Harvard Bioscience, Inc. — Q3 2021 Form 10-Q
Business context and reporting period
Quarter ended September 30, 2021; financial statements are unaudited. Harvard Bioscience develops, manufactures, and sells products and services used in life-science research, discovery, and preclinical drug testing. Figures below are in millions of U.S. dollars unless stated otherwise.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $29.7 | $24.0 | $85.8 | $71.1 |
| Gross profit / margin | $16.3 / 55.0% | $13.5 / 56.1% | $48.1 / 56.0% | $40.3 / 56.7% |
| Operating income (loss) | $0.5 | $0.2 | $0.4 | $(2.5) |
| Net loss | $(0.2) | $(1.1) | $(1.2) | $(7.2) |
- Q3 diluted loss per share was approximately $(0.00); nine-month loss per share was $(0.03).
- Operating cash flow was $1.1 million for the first nine months, down from $6.8 million. Investing cash outflow was $1.0 million and financing cash outflow was $2.8 million.
- Cash was $5.5 million at September 30, down from $8.3 million at year-end 2020. Gross borrowings were $46.4 million; net debt after cash was $40.9 million. The company had $17.1 million of revolver availability and reported compliance with credit-facility covenants.
- Current assets were $55.7 million and current liabilities $23.5 million. Inventory rose to $26.0 million from $22.3 million at year-end.
Material changes versus the prior comparable period
- Q3 revenue grew 23.4%; nine-month revenue grew 20.7%. Management attributed growth to reopened academic labs, improved preclinical product sales and significant growth in China. Academic lab activity remained below pre-pandemic levels.
- Gross margin declined 1.1 percentage points in Q3 and 0.7 points year to date, primarily due to supply-chain, logistics, materials, and labor cost increases; volume and product mix partly offset the pressure.
- Interest expense fell to $0.4 million in Q3 and $1.2 million year to date, reflecting lower rates under the December 2020 credit agreement and, year to date, lower average borrowings.
- Operating cash flow declined year over year, largely due to higher working capital and inventory purchases amid longer supplier lead times and increased demand. Backlog increased, but the filing does not provide a clear value.
- The company retired 7.7 million treasury shares in May 2021. Shares outstanding were approximately 40.8 million at September 30.
Outlook, management commentary, and risks
- No specific revenue or earnings guidance is provided. Management expects cash, operating cash generation, and debt capacity to fund operations, restructuring costs, and capital expenditures for at least the next 12 months, subject to risks and uncertainties.
- Management expected supply-chain disruptions, component and labor shortages, higher freight and material costs, and shipment delays to continue through the remainder of 2021. COVID-19-related customer closures or reduced capacity and limits on sales and marketing activities remained risks.
- The 2019 restructuring plan and subsequent actions were substantially complete by June 30, 2021. The original plan targeted approximately $4.5 million in annualized savings; additional actions were expected to generate approximately $2.0 million more. Cash outlays for the actions were approximately $9.0 million. Nine-month 2021 restructuring costs were $1.3 million.
- A wrongful-death lawsuit relating to products connected to a 2012–2013 procedure remains unresolved. The court vacated a prior sanctions order in August 2021. In September, the insurer denied coverage and ceased funding defense costs after September 30; the company disputes the denial. Trial was set for October 2022, and potential damages could be substantial but are not estimable from the filing. Biostage’s ability to indemnify the company is uncertain.
- Foreign currency translation reduced comprehensive income by $1.9 million for the nine months. The company also cites debt, covenant, cybersecurity, acquisition-integration, and intellectual-property risks.
Most important facts for investors to verify
- Whether supply constraints, elevated costs, and customer shipment delays persisted beyond 2021, and how they affected gross margin and backlog conversion.
- Whether operating cash flow improved as inventory and other working-capital levels changed.
- Debt repayment, revolver availability, interest costs, and ongoing compliance with credit covenants.
- Developments in the lawsuit and insurance-coverage dispute, including potential defense costs, damages, and the collectability of any Biostage indemnification.
- Realized savings from restructuring compared with management’s stated annualized targets.