Good morning, and thank you for standing by. Welcome to Harvard Bioscience, Inc. Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please note that today's conference is being recorded. I will now hand the conference over to your speaker host, Dave Sirois, Director of SEC Reporting. Please go ahead, sir.

Thank you, Olivia, and good morning, everyone. Thank you for joining the Harvard Bioscience fourth quarter 2023 earnings conference call. Before we begin, I would like to suggest that you take a moment and download a copy of our presentation that will be referred to during this call. The file is entitled Q4 2023 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 Jennifer Cote, 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 31, 2022, our subsequent quarterly reports on Form 10-Q and our other public filings. Any forward-looking statements, including those related to the company's future results and activities, represent our estimates as of today and should not be relied upon as representing our estimates as of any subsequent day. Also much of today's call will focus on our non-GAAP quarterly results, which we believe represent the ongoing economics of the business, reflect how we set and measure our incentive compensation plans and how we manage the business internally. The differences between our GAAP and non-GAAP results are outlined in the earnings release and today's presentation. These two documents as well as a replay of this call can be found on our website under Investor Overview/Events & 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, David, and hello, everybody. Let's move to Slide 3 of the presentation and take a look at the highlights for the quarter. Let me start by saying I'm pleased to see growth in North America. However, similar to numerous life science tools companies, we were held back by post-COVID lower demand in China. Revenue for the quarter was $28.2 million, down a modest 1% from last year on an as-reported basis. This revenue includes the net effect of $900,000 of discounted products compared to the prior-year period. We did see a net positive currency effect of $400,000. So, adjusting for both currency and discontinued products, underlying core revenue was up about 1 percentage point from the same period last year. Gross margin improved to $16.3 million or 58% of revenue, up 230 basis points from the same period last year. Our GAAP operating profit was $300,000, up from a negative $500,000 last year. Adjusted operating profit measured $3.3 million or 11.6% of revenue, about flat with the prior year. Adjusted EBITDA measured at $3.7 million or 13% of revenue, again about flat to last year. GAAP earnings per share was a $0.04 loss, again the same as last year. And adjusted EPS measured a positive $0.04 a share, again the same as last year. Cash flow from operations came in at $4.3 million, up from $2.7 million last year. In the appendix, you'll find the bridge from GAAP measurements to adjusted or non-GAAP measurements. So, let's move on to Slide 4 and take a look at revenue in the quarter by product family and by region. Starting in the Americas, revenue was up 4.1% as reported and included a 2.1% net reduction from discontinued products. So, our core revenue is up about 6%. Pre-clinical had strong growth in core telemetry and Ponemah enterprise software. However, overall, we were held back by lower demand in the respiratory products as a part of the recovery from the post-COVID timeframes. Cellular and molecular products were up in electroporation and bioproduction and up in cell-based testing, but were impacted by the discontinued low-margin products. By the way, we're about done with discontinued products. I don't expect to be having to talk much about this as we go forward. Moving to EMEA, overall, EMEA revenue was up 3.1% as reported and included a 2.1% net reduction from discontinued products and a positive currency effect of 4.1%. So, adjusting for currency and discontinued, EMEA was up roughly about 2 percentage points. Pre-clinical systems showed modest growth and were helped by the first installation of our new high-capacity VivaMARS Behavioral System at a large CRO operation. CMT was down modestly, mostly on discontinued products. Now moving to China and Asia Pacific. Q4 reported revenue was down 15%. Adjusting for currency and discontinued products, Asia Pacific was down about 10%. Telemetry and Ponemah enterprise software held their own. Cellular and molecular products saw another tough quarter similar to Q3, and the primary impact again was academic customers where we saw continued weakness due to post-COVID government academic research funding. We see the weakness in China continuing into Q1 2024, though we're hopeful with recent news out of China that market conditions are going to start to improve going into the second half. At worst case, we'll at least see things annualizing at a level where we hopefully won't see so much back and forth with lumpiness like that. So, let's move on to Slide 5 and let me tell you a little about some of the exciting new products and how we've positioned our base business to deliver solid growth with expanding margins, which support investments to commercialize our exciting new high-growth areas like high-capacity behavior systems, advanced cell and organoids, and bioproduction/electroporation applications. This year's commercialization focus started with new product introductions showcased at the Society for Neuroscience, which was in Q4, just this last November. And then, we're also going to showcase these products again at next week's Society of Toxicology. Our first focus is to strengthen our base, which is the vast majority of our business. We introduced our new SoHo Shared Housing Telemetry Family of implantables at the Society for Neuroscience last November. At the same time, we introduced our latest Ponemah software that integrates VivaMARS, the high-capacity behavioral testing system, now onto a single GLP-compliant platform. The Ponemah platform, used by leading CROs, biopharma, and large academic institutions around the world, processes and manages the extremely large data pools acquired during toxicology and safety testing, now for both telemetry and behavior. By combining these new applications in a single data management platform, the Ponemah system opens new opportunities for our customers to use emerging AI and machine learning technologies to analyze these study data. And we'll be working with some of our customers to implement these types of new machine learning applications, which then turn into what we use for tuning our algorithms. We're also expanding our field service offerings designed to increase recurring revenues and consumables. Our second focus is expanding to high-volume industrial applications. We introduced VivaMARS, the high-capacity behavioral system at the Society for Neuroscience in November, and we had the first commercial installation of VivaMARS in Q4 with a large CRO customer. We're showcasing VivaMARS at next week's Society of Toxicology, where we will be meeting with many of our leading CROs and biopharma customers. Our third focus is expanding bioproduction with our leading electroporation and electrofusion technology. In January, we established a commercial and application science team dedicated to bioproduction and advances in electroporation. In February, we released our GLP/cGMP compliant amino acid analyzer for bioproduction quality control. This system was adapted from our clinical amino acid analyzer currently in operation worldwide in leading clinical laboratories. Finally, we're focusing on commercializing our leadership position in advanced cellular applications. We launched the Mesh MEA Organoid Platform at the Society for Neuroscience. We're also showcasing Mesh MEA at next week's Society of Toxicology conference. We're excited to see strong interest for applications in research and biopharma discovery, which we expect will lead to higher volume compound analysis and testing applications at higher volumes. Now, I'll turn the call back over to Jennifer, our CFO, to give us a look at key financials. Thank you, Jen.

