Full Press Release Details
HBIO Reports Third Quarter 2008 Results
Holliston, MA, November 5, 2008 / 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, 2008.
Revenues from our continuing operations for the three months ended September 30, 2008 were $20.0 million, an increase of 3.3% compared to revenues of $19.4 million for the three months ended September 30, 2007. Income from
continuing operations, as measured under U.S. generally accepted accounting principles ( GAAP ), was $1.4 million, or $0.05 per diluted share, for the three months ended September 30, 2008 compared to $1.5 million, or $0.05 per
diluted share, for the same period in 2007. Non-GAAP adjusted income from continuing operations was $2.0 million, or $0.06 per diluted share, for the three months ended September 30, 2008 compared to $2.1 million, or $0.07 per diluted share,
for the same period in 2007. GAAP income from continuing operations for the third quarter of 2008 included the effect of approximately $0.1 million in costs related to the Company s ongoing initiative to consolidate business functions to reduce
future operating expenses.
Revenues from our continuing operations for the nine months ended September 30, 2008 were $65.0 million,
an increase of 10.4% compared to revenues of $58.9 million for the nine months ended September 30, 2007. Income from continuing operations, as measured under U.S. generally accepted accounting principles ( GAAP ), was $3.7 million, or
$0.12 per diluted share, for the nine months ended September 30, 2008 compared to $5.3 million, or $0.17 per diluted share, for the same period in 2007. Non-GAAP adjusted income from continuing operations was $6.9 million, or $0.22 per diluted
share, for the nine months ended September 30, 2008 compared to $6.7 million, or $0.21 per diluted share, for the same period in 2007. GAAP income from continuing operations for the nine months ended September 30, 2008 included the effect
of approximately $1.8 million in costs related to the Company s ongoing initiative to consolidate business functions to reduce future operating expenses.
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.
Despite somewhat disappointing revenues, orders were strong for the third quarter of 2008,
said Chane Graziano, CEO of Harvard Bioscience. This order strength was across all of our major product lines. Panlab behavior products were up 33% in local currency compared to Q3 2007, which was prior to our ownership; Harvard Apparatus US
catalog products were up 7% for the quarter and 11% since the February 2008 catalog mailing; Hoefer electrophoresis products, outside GE Healthcare, were up 25% for the quarter and 10% year-to-date; and Biochrom spectrophotometer products, outside
GE Healthcare, were up 30% for the quarter and 41% year-to-date. Despite strong orders for the quarter, sales were negatively impacted by the strengthening of the U.S. dollar and our inability to ramp up production to meet demand, primarily at
Panlab. As a result, orders exceeded revenue by $1.9 million in the third quarter. This resulted in non-GAAP adjusted EPS of $0.06 per share for the third quarter of 2008, $0.01 per share less than guidance due to the negative impact of foreign
Mr. Graziano continued, As we look forward to the balance of the year, based on current trends, we expect
orders to continue to be strong. However, we do not expect to be able to increase manufacturing capacity fast enough at Panlab to meet fourth quarter 2008 demand and to ship their backlog. Therefore, at July 31, 2008 exchange rates, the basis
on which we last gave our 2008 guidance in August 2008, we would have expected orders for the year to be in the $93.0 - $94.0 million range, revenues to be in the $91.0 - $92.0 million range and non-GAAP adjusted EPS to be in the $0.32 - $0.33
range. Furthermore, if the U.S. dollar remains at October 31, 2008 exchange rates, it will cost us approximately $0.02 per share in the fourth quarter versus our August 2008 guidance. Therefore, using October 31, 2008 exchange rates for
the fourth quarter, we expect fourth quarter revenues to be in the $22.0 - $23.0 million range and non-GAAP adjusted EPS to be in the $0.08 - $0.09 per share range, giving us $87.0 - $88.0 million in revenues for 2008 and non-GAAP adjusted EPS in
the $0.30 - $0.31 per share range for the year.
Our revenue guidance is at October 31, 2008 exchange rates and the non-GAAP
adjusted earnings per diluted share from continuing operations guidance excludes amortization of intangible assets, the impact of future acquisitions in 2008, any future restructuring actions, 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. See Exhibits 3 and 4 for reconciliations of GAAP to non-GAAP adjusted income from continuing operations and GAAP earnings per diluted share
to non-GAAP adjusted earnings per diluted share from continuing operations for the three and nine month periods ended September 30, 2008.
