Harvard Bioscience, Inc.

Good day, and thank you for standing by. Welcome to the Harvard Bioscience third quarter 2022 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Dave Sorois. Please go ahead.

Thank you, Shannon, and good afternoon, everyone. Thank you for joining the Harvard Bioscience Third Quarter 2022 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 Q3 2022 HBio Quarterly Earnings Presentation and is located in the Investor Overview Events and Presentations 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 31st, 2021, our subsequent quarterly reports on Form 10-Q, 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 compensation plans, and how we manage the business internally. The differences between our GAAP and non-GAAP results are outlined in the earnings release and today's presentation. These two documents, as well as a replay of this call, 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. I will now turn the call over to Jim. Jim, please go ahead. Thanks, David. Good afternoon, everybody.

Let me start by saying that in spite of a rough third quarter, we continue to work through actions to dramatically improve our portfolio and resize the cost of our organization by the end of Q4. Let's go to slide four of the presentation and take a look at the highlights for the quarter. Revenue of the quarter was $26.9 million, down 9% from a strong Q3 prior year, with 6% growth in cellular and molecular more than offset by lower sales of preclinical, which was down 17%. Reported revenue includes a $1 million impact from unfavorable currency, and we experienced a very slow summer with lower sales to CROs and pharma across the regions. And we continue to see a rotation out of obsoleted low margin CMT products sold mostly through distributors. Adjusted operating margin came in at 2.6% versus 13.3% last year, impacted by lower sales of preclinical products and higher cost of goods in the quarter. Gross margins came in at 51%, down from 56% last year, impacted by inflation and lower absorption and E&O charges. We had a poor mix in the quarter as we finished manufacturing of the low margin products being obsoleted. Cost of goods was significantly impacted by lower preclinical revenue to absorb fixed overheads. Free cash from operations was $700,000 and net debt was roughly flat. Finally, as we previously announced last July, we're preparing for FY23 with portfolio and restructuring actions on plan to complete in Q4. which are designed to underpin our goal of 58 to 60% gross margins and EBITDA margins in the high teens. Let's move on to slide five. We'll look at the revenue in the quarter by product family, which shows Q3 22 revenue adjusted to reflect 2021 exchange rates. Starting with the first row of the table on a constant currency basis, our cellular molecular technology revenue was up 6% from last year. driven by the strong performance of our direct sales team. We had solid growth across geographies, driven by strength of our cellular products in particular. CMT grew despite reductions in obsolete non-strategic lower margin products sold through distributors. Looking to our preclinical products, again on a constant currency basis, revenue was down 17% from a strong prior year. European CROs and pharma sales of telemetry and inhalation systems was down significantly from a strong prior Q2. In Asia Pacific, China is recovering but had a tough comparable to a large prior year telemetry sale, and lower sales in other APAC countries impacted negatively on the very strong dollar. The U.S. was slower in Q3 on lower telemetry sales to CROs, though we see the pipeline improving here in Q4. The strong U.S. dollar compared to the Euro and British pound drove a current the impact of $1 million, which will likely continue to hurt us through the year. Let's move to slide six. I can tell you a little bit about some of the exciting new product introductions. Starting with our cellular molecular technologies, after the quarter ended, we received a large order from a top pharma company for our BTX electroporation systems for use in bile production. This order will begin shipping in Q4. Over the longer term, this opportunity is expected to ramp to over $1 million annually, primarily driven by consumption of our unique flat pack reaction chambers, augmented by expanded services. Furthering our initial inroads, we see an emerging value proposition for our BTX system in bioproduction, which is often used today in pharmaceutical research and development to create the initial strains of the therapeutics. BTX electroporation has the potential to provide an ongoing stream of flat-pack consumables revenues that benefits from the production quantities in addition to those used in research and development. Secondly, after the quarter end, we introduced the new U7500, our premium spectrophotometer building on our well-known ultra-spec line. This system replaces three existing models and is designed to penetrate pharma CRO companies and top academic labs. Lastly, continuing to drive market leadership in preclinical wireless continuous monitoring, we also introduced our exclusive continuous monitoring glucose implant. This new implant allows for continuous monitoring of glucose levels and avoids the cost, inconvenience, and variability inherent in periodic manual sampling. Glucose monitoring is expected to be an incremental growth driver in academic labs, government labs, and pharma companies, in the pursuit of solutions to the ever-growing problem of obesity and diabetes. This new line of implants is expected to add over half a million dollars annually to our business. Now let me turn the call over to Mike for a quick look at Key Financials. Mike?