Good day, and welcome to the Fourth Quarter 2024 Harvard Bioscience Earnings Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Instructions will be given at that time. As a reminder, this call may be recorded. I would now like to turn the call over to Kathryn Flynn, Corporate Controller. Please go ahead.

Thank you, Michelle, and good morning, everyone. Thank you for joining the Harvard Bioscience fourth quarter 2024 earnings conference call. Leading the call today will be Jim Green, President and Chief Executive Officer, and Jennifer Cody, Chief Financial Officer. In conjunction with today's recorded call, we have provided a presentation that will be referenced during our remarks that is posted to the Investors section of our website. Please note that statements made in today's discussion that are not historical facts, including statements or expectations or future events or future financial performance are forward-looking statements and are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those expressed or implied. Please refer to today's press release for other disclosures on forward-looking statements. These factors and other risks and uncertainties are described in the company's filings with the Securities and Exchange Commission. Harvard Bioscience assumes no obligation to update or revise any forward-looking statements publicly, and management's statements are made as of today. During the call, management will also reference certain non-GAAP financial measures, which can be useful in evaluating the company's operations related to our financial condition and results. These non-GAAP measures are intended to supplement GAAP financial information and should not be considered a substitute. Reconciliations of GAAP to non-GAAP measures are provided in today's earnings press release. I will now turn the call over to Jim. Jim, please go ahead.

Thanks, Kathryn. Thank you and good morning. We'll start at Slide 3 of the presentation and look at our quarterly results. Revenue in the fourth quarter came in at $24.6 million which is 13% below revenue from Q4 last year. On a sequential basis, revenue was up 12% from the third quarter and we had a positive book-to-bill ratio. Gross margin for the fourth quarter was $14 million or 57% of revenue, impacted by lower revenue year-over-year. Operating income was breakeven on a GAAP basis. On an adjusted basis, our operating income measured $2.5 million or 10% of revenue and adjusted EBITDA came in at $3 million or 12% of revenue. I'll now turn it over to Jennifer Cote, our CFO, to discuss our financial results in a little more detail. Thank you.