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, 2008 | Year Ended December 31, 2008 | |||||||||||||||
| Low Estimate | High Estimate | Low Estimate | High Estimate | |||||||||||||
| Non-GAAP adjusted diluted earnings per common share from continuing operations - A | $ | 0.08 | $ | 0.09 | $ | 0.30 | $ | 0.31 | ||||||||
| Less the impact of: | ||||||||||||||||
| Amortization of intangible assets, net of tax - A | (0.01 | ) | (0.01 | ) | (0.06 | ) | (0.06 | ) | ||||||||
| Stock-based compensation (SFAS No. 123(R)), net of tax - B | (0.02 | ) | (0.02 | ) | (0.06 | ) | (0.07 | ) | ||||||||
| Restructuring, net of tax - C | (0.04 | ) | (0.04 | ) | ||||||||||||
| Tax benefits of filing consolidated tax returns for continuing operations and discontinued businesses - D | 0.01 | 0.01 | 0.04 | 0.04 | ||||||||||||
| GAAP diluted earnings per common share from continuing operations - A | $ | 0.06 | $ | 0.07 | $ | 0.18 | $ | 0.18 |
| A - Assumes no additional acquisitions. |
| B - Assumes no additional 2008 stock option grants. |
| C - Assumes no additional 2008 restructuring actions. |
| D - Does not include the tax impact of completing the divestiture of our Capital Equipment Business. |
Operating Results for Continuing Operations
Three months ended September 30, 2008 compared to three months ended September 30, 2007:
Revenues increased $0.6 million, or 3.3%, to $20.0 million for the three months ended September 30, 2008 compared to $19.4 million for the same period in 2007. The increase in revenue was primarily due to $1.6 million of sales at
Panlab, our Harvard Apparatus subsidiary acquired in the fourth quarter of 2007. Organic growth at our other Harvard Apparatus businesses was flat year-to-year for the quarter. Revenues at Biochrom were down $0.4 million year-to-year for the
quarter, due primarily to a $0.7 million decrease in business with Biochrom s largest customer, partially offset by growth across the remainder of our customer base. The effect of a strengthened U.S. dollar decreased the Company s third
quarter revenues by $0.7 million compared with the same period in 2007.
Cost of product revenues increased $0.5 million, or 4.7%, to $10.6
million for the three months ended September 30, 2008 compared with $10.1 million for the three months ended September 30, 2007. The increase in cost of product revenues is primarily due to $1.0 million of product costs at our recently
acquired Panlab subsidiary, partially offset by a $0.4 million decrease attributable to changes in foreign exchange rates. Gross profit as a percentage of revenues decreased to 47.2% for the three months ended September 30, 2008 compared with
47.9% for the same period in 2007. The decrease in gross profit as a percentage of revenues was primarily due to the addition of our Panlab subsidiary, which sells products at lower gross margins than our historical consolidated gross margins, as a
result of Panlab s higher mix of distributed products compared to manufactured products. The impact of Panlab on gross margin percentage was approximately 0.8%.
Sales and marketing expenses increased $0.1 million, or 4.5%, to $2.6 million for the three months ended September 30, 2008 compared with $2.5 million for the three months ended September 30, 2007. This
increase was primarily due to expenses from our recently acquired Panlab subsidiary of $0.2 million, offset by a decrease from the effects of a strengthened U.S. dollar of $0.1 million.
General and administrative expenses decreased $0.1 million, or 1.4%, to $3.5 million for the three months
ended September 30, 2008 compared with $3.5 million for the three months ended September 30, 2007. General and administrative expense increases of $0.2 million due to our acquisition of Panlab were offset by decreases of $0.1 million from
foreign exchange rates and $0.2 million from our consolidation of certain activities of our Hoefer and Asys subsidiaries.
Research and development expenses were $1.0 million, an increase of $0.1 million, or 15.6%, for the three months ended September 30, 2008 compared to $0.9 million for the three months ended September 30, 2007. The
increase in research and development expenses was due to our acquisition of Panlab and increased development efforts at Harvard Apparatus, offset by a reduction from the effects of changes in exchange rates.
Nine months ended September 30, 2008 compared to Nine months ended September 30, 2007:
Revenues increased $6.1 million, or 10.4%, to $65.0 million for the nine months ended September 30, 2008 compared to $58.9 million for the same
period in 2007. The increase in revenue was primarily due to revenues from our recently acquired Panlab subsidiary of $6.8 million, an increase in sales at our Biochrom UK subsidiary of $0.1 million, primarily as a result of our new microliter
spectrophotometer, and favorable foreign exchange rate impact on sales denominated in foreign currencies of $0.1 million during the first three quarters of 2008. This revenue growth was offset by large one-off orders in 2007, which were not repeated
in 2008, including a large tender order for our Anthos plate readers from China of approximately $1.3 million and a decrease of approximately $0.9 million in revenues of our electrophoresis products to GE Healthcare.
Cost of product revenues increased $4.3 million, or 14.2%, to $34.5 million for the nine months ended September 30, 2008 from $30.2 million for the
nine months ended September 30, 2007. The increase in cost of product revenues is primarily due to increases of $4.7 million attributable to our recently acquired Panlab subsidiary and $0.3 million of inventory write-downs associated with our
decision to consolidate our Asys subsidiary into our Biochrom UK subsidiary. Gross profit as a percentage of revenues decreased to 47.0% for the nine months ended September 30, 2008 compared with 48.7% for the same period in 2007. The decrease
in gross profit as a percentage of revenues was primarily due to sales from our Panlab subsidiary, which sells products at lower gross margins than our historical consolidated gross margins, and to certain inventory write-downs related to our
consolidation plan (see Restructuring on the following page). The impact of Panlab and the inventory write-downs on gross margin percentage was 2.1%.
