Harvard Bioscience, Inc. (HBIO) Earnings Call Transcript & Summary

Thank you. Good day and welcome to the second quarter, 2026 Harvard Bioscience Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question, you will need to press star 1 1 on your touchstone Please note this call is being recorded. I would like to turn the call over to Taylor Krafchick, Senior Vice President at Ellipsis. Please go ahead.

Thank you, operator, and good morning, everyone. Thank you for joining the Harvard Bioscience Second Quarter 2026 Earnings Conference Call. Leading the call today will be John Duke, President and Chief Executive Officer, and Mark Frost, Chief Financial Officer. In conjunction with today's recorded call, we have provided a presentation that will be referenced during our remarks and is posted to our investor relations section of our website at investor.harvardbioscience.com. Please note that statements made in today's 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. no obligation to update or revise any forward-looking statements. Actual results may differ materially from those expressed or implied. referred to today's press release, the Harvard Bioscience Forum 10Q, and others, 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, managers 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 GAAP to non-GAAP measures are provided in today's earnings press release. I will now turn the call over to John. John, please go ahead. Thank you, Taylor, and good morning, everyone.

Since becoming CEO a year ago, our team has focused on sharpening our strategy, commercial alignment, and operational discipline. from optimizing our sales organization and distribution channels to executing footprint consolidation through project viking. That disciplined focus and execution helped us deliver strong second quarter performance, by double-digit revenue growth across our CMT and preclinical portfolios and solid operational execution that reinforced our confidence in raising our full-year revenue outlook. To give a high-level summary before Mark dives into the detailed financials, revenue came in strong at $22.7 million, representing 11% year-over-year. This performance was driven by solid demand, particularly from CRO customers, and healthy sales across our CMT portfolio. Adjusted gross margin was 57% for the quarter, slightly lower than anticipated due to higher than expected sales from our CMT products and sales in China, both of which carried lower relative gross margin. Adjusted EBITDA came in at $1.7 million, up 11% year-over-year. We are increasingly seeing our execution across our strategic focus translate into tangible operational progress across our customer mix, product portfolio, and recurring revenue profile. Researchers are adopting our products to generate more predictive, human-relevant data and address key preclinical translational challenges. We remain focused on our highest growth customer opportunities and continue to strengthen our position with pharmaceutical, biotech, and CRO accounts. We also saw an improvement over the first quarter in our academic segment. Looking at our product mix, we are seeing solid commercial traction and saw double-digit growth within our telemetry and CMT businesses, highlighted by growth in our AAA bioprocessing and electroporation products. customers continue to show strong engagement across both preclinical and CMT platforms. Increasing high margin recurring revenue remains a key long-term focus. Our recurring revenue strategy is anchored around high margin single-use consumables, such as telemetry implants and electroporation reagents, complementing software licenses and service contracts. As our instrument install base expands with platforms like SOHO and BTX, we're generating a steady recurring revenue stream quarter after quarter. We saw our recurring revenue increase to 55% of total revenue in the first half as we continue to work towards our long-term target of 60%. Looking at broader industry demand patterns, preclinical drug candidate pipelines are growing, biopharma spending continues to increase, and CRO activity is expanding. Additionally, our distribution agreement with Fisher Scientific continues to deliver strong commercial returns, generating double-digit growth in Q2 while broadening our customer reach. To build on this momentum, our recently appointed SVP of Commercial, Dave Panzarella, is optimizing our commercial teams to focus on our highest-quality growth opportunities, specifically MPI platforms, AAA bioprocessing, and growing our market share within biopharma and CRO accounts. Our project Viking manufacturing footprint consolidation remains on track. We successfully transitioned two product lines out of our Holliston facility in Q2 and are prepared to move two more in Q3. As a reminder, we expect project Viking will deliver 3M in cost savings in 2027, and 4 million annually thereafter. Our Made in China Localization Initiative is progressing well and contributing to strong regional performance. Following the launch of our localized BTX line, we are actively shipping units and capturing domestic demand. Looking ahead, we continue to expand our BTX product line and are advancing certifications on additional products in the second half of the year, positioning us for growth in 2027. Turning to our outlook, based on our strong performance in Q2 and expanding commercial momentum within our CMT product portfolio, we are raising our full year revenue growth guidance to 3% to 5%. To account for the Q2 top line performance and the near-term mix shift towards our CMT product lines and higher China sales, we are revising our full-year adjusted gross margin range by one percentage point to 57% to 59%. Longer term, we remain confident that our strategic focus on higher margin NPI platforms and expanding recurring revenue will drive gross margin expansion beyond our 2026 baseline. This trajectory will be further strengthened by structural cost savings from Project Viking beginning in 2027. Lastly, we are reaffirming our full-year adjusted EBITDA growth guidance of 6% to 10%, supported by continued cost discipline, operational improvements, and operating leverage as revenue scales. Over the past year, we strengthened our balance sheet, put a plan in place to simplify our operational footprint, and sharpened our strategic focus. We're seeing these deliberate actions reflected in meaningful top-line growth, a more differentiated product portfolio, stronger market engagement from our key customer segments, and improving operating performance. We believe Harvard Bioscience is becoming a fundamentally stronger, more profitable company. With that, I'll turn the call over to Mark for a deeper review of the financials. Mark? Thank you, John, and good morning, everyone. I will start my comments with our second quarter of 2026 financial results, the details of which can be found in the description.

