Good day, and welcome to the First Quarter 2025 Harvard Bioscience Inc Earnings Conference Call. All participants will be in a listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Kathryn Flynn, the Corporate Controller. Please go ahead.

Thank you, Betsy, and good morning, everyone. Thank you for joining the Harvard Bioscience first quarter 2025 earnings conference call. Leading the call today will be Jim Green, President and Chief Executive Officer and Mark Frost, the incoming Interim 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 of future events or future financial performance, are forward-looking statements and are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. 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 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 Mark. Mark, please go ahead.

Thank you, Kathryn. Good morning, everyone. I'm Mark Frost, the interim CFO for Harvard Bioscience, effective tomorrow. With us is Jennifer Cote, the current CFO for Harvard Bioscience. We'd like to thank Jen for her support of the company for the last three years and her willingness to spend the last month helping me in the transition. Now, for those of you who are not familiar with my background, I spent the first half of my career at General Electric in a wide variety of businesses including GE Capital and Healthcare. After GE, I transitioned to the healthcare space and have been a public CFO at four companies, including when I worked with Jim at Analogic. I'm excited to be here and look forward to working with the team at Harvard Bioscience. I'll now move to our first quarter 2025 results on Slide 3. Now revenue at $21.8 million was below $24.5 million in the prior year. This result was aligned with the higher end of our guidance communicated in March for Q1. I'll go through color on the revenue in the next slide. Gross margin was 56% versus 60.3% in 2024 and I will provide detail later as well. Now excluding a non-cash goodwill impairment charge, which I'll discuss in a moment, operating expense declined $3.2 million from the prior year driven by the operating actions we took in 2024 as well as further actions in the first quarter. The operating loss of $49.7 million versus a $2.3 million loss in quarter one '24 was caused primarily by the goodwill impairment charge. Now without the goodwill charge, our adjusted operating income was $0.3 million below prior year's $1.2 million, reflective of the cost actions we executed to offset anticipated lower revenue. Quarter one adjusted EBITDA was $0.8 million versus $1.6 million in quarter one '24, with a major driver being lower revenue, partially offset by our cost actions. Now turning now to the goodwill impairment, we had noted indicators of a possible impairment as we exited 2024. Due primarily to the decrease in our market capitalization in quarter one, we performed additional impairment testing as we exited the quarter. As a result, our quarter one results include a non-cash goodwill impairment charge of $48 million, which is reflected in operating expense. More detail is provided in the 10-Q. Now I'll move next to Slide 4 and revenue results for the quarter by product, family and region. So overall revenues in the first quarter showed an expected seasonal decline from quarter four finishing at $21.8 million compared to $24.6 million in the prior quarter, quarter four. Year-over-year revenue was down from $24.5 million last year’s quarter one. Now let's now break it down to look at regional results. Starting with the Americas, revenue in the first quarter declined sequentially by 5.4% from quarter four and were down 9.4% versus revenues in the first quarter of last year. As shown in the light blue, CMT did not see the typical quarter four seasonal bump and continued to stay slow in quarter one, which we attribute to the lack of budget clarity for academics and NIH funding. Our preclinical sales declined sequentially mid-single digits driven by lower CRO sales. Now moving on to Europe, overall revenue in Europe in the first quarter declined 29% sequentially as we exited 2024 with a strong seasonal end of year bump. Compared to last year, Q1 Europe revenues were down 9%. Cellular and molecular sales declined sequentially and year-on-year, but we continue to see growth in cell-based testing and are excited to see the impact of early adopters of our new MEA systems. Now our preclinical sales were down sequentially in quarter one following the quarter four bump with lower CRO and academic sales, but stayed relatively consistent with the middle quarters of 2024. Now moving to China and the Asia Pacific. Overall, in the first quarter APAC revenue was sequentially up by 6.6% over the previous quarter, though APAC revenue was down 17% compared to the prior year quarter one. The APAC market has been especially difficult this past year. Quarter one was our second sequential quarter of improvement, but we don't see this continuing in quarter two given the immediate softening of revenue in China following the tariff announcements in early April. We have considered this in our guidance for quarter two. Now cellular and molecular APAC products showed some minor declines in the third quarter sequentially and year-over-year. Preclinical APAC sales in quarter one saw sequential growth over sales in quarter four but were down compared to quarter one in the prior year, which is a strong quarter for shipments. I'll now move to Slide 5 to discuss further financial metrics. Now looking at gross margin first, gross margin during quarter one 2025 was 56% compared to 60.3% in quarter one 2024. During last year we had a change in accounting methods that benefited our gross margins by 1.6 points. The gross margin decline compared to last year's quarter one was also impacted by lower absorption of fixed manufacturing overhead and nominally by mix. Now if you refer to the top right graph, our adjusted EBITDA during quarter one finished at $0.8 million compared to $1.6 million in last year's first quarter. Compared to the prior year quarter one, reduced gross profit of $2.6 million was partially offset by lower operating expenses of $1.8 million. Now moving to the bottom left where we show both reported and adjusted loss earnings per share. Now as mentioned in the past, I will remind you of the typical differences between GAAP EPS and adjusted EPS, which is the impact of stock compensation, amortization, and depreciation. Now as I mentioned earlier, during quarter one we also recorded an impairment in our goodwill balance. These differences between net income loss and adjusted EBITDA are highlighted in the reconciliation tables on Slide 10 and are all non-cash items. Now moving to the bottom middle graph, cash flow from operations were $3 million during quarter one 2025 compared to $1.4 million in quarter one last year. The primary driver for the improved cash flow from operations was improvements in our working capital management. Now net debt is down $1 million from quarter one 2024 and $2.4 million from year end '24 from $33.2 million to $30.8 million. This reflects our quarterly principal payment of $1 million and improved operating cash flow. Now turn from our liquidity commentary to an update on our efforts to refinance our debt facility. We are making progress and we have received indications of interest from multiple providers. We are in the process of evaluating the proposals and are moving forward with the intention to close per our amendment timing. So, I'll now turn it back over to Jim to discuss our new product introductions.