Sales and marketing expenses increased $0.9 million, or 12.0%, to $8.4 million for the nine months ended September 30, 2008 compared to $7.5 million for the nine months ended September 30, 2007. This
increase was primarily due to expenses from our recently acquired Panlab subsidiary of $0.8 million and, to a lesser extent, to increases in salary related expenses of $0.1 million and changes in foreign exchange rates of $0.1 million.
General and administrative expenses increased $0.6 million, or 5.3%, to $11.0 million for the nine months
ended September 30, 2008 compared to $10.4 million for the nine months ended September 30, 2007. General and administrative expenses increased $0.6 million due to expenses at Panlab and $0.1 million due to our implementation of our
shareholder rights plan.
Research and development expenses were $3.2 million, an increase of $0.6 million for the nine
months ended September 30, 2008 compared to $2.6 million for the nine months ended September 30, 2007. The increase in research and development expenses was primarily due to expenses of $0.5 million at Panlab, which was acquired in the
fourth quarter of 2007.
The Company ended the third quarter of 2008 with cash and cash equivalents of $11.7 million compared to cash and cash equivalents of $17.9 million held by our continuing operations at December 31, 2007. As of
September 30, 2008, we had $0.2 million outstanding on our revolving credit facility compared to $5.5 million outstanding at December 31, 2007. Additionally, our Panlab subsidiary had $2.1 million and $2.3 million in debt remaining at
September 30, 2008 and December 31, 2007, respectively.
Trade receivables were $14.1 million and inventories were $14.7 million
as of September 30, 2008 compared to trade receivables of $13.0 million and inventories of $13.3 million as of September 30, 2007. Outstanding days of sales, or DSO, were 65 days for the three months ended September 30, 2008 and 62
days for the three months ended September 30, 2007. DSO increased primarily due to our acquisition of Panlab whose customers pay significantly slower than the customers of our other subsidiaries. Excluding Panlab, DSO were 56 days during the
three months ended September 30, 2008, an improvement of six days compared to the same period a year ago. Inventory turns were 2.7 times for the three months ended September 30, 2008 compared to 3.1 times for the same period of 2007.
Inventory turns are down primarily due to the low revenue at Panlab for the quarter.
During the quarter ended March 31, 2008, the management of Harvard Bioscience committed to an ongoing initiative to consolidate business functions to
reduce operating expenses. Our recent actions have been related to the separation of our electrophoresis product lines from our spectrophotometer and plate reader product lines. As part of these initiatives we made changes in management, completed
the consolidation of the Hoefer electrophoresis administrative and marketing operations from San Francisco, California to the headquarters of the Harvard Apparatus subsidiary in Holliston, Massachusetts and consolidated the activities of our Asys
Hitech subsidiary in Austria to the Company s Biochrom subsidiary s facility located in Cambridge UK. The combined costs of these activities recorded in the nine months ended September 30, 2008 were $1.8 million.
During the six months ended June 30, 2008, we recorded restructuring charges of approximately $1.8 million. These charges were comprised of $0.9
million in severance payments, $0.3 million in inventory impairment charges related to the discontinuance of certain product lines (included in cost of product revenues), and $0.5 million in various other costs and $0.1 million in facility closure
During the quarter ended September 30, 2008, we recorded charges relating to the restructuring of
approximately $0.1 million.
Discontinued Operations
On September 30, 2008, the Company completed the sale of assets of its Union Biometrica Division including its German subsidiary, Union Biometrica GmbH, representing at that time the remaining portion of the
Company s Capital Equipment Business Segment, to UBIO Acquisition Company. The purchase price paid by UBIO Acquisition Company under the terms of the Asset Purchase Agreement consisted of $1 in cash, the assumption of certain liabilities, plus
additional consideration in the form of an earn-out based on the revenue generated by the acquired business as it is conducted by UBIO Acquisition Company over a five-year post-transaction period in an amount equal to (i) 5% of the revenue
generated up to and including $6,000,000 and (ii) 8% of the revenue generated above $6,000,000 each year. Any earn-out amounts will be evidenced by interest-bearing promissory notes due on September 30, 2013 or at an earlier date based on
certain triggering events. During the third quarter ended September 30, 2008, the Company recorded a loss on sale of $0.4 million. There was no value ascribed to the contingent consideration from the earn-out agreement, as realization is
During the quarter ended June 30, 2008, we re-evaluated the fair value less costs to sell the remaining assets that
comprise the Capital Equipment Business segment. Based on this evaluation, we recorded additional asset impairment charges of $2.9 million.
The income (loss) from discontinued operations, net of tax, was $0.1 million and $(0.8) million for the three and nine months ended September 30, 2008, respectively, compared to losses of $0.3 million and $2.5 million for the three and
nine months ended September 30, 2007, respectively.
Conference Call Details
As previously announced, management will host a conference call to discuss third quarter 2008 results and business highlights and outlook, which will be simultaneously broadcast over the Internet and can be accessed