Thank you, Jim, and hello, everyone. I'll provide further detail and repeat a little bit of what Jim said, but I just want to go through this in detail. So on Slide 4, if you could please refer to where we will look at revenue for the quarter by product family and region. Overall revenues in the fourth quarter showed sequential improvement finishing at $24.6 million compared to $22 million in the prior quarter. Revenues for the year were $94 million compared to $112 million last year. You can see our quarterly trend, which shows evidence of quarter-to-quarter stabilization across the globe. I will now break it down to look at regional results. Starting with The Americas, revenues in the fourth quarter grew sequentially by 3% over revenues in Q3, but were down 11% versus revenues in the fourth quarter of last year. Our preclinical sales rebounded sequentially with a return to normal purchasing during Q4. As shown in the light blue, CMT is down sequentially and we did not see the typical end-of-year bump we attribute to end-of-year academic budget spending. Moving on to Europe, overall revenue in Europe in the fourth quarter grew 28% sequentially, but was down 7% compared to revenue in Europe in last Q4. Our European revenues have been relatively leveled through the first three quarters of the year and during Q4 experienced nice growth due to our new products. Our preclinical sales were up sequentially in Q4 over sales in Q3 with increased telemetry and respiratory sales offset by lower behavioral sales. Cellular and molecular sales grew sequentially and year-over-year. We are excited to see the impact of early adopters of our MEA systems and MeshMEA chips. Moving to China and the Asia Pacific, overall in the fourth quarter, APAC revenue was sequentially up by 8% over the previous quarter though APAC revenue was down 24% compared to the prior year. The APAC market has been especially difficult this past year, but Q4 was our first sequential improvement this year and trailing orders have remained consistent over the last few quarters indicating stability. Preclinical APAC sales in Q4 saw sequential growth over sales in Q3 but were down compared to the prior year, which we attribute to destocking. Cellular and molecular APAC products showed some minor declines in Q4 sequentially and year-over-year. We continued throughout Q4 to experience improvements in our booking trend and continue to see growth in our global trailing three-month trend. This has been trending positive now since June. We do expect to see a dip sequentially in Q1 and Jim will discuss this with our outlook. If you can please refer to Slide 5 on which we'll discuss additional metrics. Please refer to the middle of the slide. Gross margin during Q4 was 57.1% compared to 58% in Q4 of last year. Sequentially, margins are effectively neutral when adjusted for FX. The strengthening of the U.S. dollar relative to foreign currencies in Q4 contributed to a 1 percentage point margin decline during Q4 relative to Q3. We maintained stability in our gross margin by managing expenses to offset lower absorption of fixed manufacturing costs during Q4 and throughout the last year. We are encouraged that despite lower revenue levels, we are maintaining gross margins close to our target of 60%. We are now also operating on one U.S. ERP system, which represents 80% of our manufacturing and shipments. As part of implementing our new ERP system, we are experiencing some inefficiencies as we start to use the new system in our Boston facility, but we are working to stabilize our processes and associated controls as we move deeper into 2025. This new consolidated environment constitutes an opportunity for us to mature our sales and operations planning, supply chain, and inventory management through automation and further improvement of processing controls. If you refer to the right side of the graph, our adjusted EBITDA during Q4 finished at $3 million compared to $3.6 million in last year's fourth quarter. The $3 million adjusted EBITDA figure was a sequential improvement of $1.7 million over adjusted EBITDA of $1.3 million in Q3. The sequential improvement was mainly due to revenue and margin growth as well as cost reductions taken throughout last year. Compared to the prior year Q4, the reduction in gross profit was mostly offset by lower operating expenses in Q4. Now moving to the bottom left where we show both reported and adjusted loss and earnings per share. First, as I've done in the past, I will remind you of the primary differences between GAAP and adjusted EPS, which includes the impact of stock compensation, amortization, and depreciation. These differences can be found and highlighted in the reconciliation tables on Slide 11 and are all non-cash items. We recorded a correction during Q4 related to our accounting for the closure of a legacy pension plan, which favorably impacted Q4 of 2024 by $0.03. The impact of this non-cash activity is zero year-to-date and is offsetting activity in Q3. Cash flow from operations was $1.7 million during Q4 compared to $4.3 million in Q4 of last year. The Q4 cash flow figure represents sequential improvement compared to Q3. Now I will move to Slide 6, where we will cover the full year results and we can discuss our liquidity and debt position. We maintained consistent gross margins during 2024 at 58.2% compared to 58.9% in 2023. We managed our costs to largely offset the impact of lower revenue and gross profit. For the full year, adjusted EBITDA was down $7.4 million due to reduced gross margin of $11.3 million partially offset by reduced operating expenses of $3.9 million. Full year 2024 adjusted EPS was $0.03 compared to $0.14 in 2023 as a result of the dropdown of lower gross margins offset partially by lower expenses. This included an unfavorable impact compared to the prior year of the loss on sales of equity securities of $0.03. Differences between GAAP and adjusted EPS during 2024 also included restructuring expenses, commissions for employee retention credit payments, and settlement of an abandoned property audit, which resulted in $0.04 of unfavorable impact for the year. We have reduced the quarterly run rate of our operating expenses by $2 million or 12% when you compare Q4 of 2024 with Q4 of 2023, which positions us for improved operating expenses in 2025. If you refer to the bottom middle graph, cash flow from operations for the year ending December 31st 2024 finished with a $1.4 million decline and declined by $12.6 million compared to last year. We struggled early in 2024 to drive favorable operating cash flow but showed improvements, and you see the results in Q4 through this careful expense management. On the bottom right, you can see that we maintained stability in our net debt position and at the end of the year, our net debt was just slightly above net debt at the end of 2023. As of year-end, we were not in compliance with the consolidated net leverage ratio covenant contained in our existing credit agreement. Earlier this week, we entered into an amendment in which the lenders agreed to waive our Q4 non-compliance. Under the amendment, we are required to refinance the existing agreement by June 30th. We are also precluded from further borrowings under the credit facility. That said, based on our current operating plans, we expect that our available cash and cash generated from operations will be sufficient to finance operations and capital expenditures while we work to refinance the credit agreement. For more information on the amendment, please refer to the 8-K that we filed last night.

