Harvard Bioscience, Inc. — Q1 2022 Form 10-Q
Business context and period: Unaudited results for the three months ended March 31, 2022, compared with Q1 2021. Harvard Bioscience sells scientific instruments, equipment, software, accessories, and related services globally.
Key financial results
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $28.8 million | $27.0 million | Up 6.6% |
| Gross profit / margin | $16.2 million / 56.2% | $15.4 million / 57.2% | Profit up 4.8%; margin down 1.0 percentage point |
| Operating loss | $6.7 million | $0.2 million | Widened |
| Net loss | $6.9 million | $0.7 million | Loss per share of $0.17 vs. $0.02 |
| Operating cash flow | $(2.0) million | $1.0 million | Declined |
| Cash and cash equivalents | $5.4 million | $7.8 million at Dec. 31, 2021 | Down $2.4 million |
| Borrowings outstanding | Approximately $50.0 million | Approximately $49.4 million at Dec. 31, 2021 | Up approximately $0.6 million |
Operating expenses included a $5.2 million litigation settlement accrual, which was the principal unusual item affecting the quarter’s operating and net loss. Revenue growth reflected improved preclinical product sales and order fulfillment, partly offset by weaker orders from China. Higher supply-chain, logistics, and manufacturing labor costs pressured gross margin. Sales and marketing expense rose 24.2% and research and development expense rose 29.5%, primarily reflecting commercial and preclinical-product investments.
Liquidity, debt, and cash flow
- Cash used in investing was $0.5 million, mainly for manufacturing and IT capital expenditures. Financing provided $0.1 million; the company borrowed $1.5 million on its revolver and repaid $0.9 million of term debt.
- The credit facility matures in December 2025. At March 31, 2022, the weighted-average borrowing rate was 3.4%, and reported unused revolver capacity was $6.8 million, subject to a leverage-based limit.
- An April 2022 credit agreement amendment modified the consolidated net leverage covenant and consented to the litigation settlement; the company paid a $0.2 million fee. The filing reports covenant compliance as of March 31, 2022, as amended.
- Management expects available cash, operating cash generation, and debt capacity to fund operations and planned costs for at least 12 months. Operating cash flow was negative in the quarter.
Outlook, commentary, and risks
- No specific revenue or earnings guidance is provided. Management expected supply-chain disruptions, including component and labor shortages and higher freight and input costs, to continue through the rest of 2022.
- China lockdowns delayed orders; management expected sales to Chinese customers to remain reduced until lockdown conditions were removed. COVID-related customer and workplace disruptions may continue to affect sales, productivity, and cash flows.
- The late-April settlement resolved the cited litigation. The company accrued approximately $5.2 million through March 31 and expected another $0.8 million of legal and settlement expenses. Biostage is obligated to indemnify Harvard Bioscience, including through a proposed $4.0 million preferred-stock issuance, but recovery is uncertain; the company fully reserved any related receivable.
- Debt bears variable interest. The company estimated that a 1 percentage-point rate increase would raise annual interest expense by about $0.5 million, assuming other factors remain unchanged. Foreign exchange movements also affect results.
- Q1 foreign-currency translation reduced comprehensive results by $0.7 million. Management stated disclosure controls were effective and there were no material changes in internal control over financial reporting.
Most important facts for investors to verify
- Whether the settlement’s remaining costs and any Biostage indemnification or preferred-stock recovery differ from current estimates.
- Whether covenant terms, borrowing capacity, and compliance remain adequate following the credit amendment.
- Whether operating cash flow improves and cash remains sufficient given debt service, settlement costs, and investment spending.
- Whether China demand and supply-chain conditions recover as management anticipates, and how cost pressures affect margins.