SEC Form 10-Q filed by Harvard Bioscience Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549
FORM
For the quarterly period ended
For the transition period from to
Commission file number
| HARVARD BIOSCIENCE, INC. |
| (Exact Name of Registrant as Specified in Its Charter) |
| | |
| (State or other jurisdiction of Incorporation or organization) | (I.R.S. Employer Identification No.) |
| |
| (Address of Principal Executive Offices, including zip code) |
| ( |
| (Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| | | The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S- T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | |
| Non-accelerated filer ☐ | Smaller reporting company |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of April 30, 2024, there were
FORM 10-Q
INDEX
| CONSOLIDATED BALANCE SHEETS | ||||||||
| (Unaudied, in thousands, except share and per share data) | ||||||||
| March 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventories | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Other long-term assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders' Equity | ||||||||
| Current liabilities: | ||||||||
| Current portion of long-term debt | $ | $ | ||||||
| Current portion of operating lease liabilities | ||||||||
| Accounts payable | ||||||||
| Contract liabilities | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term debt, net | ||||||||
| Deferred tax liability | ||||||||
| Operating lease liabilities | ||||||||
| Other long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies - Note 13 | ||||||||
| Stockholders' equity: | ||||||||
| Preferred stock, par value $ per share, shares authorized | ||||||||
| Common stock, par value $ per share, shares authorized: shares issued and outstanding at March 31, 2024; shares issued and outstanding at December 31, 2023 | ||||||||
| Additional paid-in-capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total stockholders' equity | ||||||||
| Total liabilities and stockholders' equity | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
| CONSOLIDATED STATEMENTS OF OPERATIONS |
||||||||
| (Unaudited, in thousands, except per share data) |
||||||||
| Three Months Ended March 31, |
||||||||
| 2024 |
2023 |
|||||||
| Revenues |
$ | $ | ||||||
| Cost of revenues |
||||||||
| Gross profit |
||||||||
| Sales and marketing expenses |
||||||||
| General and administrative expenses |
||||||||
| Research and development expenses |
||||||||
| Amortization of intangible assets |
||||||||
| Other operating expenses | ||||||||
| Total operating expenses |
||||||||
| Operating (loss) income |
( |
) | ||||||
| Other (expense) income: |
||||||||
| Interest expense |
( |
) | ( |
) | ||||
| Loss on equity securities - Note 6 |
( |
) | ||||||
| Other (expense) income, net |
( |
) | ||||||
| Total other (expense) income |
( |
) | ( |
) | ||||
| (Loss) income before income taxes |
( |
) | ||||||
| Income tax expense |
||||||||
| Net (loss) income |
$ | ( |
) | $ | ||||
| (Loss) income per share: |
||||||||
| Basic (loss) income per share |
$ | ( |
) | $ | ||||
| Diluted (loss) income per share |
$ | ( |
) | $ | ||||
| Weighted-average common shares: |
||||||||
| Basic |
||||||||
| Diluted |
||||||||
See accompanying notes to condensed consolidated financial statements.
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) | ||||||||
| (Unaudited, in thousands) | ||||||||
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Other comprehensive (loss) income: | ||||||||
| Foreign currency translation adjustments | ( | ) | ||||||
| Derivative instruments qualifying as cash flow hedges, net of tax of $-- | ( | ) | ||||||
| Other comprehensive (loss) income | ( | ) | ||||||
| Comprehensive (loss) income | $ | ( | ) | $ | ||||
See accompanying notes to condensed consolidated financial statements.
| CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY |
||||||||||||||||||||||||
| (Unaudied, in thousands) |
||||||||||||||||||||||||
| Accumulated |
||||||||||||||||||||||||
| Three Months Ended |
Number |
Additional |
Other |
Total |
||||||||||||||||||||
| March 31, 2024 |
of Shares |
Common |
Paid-in |
Accumulated |
Comprehensive |
Stockholders’ |
||||||||||||||||||
| Issued |
Stock |
Capital |
Deficit |
Loss |
Equity |
|||||||||||||||||||
| Balance at December 31, 2023 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
| Stock option exercises |
||||||||||||||||||||||||
| Vesting of restricted stock units |
||||||||||||||||||||||||
| Shares withheld for taxes |
( |
) | ( |
) | ( |
) | ||||||||||||||||||
| Stock-based compensation expense |
- | |||||||||||||||||||||||
| Net loss |
- | ( |
) | ( |
) | |||||||||||||||||||
| Other comprehensive loss |
- | ( |
) | ( |
) | |||||||||||||||||||
| Balance at March 31, 2024 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
| Accumulated |
||||||||||||||||||||||||
| Three Months Ended |
Number |
Additional |
Other |
Total |
||||||||||||||||||||
| March 31, 2023 |
of Shares |
Common |
Paid-in |
Accumulated |
Comprehensive |
Stockholders’ |
||||||||||||||||||
| Issued |
Stock |
Capital |
Deficit |
Loss |
Equity |
|||||||||||||||||||
| Balance at December 31, 2022 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
| Stock option exercises |
||||||||||||||||||||||||
| Vesting of restricted stock units |
||||||||||||||||||||||||
| Shares withheld for taxes |
( |
) | ( |
) | ( |
) | ||||||||||||||||||
| Stock-based compensation expense |
- | |||||||||||||||||||||||
| Net income |
- | |||||||||||||||||||||||
| Other comprehensive income |
- | |||||||||||||||||||||||
| Balance at March 31, 2023 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
See accompanying notes to condensed consolidated financial statements.
