Harvard Bioscience, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Unaudited consolidated figures are in U.S. dollars; financial amounts are in millions unless otherwise noted. The company develops and sells technologies, products, and services for research and preclinical drug development.
Financial performance
| Metric | Q2 2020 | Q2 2019 | First half 2020 | First half 2019 |
|---|---|---|---|---|
| Revenue | $23.3 | $29.6 | $47.1 | $57.8 |
| Gross profit | $13.9 | $16.0 | $26.8 | $32.1 |
| Gross margin | 59.4% | 53.9% | 57.0% | 55.6% |
| Operating income (loss) | $0.6 | $0.2 | ($2.7) | $0.1 |
| Net loss | ($1.6) | ($0.2) | ($6.1) | ($2.6) |
| Basic and diluted loss per share | ($0.04) | ($0.01) | ($0.16) | ($0.07) |
| Cash from operating activities | Not separately reported | Not separately reported | $5.2 | $2.7 |
Q2 revenue declined 21.2% year over year; first-half revenue declined 18.5%. Management attributed the decrease primarily to COVID-19-related reductions in sales to academic laboratories and other institutions. Gross margin improved, which management attributed to a more favorable mix of higher-end systems and software. Q2 operating income improved from the prior year, but net loss widened, including a shift from an income tax benefit in 2019 to tax expense in 2020. First-half net loss also increased.
Liquidity, debt, and balance sheet
- At June 30, cash and cash equivalents were $2.6 million, down from $8.3 million at December 31, 2019. Current assets were $44.1 million and current liabilities $22.7 million.
- Gross term-loan borrowings were $44.7 million; reported debt net of financing costs was $43.7 million. Net debt after cash was approximately $42.1 million. The company had $7.5 million of revolving borrowing capacity available.
- First-half cash from operations was $5.2 million, compared with $2.7 million a year earlier. The company attributed the increase partly to working-capital reductions associated with lower sales and improved cash management. Investing activities used $0.5 million; financing activities used $10.4 million, primarily reflecting debt repayment.
- The effective borrowing rate, after the interest-rate swap, was 8.9%. The company was compliant with its debt covenants at quarter-end, but said COVID-19’s effect on revenue and EBITDA had reduced its cushion against the maximum leverage limit of 3.25.
Changes, outlook, and notable items
- COVID-19 and outlook: Management said pandemic-related laboratory closures and operating restrictions had negatively affected results and cash flows. It expected revenue for the quarter ending September 30, 2020 to decline significantly year over year, with recovery beginning as academic research institutions reopen. The duration and severity of the impact remained uncertain.
- Cost reduction and restructuring: The company continued its 2019 restructuring plan and expanded reductions during 2020. The original plan targeted annualized savings of $4–$5 million; additional actions were expected to yield approximately $1 million in annualized savings. Management reported over $3 million of expense reductions in Q2 versus Q1, from pandemic mitigation and earlier restructuring actions combined. Expected restructuring and transition costs were $5–$6 million, substantially cash; approximately $3.9 million had been paid through the first half.
- Liquidity assessment: Management expected available cash, operating cash generation, and debt capacity to fund operations, restructuring costs, and capital expenditures for at least 12 months. A worse-than-expected pandemic impact could threaten future covenant compliance and require lender waivers, amended terms, accelerated repayment, or alternative financing; availability and terms were not assured.
- PPP loan: The company received a $6.1 million Paycheck Protection Program loan in April and repaid it in full on May 4, 2020 after reassessing its liquidity and eligibility in light of SBA guidance.
- Other items: No COVID-19-triggered impairment of goodwill or long-lived assets was identified at June 30. A wrongful-death lawsuit relating to products allegedly used in 2012–2013 surgeries seeks unspecified damages; the company intends to defend the case and cannot predict its outcome. No loss was accrued for this matter.
Key investor verification points
- Track academic and other customer reopening patterns against management’s stated expectation of a significant Q3 year-over-year revenue decline.
- Monitor cash balances, operating cash generation, debt repayments, and the effect of lower sales on working capital.
- Assess covenant headroom as EBITDA and revenue evolve; verify continued compliance and availability of revolving credit.
- Compare realized restructuring savings with the stated targets and track remaining cash costs and execution progress.
- Follow the wrongful-death litigation and any developments that could affect the company’s financial exposure.