Good day and thank you for joining us for the Q1 2021 earnings call for Harvard Bioscience, Inc. I will now turn the conference over to your speaker today, Dave Sirois. Please proceed.

Thank you, Amanda, and good morning, everyone. Thank you for joining the Harvard Bioscience first quarter 2021 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 Q1 2021 HBIO Quarterly Earnings Presentation and is located in the Investor Overview Events & 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, 2020, our subsequently filed 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 represent the ongoing economics of the business, reflects how we set and measure our incentive compensation plans, and how we manage the business internally. The difference 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 & 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.

Thank you, Dave. Good morning, everybody. Why don't we go ahead and move to Slide 4 of the presentation, take a quick look at the highlights for the quarter. Revenue was up 14% year over year on strong order growth. Adjusted operating margin improved to 12% versus 2% in Q1 of last year. That's up 10 full percentage points and our best Q1 in years. Our pre-clinical product revenue was up 24% driven by North America and Asia. Cellular and molecular revenue increased 3% with strong order growth, however revenue was impacted by global supply chain issues. Net debt was reduced by $2 million and our leverage ratio is now below 2.5 times. As we look forward, we're increasing our revenue outlook, now expecting 10 to 14% growth over 2020, up from our last quarter outlook of 8 to 12%. Remember this includes about $5 million worth of low-margin products pruned from the portfolio over the last couple of years. We still expect adjusted operating margin improvements to get to the mid to upper teens and, going forward this year, our focus is on high-value organic growth, improved marketing, and exciting new product introductions. Move to Slide 5 of the presentation; we'll look at some of the details. As expected, we continue to see revenue improvement with Q1 coming in at $27 million up 13.5% over last year. Gross margin came in at 57.2%. That's an improvement of 260 basis points. This quarter had a GAAP operating loss of minus $200,000 or 0.9% of revenue. Our adjusted operating income was $3.2 million, so our adjusted operating margin improved to 12%. GAAP earnings per share was negative 2 cents, up from negative 12 cents last year. Our adjusted earnings per share was 5 cents. That's up from a negative 1 cent last year. Our cash flow from operations was $1 million. We paid down our debt by $2 million in the quarter. Move on to Slide 6, look at the revenue in the quarter by product family. Starting with the first row of the table, our cellular and molecular product revenue, which is primarily from academic research labs, was up 2.6% from last year with revenue shipment delays caused by global supply chain disruptions in a number of our materials. However, we expect continuing improvement as academic labs reopen with strong order growth and improving revenue shipments as the global supply chain resolves. Looking at the second row of the table, our preclinical product revenue was up 24%, again driven by strong order growth in our core customer segments of CRO, pharma, and academic labs in North America and in Asia. And we're seeing very strong growth in academic labs in this area, especially with our new inhalation systems going out. Reported revenue grew 13.5% and, on a constant currency basis, our revenue grew 10%. Moving to Slide 7, let's take a look at the major activities in the quarter. Starting with some of the items that drive growth, our North American sales realignment is complete with expanded territories and improved coverage and momentum is growing in incremental product cross-selling, especially with our historical cellular molecular products now selling to our preclinical customer segments. We introduced nine new or improved products in January. Our backlog increased significantly and we're managing our global supply chain risk to maintain strong growth. On the cost and cash flow side, we have communicated our final restructuring actions in Europe to complete our lean initiatives and expect to finish this in the first half of this year. I'm happy to say that we've reduced our debt leverage to under 2.5 times driven by significant improvement in adjusted earnings, ongoing positive cash flow, and continued pay down of our debt. Now I'll turn the call over to Mike for a quick look at some of the key financials, Mike.