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
||||||||
| (Unaudited, in thousands) |
||||||||
| Three Months Ended March 31, |
||||||||
| 2024 |
2023 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net (loss) income |
$ | ( |
) | $ | ||||
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: |
||||||||
| Depreciation |
||||||||
| Amortization of intangible assets |
||||||||
| Amortization of deferred financing costs |
||||||||
| Stock-based compensation expense |
||||||||
| Deferred income taxes and other |
( |
) | ||||||
| Loss on equity securities - Note 6 |
||||||||
| Gain on sale of product line - Note 14 |
( |
) | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
( |
) | ||||||
| Inventories |
( |
) | ( |
) | ||||
| Other assets |
( |
) | ( |
) | ||||
| Accounts payable and other current liabilities |
( |
) | ||||||
| Contract liabilities |
( |
) | ||||||
| Other liabilities |
( |
) | ( |
) | ||||
| Net cash provided by operating activities |
||||||||
| Cash flows from investing activities: |
||||||||
| Additions to property, plant and equipment |
( |
) | ( |
) | ||||
| Capitalized software development costs |
( |
) | ||||||
| Proceeds from sale of product line |
||||||||
| Proceeds from sale of marketable equity securities |
||||||||
| Net cash (used in) provided by investing activities |
( |
) | ||||||
| Cash flows from financing activities: |
||||||||
| Borrowing from revolving line of credit |
||||||||
| Repayment of revolving line of credit |
( |
) | ( |
) | ||||
| Repayment of term debt |
( |
) | ( |
) | ||||
| Proceeds from exercise of stock options and employee stock purchase plan |
||||||||
| Taxes paid related to net share settlement of equity awards |
( |
) | ( |
) | ||||
| Net cash used in financing activities |
( |
) | ( |
) | ||||
| Effect of exchange rate changes on cash |
( |
) | ||||||
| Decrease in cash and cash equivalents |
( |
) | ( |
) | ||||
| Cash and cash equivalents at beginning of period |
||||||||
| Cash and cash equivalents at end of period |
$ | $ | ||||||
| Supplemental disclosures of cash flow information: |
||||||||
| Cash paid for interest |
$ | $ | ||||||
| Cash paid for income taxes, net of refunds |
$ | $ | ( |
) | ||||
See accompanying notes to condensed consolidated financial statements.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
| 1. | Basis of Presentation and Summary of Significant Accounting Policies |
Basis of Presentation and Summary of Significant Accounting Policies
The unaudited consolidated financial statements of Harvard Bioscience, Inc. and its wholly-owned subsidiaries (collectively, the “Company”) as of March 31, 2024 and for the three months ended March 31, 2024 and 2023, have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. The December 31, 2023 consolidated balance sheet was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
In the opinion of management, all adjustments, which include normal recurring adjustments necessary to present a fair statement of financial position as of March 31, 2024, results of operations and comprehensive income (loss) and cash flows for the three months ended March 31, 2024 and 2023, as applicable, have been made. The results of operations for the three months ended March 31, 2024, are not necessarily indicative of the operating results for the full fiscal year or any future periods.
The accounting policies underlying the accompanying unaudited consolidated financial statements are set forth in Note 2 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. There have been no material changes in the Company’s significant accounting policies during the three months ended March 31, 2024.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires the use of management estimates. Such estimates include the determination and establishment of certain accruals and provisions, including those for income taxes, credit losses on receivables, and defined benefit pension obligations. Estimates are also required to evaluate the value for inventories reported at lower of cost or net realizable value, stock-based compensation expense, and the recoverability of long-lived and intangible assets, including goodwill. On an ongoing basis, the Company reviews its estimates based upon currently available information. Actual results could differ materially from those estimates.
Other Operating Expenses
Other operating expenses for the three months ended March 31, 2024 included a fee of $
Recently Issued Accounting Pronouncements Yet to Be Adopted
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax, which enhances disclosures related to the effective tax rate reconciliation, income taxes paid, as well as other disclosures. The new standard impacts footnote disclosures and is effective for the Company’s annual financial statements for the year ended December 31, 2025. The Company is currently evaluating the potential impact of adopting ASU No. 2023-09 will have on the disclosures in its consolidated financial statements.
| 2. |
Earnings (Loss) per Share |
Basic earnings (loss) per share (EPS) is calculated by dividing net income (loss) by the number of weighted average shares of common stock outstanding during the period. The calculation of diluted earnings per share assumes conversion of stock options and restricted stock units into common stock using the treasury method.
