8, 2007 and will be accessible by dialing 888-286-8010 and