Business Context and Reporting Period
Company: Harvard Bioscience, Inc.
Filing Type: Form 10-Q (Unaudited)
Period Ended: September 30, 2008
Business Overview: The Company manufactures and distributes apparatus, instruments, and consumables for life science research. Operations are primarily conducted through the Apparatus and Instrumentation Business segment. The Company completed the divestiture of its Capital Equipment Business segment on September 30, 2008, selling the remaining Union Biometrica Division assets.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended Sep 30, 2008 | Nine Months Ended Sep 30, 2008 | Nine Months Ended Sep 30, 2007 |
|---|---|---|---|
| Revenues | $19,989 | $64,997 | $58,878 |
| Gross Profit | $9,434 | $30,528 | $28,681 |
| Gross Margin % | 47.2% | 47.0% | 48.7% |
| Operating Income | $1,857 | $4,897 | $6,817 |
| Net Income (Loss) | $1,116 | $(403) | $(51) |
| Cash and Cash Equivalents | $11,658 | $11,658 | $15,063 |
| Long-Term Debt | $69 | $69 | $5,578 |
| Working Capital | $33,023 | $33,023 | $37,970 |
Note: Working Capital calculated as Total Current Assets minus Total Current Liabilities.
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 3.3% in the quarter and 10.4% for the nine-month period compared to 2007. Growth was driven primarily by the inclusion of Panlab (acquired in late 2007), which contributed $1.6 million in Q3 and $6.8 million for the nine months.
- Margin Compression: Gross margin decreased to 47.2% (Q3) and 47.0% (9 months) from 47.9% and 48.7% in the prior year periods. This decline is attributed to Panlab's lower margin profile (higher mix of distributed vs. manufactured products) and inventory write-downs related to restructuring.
- Net Loss: While the Company reported a net income of $1.1 million for the quarter, it reported a net loss of $0.4 million for the nine months ended September 30, 2008. This contrasts with a net loss of $0.05 million for the same period in 2007. The nine-month loss was significantly impacted by discontinued operations.
- Discontinued Operations: The Company recorded a total loss from discontinued operations of $4.1 million for the nine months ended September 30, 2008, compared to $5.3 million in 2007. This includes a $0.4 million loss on the disposition of the Union Biometrica Division and $2.9 million in asset impairment charges recorded in Q2 2008.
- Debt Reduction: Long-term debt decreased significantly from $5.6 million at year-end 2007 to $0.07 million at September 30, 2008, as the Company paid down debt associated with the Panlab acquisition.
Guidance, Outlook, and Risks
- Foreign Exchange Impact: Management highlighted a significant negative impact from the strengthening U.S. dollar against the British Pound and Euro. Approximately 56% of revenues are transacted in foreign currencies. The dollar strengthened ~11% against these currencies in Q3 2008, reducing reported revenues by $0.7 million in the quarter. Management warns that continued strengthening will negatively affect future revenues and earnings.
- Strategic Initiatives: The Company is executing five major initiatives: launching new catalogs, expanding Panlab products in the US, a new contract with GE Healthcare, launching new electrophoresis products, and consolidating business functions to reduce expenses. Progress on Panlab delivery times and GE Healthcare sales volumes remains a focus.
- Liquidity and Financing: The Company has a $20.0 million revolving credit facility with $20.0 million available as of September 30, 2008. The facility matures on December 1, 2009. Management is negotiating an extension but anticipates prevailing interest rates may be ~0.5% higher than current rates due to global credit market conditions.
- Risk Factors: Key risks include the potential termination of the distribution agreement with GE Healthcare, the uncertainty of earn-out payments from the divested Capital Equipment Business, and the impact of the global economic crisis on customer capital equipment purchases.
Investor Verification Checklist
- Discontinued Operations: Verify the final accounting treatment and any remaining contingent liabilities associated with the sale of the Union Biometrica Division and the Genomic Solutions Division.
- Foreign Exchange Sensitivity: Assess the Company's hedging strategy (currently none) and model the impact of further USD appreciation on future quarters given the 56% foreign revenue exposure.
- GE Healthcare Relationship: Monitor the performance of the new distribution agreement with GE Healthcare, specifically regarding the microliter spectrophotometer and the decline in other spectrophotometer sales noted by management.
- Debt Extension Terms: Confirm the terms of the credit facility extension, specifically the interest rate margin and any new covenants, given the current credit market environment.
- Restructuring Costs: Track the remaining $0.15 million in restructuring accruals and the realization of anticipated cost savings from the consolidation of Hoefer and Asys operations.