The following table summarizes the calculation of basic and diluted net income (loss) per share of common stock:
| Three Months Ended March 31, |
||||||||
| (in thousands, except per share data) |
2024 |
2023 |
||||||
| Net (loss) income |
$ | ( |
) | $ | ||||
| Weighted average shares outstanding - basic |
||||||||
| Dilutive effect of equity awards |
||||||||
| Weighted average shares outstanding - diluted |
||||||||
| Basic (loss) income per share |
$ | ( |
) | $ | ||||
| Diluted (loss) income per share |
$ | ( |
) | $ | ||||
| Shares excluded from diluted (loss) income per share due to their anti-dilutive effect |
||||||||
| 3. |
Revenues |
The following tables represent a disaggregation of revenue from contracts with customers for the three months ended March 31, 2024 and 2023:
Revenues by type were as follows:
| Three Months Ended March 31, |
||||||||
| (in thousands) |
2024 |
2023 |
||||||
| Instruments, equipment, software and accessories |
$ | $ | ||||||
| Service, maintenance and warranty contracts |
||||||||
| Total revenues |
$ | $ | ||||||
Revenues by timing of recognition were as follows:
| Three Months Ended March 31, |
||||||||
| (in thousands) |
2024 |
2023 |
||||||
| Goods and services transferred at a point in time |
$ | $ | ||||||
| Goods and services transferred over time |
||||||||
| Total revenues |
$ | $ | ||||||
Revenue by geographic destination were as follows:
| Three Months Ended March 31, |
||||||||
| (in thousands) |
2024 |
2023 |
||||||
| United States |
$ | $ | ||||||
| Europe |
||||||||
| Greater China |
||||||||
| Rest of the world |
||||||||
| Total revenues |
$ | $ | ||||||
Contract Liabilities
The following table provides details of contract liabilities as of the periods indicated:
| (dollars in thousands) |
March 31, 2024 |
December 31, 2023 |
Change |
Percentage |
||||||||||||
| Service, maintenance and warranty contracts |
$ | $ | $ | ( |
) | - |
% | |||||||||
| Customer advances |
( |
) | - |
% | ||||||||||||
| Total contract liabilities |
$ | $ | $ | ( |
) | - |
% | |||||||||
Changes in the Company’s contract liabilities are primarily due to the timing of receipt of payments under service, maintenance and warranty contracts. During the three months ended March 31, 2024 and 2023, the Company recognized revenue of $
Provision for Expected Credit Losses on Receivables
Activity in the provision for expected losses on receivables was as follows:
| Three Months Ended March 31, |
||||||||
| (in thousands) |
2024 |
2023 |
||||||
| Balance, beginning of period |
$ | $ | ||||||
| Provision for expected credit losses |
( |
) | ||||||
| Charge-offs and other |
( |
) | ( |
) | ||||
| Balance, end of period |
$ | $ | ||||||
Concentrations
No customer accounted for more than 10% of revenues for the three months ended March 31, 2024 and 2023. At March 31, 2024 and December 31, 2023, no customer accounted for more than 10% of net accounts receivable.
Warranties
Activity in the product warranty accrual was as follows:
| Three Months Ended March 31, |
||||||||
| (in thousands) |
2024 |
2023 |
||||||
| Balance, beginning of period |
$ | $ | ||||||
| Expense |
||||||||
| Warranty claims |
( |
) | ( |
) | ||||
| Balance, end of period |
$ | $ | ||||||
| 4. |
Goodwill and Intangible Assets |
The change in the carrying amount of goodwill for the three months ended March 31, 2024 was as follows:
| (in thousands) |
||||
| Carrying amount at December 31, 2023 |
$ | |||
| Effect of change in currency translation |
( |
) | ||
| Carrying amount at March 31, 2024 |
$ |
Intangible assets at March 31, 2024 and December 31, 2023 consisted of the following:
| March 31, 2024 |
December 31, 2023 |
|||||||||||||||||||||||
| (in thousands) |
Accumulated |
Accumulated |
||||||||||||||||||||||
| Amortizable intangible assets: |
Gross |
Amortization |
Net |
Gross |
Amortization |
Net |
||||||||||||||||||
| Distribution agreements/customer relationships |
$ | $ | ( |
) | $ | $ | $ | ( |
) | $ | ||||||||||||||
| Technology and software development |
( |
) | ( |
) | ||||||||||||||||||||
| Trade names and patents |
( |
) | ( |
) | ||||||||||||||||||||
| Total amortizable intangible assets |
$ | $ | ( |
) | $ | $ | $ | ( |
) | $ | ||||||||||||||
| Indefinite-lived intangible assets: |
||||||||||||||||||||||||
| Total intangible assets |
$ | $ | ||||||||||||||||||||||
Intangible asset amortization expense for the three months ended March 31, 2024 and 2023 was as follows:
| Three Months Ended March 31, |
||||||||
| (in thousands) |
2024 |
2023 |
||||||
| Cost of revenues |
$ | $ | ||||||
| Operating expense |
||||||||
| Total amortization of intangible assets |
$ | $ | ||||||
As of March 31, 2024, estimated future amortization expense of amortizable intangible assets is as follows:
| (in thousands) |
||||
| 2024 (remainder of the year) |
$ | |||
| 2025 |
||||
| 2026 |
||||
| 2027 |
||||
| 2028 |
||||
| Thereafter |
||||
| Total |
$ |
| 5. |
Balance Sheet Information |
The following tables provide details of selected balance sheet items as of the periods indicated:
| Inventories: |
March 31, |
December 31, |
||||||
| (in thousands) |
2024 |
2023 |
||||||
| Finished goods |
$ | $ | ||||||
| Work in process |
||||||||
| Raw materials |
||||||||
| Total |
$ | $ | ||||||
| Other Current Liabilities: |
March 31, |
December 31, |
||||||
| (in thousands) |
2024 |
2023 |
||||||
| Compensation |
$ | $ | ||||||
| Customer credits |
||||||||
| Employee retention credit funds |
||||||||
| Professional fees |
||||||||
| Warranty costs |
||||||||
| Other |
||||||||
| Total |
$ | $ | ||||||
The Coronavirus Aid, Relief, and Economic Security Act of 2020 (“CARES Act”) provided an employee retention credit (“ERC”) that was a refundable tax credit against certain employer taxes. The Company has elected to account for the credit as a government grant. As there is no authoritative guidance under U.S. GAAP on accounting for grants to for-profit business entities from government entities, the Company accounts for government assistance by analogy to International Accounting Standards Topic 20, Accounting for Government Grants and Disclosure of Government Assistance (IAS 20). Under IAS 20, government grants are recognized when there is reasonable assurance that the grant will be received and that all conditions related to the grant will be met.
