Welcome to the Q1 2017 Harvard Bioscience Incorporated Earnings Conference Call. My name is Nicole and I will be your operator for today’s call. And at this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Corey Manchester. Mr. Manchester, you may begin.

Thank you, Nicole, and good afternoon, everyone. Thank you for joining us for the Harvard Bioscience first quarter 2017 earnings conference call. Leading the call today will be Jeffrey Duchemin, President and Chief Executive Officer, and Robert Gagnon, Chief Financial Officer of Harvard Bioscience. Before I turn the call over to Jeff, 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 detailed in our Annual Report on Form 10-K for the period ended December 31, 2016 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 date. Also, much of today’s call will focus on our non-GAAP quarterly results, which we believe better represents the ongoing economics of the business reflects 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 we issued today which can be found on our website under Press Releases. Additionally, any material financial or other statistical information presented on the call which is not included in our press release will be archived and available in the Investor Relations section of our website. A replay of this call will also be available for one week at the same location on our website at harvardbioscience.com. I will now turn the call over to Jeff. Jeff, please go ahead.

Thanks, Corey. Good afternoon, everyone, and thank you for joining us. On today’s call, I will start with a brief review of Q1 results as well as an overall business update. Our CFO, Rob Gagnon, who will provide details on our financial results and our 2017 outlook. And after that, we look forward to taking your questions. During the first quarter, we continued to produce solid operation results against a challenging funding environment. As a result, we are reiterating our 2017 revenue expectations to be flat to slightly down compared to 2016 and adjusted 2017 EPS expectations in the range of $0.15 to $0.17. First quarter revenues were $24.2 million, down 10% compared to first quarter 2016. Excluding currency translation, revenues decreased 8% or $2.1 million. Additionally, included in the organic revenue decline for the quarter, there is a decrease in revenue of approximately $660,000, which is a result of the AHN disposition in October 2016. Excluding the impact of those two items, our revenues declined approximately 6%. As a reminder, our Q1 results from last year were unseasonably high due to certain factors including the timing of a few large distributor orders in Asia. In comparison to Q1 of 2015, our business was flat on an organic basis. In addition, as we discussed and we’ve provided guidance on our last earnings call, we were experiencing a slow start to the year. But on a positive note, we experienced an acceleration in the month of March which has continued into April. We are pleased to see more predictability in our business on the top-line as well as continued solid leverage to the bottom-line. Net income, on a non-GAAP basis, was $0.6 million or $0.02 per diluted share. The benefits of cost containment coupled with gross profit expansion from our site…

Okay, thanks, Jeff. Beginning with the top-line, revenues in the first quarter were $24.2 million, a decrease of $2.8 million or 10% compared with revenues of $27 million for the first quarter of last year. Excluding the negative impact of the strengthening US dollar, revenues in the first quarter would have decreased 8% or by $2 million compared with the first quarter of last year. And as Jeff mentioned included in that decline is the revenue impact from the divestiture of AHN which took place in October 2016, which accounted for approximately $660,000. Excluding the negative impact of currency translation in AHN, the revenue decline is 6% in the quarter. As Jeff mentioned, our Q1 results from last year were unseasonably high due to certain factors including the timing of a few large distributor orders in Asia. Now turning to cost and expenses. Cost of revenues in on a non-GAAP basis were $12.6 million for Q1 compared to $14 million for Q1 of last year. As a result our non-GAAP gross profit was $11.5 million this quarter compared with $13 million for last year’s first quarter. Gross profit margin was 47.7% in Q1, down from 48.1% in Q1 of last year. This 40 basis point decrease in gross margin is primarily attributable to lower volumes. As Jeff mentioned, however despite revenues being down this quarter, our gross profit margin was the second highest quarterly margin we reported in the last two years. Our non-GAAP operating expenses for Q1 were $10.3 million, a decrease of $222,000, compared to $10.6 million in Q1 of last year and operating income on a non-GAAP basis in Q1 decreased to $1.2 million as compared to $2.4 million in Q1 of last year. Our non-GAAP operating margin in Q1 was approximately 5% on a non-GAAP basis…

[Operator Instructions] And our first question comes from Paul Knight from Janney Montgomery. Your line is open. Please go ahead.

