Welcome to the Q3 2017 Harvard Bioscience Incorporated Earnings Conference Call. My name is Adrian and I will be your operator for today’s call. 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. Corey Manchester, you may begin.

Thank you, Adrian, and good afternoon, everyone. Thank you for joining us for the Harvard Bioscience third 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 difference 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 Duchemin. Jeff, please go ahead.

Thanks, Corey. Good afternoon, everyone and thank you for joining us for our Q3 earnings call. On today’s call, I will start with a brief review of Q3 results, as well as an overall business update. Our CFO, Rob Gagnon will provide details on our financial results and our 2017 outlook. And after that, we look forward to taking your questions. During the third quarter, we produced solid business results including top line organic growth and continue to execute against our strategic objectives. Third quarter revenues were $25.1 million reflecting 2% organic growth excluding the impact of currency translation, and the disposition of AHN. We are encouraged by these results and believe we will continue this progress with expected fourth quarter organic growth of 1% to 2%. Taking a look at our revenues from a geographic standpoint our U.S. business grew approximately 3% in the third quarter. Our electrophysiology brands were the key driver in our growth this quarter. Electrophysiology continues to be a key market for us, a market where we’ve invested heavily through our last three acquisitions, Triangle BioSystems, Multi Channel Systems and HEKA Electronik. The acquisitions have performed well especially as we continue to cross sell systems and gain market share in the U.S. market. The integrated portfolio of products make Harvard Bioscience a leading provider of electrophysiology products for our customers on a global basis. Electrophysiology remains a key market for continued commercial expansion as well as niche area of life science we are well positioned to make strategic acquisitions. In addition to our commercial execution, we continue to see positive signs of change with increased funding outlays from the NIH to academic labs. Third quarter NIH outlays were up approximately 5% year-over-year. For the NIH fiscal year which ended September 30, total annual growth was…

Thanks, Jeff. I’ll start with the top line; revenues for the third quarter were $25.1 million, a 0.2% increase year-over-year as reported. Third quarter revenues were negatively impacted by the divestiture of AHN which included approximately 674,000 of non- recurring revenue during the third quarter of 2016 while currency translation positively impacted revenues by approximately 230,000. Excluding the impacts of currency translation and AHN, revenues on an organic basis grew 2% in the quarter. Cost of revenue on a non-GAAP basis were $13.4 million for Q3, compared to $13.3 million for Q3 of last year. As a result our non-GAAP gross profit was $11.7 million this quarter essentially unchanged with the third quarter of 2016. Gross profit margin was 46.6% in Q3, down slightly from 46.8% in Q3 of last year. Non-GAAP operating expenses for Q3 were $10.1 million, a decrease of 140,000 compared to $10.3 million in Q3 of last year. This decrease is due to the realization of cost containment measures as well as the sale of HN partially offset by unfavorable foreign currency. And year-to-date our non-GAAP operating expenses were down $1.1 million compared to the same period last year. Operating income on a non-GAAP basis in Q3 was $1.5 million unchanged from Q3 of last year. Our non-GAAP operating margin in Q3 was 6.2%, this compares to an operating margin in Q3 last year of 6.1%. Our non-GAAP effective tax rate was approximately 17% in Q3 compared to 26% in Q3 of last year. The decrease in effective tax rate was primarily the result of favorable mix in income across several tax jurisdictions. Our non-GAAP net income for both Q3 of this year and last year was $1.1 million or $0.03 per diluted share and weighted average shares outstanding was $34.8 million in Q3 as compared to $34.3 million in Q3 of last year. We finished the quarter with approximately $5.8 million of cash and equivalents. Our accounts receivable as of Q3 were $15.3 million compared to $15.7 million as of Q4 last year or decrease of 480,000. Our inventory at the end of Q3 was $21.4 million compared to $20 million at the end of Q4 last year. This increase is due to the strengthening in foreign currencies and our capital expenditures were 236,000 for Q3 compared to 518,000 for Q3 of last year. Debt at the end of Q3 was $12.6 million compared to $13.9 million at the end of Q4 last year. I'll now turn to our financial outlook. We expect to report 1% to 2% organic growth for the fourth quarter. In terms of dollars and at current FX rates 1% to 2% represents fourth quarter revenue of $27.2 million to $27.4 million, and on the bottom line we expect to report fourth quarter non-GAAP earnings per share of $0.05 to $0.06. We will now open the call up to questions from participants. Operator?

Thank you. We’ll now begin the question and answer session. [Operator Instructions] And our first question comes from Paul Knight with Janney Montgomery. Please go ahead.

Hi, Jeff, could you talk on electrophysiology? What was the growth in that business? Is it a beneficiary of regenerative medicine? Do you see incremental improvement quarterly? Just some color around that business.

Hey, Paul, how are you doing? Thanks for the question. Yes, the electrophysiology segment of our business had strong results in the quarter. We don’t break out the numbers so we don’t have detailed information in terms of what that percentage growth was. But I can tell you across the board we’re very pleased with existing and new products coming out of our electrophysiology portfolio specifically in the U.S. market, and if you recall three years ago when we acquired multichannel systems. The reason why we acquired the business, number one, it added to our current legacy company Warner which was in electrophysiology. Multichannel systems had strong presence in Europe, but really didn't have strong presence in the U.S. or Asia. And the purpose of the acquisition was to have a stronger electrophysiology portfolio for the U.S. market and what we’re seeing right now is the results of really couple years of work of building a sales organization, putting commercial plans in place and executing to our plans. So we’re really pleased with where we are with electrophysiology year-to-date.

And then, op margin a little low relative to my estimate at least in the quarter. Any factors going on op margin side?

No, nothing unique there, I think you’ll see that step up in the fourth quarter with seasonality in the business. Then I think overall for the year we will be looking at an op margin in the range of 8% to 9% based on those revenues in the fourth quarter.