Thank you, Mark. Good morning, everybody. Mark, it's good to be back working with you again. Let's go ahead and move to Slide 6 and let me update you on progress on our key new product launches in a little more detail. The new product introductions are aligned into three categories. The base business which makes up approximately 76% of total revenue and this is from FY '24 from last year. Also, we break out and look at electroporation and bioproduction related systems, which is about 16% of last year's revenue, and MEA and organoid related systems which was about 8% of FY '24 revenue. Now the top section of the table on this slide highlights the commercial status of two new products we consider part of our base business. We've long been a leader in Implantable Telemetry for preclinical safety and tox testing. Late in 2024 we began production shipments of our new SoHo family of implanted telemetry devices which allow animal models to live in shared housing environments. Our initial launch was focused on measuring activity and temperature. In 2025, we're expanding the SoHo platform to also now cover cardiac and neuromonitoring. We launched these expanded capabilities at The Society for Toxicology show in March and we see a strong pipeline of industrial customers and academics alike. We plan to begin production shipments in Q3. The second row of our base section is the Viva Mars system. The first delivery of this new system automates neurobehavior monitoring systems, and the first system went to Labcorp, one of our large customers. We've been working with Labcorp to tune the system and to support the integration into their testing network. We're now in discussions with Labcorp to add additional sites. Now, the middle section of the table highlights the commercial status of our products targeted to high-growth opportunities of electroporation and bioproduction. Bioproduction applications are especially attractive because consumable usage scales with our customers' production volume. Turning first to our BTX systems, we were pleased to see that we reached approximately $1 million in consumable revenue from our first large bioproduction customer. Looking to 2025, this same customer is in the process of launching a second bioproduction application in Europe. Finally, we're exploring a new opportunity with a large biotech to adopt our BTX for bioproduction of a CAR-T therapy which they used in the development of the therapy. As a result, our BTX, or I guess I should say as a side, our BTX Agile Pulse is a leader in peer-reviewed literature on CAR-T applications in the research and discovery phase. With respect to AAA Systems, also in 2024 we began shipping our new CGMP compliant amino acid analysis system to pharma companies for bioproduction applications. For 2025, we're working to expand adoption of our AAA systems for bioproduction applications. Now the bottom section of the slide highlights our exciting new MeshMEA organoid platform. This system is the industry's first in vitro data acquisition and analysis system capable of monitoring neuro and cardiac organoids over much longer time periods measured in months, not days. This new system includes both instrumentation and MeshMEA consumable chips and is designed to help identify new drug candidates more likely to successfully make it through preclinical testing, which can improve yields and reduce time and reduce costs going to market. In 2024 we initiated beta testing and also had numerous early adopters including sites such as Stanford and the Mayo Clinic. Now, recent policy changes in Washington are encouraging a move to new alternative methods called NAMS for improved efficiencies in new drug development. Specifically mentioned is advancing the use of human-derived organoids. This new policy is driving increased interest from industrial customers and we believe presents a great opportunity for expanded adoption of our MeshMEA Organoid systems for higher volume applications in both drug discovery and in safety toxicology testing. This year we see expanding adoption to more leading academic sites plus government labs in the U.S., the U.K. and Europe. We're focusing on potential high-growth industrial applications in biopharma and finally we see growing interest for in vitro to in vivo studies targeted to safety and toxicology with CROs. Now why don't we move to Slide 8, take a look at our outlook. With uncertainty around NIH and academic research funding and the China tariff situation, we now expect second quarter revenue in the range of $18 million to $20 million and we expect gross margin to be in the 55% to 57% range. Finally, we're going to focus on expanding adoption of our new products while we continue to lower costs; cost actions already implemented are expected to reduce operating expense by an additional $1 million a quarter starting in the second quarter here. Thank you. Now I'll turn the call back over to our operator and open for questions. Thank you.