Thank you, Jen. We can move to Slide 7, where I first want to mention that we've historically augmented our European sales through distribution agreements with the large distributors like Fisher and VWR. We're now working with them to extend this agreement with Fisher and VWR specifically for the formal distribution relationship to also include North America. We are also planning to offer through the distributors to increase our number of products, including our new unique MEA systems. Now if you go to the next slide, let's see. Actually, that's still Slide 7, right? I just want to say, I'm not going to dwell on this, but I like to think about our business as our base business and then areas where we're expanding, potentially into high growth areas like electroporation and bioproduction and also expansion into organoid related technologies, another area that we believe provides significant growth opportunities. The base, which we expect to roughly run with the life science tools market, is augmented by new product introductions, some of which you'll hear about today. Both electroporation and bioproduction, and our emerging MeshMEA organoid applications are expected to be long-term high growth opportunities that also drive higher recurring revenue. Moving to Slide 8, I'll update you on the progress on key new product launches in more detail. The first row of the table on this slide highlights the commercial status of two new products we consider part of our base business. Late in 2024, we began production shipments of our new SoHo family of telemetry devices, which now enable real-time telemetry measurements of animal models in shared housing environments. In 2025, we plan to expand our SoHo capable implants to also cover cardiac and neural monitoring capabilities. Launching at this month's Society of Toxicology, our SoHo systems are already seeing strong quoting requests from industrial customers and academic customers alike. The first delivery of our new automated VivaMARS neurobehavioral monitoring system went to Labcorp. We've been working with Labcorp to tune the system and support them in the integration of it into their testing network. We're now in discussions with them to acquire another VivaMARS system for a second one of their facilities, we assume later this year. And we're also working to get the next large CRO customer onboard with VivaMARS. The second row of the table highlights the commercial status of our products targeted to potentially long-term high growth electroporation and bioproduction opportunities. Late in 2023, we announced that a large pharma company had adopted our BTX electroporation system configured for bioproduction. Looking at the commercial status in 2024, we're pleased to see that consumable revenue from this first large customer has now grown to approximately $1 million annual run rate. This first large customer, a top five pharma company worldwide, has adopted the BTX for bioproduction of vaccine application and is validating our right to win in higher volume GMP applications. This first application is a vaccine for companion animals. And in this way, it allowed us to fast track into bioproduction and get to higher volumes quickly. The same customer is adopting our system for a second potentially high volume vaccine at another site. When we talk about human use, Novo Nordisk, a longtime customer of Harvard Bioscience, is an early adopter of our BTX for a new generation therapy. Also for human use, a large U.S. biotech is adopting our BTX for bioproduction of a CAR-T based therapy. We are currently prototyping our next generation BTX platform designed for ease of use in new compound creation and also ease of transition to bioproduction in cGMP environments. Also in 2024, we began shipping our new cGMP-compliant amino acid analysis system to pharma companies for bioprocessing applications. Our AAA is an adaptation of our leading Biochrome AAA system currently operating in clinical labs internationally and is showing initial demand in bioproduction applications such as biomaterial quality control. The third row of the table highlights the commercial status of our emerging new high growth MeshMEA organoid platform. We have adapted our MEA electrophysiology system to be the industry's first in vitro organoid data acquisition and analysis system. It's capable of supporting long life longitudinal analysis of organoids and they're initially targeted to neuro and cardiac applications. As for commercial progress of Mass MEA systems, in 2024, we initiated five beta sites, three of which were academic sites including the University of Texas, Tampere University in France, and the University of Michigan. Synaxis is an advanced CRO in France focusing on safety and toxicology applications and a leading biopharma company with operations in Cambridge and multiple sites across California is focusing on longitudinal viability testing for neuro and cardiac applications. In Q4, early adopters including Stanford and the Mayo Clinic purchased 10 systems for a combination of neuro and cardiac applications. In 2025 our goals include expanding adoption by leading academic sites plus government labs in the U.S, UK, and the European Union. The NIH itself recently purchased one of our MeshMEA systems for neuro applications. This year, we'll focus on adapting the system to more potential high-growth industrial applications in biotech and pharma. We see a growing pipeline of biotechs and pharma opportunities as we look forward this year. Now in terms of refinancing efforts, we've retained an investment banker to assist and we have held multiple discussions with potential lenders. We plan to complete the refinancing effort by June. For more information, you can look to the 8-K that we filed last night. Now if we move on to our guidance and outlook on the next slide. Given the lack of visibility around NIH funding and the recent effects on academic research funding, we're going to hold off on giving an outlook for the full year at this time. So at this time, we'll just discuss Q1 2025 and some basics about finishing how we're operating through the rest of the year. Considering the uncertainty around NIH-related academic funding and the typical Q4 to Q1 seasonality, we expect Q1 revenue to range from $19 million to $21 million. We expect Q4 gross margin to be in the 56% to 58% range. Regarding Q1 EBITDA, we expect unusually high professional fees related to audit and debt-related refinance activities. When I think about going forward, absent these unusual fees, with our gross margins remaining strong and our continued focus on reducing operating expenses, we expect sufficient positive EBITDA to support continued self-funding of our business and continued servicing of our debt obligations as we work to refinance our debt facility. So with that, I will turn it over to the operator and open the line for questions. Thank you.