Thank you, Jim. Let's jump into our Q4 and full-year financial results in a little bit more detail. If you can all please refer to Slide 7. As a reminder, in addition to our reported GAAP results, we also include discussions about adjusted or non-GAAP financial results. These align with information we use to internally manage the business, and our slide deck includes a reconciliation between our adjusted results and the corresponding GAAP financial measures on Slide 12. If you could please refer to the top middle of the slide, on a reported basis, our Q4 gross margin was 58.0% compared to 55.7% last year, an improvement of 230 basis points. Our gross margin can fluctuate based on the mix of products, but the year-over-year improvement in our gross margin primarily reflects the impact of the product portfolio improvement initiatives that we completed in 2022. If you refer to the top right of the slide, our adjusted EBITDA during Q4 was flat to last year. It did include investments to complete and launch our new VivaMARS behavioral system and our shared housing SOHO platform and to introduce our new Mesh MEA system at the Society for Neuroscience in November. With the challenging macroeconomic environment, we continue to manage our overall operating expenses ensuring that our spending is tightly tied to our highest priorities. Moving to Slide 8, where we'll discuss full-year results and our success this year with improving operating cash flow and liquidity. Our full-year gross margin demonstrated the impact of the changes we made last year and finished at 58.9% compared to 53.7% last year, an improvement of 520 basis points. Last year's gross margin did include inventory write-downs related to discontinued products of $1.5 million, which accounted for 1.3 percentage points of the improvement. Adjusted EBITDA finished in alignment with our expectations at 13%, a strong improvement over last year's 9.6%. Moving to the bottom left where we show both reported and adjusted loss earnings per share, the differences between our reported and adjusted diluted earnings per share are highlighted in the reconciliation tables. Last year, we incurred $5.8 million in restructuring and other costs related to the transformation of our business, which accounted for $0.14 of the diluted loss per share on the bottom left chart. Switching gears to highlights on cash flow and liquidity. Please refer to the graph in the middle of the bottom row. During Q4, we added an additional $4.3 million in cash flow from operations, bringing our full-year cash flow from operations to $14 million, a substantial improvement over $1.2 million in 2022. Our 2022 operating cash flow was reduced by $4 million in conjunction with the settlement of the litigation. We received stock as part of the settlement. As opportunities present themselves, we are unwinding our position to assist with the continued pay down of our debt, and so far in 2024, we've unwound over $300,000. Our debt paydown for 2023 was $10.5 million and exceeded our expectations of $10 million. Net debt at year-end compared to prior year is down $10.4 million. This is a significant improvement in net leverage, which finished the year at 2.3 times compared to 4 times at the end of last year. Also, in February 2024, we received a net cash benefit of $2.6 million for the employee retention credit provided by the CARES Act. This is a credit that encourages the retention of staff by employers impacted by government orders associated with COVID-19, and this credit will also allow us to reduce our debt in 2024. Further details on all of this will be available in our 10-K and the non-GAAP reconciliation tables included in our press release and in the appendix to the presentation. I'm now happy to hand things back over to Jim, who'll cover our 2024 guidance.