starting on slide four of the earnings presentation posted to our IR site. Revenue of $22.7 million was up 11% year-over-year, 10% on a constant currency basis, and exceeded our guidance range. The growth was driven by increased demand from CRO customers alongside solid execution through Fisher Scientific and other distributors. Our Telemetry business was up double digits within the quarter and solid mid-single-digit growth for the half. We saw strong performance across our AAA bioprocessing and electrification platforms. NPI revenue continued to deliver per our expectation with an 11% contribution versus 3% of revenue last year. Lastly on revenue, as John mentioned, we're continuing to focus on expanding our recurring revenue opportunities, which consist of our consumables, service, and software, which improved its contribution by 1% within the half to 55% of revenue. Gap gross margin was 55.6% and adding back restructuring for the quarter of 20 basis points brought our gross margin to 55.8% compared to 56.4% in Q2 last year. The decline was caused by a product and geographic mix shift with higher than expected CMT sales and strong demand in China, both of which carry relative lower gross margins. Going forward, we continue to focus on driving sales of our higher margin NPI products, but we're not going to downplay sales opportunities. Additionally, we expect to realize significant margin benefit from the completion of our manufacturing consolidation in early 2027. We have provided adjusted gross margin reconciliation and release, to show the impact of restructuring, which is in the other line. Our point for our investors is we operate our business assuming the impact of depreciation, amortization, and stock compensation costs. Now, OPEX increased by $1.2 million in the quarter. As we mentioned on the last call, we restored salaries and merit, which is the primary reason for higher OPEX, and reflects a normalized cost structure. This investment is offsetting our improvements in gross margin, but we will see higher leverage in our returns in the fourth quarter and and in 2027. Operating loss was $1 million compared to a loss of $0.8 million in Q2 2025. Adjusted operating income was $1.1 million, 4.9% operating margin, up from $1 million, 5.1% operating margin in Q2 last year. Now, adjusted EBITDA came in at 1.7 million, 7.3% return, reaching the high end of our outlook range and growing 11% year-over-year from 1.5 million in quarter two 2025. The EBITDA margin remained flat given the normalized OPEX actions as well as some investment we did in the first half in 2020. sales and marketing. Now moving to slide five for results by geography, geographically quarter two revenue in the Americas were 11.4 million, up 13% year over year, driven by strong telemetry growth at CRO customers. The academic funding environment is beginning to improve, and as we discussed last quarter, we expect to see stronger sales to these customers in the second half. In Europe, quarter two revenues were $6.8 million, up 3% year over year, 1.5% on a constant currency basis. Declined. Clines in academic and government channels were offset by growth across CRO, pharma, and distribution partners. In APAC, quarter two revenues were 4.6 million, up 24% year over year, primarily driven by strong sales of our BTX electroporation and respiratory lines. Within APAC, China revenues were 3.1 million, up 29% year over year, driven primarily by CRO demand. Our made in China localization initiative also continues to progress nicely, and we expect a strong regional tail end as we roll out additional localized product lines throughout the rest of the year. I'll now move to slide six to discuss further financial metrics. Gap diluted EPS in quarter two was negative 64 cents compared to negative 52 cents in quarter two 2025. Quarter two adjusted EPS was negative 14 cents compared to negative 5 cents in quarter two 2025. All per share numbers retroactively reflect the one for 10 reverse stock split completed in March. Now, as I mentioned in the past, the difference between GAAP EPS and adjusted EPS are typically the impact of stock compensation, amortization, depreciation, as well now are restructuring charges related to Project Viking. These differences between net loss and adjusted EBITDA are highlighted in the reconciliation tables on slide 12 and 13 and are all non-cash items except Project Viking costs. Now, cash used