The Company received an ERC refund of $
The Company engaged a professional services firm under a commission fee arrangement to assist with determining program eligibility and in accumulating the necessary support that was used as a basis in the filing. During the three months ended March 31, 2024, the Company paid a fee of $
| 6. |
Marketable Equity Securities |
In April 2023, the Company obtained shares of common stock of Harvard Apparatus Regenerative Technologies, Inc. (“HRGN” formerly known as Biostage, Inc.) in connection with settlement of indemnification obligations related to litigation which occurred during the year ended December 31, 2022. These shares had an estimated fair value of $
The Company received cash proceeds of $
| 7. |
Leases |
The Company has noncancelable operating leases for offices, manufacturing facilities, warehouse space, automobiles and equipment expiring at various dates through 2030.
The components of lease expense for the three months ended March 31, 2024 and 2023, were as follows:
| Three Months Ended March 31, |
||||||||
| (in thousands) |
2024 |
2023 |
||||||
| Operating lease cost |
$ | $ | ||||||
| Short-term lease cost |
||||||||
| Sublease income |
( |
) | ( |
) | ||||
| Total lease cost |
$ | $ | ||||||
Supplemental cash flow information related to the Company's operating leases is as follows:
| Three Months Ended March 31, |
||||||||
| (in thousands) |
2024 |
2023 |
||||||
| Cash paid for amounts included in the measurement of lease liabilities |
$ | $ | ||||||
Supplemental balance sheet information related to the Company’s operating leases is as follows:
| March 31, |
December 31, |
|||||||
| (in thousands) |
2024 |
2023 |
||||||
| Operating lease right-of-use assets |
$ | $ | ||||||
| Current portion, operating lease liabilities |
$ | $ | ||||||
| Operating lease liabilities, long-term |
||||||||
| Total operating lease liabilities |
$ | $ | ||||||
| Weighted average remaining lease term (years) |
||||||||
| Weighted average discount rate |
% | |||||||
Future minimum lease payments for operating leases, with initial terms in excess of one year at March 31, 2024, are as follows:
| (in thousands) |
||||
| 2024 (remainder of the year) |
$ | |||
| 2025 |
||||
| 2026 |
||||
| 2027 |
||||
| 2028 |
||||
| Thereafter |
||||
| Total lease payments |
||||
| Less imputed interest |
( |
) | ||
| Total operating lease liabilities |
$ |
| 8. |
Long-Term Debt |
As of March 31, 2024 and December 31, 2023, the Company’s borrowings were as follows:
| (in thousands) |
March 31, 2024 |
December 31, 2023 |
||||||
| Long-term debt: |
||||||||
| Term loan |
$ | $ | ||||||
| Revolving line |
||||||||
| Less: unamortized deferred financing costs |
( |
) | ( |
) | ||||
| Total debt |
||||||||
| Less: current portion of long-term debt |
( |
) | ( |
) | ||||
| Current unamortized deferred financing costs |
||||||||
| Long-term debt |
$ | $ | ||||||
The aggregate amounts of debt maturities are as follows:
| (in thousands) |
||||
| 2024 |
$ | |||
| 2025 |
||||
| $ |
The Company maintains a Credit Agreement (as amended, the “Credit Agreement”) with Citizens Bank, N.A., Wells Fargo Bank, National Association, and First Citizens Bank & Trust Company (together, the “Lenders”). The Credit Agreement provides for a term loan of $
Borrowings under the Credit Facility will, at the option of the Company, bear interest at either (i) a rate per annum based on the Secured Overnight Financing Rate (“SOFR”) for an interest period of one, two, three or six months, plus an applicable interest rate margin determined as provided in the Credit Agreement, (a “SOFR Loan”), or (ii) an alternative base rate plus an applicable interest rate margin, each as determined as provided in the Credit Agreement (an “ABR Loan”). SOFR interest under the Credit Agreement is subject to applicable market rates and a floor of
The effective interest rate on the Company borrowings for the three months ended March 31, 2024 and 2023, was
As of March 31, 2024, the term loan requires quarterly installments of $
The Credit Agreement includes customary affirmative, negative, and financial covenants binding on the Company. The negative covenants limit the ability of the Company, among other things, to incur debt, incur liens, make investments, sell assets and pay dividends on its capital stock. The financial covenants include a maximum consolidated net leverage ratio and a minimum consolidated fixed charge coverage ratio. The Credit Agreement also includes customary events of default.