Thanks, Jim, and good morning, everyone. We are very pleased with our start to 2021 with the payback from staying focused on executing our original 2019 strategic action plan coming through in our results and our outlook for 2021. As a reminder, we report adjusted results for P&L performance, which aligns with the measurements we use to run the business and reconciliations of adjusted results to GAAP are included in the appendix of this presentation. On the P&L, while our year-over-year results are favorable in part due to the rapid volume loss in March 2020 with the onset of the pandemic, the P&L reflects a fundamentally stronger business with adjusted operating margins outperforming any Q1 in recent company history despite our CMT product revenue is still recovering to pre-COVID levels as academic labs remained below normal productivity. This improvement is a trend we expect to continue for the full year of 2021 as reflected in the outlook. Gross margin improved year over year on volume and with improved product mix associated with strong sales of our higher-end solutions and a number of low-margin products removed from the portfolio at the beginning of the year. We will continue to see improved gross margin due to product mix trends seen in Q1, as well as new products released in January and overall sales growth. All told, we are on track to the 60% plus gross margin target we've been executing towards since 2019. Adjusted operating income increased due to the strong revenue recovery and product mix noted, as well as cost reductions implemented over 2020. Operating expenses were down modestly versus prior year, as we removed the inefficiencies and waste with our lean focus while reinvesting in commercial and marketing capabilities to support strong sustained revenue growth. Additionally, variable compensation increased with higher sales incentives and bonus accruals. Our incentive plans in place for 2021 are well aligned with our top line and margin expansion goals reflected in our outlook. As noted previously, we have communicated final actions associated with our turnaround restructuring program generating approximately $7 million in annualized cost savings from original run rates. Implementation of these final actions to consolidate engineering from small European sites into larger centralized design teams is on track for completion in Q2. With these activities complete, our full attention is on optimizing and growing the business. On cash flow and debt, we are very pleased to report our leverage ratio, or debt to adjusted EBITDA, is now less than 2.5 times. Net debt came down an additional $2 million in Q1 and a soft Q1 2020 bottom line is now annualized, leading to a significant improvement versus roughly 3.5 times leverage one year ago. Cash flow from operations is lower than the prior year due primarily to higher working capital in line with higher revenue and a strong outlook. Customer collections remain strong and stable. And given the dynamics of the global supply chain, our inventory focus is to keep supply available to fulfill our growing order volume. With that, I'll turn it back to Jim to discuss our full year outlook. Jim?

Thanks Mike. Okay. Let's move to Slide 11, Looking Forward. With most of the structural improvements behind us this year, our primary goal is sales growth driven by improved sales effectiveness, marketing, and new product introductions. We expect revenue growth on a reported basis to improve to approximately 10% to 14% versus 2020. We see preclinical tailwinds and overall sales execution providing a sustainable growth foundation. Academic labs are expected to continue recovering throughout the year. Portfolio rationalization pruned low-quality revenue of approximately $1 million against our FY 19 baseline and another $4 million against FY 20. Risks do remain on the potential impact of global supply for certain materials, which we are managing very closely. We still expect strong adjusted operating margin improvements to reach the mid to upper teens range. We expect gross margin expansion on increased volume and improved margin mix. And finally, we will continue investing in sales and marketing and R&D that support our long-term profitable growth plans. Thank you. Now I'll turn the call over to the operator and open the lines for Q&A. Thank you.

Your first question comes from Paul Knight with KeyBanc.

Jim, on the CMT growth of 3%, what kind of supply chain issues is it? Is it getting stuff somewhere? Polymer shortages? Could you give a little granularity on that?

It's aligned with what we've seen from automobile manufacturers. We utilize similar electronics and chips, and there have been challenges with certain types of plastics. It’s taking longer than expected. I've informed the team that we are not cash constrained anymore, and I'm okay with maintaining a higher level of working capital. We're purchasing more materials in advance to mitigate risks associated with uncertain orders, ensuring that the items we are investing in are not likely to become obsolete. I anticipate this will take some time, and we are currently addressing established timelines for products or technologies where supplies are running low. However, we are not facing lost revenue, merely delays, which is reflected in the significant increase in our backlog this quarter. While a large backlog can be a concern if it extends too long, as slower shipping may lead to losing customers, we believe we have a good grasp on the situation. The primary issue is related to raw material supply.

Right. And then you had mentioned professional marketing, new products. Are you there? Is the program in place for continuing high growth or maybe faster? Could you talk to what you've done?

