Harvard Bioscience, Inc.

Good day, and welcome to the second quarter 2025 Harvard Bioscience Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. To ask a question, please press star 1-1 on your touchtone telephone. Please note this event is being recorded. I'm now going to turn the conference over to Taylor Krafchick, Senior Vice President at Ellipsis TA. Please go ahead.

Thank you, operator, and good morning, everyone. Thank you for joining the Harvard Bioscience Second Quarter 2025 Earnings Conference Call. Leading the call today will be John Duke, President and Chief Executive Officer, and Mark Frost, Interim Chief Financial Officer. In conjunction with today's recorded call, we have provided a presentation that will be referenced during our remarks that is posted to the Investor Relations section of our website at investors.harvardbioscience.com. Please note that statements made today in discussion that are not historical facts, including statements on management's expectations of future events or future financial performance are forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect the current views of Harvard Bioscience Management, and Harvard Bioscience assumes no obligation to update or revise any forward-looking statements. Actual results may differ materially from those expressed or implied. Please refer to today's press release, the Harvard Bioscience Forum 10-K, and other filings with the Securities and Exchange Commission for additional disclosures on forward-looking statements and the risks, uncertainties, and contingencies associated therewith. During the call, management will also reference certain non-GAAP financial measures, which can be useful in evaluating the company's operations related to our financial condition and results. These non-GAAP measures are intended to supplement GAAP financial information and should not be considered a substitute. Reconciliations of gaps and non-gap measures are provided in today's earnings press release. I will now turn the call over to Mark. Mark, please go ahead.

Thank you, Taylor. Before discussing our results, I'd like to welcome John, our recently appointed president and CEO. John has significant experience in leading growing businesses in the life science industry, and I, along with the entire Harvard Bioscience team, look forward to working with him to achieve our goals. I will turn it over to him after my remarks so he can walk through his initial observations and the key priorities that we are focused on. I'll now move to our second quarter 2025 financial results, the details of which can be found on slide three of the earnings presentation that we posted to our IR site. On slide three, revenue was $20.5 million below $23.1 in the prior year, but ahead of our guidance of 18 to 20 million, primarily because of higher Chinese shipments. Gross margin was 56.4% versus 57.2% in 2024 and was towards the high end of our guidance of 55 to 57%. Operating expenses declined two million for prior year, driven by actions taken in 2024 and the first quarter of 2025, to one, move to one US ERP system, two, lean out our SG&A organization, and three, reprioritize our NPI projects. This led to an improvement in adjusted operating income of $1 million versus $0.8 million in Q2 2024. Q2 adjusted EBITDA was $1.5 million versus $1.3 million in Q2 2024, with a major driver being the reduction in operating expenses which more than offset the volume impact from the lower year-over-year revenue. Now, looking at slide four, I will outline the revenue results for the quarter by product family and region. Overall revenues in the second quarter showed a slight decline from quarter one, finishing at $20.5 million compared to $21.8 million in the prior quarter. Now, turning to the geographical results, starting with the Americas, Revenue in the second quarter declined sequentially by 5.4%, and we're down 11.7% versus revenues in the second quarter of last year. As shown in the light blue on the slide, CMT had sequential growth driven by MEA's organoids. The year-over-year decreases were caused primarily by a lack of budget clarity for academics and NIH. Our preclinical sales declined sequentially and year-over-year due to lower academic sales related to the aforementioned budget clarity challenge for NIH academics. Now, moving on to Europe, overall revenue in Europe in the second quarter increased 9% sequentially, reflecting stronger academic shipments. Compared to last year's Q2, European revenues were largely flat. Cellular and molecular sales increased sequentially and was flat year-over-year. Our quarter two preclinical sales increased sequentially and year over year, driven by higher farmer sales. Now moving to China and the Asia Pacific, which has been negatively impacted by macro uncertainty over tariffs. Overall in the second quarter, APEC revenue was down both sequentially and year over year by over 25%, due in large part to the tariff situation with China. Orders and shipments halted in April, but gradually returned to more normal behavior after the tentative agreement of a 10% tariff level. Cellular and molecular APEC products declined sequentially and year-over-year. Preclinical APEC products also declined sequentially and year-over-year due to tariffs. Now I'll move to slide five to discuss further financial metrics. Looking at gross margin first, gross margin during quarter two 2025 was 56.4%. compared to 57.2 percent in Quarter 2, 2024, but up 40 basis points from the 56 percent in the prior quarter, despite the lower revenue. The gross margin decline compared to last year, Quarter 2, was mainly due to lower absorption of fixed manufacturing overhead costs on a reduction in volume. The sequential margin expansion was due to actions we took to reduce the manufacturing organization for the expected lower revenue volume. Now, if you refer to the top right graph, our adjusted EBIT during quarter two increased to $1.5 million versus $1.3 million in last year's second quarter. Compared to the prior year, quarter two, reduced gross profit of $1.7 million was fully offset by lower operating expenses of $2 million. Now, moving to the bottom left, where we show both reported and adjusted loss earnings per share, As mentioned in the past, I'll remind you that typically the differences between GAAP EPS and adjusted EPS is the impact of stock compensation, amortization, and depreciation. These differences between net loss and adjusted EBITDA are highlighted in the reconciliation tables on slide 10 and are all non-cash items. Now, moving to the bottom middle graph, Year-to-date cash flow operations were strong at $5.7 million compared to $0.6 million in the same period with $2.8 million of operating cash generated in the second quarter. The primary driver for improved cash flow from operations was working capital management progress from both AR and inventory as well as operating expense reductions. Net debt was down over $4 million from year-end to $27.9 million from $32 million. This reflects our quarterly principal payment of $1 million and improved operating cash flow. Now, with respect to our credit facility, we negotiated an amendment with our bank group. Key elements of the agreement are, first, an extension of refinance timing to December 5th, close to the maturity date of the facility. Waiver of default on refinancing milestones and financial covenants relating to leverage, fixed interest coverage. Thirdly, elimination of testing of financial covenants for quarter three except for liquidity, which is now $3 million. And fourth, an increase in the SOFR adder to 700 basis points and an amendment fee of 100 basis points, which is primarily paid once debt is repaid. We believe the extension provides us with sufficient time to identify and execute a transaction to refinance and pay down the existing debt. More detail is provided in the 10-Q, which will be filed after market today. Now, I'll move to slide seven to discuss our outlook for quarter three. Now, supported by our second quarter revenue performance, as well as a strong start on orders in the third quarter, we are guiding to a range of $19 to $21 million of revenue. With that, we expect a corresponding improvement in gross margin from the higher volume and are guiding to a gross margin range of 56 to 58%. This guidance shows our continuous progress in stabilizing our business as well as our prudent financial discipline. I'll now turn the call over to John. John.