In March, 2024, the Company entered into an amendment to the Credit Agreement (the “March 2024 Amendment”) pursuant to which the Lenders and administrative agent modified the definition of Consolidated EBITDA used in the calculation of certain financial covenants to adjust for charges related to the ongoing abandoned property audit (See Note 13) and commission fees expected to be paid in connection with the employee retention credit filings (See Note 5). The Company was in compliance with the covenants of the Credit Agreement, as amended, as of March 31, 2024.
| 9. |
Derivatives |
In February 2023, the Company entered into an interest rate swap contract to improve the predictability of cash flows from interest payments related to its variable, SOFR-based debt. The swap contract had a notional amount of $
The following table presents the notional amount and fair value of the Company’s derivative instruments as of March 31, 2024 and December 31, 2023:
| (in thousands) | March 31, 2024 | December 31, 2023 | ||||||||||||||||
| Derivatives Instruments | Balance Sheet Classification | Notional Amount | Fair Value (a) | Notional Amount | Fair Value (a) | |||||||||||||
| Interest rate swap | Other long-term liabilities | $ | $ | * | $ | $ | ( | ) | ||||||||||
* Amount not significant.
(a) See Note 10 for the fair value measurements related to these financial instruments.
The effect of the cash flow hedge on other comprehensive income (loss) and earnings for the periods presented was as follows:
| Three Months Ended |
Three Months Ended |
|||||||
| Derivatives Qualifying as Hedges, net of tax (in thousands) |
March 31, 2024 |
March 31, 2023 |
||||||
| Gain (loss) recognized in OCI on derivatives (effective portion) |
$ | $ | ( |
) | ||||
| Gian (loss) reclassified from OCI to interest expense |
( |
) | ||||||
| 10. |
Fair Value Measurements |
The following tables present the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis:
| Fair Value as of March 31, 2024 |
||||||||||||||||
| Assets (Liabilities) (in thousands) |
Level 1 |
Level 2 |
Level 3 |
Total |
||||||||||||
| Equity securities - common stock |
$ | $ | $ | $ | ||||||||||||
| Interest rate swap agreements |
$ | $ | * | $ | $ | |||||||||||
| Fair Value as of December 31, 2023 |
||||||||||||||||
| Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||
| Equity securities - common stock |
$ | $ | $ | $ | ||||||||||||
| Interest rate swap agreements |
$ | $ | ( |
) | $ | $ | ( |
) | ||||||||
* Amount not significant.
The Company uses the market approach technique to value its financial liabilities. The Company’s financial assets and liabilities carried at fair value include, when applicable, investments in common stock and derivative instruments used to hedge the Company’s interest rate risks. The fair value of the Company’s investment in HRGN common stock (See Note 6) was based on the closing price per the OTCQB Marketplace at the reporting date. The fair value of the Company’s interest rate swap agreements was based on SOFR yield curves at the reporting date.
| 11. |
Stock-Based Compensation |
Stock-based compensation expense for the three months ended March 31, 2024 and 2023 was allocated as follows:
| Three Months Ended March 31, |
||||||||
| (in thousands) |
2024 |
2023 |
||||||
| Cost of revenues |
$ | $ | ||||||
| Sales and marketing expenses |
||||||||
| General and administrative expenses |
||||||||
| Research and development expenses |
||||||||
| Total stock-based compensation expense |
$ | $ | ||||||
As of March 31, 2024, the total compensation costs related to unvested awards not yet recognized was $
Restricted stock unit (“RSU”) activity for the three months ended March 31, 2024 was as follows:
| Market- |
Performance- |
|||||||||||||||||||||||
| Time-Based |
Based |
Based |
||||||||||||||||||||||
| Restricted |
Grant Date |
Restricted |
Grant Date |
Restricted |
Grant Date |
|||||||||||||||||||
| Stock Units |
Fair Value |
Stock Units |
Fair Value |
Stock Units |
Fair Value |
|||||||||||||||||||
| Balance at December 31, 2023 |
$ | $ | $ | |||||||||||||||||||||
| Granted |
||||||||||||||||||||||||
| Vested |
( |
) | ||||||||||||||||||||||
| Forfeited |
( |
) | ||||||||||||||||||||||
| Balance at March 31, 2024 |
$ | $ | $ | |||||||||||||||||||||
Unvested shares related to market-based and performance-based vesting conditions are reflected at
Performance-based RSU awards are contingent on the achievement of certain performance metrics. Compensation cost associated with performance-based RSUs are recognized based on the estimated number of shares that the Company ultimately expects will be earned. If the estimated number of shares to be earned is revised in the future, then stock-based compensation expense will be adjusted accordingly.