Thank you, Jen. So, moving to Slide 10, let's take a look at what we see for the full year 2024. As we enter the year with continued market headwinds from China, we expect 2024 to be a tale of two halves. Taking everything into account, we expect flat to modest revenue growth for the full year. We expect weakness in the first half versus a strong and very difficult prior-year comparison. This is especially true in our China revenue, where Q1 2023 was up significantly from 2022 and where we're expecting revenue to be down significantly in Q1 2024 entering this year with continued headwinds from China. The good news is we do think it's going to annualize going into the second half, and even with the latest news from China, it looks like there might even be some upside from that. We do, however, expect strong second-half growth versus the first half of this year and versus the second half of last year. So, the second half is really the key for the business here, and we're preparing for the second half of this year. You see the new products entering production and commercialization, which will augment what's happening in the market. We feel very good about the second half, and we'll get through the first half here. We expect meaningful growth from new product commercializations, and we expect China funding to improve going into the second half. We expect gross margins in the 60% range, up from 59%, and we expect adjusted EBITDA margins improving to the mid-teens, up from 13%. With that, I'll turn it over back to the operator and open the line for questions. Thank you.

Thank you. Our first question is from Paul Knight with KeyBanc. Your line is open.

Hi Jim, as I look at Slide 5, could you tell me what percentage the SoHo product and the other products on that slide will contribute to your growth in 2024? Additionally, how significant are they in this context?

Yes, good question. Certainly, if I think about those four driving pillars, first with the products introduced into our main, what I call our base business, the introduction of SoHo and the ability to now offer shared housing and more longitudinal testing, we think that's going to add a nice contribution and will continue to support our base business. My expectation is that keeps us at or above the market level. The incremental new items, which you see to the right, starting with VivaMARS, we had the first sale of that last year, which approached $1 million. We see that growing fairly rapidly, even though it's starting with a small base. So, that could easily double as we get into '24. My goal would be disappointed if we didn't see it doubling again going into '25, and that's kind of a growth vector. In time, I see the behavioral product with VivaMARS really becoming part of the base business, because it really provides the ability to acquire and consolidate not just telemetry data but also behavioral and neuro safety data, all of that comes together on a big high-volume data analytics system designed to derive the right information. That's where we plan to start applying some of the new machine learning technologies to that. Electroporation/bioproduction is the third area, which I expect to see growing close to 100% a year, but off of a low base. The bioproduction part alone could add another couple of points of growth to our core business. And then, on the advanced cellular products with the introduction of the new advanced organoid platform, we received tremendous interest. We had customers wanting to buy immediately after our first show at SFN. We have to be careful with how we roll that out. I will be somewhat limited for at least the first year in terms of volume. So, we're encouraging customers to qualify themselves by first using our current system, because these systems for MEAs could be in the $70,000 to $80,000 range. Assuming they buy it for Mesh, they would transition from standard MEA chips to the Mesh Organoid chip. Again, if I look at where we are in MEAs, it's typically around 5% of our business, and that should grow dramatically. I would be disappointed if we didn't see north of a 30% growth vector in that segment.

