Harvard Bioscience, Inc. — Q2 2022 Form 10-Q
Business context and reporting period
Unaudited results for the quarter and six months ended June 30, 2022, compared with the same 2021 periods. Harvard Bioscience sells life-science instruments, equipment, software, accessories and related services. Unless stated otherwise, financial amounts below are in millions of dollars.
Financial results and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $29.2 | $29.2 | $58.0 | $56.2 |
| Gross profit / margin | $16.6 / 57.0% | $16.4 / 56.0% | $32.8 / 56.6% | $31.8 / 56.6% |
| Operating income (loss) | $4.0 | $0.1 | $(2.7) | $(0.2) |
| Net income (loss) | $2.4 | $(0.4) | $(4.4) | $(1.1) |
| Operating cash flow | Not stated quarterly | Not stated quarterly | $(2.2) | $1.8 |
- Q2 revenue was essentially unchanged year over year; first-half revenue rose 3.2%. Q2 gross margin improved, while first-half margin was flat.
- Q2 operating income included a $4.9 million litigation-related credit. For the first half, the company reported a net $0.3 million litigation expense.
- Cash and cash equivalents were $4.3 million at June 30, down from $7.8 million at year-end 2021. Total assets were $155.3 million and stockholders’ equity was $77.5 million.
- Gross borrowings were approximately $49.5 million; the debt balance net of financing costs was $48.5 million. Revolver availability was $2.9 million. The weighted-average borrowing rate was 5.3%; the company reported covenant compliance at quarter-end.
- First-half investing cash outflow was $0.9 million and financing cash outflow was $0.5 million. The company paid approximately $4.0 million in connection with the litigation settlement during the half.
Changes, outlook, risks and unusual items
- Management attributed first-half revenue growth to improved order fulfillment and reduced backlog. Lower orders outside the U.S., including China and Europe, and unfavorable currency effects offset growth. Q2 cellular and molecular product revenue improved, while preclinical products faced weaker European and Chinese orders.
- Sales and marketing and R&D expenses increased in the first half, primarily with added commercial personnel, travel and trade shows, and preclinical product development. Gross margin benefited from pricing but faced supply-chain cost pressure.
- Management said electronic-component and labor shortages, freight and materials costs, and shipment delays were expected to continue through the rest of 2022. COVID-related restrictions, including China shutdowns, could continue to affect demand and operations. Inflation, rising rates, currency fluctuations and the Russia-Ukraine conflict were also cited as risks; management expected debt interest costs to rise.
- The company expected available cash, operating cash generation and debt capacity to fund operations, restructuring costs and capital expenditures for at least 12 months, subject to risks and forecast uncertainty. No specific revenue or earnings guidance was provided in the filing text.
- A wrongful-death lawsuit was settled in April 2022, with claims dismissed with prejudice and no admission of liability. Biostage issued preferred stock valued at $3.9 million to satisfy $4.0 million of its indemnification obligation; about $0.5 million of unpaid indemnification receivables remained fully reserved. The company did not anticipate material cash inflows from the preferred stock in the next 12 months, and its value could fluctuate considerably.
- Foreign-currency translation reduced comprehensive income by $2.5 million in Q2 and $3.2 million in the first half. Management reported disclosure controls were effective and no material second-quarter change in internal control over financial reporting.
Important facts for investors to verify
- How much of Q2 reported operating profit depended on the one-time litigation credit, and how underlying operating performance is trending.
- Whether the company can convert its order backlog into shipments despite continuing supply constraints, and whether China demand recovers as restrictions ease.
- Cash generation, working-capital needs and remaining revolver availability, given first-half operating cash outflow and limited borrowing capacity.
- Debt covenant headroom and the effect of rising interest rates on interest expense and liquidity.
- Recoverability and realizable value of the Biostage preferred stock and the remaining indemnification receivable.