Harvard Bioscience, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Amounts below are in U.S. dollars; financial figures are in millions unless otherwise noted. The company sells instruments, equipment, software, accessories, and related services, including products for preclinical research.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $25.4 | $26.9 | $84.1 | $84.9 |
| Gross profit / margin | $14.7 / 58.1% | $12.2 / 45.2% | $49.7 / 59.2% | $45.0 / 53.0% |
| Operating income (loss) | $(0.9) | $(3.8) | $1.6 | $(6.5) |
| Net loss | $(1.2) | $(3.4) | $(1.6) | $(7.9) |
| Basic and diluted loss per share | $(0.03) | $(0.08) | $(0.04) | $(0.19) |
- Revenue trends: Q3 revenue decreased 5.8%; management attributed the decline to discontinued non-strategic products and lower cellular and molecular product revenue, partly offset by growth in preclinical products and services. For the first nine months, revenue declined 1.0%; a $4.1 million decline from discontinued products was largely offset by preclinical product and service growth.
- Margins and expenses: Gross margin rose 12.9 percentage points in Q3 and 6.2 points year to date. Management cited a more favorable mix of preclinical products, services, and software, discontinued lower-margin products, and a $1.3 million inventory reserve included in Q3 2022 cost of revenue. Year-to-date sales and marketing, G&A, and R&D expenses also decreased.
- Other items and interest: Q3 included a $1.2 million unrealized gain on HART shares; the nine-month period recorded a $0.4 million unrealized loss. Interest expense increased to $0.9 million in Q3 and $2.8 million year to date, reflecting higher rates, partly offset by lower average borrowings.
Cash flow, debt, and liquidity
- Operating cash flow was $9.7 million for the first nine months of 2023, compared with cash used of $1.5 million in 2022. Management cited lower adjusted losses and higher deferred revenue; prior-year cash flow was also affected by approximately $4.0 million of Biostage settlement payments.
- Investing activities used $0.7 million, including capital expenditures and intangible asset purchases, partly offset by $0.5 million of proceeds from the Hoefer product-line sale. Financing activities used $8.0 million, including $8.3 million of net debt repayments. Cash increased $0.8 million to $5.3 million.
- At September 30, 2023, borrowings were reported as $39.4 million; the balance-sheet debt carrying amount was $38.7 million after financing costs. Cash was $5.3 million. Unused revolving capacity was $13.0 million, subject to the leverage-based borrowing limit. The credit facility matures December 22, 2025; the company reported compliance with its covenants.
- The weighted-average borrowing rate, including the interest-rate swap, was 7.7%. The swap fixes the SOFR component on approximately $28.8 million of notional debt at 4.75% through December 2025, excluding the credit spread.
- Current assets were $50.5 million and current liabilities $24.2 million. Total assets were $139.7 million; stockholders’ equity was $74.3 million.
Material changes, outlook, and risks
- Management expects available cash, operating cash generation, and debt capacity to fund operations and capital expenditures for at least the next 12 months. The filing provides no specific revenue or earnings guidance.
- The Hoefer product line was sold for $0.5 million in February 2023, generating a $0.4 million gain; its revenue and gross profit were described as not significant.
- The company held 706,626 HART common shares valued at $3.8 million at quarter-end. Their value may fluctuate considerably or become worthless, given HART’s limited operating history, financial condition, and limited share trading liquidity.
- Management cites supply-chain and labor constraints, inflation, higher interest rates, currency movements, geopolitical events, and delays in U.S. government funding as potential pressures on shipments, costs, results, and cash flow.
- The 2022 Biostage litigation was settled and claims dismissed. The filing says other ordinary-course legal matters and ongoing state unclaimed-property audits had no significant loss accrual at quarter-end; adverse outcomes could still be material.
- Interim tax rates are volatile due to jurisdictional income mix, GILTI, and valuation allowances against substantially all net operating loss and tax-credit carryforwards. Q3 2023 included $0.7 million of tax expense despite a pretax loss.
- The company identified immaterial prior-period classification errors in a footnote’s breakdown of accumulated other comprehensive loss; total equity and reported financial statements were unaffected. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether revenue trends and growth in preclinical products and services can offset discontinued-product and regional declines.
- Whether gross-margin improvement persists after the prior-year inventory reserve and product-mix effects.
- Debt repayment capacity, covenant headroom, leverage-based revolver availability, and exposure to floating interest rates.
- The liquidity, valuation, and potential volatility of the HART investment.
- Whether macroeconomic, supply-chain, tax, legal, and unclaimed-property risks produce costs or cash-flow effects beyond current estimates.