Harvard Bioscience, Inc. (Nasdaq:HBIO), a global developer, manufacturer, and marketer of a broad range of tools to advance life science research and regenerative medicine, today reported unaudited financial highlights for the three and six months ended June 30, 2010.
Second Quarter Reported Results
Revenues for the three months ended June 30, 2010 were $25.9 million, an increase of $7.9 million, or 43.5%, compared to revenues of $18.0 million for the three months ended June 30, 2009. Currency exchange rate changes had a negative 3.6% effect on revenues in the second quarter of 2010 compared with the second quarter of 2009, and the Company's Denville Scientific business, which we acquired in September 2009, had a positive 36.1% effect on revenues. Excluding the effects of currency exchange rate changes and the Denville acquisition, the Company's organic revenue growth for the second quarter of 2010 was 11.0% over the same period in the previous year.
Net income, as measured under U.S. generally accepted accounting principles ("GAAP"), was $1.9 million, or $0.06 per diluted share, for the three months ended June 30, 2010 compared to $0.3 million, or $0.01 per diluted share, for the same period in 2009. GAAP income from continuing operations for the second quarter of 2010 included a $0.4 million, or $0.01 per diluted share, gain from adjustment of the contingent consideration related to our Denville Scientific acquisition.
Non-GAAP adjusted net income was $2.3 million, or $0.08 per diluted share, for the second quarter of 2010 compared to $1.4 million, or $0.05 per diluted share, for the second quarter of 2009, which represented a 65% year-to-year increase.
Year to Date Reported Results
Revenues for the six months ended June 30, 2010 were $52.2 million, an increase of $15.1 million, or 40.6%, compared to revenues of $37.1 million for the six months ended June 30, 2009. Currency rate changes had a positive 0.3% effect on revenues for the first six months of 2010 compared with the same period in 2009, and the Company's acquisition of Denville Scientific had a positive 32.9% effect on revenues. Excluding the effects of currency changes and the Denville acquisition, the Company's organic revenue growth for the six months ended June 30, 2010 was 7.4% over the same period in the previous year.
Net income, as measured under U.S. generally accepted accounting principles ("GAAP"), was $4.1 million, or $0.14 per diluted share, for the six months ended June 30, 2010 compared to $2.1 million, or $0.07 per diluted share, for the same period in 2009, which represented a 94% year-to-year increase. GAAP income from continuing operations for the six months ended June 30, 2010 included a $0.4 million gain from adjustment of the contingent consideration related to our Denville Scientific acquisition.
Non-GAAP adjusted net income was $5.0 million, or $0.17 per diluted share, for the six months ended June 30, 2010 compared to $3.5 million, or $0.12 per diluted share, for the first six months of 2009, which represented a 40% year-to-year increase.
The Company ended the second quarter of 2010 with net cash (cash and cash equivalents, net of debt) totaling $4.6 million compared to $3.3 million at December 31, 2009. As of June 30, 2010 and December 31, 2009, we had $11.2 million and $13.3 million, respectively, of borrowings under our credit facility related to our purchase of Denville Scientific and our stock repurchase program.
Commenting on the Company's performance, Chane Graziano, CEO, stated, "Harvard Bioscience's financial performance for the second quarter of 2010 was very strong, despite some weakness in our Harvard Apparatus southern Europe subsidiaries. Our overall organic revenue growth increased by 11% compared with the second quarter of 2009. This growth was primarily driven by increased market demand compared to the second quarter of 2009, the introduction of new products and expansion of our field sales organization. The acquisition of Denville Scientific continues to meet our expectations and to be a significant contributor to our overall growth."
Mr. Graziano continued, "For the third quarter of 2010, at current currency exchange rates, we expect revenue to be in the range of $25 to $27 million and non-GAAP diluted earnings per share to be approximately $0.08.
"Our previous guidance of $0.36 - $0.38 for 2010 non-GAAP diluted earnings per share was calculated using currency exchange rates of USD1.6/GBP and USD1.4/Euro. At current exchange rates, we expect earnings to be at the lower end of this range. Our previous guidance of $109 - $112 million for 2010 revenue was also calculated using currency exchange rates of USD1.6/GBP and USD1.4/Euro. At current exchange rates and due to the weakness in southern Europe, we now expect 2010 revenue to be in the range of $106 - $108 million."