Our first question comes from Matthew Parisi with KeyBanc.

Hi, Jim. It's Paul Knight calling from KeyBanc. The question is, how are you? Number one, this debt financing, what was the metric that was busted?

We had three or four quarters of reducing revenue, which we saw starting in early '24. It really impacted our net leverage ratio, which looks at our current debt divided by our trailing 12-month EBITDA. So even with positive EBITDA whether it's $1 million, $2 million, or $3 million, we had built strong EBITDA over the prior years. In fact, we had gotten our net ratio down to under $2 million, I believe. But with three quarters of lower EBITDA, that ratio just starts to get ahead of you pretty fast. We were bouncing up against that covenant for a while. In hindsight, we should have tried to work on our refinance sooner, but we worked with the banks to get coverage to get to this point now. But either way, we knew we needed to put a new debt facility in place and that's really the focus now.

And you were paying on debt rate was what percent rate and then what would a new transaction look like?

We were at SOFR plus 3.75%. I think that adds up to around 8% or so I'm guessing.

And then ranges are probably somewhat above 10% and other?

Yes. I think when you look to the more private debt facilities, they'll likely range based on various ways they set it up. Generally, we expect it to go up two to three points, maybe four. So it's going to be higher on the interest rate likely, but it will give us much more flexibility. We have needs to continue to launch new products. I don't want to be held back and not be able to put some of the capital into expanding capacity in a couple of these new areas. So we need a little of that flexibility on a ratio covenant like that at least for a little while. That's why we need the kind of lender that's used to working with growth companies that makes investments and doesn't get held back by having a more conservative debt facility.

And Jim, moving to the good news part, it seems like the new product introductions are gaining traction. What part of revenue are these new products like MeshMEA and BTX and others that you would call high growth? And what was their growth in 4Q? Thanks.

When you look at the numbers, for instance, that Jen showed you, what really jumped out is our MeshMEA systems. We really started heavily at academic research there and heavily in Europe where we have very strong relationships. We saw Europe really led the way with growth, placing 10 or more systems in one quarter. These systems sell for $70,000 to $100,000 plus they bring consumables in. That was a very nice incremental jump for the business and leads the way toward industrial users. Our MEA business had been around 5% of our business. A year ago, that section is around 7%, so it's grown from 5% to 7% just in that one year of that revenue stream. It is definitely a wind-up area for us and a growth opportunity. Bioproduction is another big growth opportunity for us. It is a longer area because it tends to take more time. It's a longer sale. You have to get the systems incorporated and validated in their production environment. Often a long time is needed from testing to first Phase 1 clinical human. The thought was by having a couple of applications, we could fast track to higher volumes quickly.