Hi, Jeff. Can you talk to the academic market, I mean, it’s in top – top on the outlook for that and what you see going on with academia right now?

Hey, Paul. Yes, I think, what we saw was a carryover of Q4 into Q1. I think trends are consistent early in the quarter. But as I mentioned in my script, we actually started to see the trend turn in March and we like what we are seeing right now. I think what’s happening is the outlay of funds that has increased since October from the NIH. We’ve always known that there has been a lag or a delay and I think what we are seeing is, is spend actually start to happen for small instrumentation and that’s a good sign. So our bookings were up. We like the trend that we see going into Q2. We are into Q2 and so I think that’s what happened, we start carryover from Q4, things started to pick up in the quarter and we like the position we are in right now for Q2. And I think if you look at Q1 overall, we finished right where we thought we finish. I think we did a little bit better on the bottom-line, but in terms of revenues, we knew there were going to be some timing delays coming from some distributors in Asia and that happened. But overall, we are pretty confident with where we are and what the outlook for the year is.

On the International side, are you trying to sign more distributors? What can you do to build up the China business and the rest of Asia in particular?

Yes, I think we are positioned well in China. I think, in terms of distribution expansion, that will come from Japan this year and Southeast Asia. I would say, our distribution partnerships is solid in China and Korea and we are building in Japan and Southeast Asia.

So you did a lot of facility consolidations over the prior year-and-a-half, two years, is there any more work do you want to do there on the operating margin side for Harvard Bioscience?

I think, ERP has led to efficiencies, operational efficiencies for us and we just completed phase two of our ERP initiative with our German facility, our multi-channel facility. That implementation went really well and what I believe it will do is it will provide our ability to become more efficient from an operation standpoint moving forward. In terms of site consolidation, the heavy lifting is over. There is always room for improvement moving forward, but I believe we are well positioned in terms of continuing to add to the bottom-line through these efficiencies led by ERP.

And then my last question is this, that the NIH, we can achieve a 0% growth rate on that budget line, what do you Harvard Bioscience’s organic growth could be?

Well, I don’t think we’ve built anything from the NIH into our budget. So our budget is set right now to flat to a slight decline without anything coming from the NIH and once again the outlay of funds has been positive. So we feel confident that if this continues, it could lead to organic growth for this business. But as of today, I think we are going to stick with our feeling on a flat guidance for the year.

Okay, thank you.

Thanks, Paul.

And our next question comes from Raymond Myers from Benchmark. Your line is open sir.

Great, thank you. Jeff, maybe you could start by discussing what drove the strong sequential gross margin in the first quarter and discuss were there was any seasonality to this or it just happened to be strong in the first quarter lately?

Well, I mean, I think if you look at Q4’s results, we – the trend was starting to turn. I think the site consolidation in operational improvements that we’ve been working on for a couple of years now are starting to pay off. And so that transitioned into Q1. Product mix always plays into that, but really what’s leading this Ray, is just the efficiencies of the organization and the heavy lifting that has been completed and we knew the turnaround would happen from a bottom-line standpoint. Really what the organization’s focus right now on is organic growth and we need to get the top-line growing. That where we are focused. We’ve got some great sales and marketing initiatives in place and that will also lead to improved gross margins moving forward.

And Ray, hi, it’s Rob. I just wanted to add, there is a little bit of timing and there could be mix there. We still expect margins to be in the 46% to 47% range throughout the course of the year.

But that’s still higher than it was for the balance of last year. So, is that due to these efficiencies that you was discussing, Jeff?

I believe so, yes, absolutely, absolutely.

But, okay, good. As you look across the range of businesses worldwide, which product lines are performing relatively better? And then, what can you do shore up the laggers?

Well, I mean, you know this business, Ray. There is some product lines that performed really well and are market leaders. There is other legacy product lines that are not performing well and what we are focused on right now is accelerating the growth of our top performance, our top performing brands, our top performing product lines. We have some exciting technology and I think, I talked a little bit about it last quarter. I’ll talk about it again now, but how can we accelerate our growth in China? How can we accelerate our growth around our BTX product lines? Things like that and what we are doing is, we are adding resources. We are implementing sales and marketing activities around these growing brands and products for Harvard Bioscience and they are going to be the leader to turn this business around. The lagging products unfortunately, sometimes you have to put all your resources into focusing on what’s going to drive the growth of the business and the lagging product lines, there is different things we can do with different programs we can run. But we are really – at this point in time, more focused on the growth drivers for the business and there is several major product categories, our electrophysiology product lines, our BTX product lines, that’s where the focus is right now from a sales and marketing standpoint.