We will now begin the question-and-answer session. The first question today comes from Bruce Jackson with The Benchmark Company. Please go ahead.

Hi, good morning. Can you tell us a little bit more about the impairment charge?

Sure. This is Mark. I'll start and Jen may add in some points. So, you know, it's a normal process of assessing your goodwill. You usually do it annually. But because of our drop, Bruce, in our market cap, we were forced to take further measures to evaluate the valuation of that goodwill. And there are a number of methodologies. We selected a DCF approach and one of the key aspects of doing that is you have to reconcile to your market cap. And that in the end led to the $48 million charge, which is non-cash, Bruce. But we needed to take that charge, unfortunately, and it was recorded this quarter.

Okay. And then if I could ask a little bit more about the bioproduction business and the CAR-T in particular, is that something that's being considered for a domestic location or is it international?

Yeah. Hi Bruce, this is a domestic customer of ours. You know, our BTX system and especially the Agile Pulse system is one of the leading technologies that's used for creating a number of these new forms and new types of therapies. And CAR-T is one of the leaders. So if you look in the peer-reviewed literature, you'll see our system referenced many, many times throughout the industry and in academic research. So, this particular customer is an advanced biotech. They've been working on this new technology, this new CAR-T related therapy and they were using our Agile Pulse to create the new therapy. So what we've done is we're working with them toward adopting the system for bioproduction of this same therapy. So again, it would be a new expansion for us into again, one of these advanced drugs designed and will be manufactured here in the United States and targeted to human populations and going into, I believe at this point they're in various stages of the testing on humans. So again, I believe it's still in first stage, first clinical, first stage clinical.

Okay, and then last question for me is on the product line. So, we've got some cross currents here. HHS, of course, with their NAM pronouncement is a positive for the space. NIH funding has been kind of unpredictable. How do you see this all netting out and what's the inbound interest on the product given that environment?

Well, the interest on the product came in very strong, and you even saw it last year with early adopters picking up the system, starting with academic researchers and then researchers in certain biopharma companies. But academics really led the way with a heavy emphasis on neurodevelopment and then also with cardiac. So as far as what we saw happening there, there has been a slowing just in general with academic research and with NIH funded now. Certainly, the interest has gone up. In fact, we see the funnel growing for opportunities to place this technology into academic research sites, but it's taking longer to get through the cycle. We met with the NIH a couple of weeks ago at their facilities, and what we were told by them was the budgets are there, but there were a number of, there was quite a large reduction in force, but really targeted to the folks who are involved with purchasing. So, it's kind of slowed up the purchasing process. In academics, the demand is certainly there and growing and growing big. We know, we still see, I would say, if you look at our academic research revenues this quarter, it started late in Q4, but it slowed down some, but it's running consistent. So it’s still moving along and we think that's going to get better. But the other big push, as you suggested with the announcement from the government, is this push toward the use of NAMS and specifically organoids in testing and in development. That's causing a lot more interest for us with the biopharma companies. We now have a lot more inbound calls with even with the CROs that are much more interested in looking at this technology, knowing that the government's expecting them to start to move to some of these newer methods. So overall, you're right. This is going to be a good long-term driver for us for adoption of organoids into the development cycle.

Okay, great. That's it for me. Thank you.