Stock option activity for the three months ended March 31, 2024 was as follows:
| Number of |
Weighted- |
Weighted- |
Aggregate |
||||||||||
| Outstanding and Exerciseable at December 31, 2023 |
$ | ||||||||||||
| Exercised |
( |
) | |||||||||||
| Outstanding and Exerciseable at March 31, 2024 |
$ |
|
$ | ||||||||||
The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on the Company’s closing stock price of $
| 12. |
Income Tax |
The determination of the annual effective tax rate is based upon a number of significant estimates and judgments, including the estimated annual pretax income in each tax jurisdiction in which the Company operates and the development of tax planning strategies during the year. In addition, as a global commercial enterprise, the Company’s tax expense can be impacted by changes in tax rates or laws, the finalization of tax audits and reviews and other factors that cannot be predicted with certainty. As such, there can be significant volatility in interim tax provisions.
Income tax expense was $
| 13. |
Commitments and Contingent Liabilities |
The Company is involved in various claims and legal proceedings arising in the ordinary course of business. After consultation with legal counsel, the Company has determined that the ultimate disposition of such proceedings is not likely to have a material adverse effect on its business, financial condition, results of operations or cash flows. Although unfavorable outcomes in the proceedings are possible, the Company has not accrued loss contingencies relating to any such matters as they are not considered to be probable and reasonably estimable. If one or more of these matters are resolved in a manner adverse to the Company, the impact on the Company’s business, financial condition, results of operations and cash flows could be material.
In addition, the Company has entered into indemnification agreements with its directors and officers. It is not possible to determine the maximum potential liability amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. The Company has recorded any liability for costs related to contingent indemnification obligations as of March 31, 2024.
The Company is subject to unclaimed property laws in the ordinary course of its business. State escheat laws generally require entities to report and remit abandoned and unclaimed property to the state. Failure to timely report and remit the property can result in assessments that could include interest and penalties, in addition to the payment of the escheat liability itself. The Company is currently undergoing an unclaimed property audit. Based on the Company’s evaluation of the current stage of the audit, the Company accrued $
| 14. |
Product Line Disposition |
In February 2023, the Company sold its Hoefer product line for $
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains statements that are not statements of historical fact and are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). The forward-looking statements are principally, but not exclusively, contained in “Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements include, but are not limited to, statements about management’s confidence or expectations, and our plans, objectives, expectations, and intentions that are not historical facts. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “seek,” “expects,” “plans,” “aim,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “intends,” “think,” “potential,” “objectives,” “optimistic,” “strategy,” “goals,” “sees,” “new,” “guidance,” “future,” “continue,” “drive,” “growth,” “long-term,” “projects,” “develop,” “possible,” “emerging,” “opportunity,” “pursue” and similar expressions intended to identify forward-looking statements. These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. We discuss many of these risks in detail in our Annual Report on Form 10-K for the year ended December 31, 2023 and our other filings with the SEC. You should carefully review all of these factors, as well as other risks described in our public filings, and you should be aware that there may be other factors, including factors of which we are not currently aware, that could cause these differences. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this report. We may not update these forward-looking statements, even though our situation may change in the future, unless we have obligations under the federal securities laws to update and disclose material developments related to previously disclosed information. Harvard Bioscience, Inc. is referred to herein as “we,” “our,” “us,” and “the Company.”
Overview
Harvard Bioscience, Inc., a Delaware corporation, is a leading developer, manufacturer and seller of technologies, products and services that enable fundamental advances in life science applications, including research, pharmaceutical and therapy discovery, bioproduction and preclinical testing for pharmaceutical and therapy development. Our products and services are sold globally to customers ranging from renowned academic institutions and government laboratories to the world’s leading pharmaceutical, biotechnology and contract research organizations (“CROs”). With operations in the United States, Europe and China, we sell through a combination of direct and distribution channels to customers around the world.
Trends and Developments
Our business is affected by global and regional economic trends and uncertainties. The global economy has recently experienced increasing uncertainty as a result of developments including inflationary pressure, higher interest rates, fluctuations in exchange rates, economic conditions in China, and the events in Ukraine and the Middle East. Our business has also been affected by the softening of certain international markets, especially in China and the Asia-Pacific region, as well as by delays in government funding for certain customers. Our business has been affected by a reduced demand from our biotechnology and pharmaceutical company customers, due principally to the increased cost of capital and a reduction in spending following the COVID-19 pandemic.
If these trends are prolonged or are more severe, or if the recovery is less robust or takes longer than anticipated, our business, results of operations, and cash flow may be materially impacted.