Okay, that’s great. I would afford that focus. You touched on electrophysiology, that’s where I was going next. You’ve done a three large – or you made three EP acquisitions. They weren’t large, but in total they were large. About few years ago, how are those businesses performing now? And what have you learned about your acquisitive strategy vis-à-vis their performance?

They performed well and we integrated the three companies into Harvard Bioscience. They were three very good acquisitions. One of the business units was slightly down last year, but what we did was, we added some sales capabilities to that business and what we are seeing is the book of business increase already through the end of Q1 this year. So the outlook for that business that was down last year is going to be positive this year. So now you have three acquisitions that are leading the way for Harvard Bioscience and back to your last question, where we are focused as an organization? We are focused on these three acquisitions because they are going to help turn this business around. So the electrophysiology business is really the leading product lines and brands that will transform this business moving forward.

Okay, that sounds good. One question I had is, has there been any change in the proportion of sales made under direct distribution versus distributorship in this mix of the business?

That’s a good question. I think the resources that we’ve added recently have been more on the direct side. Last year, we did add a Channel Manager in Asia to manage our Japanese business. But right now, the resources that we are discussing internally are more direct than they are for distribution management.

And I presume that’s at higher margin and maybe is that supporting why you are having higher gross margins?

Yes, our direct business is a higher margin business for us and obviously that would lead, if they are successful in their roles, that would lead to increased margin.

Okay, good, good. I guess, lastly, we’ve talked on other calls about the opportunities for further tuck-in acquisitions. Where does that stand and do you still see that as a fund burner item?

It’s still part of our strategy. We still continue to review a pipeline of very interesting companies. But we are disciplined in our approach and unfortunately sometimes, some of these companies, their valuations are a little bit out of line from what we’d be willing to pay, but we are active as part of our strategy and we will continue to focus on that moving forward.

Okay, sounds good. I look forward to your next update. Thank you.

Thanks, Ray.

Thanks, Ray.

And our last question comes from Lisa Springer from Singular Research. Your line is open.

Thank you. Hi Rob and Jeff.

Hi, Lisa.

My question concerns to markets in Japan and Korea, we’ve talked about the opportunities there. Could you give us a sense of the scope of those markets and what are the characteristics of those markets?

Well, I have more information in Korea than I do in Japan, only because I’ve been to Korea. I was in Korea back in February. The Korean market is a strong life science market overall. It’s been a very good market for us. We have excellent distribution partners there. Our physiology business is strong. Our molecular business is also very good in Korea. The Japan market though is a market that we just entered last year. We have a spectrophotometer market that we are trying to increase in Japan and we have a sales – actually a Channel Manager did a real nice job last year growing that small base of business. We expect to see that base of business continue to grow this year. But our strategy in Japan is to really start to pull some of the other high value products into that market. Our molecular – overall molecular products, our physiology products and electrophysiology products into that market. So that’s the goal in Japan this year. But the Korean market is a strong market. We have great distribution partners and we believe we will continue to see growth in 2017.

Okay, out of those markets compare in size to - say for example of the US market?

Well, they are much smaller. The Asian market as a whole is about 15% of our total revenue. I don’t think we’ve ever broken down each individual country in Asia. But the US is 50% of our revenue and the entire Asian market is 15%. So much smaller market.

Okay. And the next thing I wanted to ask you about is just, if you could update us on the ERP implementation, how that’s going globally?

It’s gone very well. As I mentioned, couple of minutes ago, phase two is complete. It actually exceeded our expectations in terms of the team that was put in place to manage and integrate AX into our German facility. Now we move on to, I guess, you would call phase three and there is some other German facilities along with some US facilities that we are looking at right now for phase three. So there is no timeline on that.

Okay. Okay, thank you guys.

Thank you.

We have no further questions at this time. I would like to turn the call back over to Jeff Duchemin for final remarks.

Thank you everyone for calling in this afternoon. We appreciate it and we look forward to speaking to all of you on our Q2 earnings call. Thank you.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.