Sure. And then what do you think are, or are you willing to say what you think your normalized growth rate? Is that a 14% like this year? Is it double digits? Is it high single? Could you touch on that two-parter for me? Thanks. Certainly, we're seeing ongoing improvements in our marketing efforts, which is a dynamic process. We initially identified gaps in product line management, which involved understanding our product lines, market demands, pricing, and customer needs. We've made significant progress in enhancing our product literature. We're collaborating with a company to develop a highly professional website that will unify our brands effectively. It's essential to acknowledge that while our brands will remain distinct, they will be better integrated under Harvard Bioscience as the guiding technology force. This evolution will make it easier to engage in cross-selling activities, although it may take about a year to reach a more developed stage. However, we expect to see continuous improvements every quarter. In terms of our business momentum, the DSI portfolio, particularly the inhalation products introduced with our new system, is experiencing significant growth. Interestingly, we anticipated that most of this growth would come from CROs and pharmaceuticals, but we're also seeing considerable expansion into academic labs, even as they gradually recover. Products related to electroporation, gene splicing, and CRISPR are also thriving, along with telemetry systems in our preclinical space. Our cross-selling has gained traction, and our account management approach for CROs and pharma has proven effective in distributing higher-priced products that were previously limited to the CMT channel. As we add new products and re-enter product development, it contributes positively to our growth outlook. Regarding long-term growth, we would be dissatisfied with anything less than double-digit growth in this sector. For this year, considering the recovery, we've taken a relatively conservative approach until we see substantial evidence in the numbers. I prefer to model our growth simply by multiplying the number of reps by their quotas and assessing individual performance. Overall, I believe we have a solid growth foundation. Initially, I aimed for growth in the 6% to 8% range, which I think the market saw as optimistic. However, given our position, we are striving to exceed that target. That's about all I can share at this moment, but we are certainly committed to achieving better results.

And then lastly for me is when I look at electroporation, gene splicing, and other products related to cellular-level research, what's the portion of your company exposed to those type of markets? And what do you think those products are growing at, if you can smash them together like that?

Yes, it's hard. The thing that's affected us in that area, like everything, is we have had some supply chain issues with certain components. But again, we're working to solve that. There's definitely growth. We see nice order intake growth in that space. We're still fairly limited in the gene splicing and CRISPR area in that we primarily sell just to the academics in that space. Now, clearly there's a lot more research coming that way, so it's still a great place to have exposure. But you're going to see us working to have a newer generation come out of that product, one that will be even more compelling into the academic space. We're also eyeing at what point we want to maybe need to get to a higher volume type of technology that we would use based on this technology, be able to move this into slightly higher volume areas to expand to other types of customers that will want to use this on a larger basis. But again, the immediate growth and the demand is in the academic side with all the new things happening. This is a perfect product that's heavily involved with anything to do with vaccines and some of the new drugs coming out. So it's a great place to be. It's an area that we have a lot of interest in, and it hasn’t been invested in, I guess for a while, which I see as an opportunity, because now that we are going after this, it's a real opportunity for this company.

Your next question comes from Tim Chiang with Northland Securities.

I wanted to get your thoughts on just academic labs. Are you starting to see some hints that the labs are going to start to reopen? And when do you think that will happen? Will it be this summer or more likely this fall?

Yes, we see a mixed situation depending on the region. In Asia and China, the lab business is picking up quickly. In North America, it's slower due to challenges in getting people back into labs, especially in states like Massachusetts that have a high concentration of labs. Additionally, many students have not returned yet, which is crucial since their involvement is necessary. Researchers are facing difficulties in bringing students back, even on a rotating basis. However, we anticipate that by the fall semester, activity will significantly increase in the U.S. Europe's situation is different; countries like Germany and the UK have undergone severe shutdowns. Even though researchers may be allowed back, many have not been coming in, and essential staff for processing orders and shipments are often unavailable. We expect Europe will lag behind and might not return to expected capacity until the end of the year. On a positive note, we have seen considerable growth in our preclinical sector, particularly with our telemetry and inhalation products in academic labs. We may have overlooked the demand for these products in labs looking to establish core operations similar to small pharma or contract research organizations. These emerging labs require funding to build their own facilities, and we can assist in equipping them fully to achieve their preclinical goals. This demand will still be present even with many labs not yet operational, indicating a potential surge in demand as they return.

Let me just one follow up, Jim. I guess obviously you have some supply chain disruptions. I mean, how do you sort of quantify how big that disruption is at this point? And how much time do you think it'll take to sort of offset that? I mean, is this a quarter or two where you think things...

Yes, we believe it will take a couple of quarters for the situation to improve significantly. Our backlog shows healthy growth in orders and revenue, but we've faced some constraints. We are confident in our ability to manage this, as I have experienced professionals assisting me. However, it will take time since much of this involves electronics and the process of re-establishing supply. We are competing with companies like Tesla for certain types of chips we need. Navigating these supply chain challenges requires considerable effort. Still, we expect the situation to resolve. We anticipate experiencing some difficulties for probably a couple of quarters before we reach normal shipment rates.

