Harvard Bioscience, Inc. — FY 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This filing reports annual results, not standalone fourth-quarter results.
Business context
Harvard Bioscience develops, manufactures and sells tools and services for life-science research and preclinical drug testing. Its Cellular and Molecular Technologies and Preclinical product families represented approximately 57% and 43% of revenue, respectively. Customers include academic and government laboratories, pharmaceutical and biotechnology companies, and contract research organizations. No customer accounted for more than 10% of annual revenue.
Financial results
| Metric | FY 2021 | FY 2020 |
|---|---|---|
| Revenue | $118.9 million | $102.1 million |
| Gross profit / gross margin | $67.7 million / 56.9% | $58.0 million / 56.8% |
| Operating income | $2.1 million | $0.2 million |
| Net loss | $0.3 million | $7.8 million |
| Basic and diluted loss per share | $0.01 | $0.20 |
| Cash from operating activities | $1.3 million | $9.3 million |
| Cash and cash equivalents at year-end | $7.8 million | $8.3 million |
Revenue rose 16.5%. Gross margin edged up 0.1 percentage point. Interest expense fell to $1.5 million from $4.8 million, largely reflecting lower rates under the refinancing completed in December 2020. The company remained loss-making, although the net loss narrowed substantially.
Operating cash flow declined as accounts receivable and inventory increased amid higher demand and longer supplier lead times. Year-end inventory was $27.6 million, up from $22.3 million; accounts receivable was $21.8 million, up from $17.8 million.
At year-end, reported borrowings were approximately $49.4 million, cash was $7.8 million, and net debt was approximately $41.6 million. The $25 million revolving facility had $13.6 million of available capacity. Debt matures December 22, 2025; the company reported compliance with its covenants. The credit agreement is secured by substantially all of the company’s assets and restricts, among other things, additional debt, acquisitions and dividends.
Material changes and management commentary
- Revenue improved as academic laboratories reopened and Preclinical sales benefited from improved sales processes, Asia market growth and product enhancements.
- Supply-chain disruption, electronic-component and labor shortages, and higher freight, materials and manufacturing labor costs pressured operations and delayed some shipments. Management expected these trends to continue in 2022.
- Sales and marketing expense increased 23.7% to $24.6 million, and research and development expense increased 24.3% to $10.8 million, reflecting growth investments and higher personnel and project costs.
- The restructuring program was completed in 2021. The company reported $9.0 million of cash outlays for restructuring and related cost-reduction actions; it expected annualized run-rate savings of $4.0–$5.0 million from the plan. Some savings were reinvested in growth initiatives.
- Management expected available cash, operating cash generation and debt capacity to fund operations, restructuring costs and capital expenditures for at least the next 12 months. No formal revenue or earnings guidance was provided.
Risks, contingencies and unusual items
- COVID-19 continued to weigh on customer laboratory activity and sales, while workforce restrictions affected productivity and sales and marketing activity.
- The company disclosed a wrongful-death lawsuit relating to products associated with former subsidiary Biostage. The damages sought are unspecified and could be substantial. An insurer denied coverage; a court order required continued payment of legal expenses during the coverage dispute, and the insurer appealed. A trial was scheduled for October 2022. The company noted that Biostage’s ability to indemnify it was uncertain.
- The filing discusses geopolitical uncertainty following Russia’s invasion of Ukraine in February 2022 and possible effects on markets, costs and supply chains.
- Foreign currency translation produced a $2.4 million loss in other comprehensive income, versus a $1.7 million gain in 2020. The company reported no goodwill impairment in 2021.
- The company paid no cash dividends and said it did not intend to do so in the foreseeable future.
- Grant Thornton issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded disclosure controls and internal controls were effective at year-end.
Important facts for investors to verify
- Whether revenue recovery and gross-margin performance can persist as academic research activity normalizes and supply-chain costs and delays evolve.
- Whether operating cash flow improves as inventory and receivables are converted to cash.
- Debt balances and available revolver capacity: the filing cites approximately $49.4 million of borrowings and $13.6 million of available capacity; confirm subsequent balances, covenant headroom and repayment requirements.
- Developments in the Biostage-related litigation and insurance-coverage dispute, including potential company-funded legal costs or damages.
- Progress against the restructuring savings estimate and the returns from increased sales, marketing and R&D spending.