What is your goal on op margin?

Double digits.

Okay.

Yes. So, Paul, in terms of longer term we believe in getting this business to double digits. We believed it’s achievable and we’ll be looking at that as we think about guidance for 2018.

Okay. Thanks.

Thanks Paul.

And the next question comes from Raymond Myers from Benchmark. Please go ahead.

Thank you and good evening. First congratulations on your second quarter of organic growth. I know you’ve been working hard at that, so congratulations. Let me ask this first. Jeff, might you describe some of the specific geographic and product line actions or initiatives that management has taken over the past couple years to restore organic growth now?

Yes. It was a global commercial plan that we put in place and I think we've done really well here in the U.S. and in Asia specifically China, we still have work to do in Europe. Let me start with Europe. As you know the numbers are still down in Europe. But we put a lot of commercial plans in place, specifically distributor initiatives in Europe. And even though the number was soft in Q3 the trend is heading in the right direction in Europe. So we’re actually pleased with the direction that we’re seeing in Europe right now across the board with all our brands. But here in Europe and in the U.S. rather, the main initiative going back two years was to build a commercial electrophysiology sales team. We believe that with the addition of Triangle BioSystems, Multichannel Systems in HEKA Electronics along with our Warner business that we could build a competitive portfolio of products in electrophysiology space, and I think we’re achieving that right now. China has been a great success story for us. As you know we have six salespeople in China going back two and half years ago we had one. We’ve put lot of time and energy into that market that region and across the board all of our major brands showed growth in Q3 in China and within Asia, so we’re really happy with the initiatives that are in place today, and we believe we’ll continue to execute through the remainder of the year.

Good. Thank you. Can I ask another question Jeff.

Yes. Go ahead.

With what you've done with electrophysiology, can that serve as a template for other businesses in your portfolio that might benefit from the same type of attention?

I believe it can you know and the way we go about looking at potential acquisitions, one of the key indicators is finding a technology, some type of innovations that we can market and scale through our commercial teams and multichannel systems is a prime example of taking great products, a great business that had strong positions throughout Europe and commercializing that in the U.S. and Asia. And I think as we continue to look for potential acquisitions our discipline, our profile of how we identify strategic fits for the company fall right into that mindset.

Good. Thanks .And I imagine that your discipline as you reference has prevented you from making any acquisitions recently, but can you describe what your appetite and expectations are for acquisitions here in the near term in 2018?

I think over the last two years we really wanted to stabilize this business. We put a lot of work into consolidating facilities, implementing ERP systems, lot of process changes have taken place, but what that allows us to do is actually have a stronger base to go out make strategic acquisitions and integrate those acquisitions. I think we’re at a point now with two quarters of growth. We believe the trend will continue that – we’ll become more active. We’ve been active but as you know it’s a difficult market to value companies. Valuations a high right now and we have strict guidelines, we have restrict discipline and that we hope in the near future that we’ll be able to do something. But it will be very similar to what we done the past. It will be highly strategic, something that we can integrate and utilize our commercial presence globally.

That’s great. And last question is around new products. You mentioned that you were planning to introduce some new products. You touched on them being a driver of some of this growth. Can you describe in a little more detail what these new products are?

Yes, several new products that were launched in the quarter came from our electrophysiology portfolio. One was a NEA 256 its basically in vitro system used for recording of you know could be a neural cardiac culture stem cells brain or cardiac cultures. This was a product that was launched by multi channel systems. They also had an additional new product which is called an ME2100. It’s a head stage; it’s an in vivo recording system. Those two products have done really well. They were launched later in the quarter, but we are off to a great start and we expect incremental revenue coming from these two products in 2018. We also have put a lot of time and effort into our new product development process. We continue with deferred maintenance programs on many of our legacy product lines, but at the same time we are coming out with new products and you know next year I think this process that we’ve put in place over the last couple of years will continue to put out new products that will help drive hopefully better than market level growth.

Sounds great. Thank you, Il get back in queue.

Thanks.

[Operator Instructions] And the next question comes from Lisa Springer from Singular Research.

Good afternoon, Jeff in your prepared remarks you commented though even revenues were down in Europe there are indications of improvement, could you give us a little bit more color around that?

Yes if you look at our results in Q1 for Europe, we are I believe down 22%, Q2 we were down 23% and now we’ve actually reduced it to minus 3% excluding currency and AHN. So the trend is actually progressing better. The initiatives that we put in place, the sales initiatives that we put in place are starting to take or actually starting to execute, to see results from that. So actually pleased with the turnaround in Europe, it’s still not where we want it to be, we still have some work to do but we believe the trend has changed into a positive direction.

Okay. Thank you.

[Operator Instructions] And the next question is from [Indiscernible].Please go ahead.

Thanks. Just a quick question to clarify. You may a comment about EBIT margins longer term. Were you double digit – did I hear you say about parts in 2018 or what define longer term kind of what’s there, what’s your goal there?

Hi, Will [Ph] its Rob. Yes, so in terms of an operating margin we believe we can get the business back to double digits. We believe we can get it back to 10%. We’ll be putting together our plans for next year; we are in that process now. So I would say over the next one to two years, we believe we can get there and beyond. We’ll be back to you with guidance, back at year end when we announced Q4 earnings, but we do have a goal to get back to double digits.

Okay, thanks for clarifying.

[Operator Instructions] And we have no further questions. I’ll turn the call back over to Jeff for final remarks.

Thanks again everyone. Great quarter for the business. I want to thank our global employees, total team effort here, but thank you to everyone. We look forward to catching up with everyone later in February or early March. Thank you.

Thank you ladies and gentlemen. This concludes today’s conference. Thank you for participating and now disconnect.