Our third quarter and full year 2010 revenue and earnings guidance was calculated using exchange rates (USD 1.56/GBP and USD 1.31/Euro) approximating July 29, 2010 rates and assumes a continuation of the business conditions as we see them at this time. The non-GAAP adjusted earnings per diluted share guidance excludes amortization of intangible assets, the impact of future acquisitions, acquisition costs, any gain or loss from a revaluation of acquisition contingencies, any future restructuring actions, stock-based compensation expense recognized under the provisions of FASB ASC Topic 718, "Compensation – Stock Compensation," and the utilization of deferred tax assets that have full valuation allowances. See the table below for a reconciliation of our estimated non-GAAP adjusted earnings per diluted share to our estimated GAAP earnings per diluted share. See Exhibits 4, 5 and 6 for reconciliations of GAAP to non-GAAP adjusted operating income, GAAP to non-GAAP adjusted net income and GAAP diluted earnings per common share to non-GAAP adjusted diluted earnings per common share for the three and six month periods ended June 30, 2010 and June 30, 2009, respectively.
Operating Results for Continuing Operations
Three months ended June 30, 2010 compared to three months ended June 30, 2009:
Revenues increased $7.9 million, or 43.5%, to $25.9 million for the three months ended June 30, 2010 compared to $18.0 million for the same period in 2009. Our Denville Scientific subsidiary, which we acquired on September 2, 2009, contributed approximately $6.5 million to second quarter 2010 revenues. The effect of a stronger U.S. dollar decreased the Company's second quarter revenues by $0.7 million, or 3.6%, compared with the same period in 2009. Adjusting for the effect of foreign currency fluctuation and excluding Denville, revenues were up $2.0 million, or 11.0%, year-to-year and reflected organic growth across our Harvard Apparatus, Biochrom and Hoefer businesses.
Cost of product revenues increased $4.8 million, or 52.1%, to $13.9 million for the three months ended June 30, 2010 compared with $9.1 million for the three months ended June 30, 2009. The increase in cost of product revenues included $4.2 million attributable to our Denville Scientific subsidiary which was partially offset by a $0.3 million favorable currency effect from a stronger U.S. dollar and the effects of cost reductions related to our operational improvement initiatives. Gross profit as a percentage of revenues decreased to 46.5% for the three months ended June 30, 2010 compared with 49.5% for the same period in 2009. The decrease in gross profit as a percentage of revenues was primarily due to the impact of Denville Scientific, which because it does not manufacture its products, has lower gross margins than our overall average margin. Second quarter 2010 gross margin as a percentage of revenues, excluding Denville, was 50.0%.
Sales and marketing expenses increased $1.5 million, or 55.9%, to $4.2 million for the three months ended June 30, 2010 compared with $2.7 million for the three months ended June 30, 2009. This increase was primarily due to expenses of our Denville Scientific subsidiary of $1.3 million and increased marketing efforts in all of our businesses, which were partially offset by a $0.1 million favorable impact of currency exchange rates.
General and administrative expenses increased $0.3 million, or 7.2%, to $3.8 million for the three months ended June 30, 2010 compared with $3.5 million for the three months ended June 30, 2009. The year-to-year quarterly increase was primarily due to $0.3 million of general and administrative expenses related to our Denville Scientific subsidiary.
Research and development expenses remained relatively flat at $1.1 million for the three months ended June 30, 2010 compared with $1.1 million for the same period in 2009.
Other income and expense, net, was $0.1 million income and $0.5 million expense for the three months ended June 30, 2010 and 2009, respectively. Net interest expense was $0.1 million for the three months ended June 30, 2010 compared to net interest expense of $28,000 for the three months ended June 30, 2009. The increase in net interest expense was primarily due to higher average debt balances in the second quarter of 2010 compared to the second quarter of 2009. Other income and expense, net, also included foreign exchange losses of $0.1 million for the three months ended June 30, 2010 and $0.4 million for the three months ended June 30, 2009. Also included in other income and expense, net, for the second quarter of 2010 was a $0.4 million gain from adjustment of the contingent consideration related to our Denville Scientific acquisition. Also, other income and expense, net, for the three months ended June 30, 2010 and 2009, respectively, included $0.1 million of direct acquisition costs.
Six months ended June 30, 2010 compared to six months ended June 30, 2009:
Revenues increased $15.1 million, or 40.6%, to $52.2 million for the six months ended June 30, 2010 compared to $37.1 million for the same period in 2009. Our Denville Scientific subsidiary, which we acquired on September 2, 2009, contributed approximately $12.3 million in revenue for the six months ended June 30, 2010. The effect of a weaker U.S. dollar increased the Company's revenues by $0.1 million, or 0.3%, compared with the same period in 2009. Adjusting for the effect of foreign currency fluctuation and excluding Denville, revenues were up $2.8 million, or 7.4%, year-to-year and reflected organic growth across our Harvard Apparatus, Biochrom and Hoefer businesses.
