Harvard Bioscience, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless otherwise noted. Harvard Bioscience develops and sells products and services supporting research, discovery, and preclinical drug testing. Financial figures below are in U.S. dollars; millions are used unless stated otherwise.
Key financial results
| Metric | Q1 2021 | Q1 2020 / comparator |
|---|---|---|
| Revenue | $27.0 million | $23.8 million; up 13.5% |
| Gross profit / margin | $15.4 million / 57.2% | $13.0 million / 54.6% |
| Operating loss | $0.2 million | $3.3 million |
| Net loss / diluted loss per share | $0.7 million / $0.02 | $4.5 million / $0.12 |
| Operating cash flow | $1.0 million | $2.9 million |
| Cash and cash equivalents | $5.8 million | $8.3 million at December 31, 2020 |
| Gross borrowings | $44.9 million | $49.4 million at December 31, 2020 |
| Net debt, as reported by management | $39.1 million | $41.1 million at December 31, 2020 |
Revenue growth reflected stronger preclinical product sales, improved sales processes, and product enhancements. Gross margin improved with higher volume and a more favorable product mix. Operating expenses declined to $15.7 million from $16.3 million. Interest expense fell to $0.4 million from $1.3 million, reflecting lower rates under the December 2020 credit agreement and lower average borrowings.
Cash used in investing activities was $0.3 million, mainly for capital expenditures. Financing activities used $3.1 million, including $4.5 million of debt repayments, partly offset by stock-option exercise proceeds. Cash declined by $2.5 million during the quarter. Current assets were $49.2 million and current liabilities were $20.7 million at March 31, 2021.
Material changes and developments
- Revenue rose 13.5% year over year, while the company remained loss-making; the net loss narrowed by $3.8 million.
- Operating cash flow was lower than in Q1 2020, which benefited from working-capital reductions. Management attributed the 2021 decline to variable compensation payments and higher working capital associated with sales growth.
- The new credit facility, entered into in December 2020, includes a $40.0 million term loan and a $25.0 million revolving facility, matures December 22, 2025, and had a 3.25% weighted-average interest rate at quarter-end. Revolver availability was $19.6 million. The facility is secured by substantially all of the company’s and guarantors’ assets; management reported compliance with its covenants.
- Restructuring continued: Q1 restructuring costs were $0.6 million, and the quarter-end restructuring liability was $0.6 million. The company expects incremental savings of approximately $2.0 million annually from further actions announced in Q1, expected to be completed in the first half of 2021.
Outlook, risks, and contingencies
Management gave no specific revenue or earnings guidance. It expects cash, operating cash generation, and available borrowing capacity to fund operations, restructuring costs, and capital expenditures for at least the next 12 months, based on current plans and estimates that include COVID-19 impacts.
COVID-19 continued to weigh on sales, particularly as academic research institutions experienced closures or delayed reopening; the company also cited disruption to productivity and sales and marketing activity. Management said the impact remains uncertain and could worsen if interruptions are prolonged or broadened.
The company expects total costs of approximately $8.0 million for restructuring and related transition actions, substantially all in cash; it had paid approximately $6.7 million through March 31, 2021. The initial 2019 plan was expected to generate $4.0 million to $5.0 million in annualized savings; a portion of savings is expected to be reinvested in growth.
A wrongful-death lawsuit related to products allegedly used in procedures in Europe in 2012 and 2013 seeks unspecified damages. The company says it intends to defend the case and cannot predict the outcome. It has not accrued losses for other ordinary-course legal matters, which it does not consider probable and reasonably estimable, but notes an adverse resolution could be material. Other risks include substantial debt and covenant compliance, foreign-exchange exposure, customer research funding, competition, and potential impairment of goodwill or intangible assets.
Important facts for investors to verify
- Whether academic-lab activity and COVID-19-related sales constraints improve, and how revenue growth develops across product lines and regions.
- Whether the projected restructuring savings are achieved, and whether completion costs remain near management’s approximately $8.0 million estimate.
- Debt repayment capacity, covenant headroom, borrowing costs, and the availability of the revolving facility.
- Cash conversion and working-capital trends, given lower operating cash flow despite higher revenue.
- Developments in the wrongful-death litigation and any material change in potential exposure.