Harvard Bioscience, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Q1 2020 Harvard Bioscience, Inc. Earnings Conference Call. At this time, all participants are on a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Dave Sorois. Thank you. Please go ahead, sir.

Thank you, Dylan, and good morning, everyone. Thank you for joining us for the Harvard Bioscience First Quarter 2020 Earnings Conference Call. Before we begin, I would like to suggest that you take a moment and download a copy of a presentation that will be referred to during this call. The file is entitled Q120, HBIO Quarterly Earnings Presentation, and can be located in the Investor Overview, Events, and Presentation section of our website. Leading the call today will be Jim Green, Chairman of the Board, President and Chief Executive Officer, and Mike Rossi, Chief Financial Officer. Before I turn the call over to Jim, I will read our Safe Harbor Statement. In our discussion today, we may make statements that constitute forward-looking statements. Our actual results and performance may differ materially from what we have projected due to risks and uncertainties, including those described in our annual report on Form 10-K for the period ended December 31, 2019, and our other public filings. Any forward-looking statements, including those related to the company's future results and activities, represent our estimates as of today and should not be relied upon as representing our estimates as of any subsequent day. Also, much of today's call will focus on our non-GAAP quarterly results, which we believe better represents the ongoing economics of the business, reflects how we set and measure our incentive competition plans, and how we manage the business internally. The differences between our GAAP and non-GAAP results are outlined in the earnings release and the slide presentation. These documents can be found on our website under Investor Overview, Events, and Presentations. Additionally, any material, financial, or other statistical information presented on the call, which is not included in our press release and presentation, will be archived and available in the Investor Relations section of our website. A replay of this call will also be available for one week at the same location on our website at harvardbioscience.com. I will now turn the call over to Jim. Jim, please go ahead.

Thank you, Dave. Let me start by saying that we are really proud to see our products playing their part in the fight against COVID-19. Many of our cellular and molecular technologies, such as our BTX electroporation gene splicing products, are helping develop new treatments. And our multi-well plates are helping detect antibodies. Our preclinical products play a major role also in any new treatment or vaccine before use in humans. And our recent advances in inhalation are just in time for research and development for fights against any airborne virus. So let's go ahead and move to slide three of the presentation and take a look at the highlights. Revenue from the combination of CROs and pharma was up modestly in the quarter. Academic labs were down significantly as labs shut down due to the COVID-19 pandemic. Our strict cash and cost control in the first quarter helped maintain strong cash flow and also helped pay down our debt principle by approximately $5 million. As we look forward, we're expecting further revenue decline in Q2, recovering as the academic labs reopen in the second half. We rapidly implemented significant expense reductions to support margins and cash flow for Q2 and beyond. We continue to move to a leaner organization and operation, and we will continue to maintain strict cash and cost discipline as we continue to meet our debt obligations. Let's move to slide four of the presentation and take a look at the details of Q1. We were significantly impacted by the COVID-19 pandemic. Q1 revenue came in at 23.8 million, down 4.4 million, or 15.7 percent from Q1 last year. Gross margin on GAAP basis measured 54.6 percent. That's 2.7 percent worse than last year. Non-GAAP adjusted gross margin was 54.6 percent, down 2.9 percent. This quarter had GAAP operating income of negative $3.3 million. Our adjusted operating income was a positive $500,000, so our adjusted operating margin was 2 percent. Gap earnings per share was negative 12 cents. Our adjusted earnings per share was negative 1 cent. Our cash flow from operations was 2.9 million, and we paid down our debt principal by $4.8 million. Moving to slide five. take a look at Q1 revenue by product family and customer segments. Starting with the first row of the table, our cellular and molecular product revenue, which is primarily for academic research labs, was down 15.7 percent worldwide as labs shut down and personnel began working from home, which impacted order processing and receipt of equipment. Reductions include $300,000 of an exit from a non-strategic product line. Looking at the second row of the table, our overall preclinical revenue was also down primarily due to the COVID-19 impact on academic research lab shutdowns. Good news, our CROs saw year-over-year growth in the quarter driven by North America and China recovering. Also, pharma remained steady to last year, and we see a lot of excitement around our new inhalation products. As I said, academics and distributors were down with the lab shutdowns. And one of our large government lab customers was down $700,000 on issues of internal funding delays. We move to slide six. We'll look at the restructuring related to the restructuring that we announced late last year. We initiated the Connecticut manufacturing consolidation into Holliston and expect to complete in our third quarter. We initiated downsizing of our UK operation, also expected to complete in the third quarter. The global reduction in force for approximately 10 percent across our entire business is almost complete. We expect annualized savings over $4 million, phasing in primarily in the first half of 2020, and we expect one-time costs of approximately $4 to $5 million associated with it. We move on to page seven and a look at our reaction to the oncoming pandemic at the time. In mid-Q1, we began to see the initial effect of COVID-19 on our China customers and began to plan contingencies for what to do should it spread to other countries. During the first few weeks of Q1, we built an action plan to dramatically – actually, it was late in Q1. We built an action plan to dramatically reduce the overall cost of the business and rapidly implemented it early enough to protect the second quarter and potentially beyond. The action consisted of worldwide reductions in work hours and compensation, reductions in force, reductions in management compensation, and all said, we expect to save approximately $3 million in the second quarter from these actions. At the same time, considering continuity of the business and employee safety, we rapidly implemented measures for safe factory operation and work from home for non-factory employees. As a result, We have stable, effective manufacturing operations up and running. Now I'll turn it over to Mike for financials.