in operation for the first six months was $0.3 million compared to cash generated of $5.7 million in year-to-date 2025. This change was primarily driven by inventory builds to improve product lead times and support manufacturing pre-build requirements for project Viking transitions, as well as higher interest costs from our debt deal. Now, we closed the quarter with $6.5 million in cash and cash equivalents. Net debt stood at $33.5 million, up roughly $5.6 million year-over-year. Total debt was $36.7 million, reduced by $3.3 million in unamortized deferred financing costs associated with our December 2025 debt refinancing, which will be amortized over the life of the facility. Non-cash deferred financing amortization was $0.3 million in quarter one and quarter two, with non-cash exit fee accruals running at $0.2 million per quarter. Now I'll now move to slide eight to discuss our outlook for the third quarter and full year 2026. So in the third quarter, we expect revenue between $21 million and $22.6 million at the midpoint of $21.8 million. This represents mid-single-digit year-over-year revenue growth. Adjusted gross margin is expected to be between 56 and 58 percent, and adjusted EBITDA is expected to be between $1.5 million and $2.5 million. Now, turning to the full year, based on first half top line strength and ongoing commercial momentum in our NPI, telemetry, and CMT portfolios, we are updating our full year 2026 guidance. We are raising our full year revenue growth guidance to 3 to 5 percent, up from 2 to 4 Now, to account for higher CMT portfolio volume and strong China demand, we are adjusting our full-year adjusted gross margin target by 100 basis points to 57% to 59% from 58% to 60% to reflect product mix dynamics. We are reaffirming our full-year adjusted EBITDA growth guidelines. guidance of 6 to 10 percent. Now, to paint a clearer picture of how we believe this will look in the second half, we expect adjusted EBITDA expansion versus the first half, particularly as we enter the fourth quarter. Fourth quarter historically has been our strongest revenue in EBITDA quarter. We expect this acceleration will be driven primarily by revenue growth in the second half generating strong flow through over a fixed cost base as well as ongoing operational discipline, including modest commercial restructuring actions we executed in July. We're pleased with the progress we've made since this time last year. The improvements we've made to date are the result of structural changes we've made in line with our strategic focus areas, which leaves us confident our results in the first half of this year are setting the stage for sustainable improvement in the business. We want to thank all of our shareholders for their support, and we look forward to updating you on our progress next quarter. With that, I'll turn the call back to Michelle, our operator, to take questions. Michelle?.

Thank you. As a reminder, if you'd like to ask a question, please press star 1-1. If your question has been answered and you'd like to remove yourself from the queue, please press star 1-1 again. Our first question comes from Paul Knight with KeyBank Capital Markets. Your line is open.

Thanks very much and congratulations on the quarter. The electroporation business group through what level in the corridor, and then also same kind of question on the organoid MeSH-MEA product.

Yes, so thanks, Paul. And first, in terms of the electroporation, It grew strong, double digits, and we're seeing the same in our year-to-date strong performance in our organoids or multi-channel systems products.

And with the China demand that we're seeing, Could you talk a little bit about it specifically? Is it electroporation products is it the the Eshmeh and then then how do you control your China sales is it distributors or direct.

In terms of, first of all, as a reminder, last year in Q2, there were the retaliatory tariffs, so we had a lower baseline. That being said, we had very strong sales into China, and in terms of the product categories that drove that growth, I'll just mention several. organoids or the multi-channel systems, BTX for electroporation, as well as telemetry and respiratory inhalation. Those were all strong sales in China. In terms of how it sold, much of our sales in China are sold through distributors. Yes, that's our largest.

contribution to revenues through distributors as a lot of companies in China.