Harvard Bioscience, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; unaudited. Harvard Bioscience develops, manufactures and sells products and services supporting life-science research and preclinical drug development.
Financial performance
Amounts below are in millions of dollars except per-share data. Comparisons are with the corresponding 2020 period.
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Revenue | $29.2 | $23.3 | $56.2 | $47.1 |
| Gross profit / margin | $16.4 / 56.0% | $13.9 / 59.4% | $31.8 / 56.6% | $26.8 / 57.0% |
| Operating income (loss) | $0.1 | $0.6 | $(0.2) | $(2.7) |
| Net loss | $(0.4) | $(1.6) | $(1.1) | $(6.1) |
| Loss per share, diluted | $(0.01) | $(0.04) | $(0.03) | $(0.16) |
| Cash from operations | Not separately provided | Not separately provided | $1.8 | $5.2 |
- Q2 revenue grew 25.3%; first-half revenue grew 19.3%. Product sales drove most revenue, with service, maintenance and warranty revenue also increasing year over year for the first half.
- Gross margin declined, particularly in Q2, as electronic-component and labor shortages and other supply-chain disruptions raised freight and material costs. First-half gross profit nevertheless rose 18.4%.
- Q2 operating expenses increased, including sales and marketing (+33.9%) and research and development (+42.4%), partly reflecting employees returning to full-time work and investment in commercial support and strategic initiatives. Lower interest expense helped narrow the net loss.
Cash, debt and liquidity
- At June 30, cash and cash equivalents were $6.2 million, down from $8.3 million at year-end 2020. Current assets were $53.6 million and current liabilities $23.3 million.
- Borrowings under the credit facility were $44.4 million, versus $49.4 million at December 31, 2020; net debt after cash was $38.2 million, as reported by the company. The facility includes a $40 million term loan and $25 million revolving facility, matures December 22, 2025, and had $19.6 million of available revolver capacity. The stated borrowing rate was 3.0%.
- First-half cash from operations was $1.8 million, compared with $5.2 million in 2020. Investing used $0.5 million and financing used $3.3 million; cash declined by $2.1 million. The company attributed weaker operating cash flow to variable compensation and higher working capital associated with sales growth.
- Management said cash, operating cash generation and debt capacity are expected to fund operations, restructuring costs and capital expenditures for at least the next 12 months. The company reported compliance with all credit-facility covenants at June 30.
Changes, outlook and risks
- Management attributed the revenue recovery primarily to academic laboratories reopening and stronger preclinical product-family sales. It said academic lab activity remained below pre-pandemic levels.
- The 2019 restructuring and expanded cost-reduction actions were substantially complete by June 30, 2021. The expanded actions were expected to produce about $2.0 million in additional annualized savings; earlier plan actions targeted about $4.5 million in annualized savings. Cash outlays for these actions totaled $8.2 million through June 30.
- The company expected supply-chain disruption and higher freight and purchased-material costs to continue through the remainder of 2021. COVID-19 restrictions, customer laboratory capacity, and related economic effects remained uncertain. No specific revenue or earnings guidance was provided.
- A wrongful-death lawsuit related to products used in procedures in Europe in 2012–2013 carries an order establishing admitted liability as a discovery sanction. The company and co-defendants sought to vacate that order; a hearing occurred August 3, 2021, but no ruling had been made as of the filing. Damages are unspecified. The company believes insurance may cover all or a significant portion, but cannot assure coverage will be sufficient; Biostage’s ability to indemnify is also uncertain.
- Other disclosed risks include substantial debt and covenant requirements, foreign-currency exposure, potential goodwill or intangible-asset impairment, and the possibility of further adverse legal or product-liability outcomes. No loss accrual was recorded for the other ordinary-course legal matters described as not probable and reasonably estimable.
Important facts for investors to verify
- Whether academic customer activity continues recovering and whether product demand converts into shipments despite supply-chain constraints.
- Whether cost inflation persists and pressures gross margin, and whether restructuring savings are realized as planned.
- Cash generation, working-capital needs, debt repayments, revolver availability and ongoing covenant compliance.
- The court’s ruling on the motion to vacate the admitted-liability sanction, potential damages, insurance limits and collectability of any Biostage indemnification.
- The implications of the retirement of 7.7 million treasury shares and outstanding equity awards; the filing reports 40.5 million shares outstanding at June 30 and 40.8 million at July 30, 2021.