Okay. And then just to quickly wrap it up on my side, the other costs of $1.4 million in the quarter was FX, I'm assuming. And then the last is your NIH exposures about 15%?

Yes. It's hard to describe exactly, but with NIH, about half of our business is academic research worldwide. A little less than half of that is probably the United States and maybe around 40%. We generally think of NIH to be around 30% of academic research revenue in the U.S. The rest is generally budgeted by the universities. We have seen some unknowns, and we expect to see some extra time for some of these research grants to go back through review. Those are more the specific NIH-initiated grants. But we could see some noise from the general economic research sites where they may be worried about what's coming their way, leading to a lack of visibility. We started seeing a pull down in our revenue in Q4 where in Q4, we would have expected a bump in academic research in the U.S. Good news is it was more than offset by strong growth sequentially in our industrial with CROs.

Our next question comes from Bruce Jackson with The Benchmark Company.

Hi, good morning, and thanks for taking my questions. I wanted to go back to the ERP implementation just real quick and get some more details. So it's now in place, and now it's a matter of getting experience with it. Do you think that you're going to see any operational efficiencies from the ERP system during 2025?

I do. I've done I don't at last count, I don't know if it was five or six ERP system transfers. There's always some initial learning curve, so there's usually a little chaos when you first turn it on because you're teaching your people to use a better, more consistent process. We adopted the ERP system from our group in Minneapolis, integrated our operations in Boston to achieve better consistency. This gives us a ton of flexibility, better accounting for inventories, and helps us better manage our supply chain and shipping. The first couple of quarters might be a bit noisy due to learning, but overall, during the year, this will help us provide better inventory management and increase overall business efficiency.

Okay, great. And then if we could just go into some of the new product opportunities in a little bit more detail. One of the major bottlenecks right now in CAR-T therapy is production and you've got this large biotech that's working with your technology. How do you see that business unfolding over the course of this year?

It's going to be hard to predict because it is a longer cycle. We're talking about new drugs and we know with the changes in human services, there is a push to ensure any drug goes through proper preclinical testing. That means they will consume our telemetry products in testing. The electroporation is key for generating many of these gene-edited new generation drugs. The more that go through the pipeline, the more we'll generate business. If they use us to discover and create, and then to bridge into bioproduction, it creates a more efficient pathway.

That's helpful. And then if we could also take a look at the sMEA organoid business; a lot of that right now is academically focused. Are these projects fully funded and going to be stable moving forward? Setting aside the uncertainty around new grants and the research service expense issue, are the current projects fully funded?

Yes. The initial adopters, as expected, are predominantly academic, focused on neuro applications. We're also seeing a couple of units placed now with pharma who are doing the same. The idea is to prove the technology with academics, move into research departments at pharma, and then allow that to get into higher volume testing. Demand is already increasing, and as we engage with more known players, we expect to see interest from other pharma and biotech companies expand. We're seeing early interest with customers like Roche, Pfizer, and AbbVie. It takes time to adopt these technologies as they transition from traditional methods.

Okay. And then one last MeshMEA question. You mentioned I think with the new distributor arrangements that these products could be included with that. Is that right?

That's right. We have always had a formal relationship with the big distributors in Europe and have done more direct sales here in the U.S. We're now working with these major distributors to formalize our relationships in the U.S. This allows us to increase our sales reach, meaning instead of having five or six sales reps here, we now have 900 sales reps prospecting and generating leads. When you offer something like MeshMEA, which nobody else has, it should generate many more leads and orders.

Thank you. There are no further questions at this time. I'd like to turn the call back over to Jim for any closing remarks.

Thank you for joining us. This ends today's presentation. We hope you'll come back and join us in May to discuss our fiscal 2025 first quarter results. Thank you so much. Thanks. Bye, bye.

Thank you for your participation. You may now disconnect. Everyone, have a great day.