Selected Results of Operations
Three months ended March 31, 2024 compared to three months ended March 31, 2023
| Three Months Ended March 31, |
||||||||||||||||
| (dollars in thousands) |
2024 |
% of revenue |
2023 |
% of revenue |
||||||||||||
| Revenues |
$ | 24,512 | $ | 29,975 | ||||||||||||
| Gross profit |
14,772 | 60.3 | % | 18,346 | 61.2 | % | ||||||||||
| Sales and marketing expenses |
5,904 | 24.1 | % | 5,978 | 19.9 | % | ||||||||||
| General and administrative expenses |
5,963 | 24.3 | % | 6,334 | 21.1 | % | ||||||||||
| Research and development expenses |
2,885 | 11.8 | % | 2,897 | 9.7 | % | ||||||||||
| Amortization of intangible assets |
1,333 | 5.4 | % | 1,388 | 4.6 | % | ||||||||||
| Other operating expenses | 966 | 3.9 | % | - | - | |||||||||||
| Interest expense |
751 | 3.1 | % | 974 | 3.2 | % | ||||||||||
| Loss on equity securities |
1,312 | 5.4 | % | - | - | |||||||||||
| Income tax expense |
210 | 0.9 | % | 585 | 2.0 | % | ||||||||||
Revenues
Revenues decreased $5.5 million, or 18.2%, to $24.5 million for the three months ended March 31, 2024, compared to $30.0 million for the three months ended March 31, 2023. The decrease in revenue was primarily due to the softening of worldwide demand, in particular in the Asia-Pacific region compared to a strong first quarter in 2023.
Gross profit
Gross profit decreased $3.5 million, or 19.5%, to $14.8 million for the three months ended March 31, 2024 compared with $18.3 million for the three months ended March 31, 2023, primarily due to the decrease in revenues. Gross margin decreased to 60.3% for the three months ended March 31, 2024, compared with 61.2% for the three months ended March 31, 2023. The decrease in gross margin was primarily the result of under-absorption of manufacturing overhead costs due to the decrease in revenues.
Sales and marketing expenses
Sales and marketing expenses of $5.9 million for the three months ended March 31, 2024, were comparable to the $6.0 million during the same period in 2023. Reduced variable compensation was offset by increased investments in personnel to support our growth strategy, product launches and travel costs related to industry trade shows.
General and administrative expenses
General and administrative expenses decreased $0.3 million, or 5.9%, to $6.0 million for the three months ended March 31, 2024, compared with $6.3 million for the three months ended March 31, 2023. The decrease was primarily due to reduced variable compensation.
Research and development expenses
Research and development expenses were $2.9 million for both the three months ended March 31, 2024, and March 31, 2023.
Amortization of intangible assets
Amortization of intangible assets included in operating expenses remained relatively unchanged and decreased to $1.3 million for the three months ended March 31, 2024, compared with $1.4 million for the three months ended March 31, 2023.
Other operating expenses
Other operating expenses for the three months ended March 31, 2023 included a fee of $0.5 million in connection with the receipt of employee retention credits and an estimated loss of $0.5 million related to an unclaimed property audit.
Interest expense
Interest expense decreased $0.2 million, or 22.9%, to $0.8 million for the three months ended March 31, 2024, compared with $1.0 million for the three months ended March 31, 2023. The decrease was primarily due to lower average borrowings during the period.
Loss on equity securities
As of March 31, 2024 and December 31, 2023 we held shares of common stock of HRGN with an estimated fair value of $1.7 million and $3.5 million, respectively. These shares were received in April 2023 in connection with settlement of indemnification obligations related to litigation which occurred during the year ended December 31, 2022. During the three months ended March 31, 2024, we recorded a loss of $1.3 million consisting of a realized loss of $0.3 million for shares sold and an unrealized loss of $1.0 million for shares held. We determine the fair value of our HRGN common stock based on the closing price as quoted on the OTCQB Marketplace at the reporting date. Due to HRGN’s limited operating history, its overall financial condition and the limited trading volumes and liquidity of its common stock, the value of our investment in this common stock could fluctuate considerably or become worthless.
Income tax expense
Income tax expense was $0.2 million and $0.6 million for the three months ended March 31, 2024 and 2023, respectively. The effective tax rates for the three months ended March 31, 2024 and 2023 were (4.7)% and 48.5%, respectively. The effective tax rate decreased in the first quarter of 2024 compared to 2023 due to a decrease in the GILTI inclusion. The effective tax rate for both the first quarters of 2024 and 2023 differed from the U.S. statutory rate primarily due to the inclusion of non-deductible executive compensation and changes in valuation allowances associated with our assessment of the likelihood of the recoverability of deferred tax assets.
Liquidity and Capital Resources
Our primary sources of liquidity are cash and cash equivalents, internally generated cash flow from operations and our revolving credit facility. Our expected cash outlays relate primarily to cash payments due under our Credit Agreement described below as well as capital expenditures, salaries, inventory, and capital expenditures.
We held cash and cash equivalents of $4.3 million at both March 31, 2024, and December 31, 2023. Borrowings outstanding were $36.1 million and $37.1 million as of March 31, 2024 and December 31, 2023, respectively.
We maintain a Credit Agreement which provides for a term loan of $40.0 million and a $25.0 million senior revolving credit facility both maturing on December 22, 2025. On March 28, 2024, we entered into an amendment to the Credit Agreement pursuant to which the Lenders and administrative agent modified the definition of Consolidated EBITDA used in the calculation of certain financial covenants to adjust for charges related to the ongoing abandoned property audit and commission fees expected to be paid in connection with our employee retention credit filings. We were in compliance with the covenants of the Credit Agreement, as amended, as of March 31, 2024. (See Note 8 to the Consolidated Condensed Financial Statements included in Part I, Item 1. of this report).