And your next question comes from Lisa Springer with Singular Research.

Congratulations on another good quarter. Jim, could you provide us with examples of the nine improved or refreshed products you introduced since January? Specifically, how were they improved and how significant was the impact on marketing the product?

Yes. When you introduce a product, it usually, as you expect, takes a little while for you to get the adoption. But the first thing it does is it gets excitement, generates a lot of excitement with your sales team and with the customers that now see announcing things, really refreshing into new technologies. The first biggest one, of course, we talked a lot about which was the inhalation technology, which just took off. That was a great product for us. Now, we introduced that last year. With the other products coming out where there's a series of improvements and new technology in the cellular testing area, in the ultimate, some of the biochrome products, the things that use where you're measuring, looking at specific molecular weights of certain molecules and so on. It's kind of a lot of base instruments that are used. I don't have the list of all of them, but that was clearly, and then you start to roll through those. We've got, I think, something like six new products teed up that'll be coming out here with our sales organization and our sales meeting that goes happens in June. Usually the heartbeat's about every six months, you'll see a handful of new products that come out. Some of it's refreshing, some of it's new, but that's something you have to have as a technology company. You can't just sit with old products getting along in the tube. You have to be refreshing the product line and introducing new technologies. It's part of the driver for the company.

My next question, I wanted to ask you about, do you have a target for leverage by the end of the year? What's your comfort level with the current leverage?

Well, we aren't right now in the market to be using the balance sheet for anything other than really making this a great growth business right now. I've said from the beginning, as we got to the second half of this year, we're going to have a much better balance sheet. At this point, certainly we feel like we'll be under 2 times on leverage at the end of the year. This company doesn't consume much capital. EBITDA drops to cash mostly. As we get to the end of the year, the other thing we're looking at now is what are some of the adjacencies that might make some sense to bring in some inorganic technologies to fit this out with the portfolio. I'm not working hard on that right now. Right now, we're just looking at making sure we really understand it because there's so much opportunity just to get the sales force correct, to get the coverage right, and the depth of coverage and the product portfolio right. That's when you start to know, you really look at what are the right kind of maybe additional products. Then, we have a choice. Do we invest? Do we make them organically? Do we make capital investment for adding some of these new products? Some of these might be acquired things. But either way, I mean, you'll see the debt continue to come down, a lot more opportunities for us on how we use the cash.

We have time for one last question. That question is from Bruce Jackson with Benchmark.

To springboard off the last question. Looks like R&D kicked up a bit this quarter. Do you have an R&D spending target? Prior to the downturn you were spending maybe around $11 million annually? What are your spending plans right now?

We were somewhere around 8% of revenue. Somewhere around that, 11-ish. I don't see it needing to jump up high right now. I mean, we're still loading up and getting the rest of it together, getting it right. But certainly there are some areas that we have to make some investments. I expect as we grow, as revenue grows, we will certainly be, and of course, operating leverage and profit. We will be applying more on an absolute basis in R&D and there'll be some, much of it, apex. But they'll probably also be looking at some capital spend to have some of these new products ramp up and new technologies as you get into tooling and stuff. There'll be some increase there. Again, I kind of like staying at that 8 to 9% of revenue. It's kind of a safe place. I think we have it. It forces us to be efficient in the use of R&D. But I'll tell you, we're flexible enough. If something really became compelling and we needed to throw a little more at something, we have the ability to do that.

Okay, great. Then, I know September of 2019 was a long time ago, but you laid out a 60% gross margin target at that point. Do you think you could still get to a 60% gross margins by the end of the year?

We do. We expect that we'll be at 60% plus as we get into Q4. Yes, exactly. I think that was a good target and it still makes sense, and a lot of it's natural. Because much of the cost structures have already taken place now. As we get to more efficiencies, a little better scale, and with the product mix improving, it naturally happens for us. I think that all the pruning we've done and the focus on the sales channel and higher-end products, that's really improving the mix a lot. I'd say, Bruce, we have a very clean path as volume comes back to that 60% plus. It's probably not this year that the full year is at that, but we'll be at that run rate on the second half of the year. High confidence on that. Thank you. Thanks for joining us. This ends this presentation. We hope you'll join us again, I guess it's in August that we'll show you the results for our second quarter. Thanks again, and we'll see you soon. Thanks. Bye.

That does conclude today's call. Thank you for your participation. You may now disconnect.