And then, should we expect low-single-digit declines in the first half and mid- to high-single in the second half on revenue?

Yeah. I think that it's fair to say that. Coming in, given such a tough comparison to last year, I mean, Q1 last year was an all-time record, primarily driven by China. So, imagine that. China gives us a difficult comparison and then turns around a year later and gives us a low entry into the year. But we do think that's going to correct. I would expect Q1 to be tough. However, we anticipate improvement throughout the year from there. Certainly, the second half should be a great business for us, as we're hoping the headwinds become tailwinds. This will be weak in the first half and very strong in the second half, with new products kicking in to augment that growth trajectory.

Okay. And last question, what's your long-term growth rate target, Jim?

Certainly, I would target to be double digits. A company like this should aim for somewhere near 10%. Depending on how these new growth areas develop, that will determine just how far above or below 10% we are. My target for the base business ought to be at or slightly better than market, maybe around 5% to 7%. These new growth areas might add another 4% or 5% early on but could increase substantially from there. It will depend on how quickly we can commercialize and how well these areas are adopted. We have very few competitors in the areas we are leading, which gives us a great position in pricing and scarcity value. Now that we're done fixing things, I feel we're putting our foot on the gas pedal, and you'll see the commercialization of these products.

Okay. Thanks, Jim.

Thanks, Paul.

Thank you. Our next question comes from Frank DiLorenzo with Singular Research. Your line is open.

Good morning. A question about the 2023 sales. Can you give us an idea of what the dollar amount in 2023 for overall revenue was related to discontinued and divested products? And following along the idea of long-term growth objectives, is that something we could assume getting close to that 10% beginning in 2025 from 2024 base, being that this year looks relatively flat, mostly due to China?

Yeah, good question. I think the number of discontinued products this last year on a net basis was a little over $5 million. So $5 million on $113 million gives you a kind of a base underlying core growth. That's prior to what we see as far as with new introductions and new growth areas. If I'm building on a base like that, it underpins what I'd suggest for a kind of base business of 5% to 7% going forward as you look into future years. With new areas augmenting that, we can add 2 points or 3 points or even 5 points or 6 points depending on how well these new areas are adopted.

Okay. Regarding the new products and launches, is that back-ended or front-loaded as far as getting out there and being purchased by clients? Can you also provide granularity on your strategy outside the U.S. to garner incremental growth expansion into some countries you're currently in or into other regions?

The newer products are higher value and involve consultative sales, so the introduction started at SFN in November and will be reinvigorated at the Society of Toxicology. The typical timeline from order to shipment can vary, but it generally involves a few months to secure an order and a few months for shipment. Thus, we anticipate more significant revenue recognition in the second half of this year. Outsourcing efforts focus on what works and is needed in the U.S. However, we expect China to need similar offerings again. Europe will focus more on the science side while the U.S. and China will emphasize higher-volume commercial applications.

Okay. Thanks. A quick follow-on. Are there any potential additional new product introductions or line extensions later this year heading into 2025? What does the landscape look like for potential partnerships or M&A to bolster your current future offerings?

There are indeed a lot of companies interested in penetrating areas like bioproduction. We will evaluate licensing opportunities for technologies that we can't pursue entirely on our own. We will focus on core growth areas for new products, and running through partners could be a valuable strategy for us. Regarding acquisitions, we are in a position to explore interesting opportunities that could enhance our product portfolio, particularly in bioproduction and expanding our cellular work with organoids. We seek to develop recurring revenue streams through consumables and services as we ramp up those areas, and we have several pathways to explore here. Our focus remains on maintaining pricing power and staying in our niches for expansion.

Okay. Thank you.

Thanks, Frank.

Thank you. And there are no further questions in the queue at this time. I will now turn the call back over to Mr. Jim Green for any closing remarks.

Okay. Well, thank you, everybody. Thank you for listening in today. This ends today's presentation. I hope that you'll join us in May for our first quarter results of fiscal 2024. Thank you very much. This ends the presentation.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.