As of March 31, 2024, the weighted average interest rate on our borrowings, net of the effect of the interest rate swaps, was 7.4%, and the available and unused borrowing capacity was $4.4 million. Total revolver borrowing capacity is limited by our consolidated net leverage ratio as defined under the Credit Agreement, as amended.
Based on our current operating plans, we expect that our available cash, cash generated from current operations and debt capacity will be sufficient to finance current operations and capital expenditures for at least the next 12 months. This assessment includes consideration of our best estimates of the impact of macroeconomic conditions on our financial results described above. Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary as a result of a number of factors.
CONDENSED CONSOLIDATED CASH FLOW STATEMENTS
| Three Months Ended March 31, |
||||||||
| (in thousands) |
2024 |
2023 |
||||||
| Cash provided by operating activities |
$ | 1,403 | $ | 1,812 | ||||
| Cash (used in) provided by investing activities |
(225 | ) | 288 | |||||
| Cash used in financing activities |
(1,055 | ) | (2,893 | ) | ||||
| Effect of exchange rate changes on cash |
(151 | ) | 74 | |||||
| Decrease in cash and cash equivalents |
$ | (28 | ) | $ | (719 | ) | ||
Cash provided by operating activities was $1.4 million and $1.8 million for the three months ended March 31, 2024 and 2023, respectively. Cash flow from operations for the three months ended March 31, 2024 was negatively impacted as a result of the decline in net income for the period adjusted for non-cash items and was positively impacted by the receipt of $3.2 million of employee retention credits.
Cash used in investing activities was $0.2 million for the three months ended March 31, 2024 and primarily consisted of capital expenditures in manufacturing and information technology infrastructure of $0.7 million partially offset by $0.5 million from the proceeds from the sale of marketable equity securities. Cash provided by investing activities was $0.3 million for the three months ended March 31, 2023 and primarily consisted of $0.5 million from proceeds of the sale our Hoefer product line partially offset by $0.2 million of capital expenditures.
Cash used in financing activities was $1.1 million and $2.9 million for the three months ended March 31, 2024 and 2023, respectively. During the three months ended March 31, 2024, debt outstanding under our credit facility decreased by $1.0 million, consisting of net borrowings under our revolver of $2.0 million, and payments of $3.0 million against the term loan. During the three months ended March 31, 2023, debt outstanding under our credit facility decreased by $2.8 million, consisting of net payments against our revolver of $1.0 million, and payments of $1.8 million against the term loan.
Impact of Foreign Currencies
Our international operations in some instances operate in a natural hedge, as we sell our products in many countries and a substantial portion of our revenues, costs and expenses are denominated in foreign currencies, primarily the euro and British pound.
During the three months ended March 31, 2024, changes in foreign currency exchange rates had an insignificant effect on our revenues and expenses. The gain (loss) associated with the translation of our foreign equity into U.S. dollars included as a component of other comprehensive income (loss) during the three months ended March 31, 2024 was a loss of $(0.8) million, compared to a gain of $0.8 million for the three months ended March 31, 2023. Currency exchange rate fluctuations included as a component of net income (loss) during the three months ended March 31, 2024, and March 31, 2023 were not significant.
Critical Accounting Policies
There have been no material changes to the critical accounting policies underlying the accompanying unaudited consolidated financial statements and as set forth in Part II, Item 7 included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Recent Accounting Pronouncements
For information on recent accounting pronouncements impacting our business, see “Recently Issued Accounting Pronouncements Yet to Be Adopted” included in Note 1 to our Condensed Consolidated Financial Statements included in Part I, Item 1. of this report.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not Applicable.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As of March 31, 2024, the end of the period covered by this report, our management, including our Chief Executive Officer and our Chief Financial Officer, reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) of the Exchange Act). Based upon management's review and evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified by the SEC and is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the first quarter of fiscal 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud within the Company have been detected.
The information included in Note 13 to the Condensed Consolidated Financial Statements (Unaudited) included in Part I, Item 1 of this quarterly report is incorporated herein by reference.
You should carefully consider the risk factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, which could materially affect our business, financial position, or future results of operations. The risks described in our Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial position, or future results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
There were no unregistered sales of equity securities during the period covered by this report.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
The information in Part II, Item 9B in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 is incorporated herein by reference.
| 101.INS |
Inline XBRL Instance Document |
| 101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
| 101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB |
Inline XBRL Taxonomy Extension Labels Linkbase Document |
| 101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| 104 |
Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) |
| * |
This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934 |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by undersigned thereunto duly authorized.
| HARVARD BIOSCIENCE, INC. |
|||
| Date: May 7, 2024 |
|||
| By: |
/s/ JAMES GREEN |
||
| James Green |
|||
| Chief Executive Officer |
|||
| By: |
/s/ JENNIFER COTE |
||
| Jennifer Cote |
|||
| Chief Financial Officer |
|||