The next question comes from Paul Knight with KeyBanc. Please go ahead.

Hi Jim. Thanks for the time today. The BTX technology, I think you've been talking about certainly getting traction. When will it ever be, do you think, able to compete in the sector that MaxSight participates in?

That's a great question. We figure certainly we could get into that level, but MaxSight tends to focus really on high volume applications and they use a licensing structure. We felt like for us the value proposition was for us to use the razor, razor blade method, but also to go after these early adopters. So we don't have such a high cost of entry. If we were, as some of the biotechs and the pharma companies are exploring these new drugs. So we think that's a good space for us. If it made sense for us to go to much higher volume, we would certainly have to put some real work into that. But, the initial real value proposition for us, we felt, was time to market and the ability to bridge, especially if somebody used us like in CAR-T therapies, if they used us to create the drug that now they can use us for the initial bioproduction and then depending on the volume needs that determines whether or not we could be the long-term solution for bioproduction or not. But either way, it's a great place for us to start. Many of the biotechs, they really just need to know can they produce the product in a GMP environment so that they can get through their preclinical phases and get through at least their early through late stages of human testing. Again, and then it comes down to what's the volume needs. But you've also noticed with the release of the product that's already now reaching a million dollars a year on the application that we have already up and running that says that we can certainly get into some reasonable sizes of volume. And it really just depends on the number of doses and the amount of in each dose whether or not it's required to go through a transfection and the use of electroporation or electrofusion.

And then regarding the MeshMEA product line, the announcement seems like the NIH wants to focus on it. Would you not agree that there's no way animal testing really slows down for a long time? It'll be just a co-development process? Wouldn't you agree with that?

Yeah, I do. I think. And if you look at where our technology is used, we're used in the later stages, the formal stages of safety and tox, and that's when the animals are really used for verification that it's safe and effective. Nobody believes that's going to stop. Now we do know with the new therapies for monoclonal antibodies, and by the way, our BTX system is used by one of the leaders there, Regeneron, in creating those monoclonal antibodies. So, for us that's a positive thing. Now you could argue whether or not long-term testing should be necessary on a drug like this that is really primarily targeted to late-stage cancer. So, it makes sense that they may want to not have to take on the cost of long-term effects of something of a drug that really is only used in palliative care and late stages. So that we don't see as an issue. But for the vast majority of new drugs, they're going to be used on children and people chronically for years and years. You do have to do, we believe you have to do the full testing. And we just can't see any real pharma company introducing a drug where they haven't done that level of safety and toxin to be able to correlate that back to data for years. Our systems have been used for safety and tox telemetry for many years with most of the main drugs that have come through. We just can't see a major pharma company saying we're now going to stop that level of testing. But we do think the move toward things like organoids might help in the use of getting the early testing so that you don't maybe have to go through large volumes of large populations of small animals to filter out in a very inefficient way and a costly way. But once you get through that phase, there's no question we believe you have to do the safety and tox testing with implanted telemetry. And that really means using our technology.

Mark, I missed the first question. I think you were talking about the refinance or if you didn't, my question is, what kind of rate are you looking at? Somewhere around what, 12%?

It's going to be higher than a commercial rate. We are still in the negotiation process to finalize that. But yes, it will be more expensive than commercial debt to answer your question.

Okay, and what is it, what kind of term, is it five years out or is it payments as you go through it? Or what are your, what's the structure that?

Yeah, we're still in the process of negotiating all that. So that kind of detail I can't really share at this point in time. We will obviously, as we get closer to finalizing deals, but not at this point in time.

But I think we do. I think it's fair to say we're going to be looking at multiple years.

Yes, yes. Yes, it will be four or five years out for sure.

Okay. All right. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Jim Green, CEO, for any closing remarks.

Well, thank you everybody for joining us today. We're certainly glad to hear the news that just came out this morning about the U.S. and hopefully reaching some kind of agreement with China. As you know, China for us is, it's probably somewhere around 10% of our revenue. We were coming into this thinking that we might be, we might not, we might be looking at a $2 million a quarter kind of headwind. Hopefully, that's not the case now. So again, this is good news for us because we were assuming that with the tariffs as they are, that it was certainly expected to be a real problem for this year. So, I do think there's some good news there. But again, thank you for your time today. This ends today's presentation. We hope you'll join us again in August when we discuss the fiscal 2025 second quarter results. Thank you. And this ends the call for today. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.