Cost of product revenues increased $8.6 million, or 45.8%, to $27.4 million for the six months ended June 30, 2010 compared with $18.8 million for the six months ended June 30, 2009. The increase in cost of product revenues included $7.7 million attributable to our Denville Scientific subsidiary and $0.1 million from the currency effect of a weaker U.S. dollar, which were partially offset by the effects of cost reductions related to our operational improvement initiatives. Gross profit as a percentage of revenues decreased to 47.6% for the six months ended June 30, 2010 compared with 49.4% for the same period in 2009. The decrease in gross profit as a percentage of revenues was primarily due to the impact of Denville Scientific, which because it does not manufacture its products, has lower gross margins than our overall average margin. Gross margin as a percentage of revenues, excluding Denville, was 50.9% for the six months ended June 30, 2010, which reflected the effects of operational improvement initiatives completed during 2009, ongoing cost improvement efforts and a more favorable sales mix compared with the same period in 2009.
Sales and marketing expenses increased $2.9 million, or 58.0%, to $8.0 million for the six months ended June 30, 2010 compared with $5.1 million for the six months ended June 30, 2009. This increase was primarily due to the expenses of our Denville Scientific subsidiary of $2.3 million and increased marketing efforts in all of our businesses.
General and administrative expenses increased $1.2 million, or 17.5%, to $8.1 million for the six months ended June 30, 2010 compared with $6.9 million for the six months ended June 30, 2009. The year-to-year increase was primarily due to $0.5 million of expenses at our Denville subsidiary, a $0.2 million increase in stock compensation expense, and a $0.5 million increase in other general and administrative areas combined.
Research and development expenses increased 10.6%, or $0.2 million, to $2.3 million for the six months ended June 30, 2010 compared with $2.1 million for the same period in 2009. The increase in research and development expenses was primarily due to $0.2 million of spending related to regenerative medicine and increased development efforts in the Biochrom business, which were partially offset by decreased expenses in the Harvard Apparatus business.
Other income and expense, net, was $29,000 expense and $0.4 million expense for the six months ended June 30, 2010 and 2009, respectively. Net interest expense was $0.2 million for the six months ended June 30, 2010 compared to net interest expense of $0.1 million for the six months ended June 30, 2009. The increase in net interest expense was primarily due to higher average debt balances in the six months ended June 30, 2010 compared to the prior year period. Other income and expense, net, also included foreign exchange losses of $0.1 million for the six months ended June 30, 2010 and $0.3 million for the six months ended June 30, 2009. Also included in other income and expense, net, was a $0.4 million gain from adjustment of the contingent consideration related to our Denville Scientific acquisition. Other income and expense, net, for the six months ended June 30, 2010 and 2009, respectively, also included $0.1 million of direct acquisition costs.
Balance Sheet
The Company ended the second quarter of 2010 with cash and cash equivalents of $15.7 million compared to $16.6 million at December 31, 2009. As of June 30, 2010 and December 31, 2009, the Company had borrowings of $11.2 million and $13.3 million, respectively, outstanding under its credit facility. The borrowings under the credit facility are related to our acquisition of Denville Scientific and stock repurchase activity. Total cash and equivalents, net of debt, was $4.6 million and $3.3 million at June 30, 2010 and December 31, 2009, respectively.
Trade receivables were $13.9 million and inventories were $14.6 million as of June 30, 2010 compared to trade receivables of $11.3 million and inventories of $13.5 million as of June 30, 2009. Trade receivable and inventory balances increased year-to-year primarily due to the acquisition of Denville Scientific. Outstanding days of sales, or DSO, were 49 days for the three months ended June 30, 2010 and 58 days for the three months ended June 30, 2009. Inventory turns were 3.9 times for the three months ended June 30, 2010 compared with 2.8 times for the same period of 2009.
The Company spent $1.8 million to repurchase approximately 497,000 shares of its common stock during the six months ended June 30, 2010 and spent $2.4 million to repurchase approximately 812,000 shares of its common stock during the six months ended June 30, 2009.
Restructuring
During the quarter ended March 31, 2009, the management of Harvard Bioscience developed a plan to relocate the Scie-Plas operation to Hoefer's San Francisco location and exit the Scie-Plas general fabrication business as part of our ongoing business improvement initiative.
During the year ended December 31, 2009, we recorded restructuring charges in our Scie-Plas, Biochrom and Hoefer businesses related to the 2009 restructuring plan of approximately $0.7 million. These charges were comprised of $0.3 million in severance payments, $0.2 million in inventory impairment charges related to the discontinuance of certain product lines (included in cost of product revenues) and $0.2 million in various other costs.
No charges were recorded during the three months or six months ended June 30, 2010 related to the 2009 restructuring plan.
SOURCE Harvard Bioscience, Inc.
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