Harvard Bioscience, Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual report; the supplied filing text does not provide separate fourth-quarter financial results. Harvard Bioscience develops, manufactures and sells products and services for life-science research and preclinical drug testing. It serves academic and government laboratories, pharmaceutical and biotechnology companies, and contract research organizations (CROs).
Financial performance
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $102.1 million | $116.2 million |
| Gross profit / gross margin | $58.0 million / 56.8% | $64.3 million / 55.4% |
| Operating income | $0.2 million | $0.4 million |
| Net loss | $7.8 million | $4.7 million |
| Basic and diluted loss per share | $0.20 | $0.12 |
| Cash provided by operating activities | $9.3 million | $8.0 million |
| Cash and cash equivalents at year-end | $8.3 million | $8.3 million |
| Gross borrowings at year-end | $49.4 million | $55.0 million |
Revenue declined 12.1%, primarily because COVID-19 disrupted academic and institutional laboratory activity. Better sales of Preclinical products to CRO and pharmaceutical customers partially offset the decline. Gross margin improved on product mix and cost-reduction measures despite lower sales volume. Operating expenses were $57.8 million, versus $63.9 million; operating income remained marginal. The net loss widened, reflecting lower revenue and $1.9 million of debt-extinguishment and refinancing-related costs. Cash flow from operations increased, mainly from working-capital reductions, including improved receivables collections. Capital expenditures were $1.2 million; investing activities used $1.4 million.
Liquidity, debt and capital
On December 22, 2020, the company refinanced its prior facility with a $40.0 million term loan and a $25.0 million revolving facility, maturing December 22, 2025. At year-end, $9.4 million was drawn on the revolver, leaving $15.6 million available. The reported interest rate was 3.25%. Debt is secured by substantially all company assets and is subject to financial and restrictive covenants; the company reported compliance at year-end. Net debt, defined in the filing as borrowings less cash, was $41.1 million, down from $46.7 million.
Management expected available cash, operating cash flow and debt capacity to fund operations, restructuring costs and capital expenditures for at least 12 months, based on current plans and assumptions about COVID-19. The filing does not provide numeric revenue or earnings guidance. The company has not paid cash dividends and does not expect to do so in the foreseeable future.
Changes, outlook and risks
- COVID-19: Customer laboratory closures, remote work, factory distancing measures and reduced travel disrupted sales and operations. Academic customers remained affected as 2020 ended; the duration and economic effects were uncertain. The company implemented temporary pay and work-hour reductions, workforce reductions and organizational changes.
- Restructuring: The 2019 plan consolidated a Connecticut manufacturing site into Massachusetts, reduced UK operations and cut headcount by about 10%. Management expected annualized run-rate savings of $4.0–$5.0 million. The initial initiatives were completed in the second half of 2020; the filing also describes the broader program as expected to be substantially completed by the first half of 2021. 2020 restructuring costs were $2.0 million, with $0.3 million of liability remaining at year-end.
- Business mix: Cellular and Molecular Technologies represented 57% of 2020 revenue, down from 63%; Preclinical represented 43%, up from 37%. No customer accounted for more than 10% of revenue.
- Debt and funding risks: Covenant breaches could make debt immediately payable. The company cited limits on additional borrowing and acquisitions, and noted that cash flow or capital resources may prove insufficient to service debt. The credit agreement restricts acquisitions above specified thresholds, among other activities.
- Other exposures: Risks include competition and technological change, dependence on research budgets and government funding, international and foreign-exchange exposure, cybersecurity and IT disruptions, and the possibility of further restructuring costs or unrealized savings. The company disclosed an unresolved wrongful-death lawsuit involving products associated with its former Biostage business; damages sought are unspecified and the outcome cannot be predicted. Other ordinary-course legal matters were not considered probable and reasonably estimable for accrual.
- Unusual financing item: The company borrowed $6.1 million under the Paycheck Protection Program in April 2020 and repaid it in full on May 4, 2020. It also paid to terminate interest-rate swaps as part of the December refinancing.
Investor verification priorities
- Track whether academic research activity recovers and whether Preclinical growth continues to offset weakness in other product lines.
- Compare realized restructuring savings and costs with the $4.0–$5.0 million annualized savings target and completion timeline.
- Review debt amortization, variable-rate exposure, covenant headroom, revolver availability and the company’s ability to meet debt service.
- Assess operating cash flow, working-capital trends and liquidity against management’s 12-month sufficiency statement.
- Follow the wrongful-death litigation, insurance coverage and any developments that could change the company’s exposure.
Audit and controls: Grant Thornton issued an unqualified opinion on the 2020 consolidated financial statements and reported effective internal control over financial reporting as of December 31, 2020.